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 SeptemberJune 30, 20172021
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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Registrant’s telephone number, including area code: (803) 802-7500
__________________________
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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒
At October 31, 2017, the registrant had 62,693,709 shares of common stock, $47.32 par value per share, outstanding.
FORM 10-Q
For the Quarterly Period Ended September 30, 2017
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 ofIncorporation) | (I.R.S. Employer Identification No.) |
234 Kingsley Park Drive, Fort Mill, SC 29715
(Address of principal executive offices)
(zip code)
(803) 802-7500
(Registrant’s telephone number)
Securities registered pursuant to Section 12(b) of the Act: Common Stock, Par Value $0.01 Per Share; Common stock traded on the New York Stock Exchange; trading symbol UFS.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes☒ NO ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation ST (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☒ NO ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☒ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☐ | Small reporting company | ☐ | |||
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒
At July 30, 2021, 50,358,876 shares of the issuer’s common stock were outstanding.
DOMTAR CORPORATION
FORM 10-Q
For the Quarterly Period Ended June 30, 2021
INDEX
PART I. | 3 | |
ITEM 1. | 3 | |
CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME (LOSS) | 3 | |
5 | ||
6 | ||
8 | ||
9 | ||
10 | ||
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 49 |
ITEM 3. | 61 | |
ITEM 4. | 61 | |
PART II | 61 | |
ITEM 1. | 61 | |
ITEM 1A. | 61 | |
ITEM 2. | 62 | |
ITEM 3. | 62 | |
ITEM 4. | 62 | |
ITEM 5. | 62 | |
ITEM 6. | 63 |
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS (UNAUDITED)
DOMTAR CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME (LOSS)
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
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| Three months ended |
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| Three months ended |
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| Nine months ended |
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| Nine months ended |
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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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| 2017 |
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| 2016 |
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| 2017 |
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| 2016 |
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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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Sales |
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| 1,292 |
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| 1,270 |
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| 3,820 |
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| 3,824 |
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Operating expenses |
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Cost of sales, excluding depreciation and amortization |
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| 1,012 |
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| 969 |
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| 3,055 |
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| 3,032 |
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Depreciation and amortization |
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| 80 |
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| 87 |
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| 239 |
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| 263 |
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Selling, general and administrative |
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| 118 |
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| 107 |
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| 337 |
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| 314 |
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Impairment of property, plant and equipment (NOTE 11) |
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| — |
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| 5 |
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| — |
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| 29 |
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Closure and restructuring costs (NOTE 11) |
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| — |
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| 10 |
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| — |
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| 33 |
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Other operating (income) loss, net (NOTE 6) |
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| (7 | ) |
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| — |
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| (6 | ) |
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| 4 |
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| 1,203 |
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| 1,178 |
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| 3,625 |
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| 3,675 |
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Operating income |
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| 89 |
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| 92 |
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| 195 |
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| 149 |
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Interest expense, net |
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| 16 |
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| 17 |
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| 50 |
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| 49 |
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Earnings before income taxes |
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| 73 |
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| 75 |
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| 145 |
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| 100 |
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Income tax expense (NOTE 7) |
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| 3 |
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| 16 |
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| 17 |
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| 19 |
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Net earnings |
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| 70 |
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| 59 |
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| 128 |
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| 81 |
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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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| 1.12 |
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| 0.94 |
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| 2.04 |
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| 1.29 |
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Diluted |
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| 1.11 |
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| 0.94 |
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| 2.04 |
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| 1.29 |
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Weighted average number of common shares outstanding (millions) |
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Basic |
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| 62.7 |
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| 62.6 |
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| 62.6 |
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| 62.6 |
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Diluted |
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| 62.9 |
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| 62.7 |
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| 62.8 |
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| 62.7 |
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Cash dividends per common share |
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| 0.42 |
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| 0.42 |
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| 0.83 |
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| 1.22 |
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Net earnings |
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| 70 |
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| 59 |
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| 128 |
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| 81 |
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Other comprehensive income (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 $(6) and $(8), respectively (2016 – $4 and $(14), respectively) |
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| 9 |
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| (6 | ) |
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| 11 |
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| 23 |
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Less: Reclassification adjustment for (gains) losses included in net earnings, net of tax of $2 and $4, respectively (2016 – $(2) and $(10), respectively) |
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| (2 | ) |
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| 1 |
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| (6 | ) |
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| 14 |
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Foreign currency translation adjustments |
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| 60 |
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| 6 |
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| 142 |
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| 61 |
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Change in unrecognized gains and prior service cost related to pension and post-retirement benefit plans, net of tax of $(1) and $(3), respectively (2016 – nil and $(2), respectively) |
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| 2 |
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| 2 |
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| 7 |
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| 5 |
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Other comprehensive income |
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| 69 |
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| 3 |
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| 154 |
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| 103 |
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Comprehensive income |
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| 139 |
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| 62 |
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| 282 |
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| 184 |
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| For the three months ended |
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| For the six 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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| 2020 |
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| 2021 |
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| 2020 |
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| $ |
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| $ |
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| $ |
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| $ |
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Sales |
| 1,010 |
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| 802 |
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| 1,954 |
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| 1,833 |
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Operating expenses |
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Cost of sales, excluding depreciation and amortization |
| 789 |
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| 693 |
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| 1,598 |
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| 1,599 |
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Depreciation and amortization |
| 53 |
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| 56 |
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| 107 |
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| 114 |
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Selling, general and administrative |
| 68 |
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| 61 |
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| 132 |
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| 127 |
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Impairment of long-lived assets (NOTE 12) |
| 1 |
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| — |
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| 7 |
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| — |
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Closure and restructuring costs (NOTE 12) |
| 25 |
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| 1 |
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| 28 |
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| 1 |
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Asset conversion costs (NOTE 12) |
| 5 |
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| — |
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| 13 |
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| — |
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Other operating loss (income), net (NOTE 8) |
| 1 |
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| (5 | ) |
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| (1 | ) |
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| (3 | ) |
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| 942 |
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| 806 |
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| 1,884 |
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| 1,838 |
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Operating income (loss) |
| 68 |
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| (4 | ) |
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| 70 |
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| (5 | ) |
Interest expense, net |
| 20 |
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| 15 |
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| 35 |
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| 29 |
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Non-service components of net periodic benefit cost (NOTE 7) |
| (6 | ) |
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| (5 | ) |
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| (12 | ) |
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| (9 | ) |
Earnings (loss) before income taxes and equity loss |
| 54 |
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| (14 | ) |
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| 47 |
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| (25 | ) |
Income tax expense (benefit) (NOTE 9) |
| 16 |
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| (11 | ) |
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| 16 |
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| (8 | ) |
Equity method investment loss, net of taxes |
| — |
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| — |
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| — |
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| 1 |
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Earnings (loss) from continuing operations |
| 38 |
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| (3 | ) |
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| 31 |
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| (18 | ) |
(Loss) earnings from discontinued operations, net of taxes (NOTE 3) |
| (1 | ) |
|
| 22 |
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| (23 | ) |
|
| 42 |
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Net earnings |
| 37 |
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| 19 |
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| 8 |
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| 24 |
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Per common share (in dollars) (NOTE 6) |
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Basic net earnings |
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Earnings (loss) from continuing operations |
| 0.76 |
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| (0.05 | ) |
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| 0.59 |
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| (0.32 | ) |
(Loss) earnings from discontinued operations |
| (0.02 | ) |
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| 0.39 |
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| (0.44 | ) |
|
| 0.75 |
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Basic net earnings |
| 0.74 |
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| 0.34 |
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| 0.15 |
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| 0.43 |
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Diluted net earnings |
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Earnings (loss) from continuing operations |
| 0.75 |
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| (0.05 | ) |
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| 0.59 |
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| (0.32 | ) |
(Loss) earnings from discontinued operations |
| (0.02 | ) |
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| 0.39 |
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| (0.44 | ) |
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| 0.75 |
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Diluted net earnings |
| 0.73 |
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| 0.34 |
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| 0.15 |
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| 0.43 |
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Weighted average number of common shares outstanding (millions) |
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Basic |
| 50.3 |
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| 55.2 |
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| 51.9 |
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| 55.6 |
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Diluted |
| 50.5 |
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| 55.3 |
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| 52.1 |
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| 55.7 |
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Cash dividends per common share |
| — |
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| 0.46 |
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|
| — |
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| 0.91 |
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DOMTAR CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME (LOSS)
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
| For the three months ended |
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| For the six 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, |
| ||||
| 2021 |
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| 2020 |
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| 2021 |
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| 2020 |
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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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Net earnings |
| 37 |
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| 19 |
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| 8 |
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| 24 |
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Other comprehensive income (loss) (NOTE 14): |
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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 $(8), respectively (2020 – $(9) and $7, respectively) |
| 18 |
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| 29 |
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| 27 |
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| (20 | ) |
Less: Reclassification adjustment for (gains) losses included in net earnings, net of tax of $3 and $2, respectively (2020 – $(2) and $(4), respectively) |
| (12 | ) |
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| 6 |
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| (14 | ) |
|
| 13 |
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Foreign currency translation adjustments |
| 12 |
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| 39 |
|
|
| 84 |
|
|
| (35 | ) |
Change in unrecognized gains and prior service cost related to pension and post-retirement benefit plans, net of tax of $(7) and $(8), respectively (2020 – nil and $(1), respectively) |
| 20 |
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|
| 2 |
|
|
| 25 |
|
|
| 3 |
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Other comprehensive income (loss) |
| 38 |
|
|
| 76 |
|
|
| 122 |
|
|
| (39 | ) |
Comprehensive income (loss) |
| 75 |
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|
| 95 |
|
|
| 130 |
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| (15 | ) |
The accompanying notes are an integral part of the consolidated financial statements.
3
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
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| At |
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| At |
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|
| September 30, |
|
| December 31, |
|
| June 30, |
|
| December 31, |
| ||||
|
| 2017 |
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| 2016 |
|
| 2021 |
|
| 2020 |
| ||||
|
| (Unaudited) |
|
| (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 |
|
| 143 |
|
|
| 125 |
|
|
| 346 |
|
|
| 309 |
|
Receivables, less allowances of $7 and $7 |
|
| 659 |
|
|
| 613 |
| ||||||||
Inventories (NOTE 8) |
|
| 787 |
|
|
| 759 |
| ||||||||
Receivables, less allowances of $4 and $6 |
|
| 520 |
|
|
| 380 |
| ||||||||
Inventories (NOTE 10) |
|
| 617 |
|
|
| 630 |
| ||||||||
Prepaid expenses |
|
| 47 |
|
|
| 40 |
|
|
| 67 |
|
|
| 50 |
|
Income and other taxes receivable |
|
| 13 |
|
|
| 31 |
|
|
| 44 |
|
|
| 54 |
|
Current assets held for sale (NOTE 3) |
|
| — |
|
|
| 1,133 |
| ||||||||
Total current assets |
|
| 1,649 |
|
|
| 1,568 |
|
|
| 1,594 |
|
|
| 2,556 |
|
Property, plant and equipment, net |
|
| 2,774 |
|
|
| 2,825 |
|
|
| 2,040 |
|
|
| 2,023 |
|
Goodwill (NOTE 9) |
|
| 578 |
|
|
| 550 |
| ||||||||
Intangible assets, net (NOTE 10) |
|
| 632 |
|
|
| 608 |
| ||||||||
Operating lease right-of-use assets (NOTE 11) |
|
| 50 |
|
|
| 59 |
| ||||||||
Intangible assets, net |
|
| 29 |
|
|
| 29 |
| ||||||||
Other assets |
|
| 151 |
|
|
| 129 |
|
|
| 209 |
|
|
| 189 |
|
Total assets |
|
| 5,784 |
|
|
| 5,680 |
|
|
| 3,922 |
|
|
| 4,856 |
|
Liabilities and shareholders' equity |
|
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Current liabilities |
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|
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Bank indebtedness |
|
| — |
|
|
| 12 |
| ||||||||
Trade and other payables |
|
| 687 |
|
|
| 656 |
|
|
| 539 |
|
|
| 484 |
|
Income and other taxes payable |
|
| 32 |
|
|
| 22 |
|
|
| 19 |
|
|
| 15 |
|
Operating lease liabilities due within one year (NOTE 11) |
|
| 19 |
|
|
| 20 |
| ||||||||
Long-term debt due within one year |
|
| 1 |
|
|
| 63 |
|
|
| 1 |
|
|
| 13 |
|
Current liabilities held for sale (NOTE 3) |
|
| — |
|
|
| 295 |
| ||||||||
Total current liabilities |
|
| 720 |
|
|
| 753 |
|
|
| 578 |
|
|
| 827 |
|
Long-term debt |
|
| 1,164 |
|
|
| 1,218 |
|
|
| 503 |
|
|
| 1,084 |
|
Operating lease liabilities (NOTE 11) |
|
| 44 |
|
|
| 50 |
| ||||||||
Deferred income taxes and other |
|
| 681 |
|
|
| 675 |
|
|
| 334 |
|
|
| 321 |
|
Other liabilities and deferred credits |
|
| 333 |
|
|
| 358 |
|
|
| 290 |
|
|
| 314 |
|
Commitments and contingencies (NOTE 14) |
|
|
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|
|
|
| ||||||||
Shareholders' equity (NOTE 13) |
|
|
|
|
|
|
|
| ||||||||
Common stock $0.01 par value; authorized 2,000,000,000 shares; issued: 65,001,104 and 65,001,104 shares |
|
| 1 |
|
|
| 1 |
| ||||||||
Treasury stock $0.01 par value; 2,308,483 and 2,412,267 shares |
|
| — |
|
|
| — |
| ||||||||
Commitments and contingencies (NOTE 16) |
|
|
|
|
|
|
|
| ||||||||
Shareholders' equity (NOTE 15) |
|
|
|
|
|
|
|
| ||||||||
Common stock $0.01 par value; authorized 2,000,000,000 shares; issued 65,001,104 and 65,001,104 shares |
|
| 1 |
|
|
| 1 |
| ||||||||
Treasury stock $0.01 par value; 14,644,774 and 9,806,566 shares |
|
| — |
|
|
| — |
| ||||||||
Additional paid-in capital |
|
| 1,969 |
|
|
| 1,963 |
|
|
| 1,500 |
|
|
| 1,717 |
|
Retained earnings |
|
| 1,261 |
|
|
| 1,211 |
|
|
| 854 |
|
|
| 846 |
|
Accumulated other comprehensive loss |
|
| (345 | ) |
|
| (499 | ) |
|
| (182 | ) |
|
| (304 | ) |
Total shareholders' equity |
|
| 2,886 |
|
|
| 2,676 |
|
|
| 2,173 |
|
|
| 2,260 |
|
Total liabilities and shareholders' equity |
|
| 5,784 |
|
|
| 5,680 |
|
|
| 3,922 |
|
|
| 4,856 |
|
The accompanying notes are an integral part of the consolidated financial statements.
4
CONSOLIDATED STATEMENTSTATEMENTS 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, 2016 |
|
| 62.6 |
|
|
| 1 |
|
|
| 1,963 |
|
|
| 1,211 |
|
|
| (499 | ) |
|
| 2,676 |
|
Stock-based compensation, net of tax |
|
| 0.1 |
|
|
| — |
|
|
| 6 |
|
|
| — |
|
|
| — |
|
|
| 6 |
|
Net earnings |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 128 |
|
|
| — |
|
|
| 128 |
|
Net derivative gains on cash flow hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gains arising during the period, net of tax of $(8) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 11 |
|
|
| 11 |
|
Less: Reclassification adjustments for gains included in net earnings, net of tax of $4 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (6 | ) |
|
| (6 | ) |
Foreign currency translation adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 142 |
|
|
| 142 |
|
Change in unrecognized gains and prior service cost related to pension and post-retirement benefit plans, net of tax of $(3) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 7 |
|
|
| 7 |
|
Cash dividends declared |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (78 | ) |
|
| — |
|
|
| (78 | ) |
Balance at September 30, 2017 |
|
| 62.7 |
|
|
| 1 |
|
|
| 1,969 |
|
|
| 1,261 |
|
|
| (345 | ) |
|
| 2,886 |
|
|
| For the three months ended |
| |||||||||||||||||||||
|
| June 30, 2021 |
| |||||||||||||||||||||
|
| 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 March 31, 2021 |
|
| 50.2 |
|
|
| 1 |
|
|
| 1,493 |
|
|
| 817 |
|
|
| (220 | ) |
|
| 2,091 |
|
Stock-based compensation, net of tax |
|
| 0.2 |
|
|
| — |
|
|
| 7 |
|
|
| — |
|
|
| — |
|
|
| 7 |
|
Net earnings |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 37 |
|
|
| — |
|
|
| 37 |
|
Net derivative gains on cash flow hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gains arising during the period, net of tax of $(5) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 18 |
|
|
| 18 |
|
Less: Reclassification adjustment for gains included in net earnings, net of tax of $3 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (12 | ) |
|
| (12 | ) |
Foreign currency translation adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 12 |
|
|
| 12 |
|
Change in unrecognized gains and prior service cost related to pension and post-retirement benefit plans, net of tax of $(7) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 20 |
|
|
| 20 |
|
Balance at June 30, 2021 |
|
| 50.4 |
|
|
| 1 |
|
|
| 1,500 |
|
|
| 854 |
|
|
| (182 | ) |
|
| 2,173 |
|
|
| For the six months ended |
| |||||||||||||||||||||
|
| June 30, 2021 |
| |||||||||||||||||||||
|
| 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, 2020 |
|
| 55.2 |
|
|
| 1 |
|
|
| 1,717 |
|
|
| 846 |
|
|
| (304 | ) |
|
| 2,260 |
|
Stock-based compensation, net of tax |
|
| 0.3 |
|
|
| — |
|
|
| 6 |
|
|
| — |
|
|
| — |
|
|
| 6 |
|
Net earnings |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 8 |
|
|
| — |
|
|
| 8 |
|
Net derivative gains on cash flow hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gains arising during the period, net of tax of $(8) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 27 |
|
|
| 27 |
|
Less: Reclassification adjustment for gains included in net earnings, net of tax of $2 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (14 | ) |
|
| (14 | ) |
Foreign currency translation adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 84 |
|
|
| 84 |
|
Change in unrecognized gains and prior service cost related to pension and post-retirement benefit plans, net of tax of $(8) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 25 |
|
|
| 25 |
|
Stock repurchase |
|
| (5.1 | ) |
|
| — |
|
|
| (223 | ) |
|
| — |
|
|
| — |
|
|
| (223 | ) |
Balance at June 30, 2021 |
|
| 50.4 |
|
|
| 1 |
|
|
| 1,500 |
|
|
| 854 |
|
|
| (182 | ) |
|
| 2,173 |
|
The accompanying notes are an integral part of the consolidated financial statements.
DOMTAR CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
|
| For the three months ended |
| |||||||||||||||||||||
|
| June 30, 2020 |
| |||||||||||||||||||||
|
| 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 March 31, 2020 |
|
| 55.2 |
|
|
| 1 |
|
|
| 1,710 |
|
|
| 978 |
|
|
| (508 | ) |
|
| 2,181 |
|
Stock-based compensation, net of tax |
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
Net earnings |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 19 |
|
|
| — |
|
|
| 19 |
|
Net derivative gains on cash flow hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gains arising during the period, net of tax of $(9) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 29 |
|
|
| 29 |
|
Less: Reclassification adjustment for losses included in net earnings, net of tax of $(2) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6 |
|
|
| 6 |
|
Foreign currency translation adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 39 |
|
|
| 39 |
|
Change in unrecognized gains and prior service cost related to pension and post-retirement benefit plans, net of tax of nil |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2 |
|
|
| 2 |
|
Balance at June 30, 2020 |
|
| 55.2 |
|
|
| 1 |
|
|
| 1,711 |
|
|
| 997 |
|
|
| (432 | ) |
|
| 2,277 |
|
|
| For the six months ended |
| |||||||||||||||||||||
|
| June 30, 2020 |
| |||||||||||||||||||||
|
| 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, 2019 |
|
| 56.9 |
|
|
| 1 |
|
|
| 1,770 |
|
|
| 998 |
|
|
| (393 | ) |
|
| 2,376 |
|
Stock-based compensation, net of tax |
|
| 0.1 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Net earnings |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 24 |
|
|
| — |
|
|
| 24 |
|
Net derivative losses on cash flow hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net losses arising during the period, net of tax of $7 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (20 | ) |
|
| (20 | ) |
Less: Reclassification adjustment for losses included in net earnings, net of tax of $(4) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 13 |
|
|
| 13 |
|
Foreign currency translation adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (35 | ) |
|
| (35 | ) |
Change in unrecognized gains and prior service cost related to pension and post-retirement benefit plans, net of tax of $(1) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3 |
|
|
| 3 |
|
Stock repurchase |
|
| (1.8 | ) |
|
| — |
|
|
| (59 | ) |
|
| — |
|
|
| — |
|
|
| (59 | ) |
Cash dividends declared |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (25 | ) |
|
| — |
|
|
| (25 | ) |
Balance at June 30, 2020 |
|
| 55.2 |
|
|
| 1 |
|
|
| 1,711 |
|
|
| 997 |
|
|
| (432 | ) |
|
| 2,277 |
|
The accompanying notes are an integral part of the consolidated financial statements.
5
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS OF DOLLARS)
|
| For the nine months ended |
|
| For the six months ended |
| ||||||||||
|
| September 30, 2017 |
|
| September 30, 2016 |
|
| June 30, 2021 |
|
| June 30, 2020 |
| ||||
|
| (Unaudited) |
|
| (Unaudited) |
| ||||||||||
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
| 128 |
|
|
| 81 |
|
|
| 8 |
|
|
| 24 |
|
Adjustments to reconcile net earnings to cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 239 |
|
|
| 263 |
|
|
| 117 |
|
|
| 143 |
|
Deferred income taxes and tax uncertainties |
|
| (19 | ) |
|
| 6 |
| ||||||||
Impairment of property, plant and equipment |
|
| — |
|
|
| 29 |
| ||||||||
Net gains on disposals of property, plant and equipment |
|
| (4 | ) |
|
| — |
| ||||||||
Deferred income taxes and tax uncertainties (NOTE 9) |
|
| (4 | ) |
|
| (12 | ) | ||||||||
Impairment of long-lived assets (NOTE 12) |
|
| 7 |
|
|
| — |
| ||||||||
Net loss on disposition of discontinued operations (NOTE 3) |
|
| 33 |
|
|
| — |
| ||||||||
Stock-based compensation expense |
|
| 6 |
|
|
| 5 |
|
|
| 4 |
|
|
| 3 |
|
Equity method investment loss, net |
|
| — |
|
|
| 1 |
| ||||||||
Make-whole premium on repayment of long-term debt |
|
| 11 |
|
|
| — |
| ||||||||
Other |
|
| 1 |
|
|
| (3 | ) |
|
| 6 |
|
|
| — |
|
Changes in assets and liabilities, excluding the effect of acquisition of business |
|
|
|
|
|
|
|
| ||||||||
Changes in assets and liabilities, excluding the effect of acquisition and sale of business |
|
|
|
|
|
|
|
| ||||||||
Receivables |
|
| (28 | ) |
|
| 19 |
|
|
| (137 | ) |
|
| 42 |
|
Inventories |
|
| (10 | ) |
|
| 6 |
|
|
| 18 |
|
|
| 20 |
|
Prepaid expenses |
|
| (2 | ) |
|
| (5 | ) |
|
| 1 |
|
|
| 2 |
|
Trade and other payables |
|
| 11 |
|
|
| (53 | ) |
|
| 32 |
|
|
| (95 | ) |
Income and other taxes |
|
| 30 |
|
|
| (18 | ) |
|
| 12 |
|
|
| 40 |
|
Difference between employer pension and other post-retirement contributions and pension and other post-retirement expense |
|
| (33 | ) |
|
| (16 | ) |
|
| (8 | ) |
|
| (1 | ) |
Other assets and other liabilities |
|
| 5 |
|
|
| (4 | ) |
|
| (10 | ) |
|
| (12 | ) |
Cash flows from operating activities |
|
| 324 |
|
|
| 310 |
|
|
| 90 |
|
|
| 155 |
|
Investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant and equipment |
|
| (111 | ) |
|
| (302 | ) |
|
| (122 | ) |
|
| (102 | ) |
Proceeds from disposals of property, plant and equipment |
|
| 8 |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
Proceeds from sale of business, net of cash disposed (NOTE 3) |
|
| 897 |
|
|
| — |
| ||||||||
Acquisition of business, net of cash acquired |
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| (30 | ) |
Other |
|
| — |
|
|
| 1 |
| ||||||||
Cash flows used for investing activities |
|
| (103 | ) |
|
| (302 | ) | ||||||||
Cash flows provided from (used for) investing activities |
|
| 776 |
|
|
| (132 | ) | ||||||||
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend payments |
|
| (78 | ) |
|
| (76 | ) |
|
| — |
|
|
| (51 | ) |
Stock repurchase |
|
| — |
|
|
| (10 | ) |
|
| (223 | ) |
|
| (59 | ) |
Net change in bank indebtedness |
|
| (12 | ) |
|
| 1 |
|
|
| — |
|
|
| (10 | ) |
Change in revolving credit facility |
|
| (50 | ) |
|
| 60 |
|
|
| — |
|
|
| (80 | ) |
Proceeds from receivables securitization facility |
|
| 25 |
|
|
| 140 |
|
|
| — |
|
|
| 25 |
|
Repayments of receivables securitization facility |
|
| (35 | ) |
|
| (40 | ) |
|
| — |
|
|
| (80 | ) |
Repayments of long-term debt |
|
| (63 | ) |
|
| (40 | ) | ||||||||
Issuance of long-term debt |
|
| — |
|
|
| 300 |
| ||||||||
Repayments of long-term debt, including make-whole premium |
|
| (606 | ) |
|
| — |
| ||||||||
Other |
|
| 1 |
|
|
| (3 | ) |
|
| — |
|
|
| (4 | ) |
Cash flows (used for) provided from financing activities |
|
| (212 | ) |
|
| 32 |
|
|
| (829 | ) |
|
| 41 |
|
Net increase in cash and cash equivalents |
|
| 9 |
|
|
| 40 |
|
|
| 37 |
|
|
| 64 |
|
Impact of foreign exchange on cash |
|
| 9 |
|
|
| 2 |
|
|
| — |
|
|
| (1 | ) |
Cash and cash equivalents at beginning of period |
|
| 125 |
|
|
| 126 |
|
|
| 309 |
|
|
| 61 |
|
Cash and cash equivalents at end of period |
|
| 143 |
|
|
| 168 |
|
|
| 346 |
|
|
| 124 |
|
Supplemental cash flow information |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash payments for: |
|
|
|
|
|
|
|
| ||||||||
Interest |
|
| 49 |
|
|
| 50 |
| ||||||||
Net cash payments (refund) for: |
|
|
|
|
|
|
|
| ||||||||
Interest (including $11 million of make-whole premium in 2021) |
|
| 37 |
|
|
| 25 |
| ||||||||
Income taxes |
|
| 18 |
|
|
| 37 |
|
|
| 1 |
|
|
| (24 | ) |
The accompanying notes are an integral part of the consolidated financial statements.
6
INDEX FOR NOTES TO CONSOLIDATEDCONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 |
| |
|
|
|
NOTE 2 |
| |
|
|
|
NOTE 3 |
| 12 |
|
|
|
NOTE 4 |
| |
|
|
|
NOTE 5 |
| |
|
|
|
NOTE 6 |
| |
|
|
|
NOTE 7 |
|
|
|
|
|
NOTE 8 |
| |
|
|
|
NOTE 9 |
| |
|
|
|
NOTE 10 |
| |
|
|
|
NOTE 11 | 27 | |
NOTE 12 |
| |
|
|
|
|
|
|
NOTE 13 |
| |
|
|
|
NOTE 14 |
|
|
|
|
|
NOTE 15 |
| |
|
|
|
NOTE 16 |
|
|
|
|
|
NOTE 17 | 40 | |
NOTE 18 | 41 | |
|
|
|
79
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBERJUNE 30, 20172021
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
NOTE 1.
_________________
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, in the opinion of Management, include all adjustments that are necessary for the fair statement of Domtar Corporation’s (“the Company”) financial position, results of operations, and cash flows for the interim periods presented. Results for the first ninesix months of the year may not necessarily be indicative of full yearfull-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, 2016,2020, as filed with the Securities and Exchange Commission. The December 31, 20162020 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.
810
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBERJUNE 30, 20172021
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
_________________
RECENT ACCOUNTING PRONOUNCEMENTS
FUTURE ACCOUNTING CHANGES
REVENUE
TRANSITION AWAY FROM CONTRACTS WITH CUSTOMERSINTERBANK OFFERED RATES
In May 2014,On March 12, 2020, the FASB issued ASU 2014-09,2020-04, “Revenue from Contracts with Customers.” The core principal of this guidance 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. This 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.
Entities are permitted to adopt the new revenue standard by restating all prior periods under the full retrospective approach following ASC 250 “Accounting Changes and Error Corrections” or entities can elect to use a modified retrospective approach. Under the modified retrospective approach, entities will recognize the cumulative effect of initially applying the standard as an adjustment to the opening balance of retained earnings in the period of initial application and comparative prior year periods would not be adjusted.
The Company is currently finalizing its assessmentFacilitation of the impact that the guidance will haveEffects of Reference Rate Reform on the consolidated financial statements and related disclosures. The Company will adopt the new revenue standards in its first quarter of 2018 utilizing the full retrospective transition method. The Company has identified similar performance obligations under the new guidance as compared with deliverables previously identified. As a result, the Company expects the timing and amount of its revenue to remain substantially the same.
The Company does not expect this new guidance to have a material impact on the consolidated financial statements aside from the additional required disclosures.
FINANCIAL INSTRUMENTS
In January 2016, the FASB issued ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities,Reporting” 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 amendsprovides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain disclosure requirements associated with the fair value of financial instruments.criteria, that reference LIBOR or another reference rate expected to be discontinued.
The amendments in this updatethe ASU are effective for fiscal yearselective and interim periods within those fiscal years beginning after December 15, 2017. To adoptapply to entities that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. An entity may elect to apply the amendments companies 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.
9
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
NOTE 2 – RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
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.
As a lessee, Domtar’s various leases under existing guidance are classified as operating leases that are not recorded on the balance sheet but are recorded in the statement of earnings as expense is incurred. Upon adoption of the new guidance, the Company will be required to record substantially all leases on the Consolidated Balance Sheets as a right-of-use asset and a lease liability. The timing of expense recognition and classification in the Consolidated Statements of Earnings and Comprehensive Income could change based on the classification of leases as either operating or financing.
This ASU is effective for fiscal years beginning afterprospectively through 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 will adopt the ASU on January 1, 2019 using the modified retrospective approach required by the guidance.31, 2022.
The Company has begun its impact assessment including taking an inventory ofand while its outstanding leases and analyzing all contracts that contain a lease. While the Company’s evaluation of this guidance is in the early stages, the Company currently expectsdoes not expect the adoption of this guidance to have a material impact on its consolidated balance sheet.
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.
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.
GOODWILL IMPAIRMENT
In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment,” which removes the requirement for an entity to calculate the implied fair value of goodwill in measuring a goodwill impairment loss, referred to as the Step II test. As a result, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and should recognize an impairment charge for the amount for which the carrying value exceeds the reporting unit’s fair value. The impairment loss recognized should be recorded against goodwill and should not exceed the total amount of goodwill allocated to that reporting unit. This ASU is effective for annual or any interim goodwill impairment tests performed in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests with measurement dates after January 1, 2017.
The Company expects to adopt this new guidance concurrently with its 2017 annual goodwill impairment test.
10
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
NOTE 2 – RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
RETIREMENT BENEFITS
In March 2017, the FASB issued ASU 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,” which requires an entity to present the service cost component of the net periodic benefit cost with other employee compensation costs in operating income. Only the service cost components will be eligible for capitalization in assets. The other components of the net periodic benefit cost (i.e., interest expense, expected return on plan assets, amortization of actuarial gains or losses and amortization of prior year service costs) will be presented outside of any subtotal of operating income. An appropriate disclosure of the line(s) used to present other components of net periodic benefit costs is required if the components are not presented separately in the statement of earnings. This ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted as of the beginning of an annual period for which financial statements have not been issued or made available for issuance.
The Company will adopt the ASU on January 1, 2018 using a retrospective approach for the presentation of the service cost component and the other components of net periodic benefit costs in the Consolidated Statement of Earnings and prospectively for the capitalization of the service cost component of net periodic benefit costs in assets. The guidance includes a practical expedient that permits an entity to estimate amounts for comparative periods using the information previously disclosed in its pension plans and other post-retirement benefit plans footnote.
While the Company is still evaluating the impact of adopting this new guidance, it does not expect this new guidance to have a material impact on the consolidated earnings.
DERIVATIVES AND HEDGING
In August 2017, the FASB issued ASU 2017-12, “Targeted Improvements to Accounting for Hedging Activities”, which amends the hedge accounting recognition and presentation requirements in ASC 815. The objectives of the ASU are to (1) improve the transparency and understandability of information conveyed to financial statement users about an entity’s risk management activities by better aligning the entity’s financial reporting for hedging relationships with those risk management activities and (2) reduce the complexity of and simplify the application of hedge accounting by preparers.
This ASU is effective for fiscal years beginning after December 15, 2018, and interim periods therein. Entities are permitted to early adopt the new guidance in any interim or annual period after issuance of the ASU. If an entity early adopts the updated guidance in an interim period, any transition adjustments should be reflected as of the beginning of the fiscal year.
While the Company is still evaluating the impact of adopting this new guidance, it does not expect this new guidance to have a material impact on the consolidated financial statements.
11
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBERJUNE 30, 20172021
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
NOTE 3.
DISCONTINUED OPERATIONS
Sale of Personal Care business
On March 1, 2021, Domtar completed the previously announced sale of the Company’s Personal Care business to American Industrial Partners (“AIP”) for a purchase price of $920 million in cash, including elements of working capital estimated at $130 million, subject to customary adjustments. Domtar received a net amount of $897 million, which represents the selling price minus the estimated settlements of the net indebtedness and other elements of working capital adjustments. In connection with the sale, the Company entered into Transition Services Agreements with AIP pursuant to which the Company agreed to provide various back-office and information technology support until the business is fully separated from Domtar.
The results of operations of the Company’s Personal Care business were reclassified to discontinued operations. These results have been summarized in (Loss) earnings from discontinued operations, net of taxes on the Company’s Consolidated Statements of Earnings and Comprehensive Income (Loss) for each period presented. The Consolidated Statements of Cash Flows were not reclassified to reflect discontinued operations. Personal Care was previously disclosed as a separate reportable business segment.
Major components of (loss) earnings from discontinued operations:
| For the three months ended |
|
| For the six months ended |
| ||||||||||
| June 30, |
|
| June 30, |
|
| June 30, |
|
| June 30, |
| ||||
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Sales |
| — |
|
|
| 229 |
|
|
| 154 |
|
|
| 495 |
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales, excluding depreciation and amortization |
| — |
|
|
| 163 |
|
|
| 111 |
|
|
| 359 |
|
Depreciation and amortization |
| — |
|
|
| 15 |
|
|
| 10 |
|
|
| 29 |
|
Selling, general and administrative |
| — |
|
|
| 32 |
|
|
| 24 |
|
|
| 68 |
|
Closure and restructuring costs |
| — |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
Other operating loss, net |
| — |
|
|
| 1 |
|
|
| 1 |
|
|
| 1 |
|
|
| — |
|
|
| 211 |
|
|
| 147 |
|
|
| 457 |
|
Operating income |
| — |
|
|
| 18 |
|
|
| 7 |
|
|
| 38 |
|
Net loss on disposition of discontinued operations |
| (1 | ) |
|
| — |
|
|
| (33 | ) |
|
| — |
|
(Loss) earnings from discontinued operations before income taxes |
| (1 | ) |
|
| 18 |
|
|
| (26 | ) |
|
| 38 |
|
Income tax benefit |
| — |
|
|
| (4 | ) |
|
| (3 | ) |
|
| (4 | ) |
Net (loss) earnings from discontinued operations |
| (1 | ) |
|
| 22 |
|
|
| (23 | ) |
|
| 42 |
|
12
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
NOTE 3 – DISCONTINUED OPERATIONS (CONTINUED)
Major classes of assets and liabilities classified as held for sale in the accompanying Balance Sheets were as follows:
At | ||||
December 31, | ||||
2020 | ||||
$ | ||||
Assets | ||||
Receivables | 110 | |||
Inventories | 138 | |||
Prepaid expenses | 3 | |||
Income and other taxes receivable | 3 | |||
Property, plant and equipment, net | 351 | |||
Operating lease right-of-use assets | 15 | |||
Intangible assets, net (2)(3) | 554 | |||
Other assets | 2 | |||
Total assets | 1,176 | |||
Loss on classification as held for sale | (43 | ) | ||
Total assets of the disposal group classified as held for sale on the Consolidated Balance Sheets (1) | 1,133 | |||
Liabilities | ||||
Trade and other payables | 128 | |||
Income and other taxes payable | 12 | |||
Operating lease liabilities due within one year | 8 | |||
Long-term debt | 1 | |||
Operating lease liabilities | 8 | |||
Deferred income taxes and other | 130 | |||
Other liabilities and deferred credits | 8 | |||
Total liabilities of the disposal group classified as held for sale on the Consolidated Balance Sheets (1) | 295 |
(1) | Total assets and liabilities of discontinued operations are classified in current assets and liabilities, respectively, in the Company’s Consolidated Balance Sheet at December 31, 2020. |
(2) | Intangible assets, net at December 31, 2020 are comprised of $290 million of indefinite-lived assets and $264 million of definite-lived assets. |
(3) | Indefinite-lived intangible assets of the disposal group held for sale consists of trade names ($248 million) and catalog rights ($42 million) following the business acquisitions in the Company’s former Personal Care segment. |
Cash Flows from Discontinued Operations:
|
|
|
|
| For the six months ended |
| |||||
|
|
|
|
| June 30, |
|
| June 30, |
| ||
|
|
|
|
| 2021 |
|
| 2020 |
| ||
|
|
|
|
| $ |
|
| $ |
| ||
Cash flows from operating activities |
|
|
|
|
| 16 |
|
|
| 42 |
|
Cash flows used for investing activities |
|
|
|
|
| (3 | ) |
|
| (16 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
13
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
NOTE 3 – DISCONTINUED OPERATIONS (CONTINUED)
Use of proceeds
The Company used $223 million of the proceeds to repurchase shares (see Note 15 “Shareholder’s equity” for more details). Additionally, the Company repaid the $294 million of outstanding indebtedness under its Term Loan Agreement and redeemed the 4.4% Notes, originally due in 2022, at a redemption price of 100% of the principal amount of $300 million, plus accrued and unpaid interest, as well as a make-whole premium of $11 million (see Note 13 “Long-term debt” for more details).
14
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
NOTE 4.
_________________
ACQUISITION OF BUSINESS
Purchase of Appvion Point of Sale business
On April 27, 2020, Domtar Corporation completed the acquisition of the Point of Sale paper business from Appvion Operation Inc. The business includes the coater and related equipment located at Appvion’s West Carrollton, Ohio, facility as well as a license for all corresponding intellectual property and assumed liabilities related to post-retirement benefits. The results of this business have been included in the consolidated financial statements as of April 27, 2020. The purchase price was $20 million in cash plus the book value of raw materials and finished goods inventory, subject to post-closing adjustments. The acquisition was accounted for as a business combination under the acquisition method of accounting. The total purchase price was allocated to tangible and intangible assets acquired and liabilities assumed based on the Company’s estimates of their fair value, which was based on information currently available.
The table below illustrates the purchase price allocation:
Fair value of net assets acquired at the date of acquisition |
|
|
|
|
|
|
Inventories |
|
|
| $ | 11 |
|
Property, plant and equipment |
|
|
|
| 23 |
|
Operating lease right-of-use assets |
|
|
|
| 2 |
|
Total assets |
|
|
|
| 36 |
|
|
|
|
|
|
|
|
Less: Assumed Liabilities |
|
|
|
| 6 |
|
|
|
|
|
|
|
|
Fair value of net assets acquired at the date of acquisition |
|
|
|
| 30 |
|
15
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
NOTE 5.
________________
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, interest rates and interest rates.prices of the Company’s common stock with regard to the Company’s stock-based compensation program. 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 accounts receivablesreceivable from its customers. In order to reduce this risk, the Company reviews new customers’ credit history before granting credit and conducts regular reviews of existing customers’ credit performance. As of SeptemberJune 30, 2017, one of Domtar’s Pulp and Paper segment2021, 2 customers located in the U.S. represented 16% or $83 million, and 12% or $82$64 million, (2016 – 12% or $74 million)respectively, of the Company’s receivables.receivables (December 31, 2020 – 2 customers located in the U.S. represented 15% or $58 million, and 12% or $46 million, respectively).
The Company is exposed to credit risk in the event of non-performance by counterparties to its financial instruments. The Company attempts to minimize this exposure by entering into contracts with counterparties that are believed to be of high credit quality. Collateral or other security to support financial instruments subject to credit risk is usually not obtained. The credit standing of counterparties is regularly monitored.
INTEREST RATE RISK
The Company is exposed to interest rate risk arising from fluctuations in interest rates on its cash and cash equivalents, bank indebtedness, revolving credit facility, securitization 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.
EQUITY RISK
The Company is exposed to changes in share prices with regard to its stock-based compensation program. The Company manages its exposure through the use of derivative instruments such as equity swap contracts. In March 2020, the Company entered into a total return swap agreement covering 500,000 common shares maturing on March 4, 2022.
16
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
NOTE 5. DERIVATIVES AND HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENT (CONTINUED)
COST RISK
Cash flow hedges:
The Company is exposed to price volatility for raw materials and energy used in its manufacturing process. The Company manages its exposure to cost risk primarily through the use of supplier contracts. The Company purchases natural gas at the prevailing market price at the time of delivery. To reduce the impact on cash flow and earnings due to pricing volatility, the Company may utilize derivatives to fix the price of forecasted natural gas purchases. The changes in the fair value on qualifying instruments are included in Accumulated other comprehensive loss to the extent effective, and reclassified into Cost of sales in the period during which the hedged transaction affects earnings. Current contracts are used to hedge a portion of forecasted purchases over the next 5730 months.
12
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
NOTE 3. DERIVATIVES AND HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENT (CONTINUED)
The following table presents the volumes under derivative financial instruments for natural gas contracts outstanding as of SeptemberJune 30, 20172021 to hedge forecasted purchases:
Commodity |
| Notional contractual quantity under derivative contracts MMBTU(2) |
|
| Notional contractual value under derivative contracts (in millions of dollars) |
| Percentage of forecasted purchases under derivative contracts |
| ||||||
Natural Gas |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017 (1) |
|
| 2,310,000 |
|
|
| $ | 7 |
|
|
|
| 33% |
|
2018 |
|
| 12,695,000 |
|
|
| $ | 38 |
|
|
|
| 49% |
|
2019 |
|
| 11,430,000 |
|
|
| $ | 34 |
|
|
|
| 44% |
|
2020 |
|
| 8,880,000 |
|
|
| $ | 27 |
|
|
|
| 34% |
|
2021 |
|
| 3,920,000 |
|
|
| $ | 12 |
|
|
|
| 15% |
|
2022 |
|
| 2,070,000 |
|
|
| $ | 6 |
|
|
|
| 8% |
|
Commodity |
| Notional contractual quantity under derivative contracts MMBtu(2) |
|
| Notional contractual value under derivative contracts (in millions of dollars) |
| Percentage of forecasted purchases under derivative contracts |
| ||||||
Natural gas |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2021 (1) |
|
| 4,490,000 |
|
|
| $ | 13 |
|
|
| 37% |
| |
2022 |
|
| 9,270,000 |
|
|
| $ | 25 |
|
|
| 35% |
| |
2023 |
|
| 4,210,000 |
|
|
| $ | 12 |
|
|
| 15% |
|
(1) | Represents the remaining |
(2) |
|
The natural gas derivative contracts were fully effective as of SeptemberJune 30, 2017. There were no amounts reflected in the Consolidated Statements of Earnings and Comprehensive Income for the three and nine months ended September 30, 2017 resulting from hedge ineffectiveness (three and nine months ended September 30, 2016 – nil).2021.
FOREIGN CURRENCY RISK
Cash flow hedges:
The Company has manufacturing operations in the United States Canada and Europe.Canada. As a result, it is exposed to movements in foreign currency exchange rates in Canada and Europe.Canada. Moreover, certain assets and liabilities are denominated in currencies other than the U.S. dollarCanadian dollars 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.dollar. 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.
17
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
NOTE 5. DERIVATIVES AND HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENT (CONTINUED)
Derivatives are used to hedge forecasted purchases in Canadian dollars by the Company’s Canadian subsidiary over the next 21 months and to hedge a portion of forecasted sales by its U.S. subsidiaries in British pounds over the next 3 months. Derivatives are also currently 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 the next 1222 months. Such derivatives are designated as cash flow hedges. The changes in the fair value on qualifying instruments are included in Accumulated other comprehensive loss to the extent effective, and reclassified into Sales or Cost of sales in the period during which the hedged transaction affects earnings.
13
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017
(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 SeptemberJune 30, 20172021 to hedge forecasted purchases and sales:
|
|
|
|
|
|
| ||||||||
| ||||||||||||||
|
|
|
|
|
| |||||||||
|
|
|
|
|
| |||||||||
| ||||||||||||||
|
|
|
|
|
| |||||||||
|
|
|
|
|
| |||||||||
| ||||||||||||||
|
|
|
|
|
|
Currency exposure hedged |
| Year of maturity |
| Notional contractual value |
| Percentage of forecasted net exposures under contracts |
|
| Average Protection rate |
| Average Obligation rate | |
|
|
|
|
|
|
|
|
|
|
|
|
|
CAD/USD |
| 2021 (1) |
| 353 CAD |
| 74% |
|
| 1 USD = 1.3222 |
| 1 USD = 1.3409 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
CAD/USD |
| 2022 |
| 499 CAD |
| 53% |
|
| 1 USD = 1.3164 |
| 1 USD = 1.3302 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
CAD/USD |
| 2023 |
| 85 CAD |
| 9% |
|
| 1 USD = 1.2655 |
| 1 USD = 1.2655 |
(1)Represents the remaining threesix months of 20172021
The foreign exchange derivative contracts were fully effective as of SeptemberJune 30, 2017. There were no amounts reflected in the Consolidated Statements of Earnings and Comprehensive Income for the three and nine months ended September 30, 2017 resulting from hedge ineffectiveness (three and nine months ended September 30, 2016 – nil).2021.
FAIR VALUE MEASUREMENT
The accounting standards for fair value measurements and disclosures establishesestablish 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. |
14
18
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBERJUNE 30, 20172021
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
NOTE 3.5. 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 (b) and (c) below) at SeptemberJune 30, 20172021 and December 31, 2016,2020, in accordance with the accounting standards for fair value measurements and disclosures and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value.
Fair Value of financial instruments at: |
| September 30, 2017 |
|
| Quoted prices in active markets for identical assets (Level 1) |
|
| Significant observable inputs (Level 2) |
|
| Significant unobservable inputs (Level 3) |
|
| Balance sheet classification |
| June 30, 2021 |
|
| 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 |
|
| 22 |
|
|
| — |
|
|
| 22 |
|
|
| — |
| (a) | Prepaid expenses |
|
| 37 |
|
|
| — |
|
|
| 37 |
|
|
| — |
| (a) | Prepaid expenses |
Natural gas swap contracts |
|
| 2 |
|
|
| — |
|
|
| 2 |
|
|
| — |
| (a) | Prepaid expenses |
|
| 6 |
|
|
| — |
|
|
| 6 |
|
|
| — |
| (a) | Prepaid expenses |
Currency derivatives |
|
| 7 |
|
|
| — |
|
|
| 7 |
|
|
| — |
| (a) | Other assets |
|
| 9 |
|
|
| — |
|
|
| 9 |
|
|
| — |
| (a) | Other assets |
Natural gas swap contracts |
|
| 1 |
|
|
| — |
|
|
| 1 |
|
|
| — |
| (a) | Other assets |
|
| 2 |
|
|
| — |
|
|
| 2 |
|
|
| — |
| (a) | Other assets |
Total Assets |
|
| 32 |
|
|
| — |
|
|
| 32 |
|
|
| — |
|
|
|
|
| 54 |
|
|
| — |
|
|
| 54 |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency derivatives |
|
| 5 |
|
|
| — |
|
|
| 5 |
|
|
| — |
| (a) | Trade and other payables |
|
| 1 |
|
|
| — |
|
|
| 1 |
|
|
| — |
| (a) | Trade and other payables |
Natural gas swap contracts |
|
| 1 |
|
|
| — |
|
|
| 1 |
|
|
| — |
| (a) | Trade and other payables | ||||||||||||||||||
Currency derivatives |
|
| 1 |
|
|
| — |
|
|
| 1 |
|
|
| — |
| (a) | Other liabilities and deferred credits | ||||||||||||||||||
Natural gas swap contracts |
|
| 4 |
|
|
| — |
|
|
| 4 |
|
|
| — |
| (a) | Other liabilities and deferred credits | ||||||||||||||||||
Total Liabilities |
|
| 11 |
|
|
| — |
|
|
| 11 |
|
|
| — |
|
|
|
|
| 1 |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation - liability awards |
|
| 6 |
|
|
| 6 |
|
|
| — |
|
|
| — |
|
| Trade and other payables |
|
| 4 |
|
|
| 4 |
|
|
| — |
|
|
| — |
|
| Trade and other payables |
Stock-based compensation - liability awards |
|
| 16 |
|
|
| 16 |
|
|
| — |
|
|
| — |
|
| Other liabilities and deferred credits |
|
| 13 |
|
|
| 13 |
|
|
| — |
|
|
| — |
|
| Other liabilities and deferred credits |
Equity swap contracts |
|
| 14 |
|
|
| 14 |
|
|
| — |
|
|
| — |
|
| Other assets | ||||||||||||||||||
Long-term debt due within one year |
|
| 1 |
|
|
| — |
|
|
| 1 |
|
|
| — |
| (b) | Long-term debt due within one year | ||||||||||||||||||
Long-term debt |
|
| 1,241 |
|
|
| — |
|
|
| 1,241 |
|
|
| — |
| (b) | Long-term debt |
|
| 564 |
|
|
| — |
|
|
| 564 |
|
|
| — |
| (c) | Long-term debt |
The net cumulative lossgain recorded in Accumulated other comprehensive loss relating to natural gas contracts is $2$8 million at SeptemberJune 30, 2017,2021, of which a gain of $1$6 million willis expected to be recognized in Cost of sales upon maturity of the derivatives over the next 12 months at the then prevailing values, which may be different from those at SeptemberJune 30, 2017.
2021.
The net cumulative gain recorded in Accumulated other comprehensive loss relating to currency options and forwards hedging forecasted purchases is $23$45 million at SeptemberJune 30, 2017,2021, of which a gain of $17$36 million willis expected to be recognized in Cost of sales or Sales upon maturity of the derivatives over the next 12 months at the then prevailing values, which may be different from those at SeptemberJune 30, 2017.2021.
15
19
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBERJUNE 30, 20172021
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
NOTE 3.5. DERIVATIVES AND HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENT (CONTINUED)
Fair Value of financial instruments at: |
| December 31, 2016 |
|
| 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, 2020 |
|
| 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 |
|
| 18 |
|
|
| — |
|
|
| 18 |
|
|
| — |
| (a) | Prepaid expenses |
|
| 31 |
|
|
| — |
|
|
| 31 |
|
|
| — |
| (a) | Prepaid expenses |
Natural gas swap contracts |
|
| 6 |
|
|
| — |
|
|
| 6 |
|
|
| — |
| (a) | Prepaid expenses | ||||||||||||||||||
Currency derivatives |
|
| 6 |
|
|
| — |
|
|
| 6 |
|
|
| — |
| (a) | Other assets |
|
| 16 |
|
|
| — |
|
|
| 16 |
|
|
| — |
| (a) | Other assets |
Natural gas swap contracts |
|
| 2 |
|
|
| — |
|
|
| 2 |
|
|
| — |
| (a) | Other assets |
|
| 1 |
|
|
| — |
|
|
| 1 |
|
|
| — |
| (a) | Other assets |
Total Assets |
|
| 32 |
|
|
| — |
|
|
| 32 |
|
|
| — |
|
|
|
|
| 48 |
|
|
| — |
|
|
| 48 |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency derivatives |
|
| 10 |
|
|
| — |
|
|
| 10 |
|
|
| — |
| (a) | Trade and other payables |
|
| 1 |
|
|
| — |
|
|
| 1 |
|
|
| — |
| (a) | Trade and other payables |
Natural gas swap contracts |
|
| 1 |
|
|
| — |
|
|
| 1 |
|
|
| — |
| (a) | Trade and other payables |
|
| 2 |
|
|
| — |
|
|
| 2 |
|
|
| — |
| (a) | Trade and other payables |
Currency derivatives |
|
| 6 |
|
|
| — |
|
|
| 6 |
|
|
| — |
| (a) | Other liabilities and deferred credits | ||||||||||||||||||
Natural gas swap contracts |
|
| 4 |
|
|
| — |
|
|
| 4 |
|
|
| — |
| (a) | Other liabilities and deferred credits |
|
| 3 |
|
|
| — |
|
|
| 3 |
|
|
| — |
| (a) | Other liabilities and deferred credits |
Total Liabilities |
|
| 21 |
|
|
| — |
|
|
| 21 |
|
|
| — |
|
|
|
|
| 6 |
|
|
| — |
|
|
| 6 |
|
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation - liability awards |
|
| 2 |
|
|
| 2 |
|
|
| — |
|
|
| — |
|
| Trade and other payables |
|
| 5 |
|
|
| 5 |
|
|
| — |
|
|
| — |
|
| Trade and other payables |
Stock-based compensation - liability awards |
|
| 17 |
|
|
| 17 |
|
|
| — |
|
|
| — |
|
| Other liabilities and deferred credits |
|
| 11 |
|
|
| 11 |
|
|
| — |
|
|
| — |
|
| Other liabilities and deferred credits |
Equity swap contracts |
|
| 2 |
|
|
| 2 |
|
|
|
|
|
|
|
|
|
| Other assets | ||||||||||||||||||
Long-term debt due within one year |
|
| 13 |
|
|
| — |
|
|
| 13 |
|
|
| — |
| (b) | Long-term debt due within one year | ||||||||||||||||||
Long-term debt |
|
| 1,313 |
|
|
| — |
|
|
| 1,313 |
|
|
| — |
| (b) | Long-term debt |
|
| 1,221 |
|
|
| — |
|
|
| 1,221 |
|
|
| — |
| (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: |
| - | For natural gas contracts: Fair value is measured using the discounted difference between contractual rates and quoted market future rates. |
(b) | Fair value of the Company’s long-term debt is measured by comparison to market prices of its debt. The Company’s long-term debt is not carried at fair value on the Consolidated Balance Sheets at |
(c) | The carrying value of the Company’s long-term debt is |
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.
1620
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBERJUNE 30, 20172021
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
_________________
EARNINGS PER COMMON SHARE
The following table provides the reconciliation between basic and diluted earnings per common share:
|
| For the three months ended |
|
| For the nine months ended |
|
| For the three months ended |
|
| For the six months ended |
| ||||||||||||||||||||
|
| September 30, |
|
| September 30, |
|
| September 30, |
|
| September 30, |
|
| June 30, |
|
| June 30, |
|
| June 30, |
|
| June 30, |
| ||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||
Earnings (loss) from continuing operations |
| $ | 38 |
|
| $ | (3 | ) |
| $ | 31 |
|
| $ | (18 | ) | ||||||||||||||||
(Loss) earnings from discontinued operations, net of taxes |
| $ | (1 | ) |
| $ | 22 |
|
| $ | (23 | ) |
| $ | 42 |
| ||||||||||||||||
Net earnings |
| $ | 70 |
|
| $ | 59 |
|
| $ | 128 |
|
| $ | 81 |
|
| $ | 37 |
|
| $ | 19 |
|
|
| 8 |
|
|
| 24 |
|
Weighted average number of common shares outstanding (millions) |
|
| 62.7 |
|
|
| 62.6 |
|
|
| 62.6 |
|
|
| 62.6 |
|
|
| 50.3 |
|
|
| 55.2 |
|
|
| 51.9 |
|
|
| 55.6 |
|
Effect of dilutive securities (millions) |
|
| 0.2 |
|
|
| 0.1 |
|
|
| 0.2 |
|
|
| 0.1 |
|
|
| 0.2 |
|
|
| 0.1 |
|
|
| 0.2 |
|
|
| 0.1 |
|
Weighted average number of diluted common shares outstanding (millions) |
|
| 62.9 |
|
|
| 62.7 |
|
|
| 62.8 |
|
|
| 62.7 |
|
|
| 50.5 |
|
|
| 55.3 |
|
|
| 52.1 |
|
|
| 55.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net earnings per common share (in dollars) |
| $ | 1.12 |
|
| $ | 0.94 |
|
| $ | 2.04 |
|
| $ | 1.29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations |
| $ | 0.76 |
|
| $ | (0.05 | ) |
| $ | 0.59 |
|
| $ | (0.32 | ) | ||||||||||||||||
(Loss) earnings from discontinued operations |
| $ | (0.02 | ) |
| $ | 0.39 |
|
| $ | (0.44 | ) |
| $ | 0.75 |
| ||||||||||||||||
Basic net earnings per common share |
| $ | 0.74 |
|
| $ | 0.34 |
|
| $ | 0.15 |
|
| $ | 0.43 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Diluted net earnings per common share (in dollars) |
| $ | 1.11 |
|
| $ | 0.94 |
|
| $ | 2.04 |
|
| $ | 1.29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) from continuing operations |
| $ | 0.75 |
|
| $ | (0.05 | ) |
| $ | 0.59 |
|
| $ | (0.32 | ) | ||||||||||||||||
(Loss) earnings from discontinued operations |
| $ | (0.02 | ) |
| $ | 0.39 |
|
| $ | (0.44 | ) |
| $ | 0.75 |
| ||||||||||||||||
Diluted net earnings per common share |
| $ | 0.73 |
|
| $ | 0.34 |
|
| $ | 0.15 |
|
| $ | 0.43 |
|
The following table provides the securities that could potentially dilute basic earnings per common share in the future, but were not included in the computation of diluted earnings per common share because to do so would have been anti-dilutive:
|
| For the three months ended |
|
| For the nine months ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
|
| September 30, |
|
| September 30, |
| ||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Options |
|
| 312,893 |
|
|
| 412,372 |
|
|
| 419,161 |
|
|
| 412,372 |
|
|
| For the three months ended |
|
| For the six months ended |
| ||||||||||
|
| June 30, |
|
| June 30, |
|
| June 30, |
|
| June 30, |
| ||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Options to purchase common shares |
|
| — |
|
|
| 409,776 |
|
|
| 76,123 |
|
|
| 409,776 |
|
1721
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBERJUNE 30, 20172021
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
NOTE 5. 7.
_________________
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 ninesix months ended SeptemberJune 30, 2017,2021, the pension expense was $9$8 million and $28$18 million, respectively (2016(2020 – $11$8 million and $29$19 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. thatwho are not grandfathered under the existing defined benefit pension plans, participate in a defined contribution pension plan for future service. The Company also sponsors a number of other post-retirement benefit plans for eligible U.S. and non-U.S. employees; the plans are unfunded and include life insurance programs and medical and dental benefits. The Company also provides supplemental unfunded defined benefit pension plans and supplemental unfunded defined contribution pension plans to certain senior management employees.
Components of net periodic benefit cost for pension plans and other post-retirement benefit plans:
|
| For the three months ended |
|
| For the nine months ended |
|
| For the three months ended |
|
| For the six months ended |
| ||||||||||||||||||||
|
| September 30, 2017 |
|
| September 30, 2017 |
|
| June 30, 2021 |
|
| June 30, 2021 |
| ||||||||||||||||||||
|
| 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 |
|
|
| 23 |
|
|
| 2 |
|
|
| 7 |
|
|
| — |
|
|
| 14 |
|
|
| — |
|
Interest expense |
|
| 13 |
|
|
| — |
|
|
| 38 |
|
|
| 2 |
|
|
| 8 |
|
|
| 1 |
|
|
| 16 |
|
|
| 1 |
|
Expected return on plan assets |
|
| (20 | ) |
|
| — |
|
|
| (60 | ) |
|
| — |
|
|
| (17 | ) |
|
| — |
|
|
| (33 | ) |
|
| — |
|
Amortization of net actuarial loss |
|
| 2 |
|
|
| — |
|
|
| 6 |
|
|
| — |
| ||||||||||||||||
Amortization of net actuarial loss (gain) |
|
| 2 |
|
|
| (1 | ) |
|
| 4 |
|
|
| (1 | ) | ||||||||||||||||
Settlement loss |
|
| 1 |
|
|
| — |
|
|
| 1 |
|
|
| — |
| ||||||||||||||||
Amortization of prior year service costs |
|
| 1 |
|
|
| — |
|
|
| 4 |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
Net periodic benefit cost |
|
| 4 |
|
|
| 1 |
|
|
| 11 |
|
|
| 4 |
|
|
| 2 |
|
|
| — |
|
|
| 3 |
|
|
| — |
|
Components of net periodic benefit cost for pension plans and other post-retirement benefit plans:
|
| For the three months ended |
|
| For the nine months ended |
|
| For the three months ended |
|
| For the six months ended |
| ||||||||||||||||||||
|
| September 30, 2016 |
|
| September 30, 2016 |
|
| June 30, 2020 |
|
| June 30, 2020 |
| ||||||||||||||||||||
|
| 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 |
|
| 7 |
|
|
| 1 |
|
|
| 23 |
|
|
| 2 |
|
|
| 7 |
|
|
| 1 |
|
|
| 14 |
|
|
| 1 |
|
Interest expense |
|
| 12 |
|
|
| — |
|
|
| 37 |
|
|
| 2 |
|
|
| 9 |
|
|
| 1 |
|
|
| 20 |
|
|
| 1 |
|
Expected return on plan assets |
|
| (19 | ) |
|
| — |
|
|
| (58 | ) |
|
| — |
|
|
| (17 | ) |
|
| — |
|
|
| (34 | ) |
|
| — |
|
Amortization of net actuarial loss |
|
| 1 |
|
|
| — |
|
|
| 3 |
|
|
| — |
| ||||||||||||||||
Amortization of net actuarial loss (gain) |
|
| 2 |
|
|
| (1 | ) |
|
| 4 |
|
|
| (1 | ) | ||||||||||||||||
Amortization of prior year service costs |
|
| 2 |
|
|
| — |
|
|
| 4 |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
Net periodic benefit cost |
|
| 3 |
|
|
| 1 |
|
|
| 9 |
|
|
| 4 |
|
|
| 2 |
|
|
| 1 |
|
|
| 5 |
|
|
| 1 |
|
22
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
NOTE 7. PENSION PLANS AND OTHER POST-RETIREMENT BENEFIT PLANS (CONTINUED)
The components of net periodic benefit cost for pension plans and other post-retirement benefits plans, other than service cost, are presented in Non-service components of net periodic benefit cost on the Consolidated Statement of Earnings and Comprehensive Income (Loss).
For the three and ninesix months ended SeptemberJune 30, 2017,2021, the Company contributed $38$5 million and $44$8 million, respectively (2016(2020 – $18$2 million and $27$4 million, respectively) to the pension plans and nil$1 million and $2 million, respectively (2016(2020 – $1 million and $3$2 million, respectively) to the other post-retirement benefit plans.
18
23
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBERJUNE 30, 20172021
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
NOTE 6. 8.
_________________
OTHER OPERATING LOSS (INCOME) LOSS,, NET
Other operating loss (income) loss,, net is an aggregate of both recurring and occasionalnon-recurring loss or income items and, as a result, can fluctuate from period to period. The Company’s other operating loss (income) loss,, net includes the following:
|
| For the three months ended |
|
| For the nine months ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
|
| September 30, |
|
| September 30, |
| ||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Gain on sale of property, plant and equipment |
|
| (4 | ) |
|
| — |
|
|
| (4 | ) |
|
| — |
|
Reversal of contingent consideration |
|
| (2 | ) |
|
| — |
|
|
| (2 | ) |
|
| — |
|
Bad debt expense |
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
Environmental provision |
|
| — |
|
|
| — |
|
|
| 2 |
|
|
| — |
|
Litigation settlement |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2 |
|
Foreign exchange loss |
|
| — |
|
|
| 1 |
|
|
| 1 |
|
|
| 5 |
|
Other |
|
| (1 | ) |
|
| (1 | ) |
|
| (4 | ) |
|
| (3 | ) |
Other operating (income) loss, net |
|
| (7 | ) |
|
| — |
|
|
| (6 | ) |
|
| 4 |
|
|
| For the three months ended |
|
| For the six months ended |
| ||||||||||
|
| June 30, |
|
| June 30, |
|
| June 30, |
|
| June 30, |
| ||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Bad debt expense |
|
| — |
|
|
| 1 |
|
|
| (2 | ) |
|
| 5 |
|
Environmental provision |
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| 1 |
|
Non-production agreement terminated |
|
| — |
|
|
| (7 | ) |
|
| — |
|
|
| (7 | ) |
Foreign exchange loss (gain) |
|
| 1 |
|
|
| 1 |
|
|
| 2 |
|
|
| (1 | ) |
Other |
|
| — |
|
|
| — |
|
|
| (2 | ) |
|
| (1 | ) |
Other operating loss (income), net |
|
| 1 |
|
|
| (5 | ) |
|
| (1 | ) |
|
| (3 | ) |
1924
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBERJUNE 30, 20172021
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
NOTE 7. 9.
_________________
INCOME TAXES
InFor the thirdsecond quarter of 2017,2021, the Company’s income tax expense was $3$16 million, consisting of a current income tax expense of $10$16 million and 0 deferred income tax expense. This compares to an income tax benefit of $11 million in the second quarter of 2020, consisting of a current income tax benefit of $2 million and a deferred income tax benefit of $7 million. This compares to an income tax expense of $16 million in the third quarter of 2016, consisting of a current income tax expense of $5 million and a deferred income tax expense of $11$9 million. The Company made income tax payments, net of refunds, of $3$8 million during the thirdsecond quarter of 2017.2021. The effective tax rate for the second quarter of 2021 was 4%30% compared with an effective tax rate of 21%79% in the thirdsecond quarter of 2016.2020. The effective tax rate for the thirdsecond quarter of 20172021 was impacted by certain transaction costs incurred during the quarter related to the potential acquisition of the Company by Paper Excellence which provided 0 tax benefit. The Company’s tax provision for interim periods is determined using an estimate of its annual effective tax rate and then adjusting for discrete items arising in that quarter. In each interim quarter the Company updates its estimate of the annual effective tax rate and, if the estimated annual tax rate changes, makes a cumulative adjustment in that quarter. The effective tax rate for the second quarter of 2020 was significantly impacted by such an adjustment. The effective tax rate for the second quarter of 2020 was also favorably impacted by the recognition of previously unrecognizedadditional tax benefits due to the expiration of certain statutes of limitations. The effective tax rates for both the third quarter of 2017 and third quarter of 2016 were impactedcredits in various jurisdictions, as well as by the finalization of certain estimatesCARES Act, which granted the ability to carry back tax losses generated in connectionthe U.S. in 2020 to a tax year with the filing of the Company’s 2016 and 2015 incomea higher statutory tax returns, respectively.rate.
In
For the first ninesix months of 2017,2021, the Company’s income tax expense was $17$16 million, consisting of a current income tax expense of $36$15 million and a deferred income tax expense of $1 million. This compares to an income tax benefit of $8 million in the first six months of 2020, consisting of a current income tax benefit of $5 million and a deferred income tax benefit of $19 million. This compares to an income tax expense of $19 million in the first nine months of 2016, consisting of a current income tax expense of $13 million and a deferred income tax expense of $6$3 million. The Company made income tax payments, net of refunds, of $18$1 million during the first ninesix months of 2017.2021. The effective tax rate was 12%34% compared to an effective tax rate of 19%32% in the first ninesix months of 2016.2020. The effective tax rate for the first ninesix months of 20172021 was favorablysignificantly impacted by certain transaction costs incurred during the recognition of previously unrecognized tax benefits, dueperiod related to the expiration of certain statutes of limitations as well as by various enacted law changes in several U.S. states. The effective tax rates for both the first nine months of 2017 and 2016 were impacted by the finalization of certain estimates in connection with the filingpotential acquisition of the Company’s 2016 and 2015 incomeCompany by Paper Excellence which provided 0 tax returns, respectively. Additionally, thebenefit. The effective tax rate for the first ninesix months of 20162020 was significantly impacted by our mix of earnings and loss in the approvalCompany’s major jurisdictions, by our recognition of additional tax credits in various jurisdictions, and by our ability to carry back U.S. tax losses generated in 2020 to a tax year with a higher statutory tax rate. These favorable impacts were partially offset by an increase in the valuation allowance related to the expected realization of certain U.S. state tax credit in the U.S.credits.
2025
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBERJUNE 30, 20172021
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
NOTE 8. 10.
_________________
INVENTORIES
The following table presents the components of inventories:
|
| September 30, |
|
| December 31, |
| June 30, |
|
| December 31, | ||
|
| 2017 |
|
| 2016 |
| 2021 |
|
| 2020 | ||
|
| $ |
|
| $ |
| $ |
|
| $ | ||
Work in process and finished goods |
|
| 429 |
|
| 413 |
|
| 304 |
|
| 321 |
Raw materials |
|
| 133 |
|
| 132 |
|
| 103 |
|
| 107 |
Operating and maintenance supplies |
|
| 225 |
|
| 214 |
|
| 210 |
|
| 202 |
|
|
| 787 |
|
| 759 |
|
| 617 |
|
| 630 |
2126
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBERJUNE 30, 20172021
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
NOTE 9. 11.
_________________
GOODWILLLEASES
Changes inIn the carrying valuenormal course of goodwillbusiness, the Company enters into operating and finance leases mainly for manufacturing and warehousing facilities, corporate offices, motor vehicles, mobile equipment and manufacturing equipment.
While the Company’s lease payments are generally fixed over the lease term, some leases may include price escalation terms that are fixed at the lease commencement date.
The Company has remaining lease terms ranging from 1 year to 12 years, some of which may include options to extend the leases for up to 10 years, and some of which may include options to terminate the leases within 1 year.
The components of lease expense were as follows:
| ||||
| ||||
|
| |||
|
| |||
|
| |||
|
|
|
|
|
| For the three months ended |
|
| For the six months ended |
|
| ||||||||||
|
|
|
|
|
| June 30, |
|
| June 30, |
|
| June 30, |
|
| June 30, |
|
| ||||
|
|
|
|
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
|
| ||||
|
|
|
|
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| ||||
Operating lease expense |
| 5 |
|
|
| 6 |
|
|
| 11 |
|
|
| 11 |
|
|
The goodwill at September 30, 2017 is entirely
Supplemental cash flow information related to the Personal Care reporting segment.leases was as follows:
|
|
|
|
|
|
|
|
|
| For the six months ended |
|
| |||||
|
|
|
|
|
|
|
|
|
| June 30, |
|
| June 30, |
|
| ||
|
|
|
|
|
|
|
|
|
| 2021 |
|
| 2020 |
|
| ||
|
|
|
|
|
|
|
|
|
| $ |
|
| $ |
|
| ||
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| |||||
| Operating cash flows from operating leases |
|
|
|
|
| 12 |
|
|
| 11 |
|
| ||||
| Operating cash flows from finance leases |
|
|
|
|
| 1 |
|
|
| — |
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Right-of-use assets obtained in exchange for lease liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| |||||
| Operating leases |
|
|
|
|
| 2 |
|
|
| 4 |
|
|
2227
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBERJUNE 30, 20172021
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
_________________
INTANGIBLE ASSETS
The following table presents the components of intangible assets: 11. LEASES (CONTINUED)
|
|
|
| September 30, 2017 |
|
| December 31, 2016 |
| ||||||||||||||||||
|
| Estimated useful lives (in years) |
| Gross carrying amount |
|
| Accumulated amortization |
|
| Net |
|
| Gross carrying amount |
|
| Accumulated amortization |
|
| Net |
| ||||||
|
|
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||
Definite-lived intangible assets subject to amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Water rights |
| 40 |
|
| 3 |
|
|
| (1 | ) |
|
| 2 |
|
|
| 3 |
|
|
| (1 | ) |
|
| 2 |
|
Customer relationships |
| 10 – 40 |
|
| 389 |
|
|
| (75 | ) |
|
| 314 |
|
|
| 369 |
|
|
| (60 | ) |
|
| 309 |
|
Technology |
| 7 – 20 |
|
| 8 |
|
|
| (3 | ) |
|
| 5 |
|
|
| 8 |
|
|
| (3 | ) |
|
| 5 |
|
Non-Compete |
| 9 |
|
| 1 |
|
|
| (1 | ) |
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 1 |
|
License rights |
| 12 |
|
| 29 |
|
|
| (11 | ) |
|
| 18 |
|
|
| 28 |
|
|
| (8 | ) |
|
| 20 |
|
|
|
|
|
| 430 |
|
|
| (91 | ) |
|
| 339 |
|
|
| 409 |
|
|
| (72 | ) |
|
| 337 |
|
Indefinite-lived intangible assets not subject to amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Water rights |
|
|
|
| 4 |
|
|
| — |
|
|
| 4 |
|
|
| 4 |
|
|
| — |
|
|
| 4 |
|
Trade names |
|
|
|
| 243 |
|
|
| — |
|
|
| 243 |
|
|
| 225 |
|
|
| — |
|
|
| 225 |
|
License rights |
|
|
|
| 6 |
|
|
| — |
|
|
| 6 |
|
|
| 6 |
|
|
| — |
|
|
| 6 |
|
Catalog rights |
|
|
|
| 40 |
|
|
| — |
|
|
| 40 |
|
|
| 36 |
|
|
| — |
|
|
| 36 |
|
Total |
|
|
|
| 723 |
|
|
| (91 | ) |
|
| 632 |
|
|
| 680 |
|
|
| (72 | ) |
|
| 608 |
|
Amortization expenseSupplemental balance sheet information related to intangible assets for the three and nine months ended September 30, 2017leases was $4 million and $14 million, respectively (2016 – $5 million and $14 million, respectively).
Amortization expense for the next five years related to intangible assets is expected to be as follows:
|
| 2017 |
| 2018 |
|
| 2019 |
|
| 2020 |
|
| 2021 |
| ||||
|
| $ |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Amortization expense related to intangible assets |
| 21 (1) |
|
| 21 |
|
|
| 21 |
|
|
| 21 |
|
|
| 21 |
|
|
|
|
|
|
|
|
|
|
| June 30, |
|
| December 31, |
|
| ||
|
|
|
|
|
|
|
|
|
| 2021 |
|
| 2020 |
|
| ||
|
|
|
|
|
|
|
|
|
| $ |
|
| $ |
|
| ||
Operating leases |
|
|
|
|
|
|
|
|
|
|
|
| |||||
| Operating leases right-of-use assets |
|
|
|
|
| 50 |
|
|
| 59 |
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Lease liabilities due within one year |
|
|
|
|
| 19 |
|
|
| 20 |
|
| ||||
| Long-term operating lease liabilities |
|
|
|
|
| 44 |
|
|
| 50 |
|
| ||||
|
|
|
|
|
|
| 63 |
|
|
| 70 |
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Finance leases |
|
|
|
|
|
|
|
|
|
|
|
| |||||
| Property, plant and equipment |
|
|
|
|
| 11 |
|
|
| 11 |
|
| ||||
| Accumulated depreciation |
|
|
|
|
| (3 | ) |
|
| (3 | ) |
| ||||
|
|
|
|
|
|
| 8 |
|
|
| 8 |
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Long-term debt due within one year |
|
|
|
|
| 1 |
|
|
| 1 |
|
| ||||
| Long-term debt |
|
|
|
|
| 9 |
|
|
| 9 |
|
| ||||
|
|
|
|
|
|
| 10 |
|
|
| 10 |
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
| Weighted-average remaining lease term |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| Operating leases |
|
|
|
| 4.5 years |
|
| 4.7 years |
|
| |||||
|
| Finance leases |
|
|
|
| 8.4 years |
|
| 8.8 years |
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
| Weighted-average discount rate |
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| Operating leases |
|
|
|
|
| 4.4 | % |
|
| 4.4 | % |
| |||
|
| Finance leases |
|
|
|
|
| 6.1 | % |
|
| 6.1 | % |
|
(1) Represents twelve months of amortization
2328
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBERJUNE 30, 20172021
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
Maturities of lease liabilities at June 30, 2021 were as follows:
|
|
|
|
|
|
|
| Operating leases |
|
| Finance leases |
|
| ||
|
|
|
|
|
|
|
| June 30, |
|
| June 30, |
|
| ||
|
|
|
|
|
|
|
| 2021 |
|
| 2021 |
|
| ||
|
|
|
|
|
|
|
| $ |
|
| $ |
|
| ||
2021 (1) |
|
|
|
|
|
|
|
| 10 |
|
|
| 1 |
|
|
2022 |
|
|
|
|
|
|
|
| 19 |
|
|
| 1 |
|
|
2023 |
|
|
|
|
|
|
|
| 15 |
|
|
| 2 |
|
|
2024 |
|
|
|
|
|
|
|
| 11 |
|
|
| 2 |
|
|
2025 |
|
|
|
|
|
|
|
| 6 |
|
|
| 1 |
|
|
Thereafter |
|
|
|
|
|
|
|
| 9 |
|
|
| 5 |
|
|
Total lease payments |
|
|
|
|
|
|
|
| 70 |
|
|
| 12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Imputed interest |
|
|
|
|
|
|
|
| 7 |
|
|
| 2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total lease liabilities |
|
|
|
|
|
|
|
| 63 |
|
|
| 10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) | Represents the remaining six months of 2021. |
29
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
NOTE 12.
_________________
CLOSURE AND RESTRUCTURING COSTS AND LIABILITY AND IMPAIRMENT OF PROPERTY, PLANT AND EQUIPMENTLONG-LIVED ASSETS
Plymouth, North Carolina millPaper Excellence to Acquire Domtar Corporation
On September 23, 2016,May 10, 2021, Domtar and Paper Excellence, a global diversified manufacturer of pulp and specialty, printing, writing, and packaging papers, entered into a business combination agreement under which the Company announced a plan to optimize fluff pulp manufacturing atPaper Excellence group of companies will acquire all of the Plymouth, North Carolina mill.issued and outstanding shares of Domtar common stock for $55.50 per share, in cash. The restructuring, whichall-cash transaction represents an enterprise value of approximately $3 billion. The transaction is expected to be completedclose in 2018, includes the permanent closuresecond half of 2021, subject to receipt of the required regulatory approvals and other customary closing conditions. As a pulp dryer and idlingresult, during the second quarter of assets, in addition to a workforce reduction of approximately 100 positions. The streamlining process will right-size2021, the mill to an annualized production target of approximately 380,000 metric tons of fluff pulp. The Company recorded $5$18 million of severance and termination coststransaction fees 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 its 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 pulp line 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 recorded $5 million and $29 million for the three and nine months ended September 30, 2016, respectively, of accelerated depreciation under Impairment of property, plant and equipment on the Consolidated Statement of Earnings and Comprehensive Income. Income (Loss).
Cost reduction program
The Company alsoimplemented a cost savings program. As part of this program, on August 7, 2020, the Company announced the permanent closure of the uncoated freesheet manufacturing at the Kingsport, Tennessee and Port Huron, Michigan mills, the remaining paper machine at the Ashdown, Arkansas mill and the converting center in Ridgefields, Tennessee. Additionally, on May 7, 2021, the Company announced the closure of the converting center in Dallas, Texas. These actions reduced the Company’s annual uncoated freesheet paper capacity by approximately 721,000 short tons, and resulted in a workforce reduction of approximately 750 employees. The Kingsport and Ashdown paper machines, which have been idled since April 2020, did not recommence operations. The Ridgefields converting center ceased operations at the end of the third quarter of 2020, while the Port Huron mill shut down at the end of February 2021 and the Dallas converting center ceased operations at the beginning of July 2021. For the three and six months ended June 30, 2021, the Company recorded $5$1 million and $26$7 million, respectively, of accelerated depreciation under Impairment of long-lived assets, $1 million and $4 million, respectively, of severance and termination costs, related to the fluff pulp conversion outage$1 million and $1 million, respectively, of pension settlement loss and $4 million and $4 million, respectively, of other costs under Closure and restructuring costs foron the threeConsolidated Statement of Earnings and nine months ended September 30, 2016. DuringComprehensive Income (Loss).
Conversion of Kingsport, Tennessee mill
The Company plans to enter the first quarterlinerboard market with the conversion of 2016,the Kingsport paper machine. Once in full operation, the mill will produce and market approximately 600,000 tons annually of high-quality recycled linerboard and medium, providing the Company recorded $1 millionwith a strategic footprint in a growing adjacent market. The conversion is expected to be completed by the end of severance and termination costs under Closure and restructuring costs.
Other costs
2022. The Company estimates the conversion cost to be approximately $350 million. For the three and ninesix months ended SeptemberJune 30, 2016, 2021, the Company recorded $5 million and $13 million, respectively, under Asset conversion costs on the Consolidated Statement of Earnings and Comprehensive Income (Loss).
Restart of the paper machine at Ashdown, Arkansas mill
On July 15, 2021, Domtar announced its intention to restart the paper machine at the Ashdown, Arkansas mill to add an additional 185,000 tons per year of uncoated freesheet production capacity to its manufacturing network. The increase is necessary to meet growing customer demand as the economy recovers from the COVID-19 pandemic. The additional paper capacity will result in a capacity reduction of 185,000 ADMT per year of baled SBSK pulp at the mill. However, it will not impact Ashdown's fluff pulp production capacity, or Domtar's commitment to serving its key hygiene customers around the world. Additionally, the Company has a dedicated team developing a kraft linerboard project for the Ashdown Mill, and the decision to restart the paper machine will not impact the Company's intention to produce containerboard and other packaging products at the facility. The machine is expected to resume full operation in January 2022 following a period of time to ramp up to full production. The Company estimates the restart will cost approximately $10 million.
30
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
NOTE 12. CLOSURE AND RESTRUCTURING COSTS AND IMPAIRMENT OF LONG-LIVED ASSETS (CONTINUED)
Other costs
During the second quarter of 2021, other costs related to previous and ongoing closures include nil and restructuring included $1 million respectively,of other costs (2020 – $1 million of severance and termination costs related to the Pulp and Paper reporting segment.costs).
2431
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBERJUNE 30, 20172021
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
NOTE 12.13.
_________________
LONG-TERM DEBT
4.4% UNSECURED NOTES
On April 8, 2021, the Company redeemed the 4.4% Notes, originally due in 2022, at a redemption price of 100% of the principal amount of $300 million, plus accrued and unpaid interest, as well as a make-whole premium of $11 million.
TERM LOAN
On March 11, 2021, the Company fully repaid its Term Loan Agreement, originally maturing on May 5, 2025, in the amount of $294 million and wrote-off $2 million of unamortized debt issuance costs related to this repayment.
32
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
NOTE 14.
_________________
CHANGES IN ACCUMULATED OTHER COMPREHENSIVE LOSS BY COMPONENT
The following table presents the changes in Accumulated other comprehensive loss by component(1)(1) for the ninesix months ended SeptemberJune 30, 20172021 and the year ended December 31, 2016:2020:
|
| Net derivative (losses) gains on cash flow hedges |
|
| Pension items(2) |
|
| Post-retirement benefit items(2) |
|
| Foreign currency items |
|
| Total |
|
| Net derivative gains (losses) on cash flow hedges |
|
| Pension items(2) |
|
| Post-retirement benefit items(2) |
|
| Foreign currency items |
|
| Total |
| ||||||||||
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||||
Balance at December 31, 2015 |
|
| (30 | ) |
|
| (190 | ) |
|
| (10 | ) |
|
| (271 | ) |
|
| (501 | ) | ||||||||||||||||||||
Balance at December 31, 2019 |
|
| (5 | ) |
|
| (197 | ) |
|
| 11 |
|
|
| (202 | ) |
|
| (393 | ) | ||||||||||||||||||||
Natural gas swap contracts |
|
| 4 |
|
| N/A |
|
| N/A |
|
| N/A |
|
|
| 4 |
|
|
| 1 |
|
| N/A |
|
| N/A |
|
| N/A |
|
|
| 1 |
| ||||||
Net investment hedge |
|
| (1 | ) |
| N/A |
|
| N/A |
|
| N/A |
|
|
| (1 | ) | |||||||||||||||||||||||
Currency options |
|
| 3 |
|
| N/A |
|
| N/A |
|
| N/A |
|
|
| 3 |
| |||||||||||||||||||||||
Foreign exchange forward contracts |
|
| 23 |
|
| N/A |
|
| N/A |
|
| N/A |
|
|
| 23 |
| |||||||||||||||||||||||
Net loss |
| N/A |
|
|
| (21 | ) |
|
| (1 | ) |
| N/A |
|
|
| (22 | ) | ||||||||||||||||||||||
Foreign currency items |
| N/A |
|
| N/A |
|
| N/A |
|
|
| 63 |
|
|
| 63 |
| |||||||||||||||||||||||
Other comprehensive income (loss) before reclassifications |
|
| 27 |
|
|
| (21 | ) |
|
| (1 | ) |
|
| 63 |
|
|
| 68 |
| ||||||||||||||||||||
Amounts reclassified from Accumulated other comprehensive loss |
|
| 12 |
|
|
| 11 |
|
|
| (2 | ) |
|
| — |
|
|
| 21 |
| ||||||||||||||||||||
Net current period other comprehensive income (loss) |
|
| 39 |
|
|
| (10 | ) |
|
| (3 | ) |
|
| 63 |
|
|
| 89 |
| ||||||||||||||||||||
Balance at December 31, 2020 |
|
| 34 |
|
|
| (207 | ) |
|
| 8 |
|
|
| (139 | ) |
|
| (304 | ) | ||||||||||||||||||||
Natural gas swap contracts |
|
| 9 |
|
| N/A |
|
| N/A |
|
| N/A |
|
|
| 9 |
| |||||||||||||||||||||||
Currency options |
|
| 8 |
|
| N/A |
|
| N/A |
|
| N/A |
|
|
| 8 |
|
|
| 3 |
|
| N/A |
|
| N/A |
|
| N/A |
|
|
| 3 |
| ||||||
Foreign exchange forward contracts |
|
| 16 |
|
| N/A |
|
| N/A |
|
| N/A |
|
|
| 16 |
|
|
| 15 |
|
| N/A |
|
| N/A |
|
| N/A |
|
|
| 15 |
| ||||||
Net gain |
| N/A |
|
|
| (38 | ) |
|
| (1 | ) |
| N/A |
|
|
| (39 | ) |
| N/A |
|
|
| 18 |
|
|
| — |
|
| N/A |
|
|
| 18 |
| ||||
Foreign currency items |
| N/A |
|
| N/A |
|
| N/A |
|
|
| (7 | ) |
|
| (7 | ) |
| N/A |
|
| N/A |
|
| N/A |
|
|
| 84 |
|
|
| 84 |
| ||||||
Other comprehensive income (loss) before reclassifications |
|
| 27 |
|
|
| (38 | ) |
|
| (1 | ) |
|
| (7 | ) |
|
| (19 | ) | ||||||||||||||||||||
Other comprehensive income before reclassifications |
|
| 27 |
|
|
| 18 |
|
|
| — |
|
|
| 84 |
|
|
| 129 |
| ||||||||||||||||||||
Amounts reclassified from Accumulated other comprehensive loss |
|
| 14 |
|
|
| 7 |
|
|
| — |
|
|
| — |
|
|
| 21 |
|
|
| (14 | ) |
|
| 8 |
|
|
| (1 | ) |
|
| — |
|
|
| (7 | ) |
Net current period other comprehensive income (loss) |
|
| 41 |
|
|
| (31 | ) |
|
| (1 | ) |
|
| (7 | ) |
|
| 2 |
|
|
| 13 |
|
|
| 26 |
|
|
| (1 | ) |
|
| 84 |
|
|
| 122 |
|
Balance at December 31, 2016 |
|
| 11 |
|
|
| (221 | ) |
|
| (11 | ) |
|
| (278 | ) |
|
| (499 | ) | ||||||||||||||||||||
Natural gas swap contracts |
|
| (3 | ) |
| N/A |
|
| N/A |
|
| N/A |
|
|
| (3 | ) | |||||||||||||||||||||||
Currency options |
|
| 13 |
|
| N/A |
|
| N/A |
|
| N/A |
|
|
| 13 |
| |||||||||||||||||||||||
Foreign exchange forward contracts |
|
| 1 |
|
| N/A |
|
| N/A |
|
| N/A |
|
|
| 1 |
| |||||||||||||||||||||||
Foreign currency items |
| N/A |
|
| N/A |
|
| N/A |
|
|
| 142 |
|
|
| 142 |
| |||||||||||||||||||||||
Other comprehensive income before reclassifications |
|
| 11 |
|
|
| — |
|
|
| — |
|
|
| 142 |
|
|
| 153 |
| ||||||||||||||||||||
Amounts reclassified from Accumulated other comprehensive loss |
|
| (6 | ) |
|
| 7 |
|
|
| — |
|
|
| — |
|
|
| 1 |
| ||||||||||||||||||||
Net current period other comprehensive income |
|
| 5 |
|
|
| 7 |
|
|
| — |
|
|
| 142 |
|
|
| 154 |
| ||||||||||||||||||||
Balance at September 30, 2017 |
|
| 16 |
|
|
| (214 | ) |
|
| (11 | ) |
|
| (136 | ) |
|
| (345 | ) | ||||||||||||||||||||
Balance at June 30, 2021 |
|
| 47 |
|
|
| (181 | ) |
|
| 7 |
|
|
| (55 | ) |
|
| (182 | ) |
(1) | All amounts are after tax. Amounts in |
(2) | The |
2533
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBERJUNE 30, 20172021
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
NOTE 12.14. CHANGES IN ACCUMULATED OTHER COMPREHENSIVE LOSS BY COMPONENT (CONTINUED)
The following table presentstables present reclassifications out of Accumulated other comprehensive loss:loss for the three and six months ended June 30, 2021 and 2020:
Details about Accumulated other comprehensive loss components |
| Amounts reclassified from Accumulated other comprehensive loss(1) |
|
|
| Amounts reclassified from Accumulated other comprehensive loss |
| ||||||||||
|
| For the three months ended |
|
|
| For the three months ended |
| ||||||||||
|
| September 30, 2017 |
|
| September 30, 2016 |
|
|
| June 30, 2021 |
|
| June 30, 2020 |
| ||||
|
| $ |
|
| $ |
|
|
| $ |
|
| $ |
| ||||
Net derivative (losses) gains on cash flow hedge |
|
|
|
|
|
|
|
|
| ||||||||
Net derivative gains (losses) on cash flow hedge |
|
|
|
|
|
|
|
| |||||||||
Natural gas swap contracts |
|
| 1 |
|
|
| 2 |
| (2) |
|
| (1 | ) |
|
| (3 | ) |
Currency options and forwards |
|
| (5 | ) |
|
| 1 |
| (2) |
|
| 16 |
|
|
| (5 | ) |
Total before tax |
|
| (4 | ) |
|
| 3 |
|
|
|
| 15 |
|
|
| (8 | ) |
Tax benefit (expense) |
|
| 2 |
|
|
| (2 | ) |
| ||||||||
Tax (expense) benefit |
|
| (3 | ) |
|
| 2 |
| |||||||||
Net of tax |
|
| (2 | ) |
|
| 1 |
|
|
|
| 12 |
|
|
| (6 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of defined benefit pension items |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net actuarial loss and prior year service cost |
|
| 3 |
|
|
| 2 |
| (3) | ||||||||
Amortization of net actuarial loss (3) |
|
| (3 | ) |
|
| (2 | ) | |||||||||
Amortization of prior year service costs (3) |
|
| (1 | ) |
|
| (1 | ) | |||||||||
Total before tax |
|
| (4 | ) |
|
| (3 | ) | |||||||||
Tax benefit |
|
| 1 |
|
|
| — |
| |||||||||
Net of tax |
|
| (3 | ) |
|
| (3 | ) | |||||||||
|
|
|
|
|
|
|
|
| |||||||||
Amortization of other post-retirement benefit items |
|
|
|
|
|
|
|
| |||||||||
Amortization of net actuarial gain (3) |
|
| 1 |
|
|
| 1 |
| |||||||||
Total before tax |
|
| 1 |
|
|
| 1 |
| |||||||||
Tax expense |
|
| (1 | ) |
|
| — |
|
|
|
| — |
|
|
| — |
|
Net of tax |
|
| 2 |
|
|
| 2 |
|
|
|
| 1 |
|
|
| 1 |
|
34
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
NOTE 14. CHANGES IN ACCUMULATED OTHER COMPREHENSIVE LOSS BY COMPONENT (CONTINUED)
|
| Amounts reclassified from Accumulated other comprehensive loss |
| |||||
|
| For the six months ended |
| |||||
|
| June 30, 2021 |
|
| June 30, 2020 |
| ||
|
| $ |
|
| $ |
| ||
Net derivatives gains (losses) on cash flow hedge |
|
|
|
|
|
|
|
|
Natural gas swap contracts (1) |
|
| (1 | ) |
|
| (8 | ) |
Currency options and forwards (1) |
|
| 26 |
|
|
| (9 | ) |
Net investment hedge (2) |
|
| (9 | ) |
|
| — |
|
Total before tax |
|
| 16 |
|
|
| (17 | ) |
Tax (expense) benefit |
|
| (2 | ) |
|
| 4 |
|
Net of tax |
|
| 14 |
|
|
| (13 | ) |
|
|
|
|
|
|
|
|
|
Amortization of defined benefit pension items |
|
|
|
|
|
|
|
|
Amortization of net actuarial loss (3) |
|
| (5 | ) |
|
| (4 | ) |
Amortization of prior year service costs (3) |
|
| (1 | ) |
|
| (1 | ) |
Discontinued operations |
|
| (4 | ) |
|
| — |
|
Total before tax |
|
| (10 | ) |
|
| (5 | ) |
Tax benefit |
|
| 2 |
|
|
| 1 |
|
Net of tax |
|
| (8 | ) |
|
| (4 | ) |
|
|
|
|
|
|
|
|
|
Amortization of other post-retirement benefit items |
|
|
|
|
|
|
|
|
Amortization of net actuarial gain (3) |
|
| 1 |
|
|
| 1 |
|
Total before tax |
|
| 1 |
|
|
| 1 |
|
Tax expense |
|
| — |
|
|
| — |
|
Net of tax |
|
| 1 |
|
|
| 1 |
|
Details about Accumulated other comprehensive loss components |
| Amounts reclassified from Accumulated other comprehensive loss(1) |
|
| |||||
|
| For the nine months ended |
|
| |||||
|
| September 30, 2017 |
|
| September 30, 2016 |
|
| ||
|
| $ |
|
| $ |
|
| ||
Net derivative (losses) gains on cash flow hedges |
|
|
|
|
|
|
|
|
|
Natural gas swap contracts |
|
| — |
|
|
| 12 |
| (2) |
Currency options and forwards |
|
| (10 | ) |
|
| 12 |
| (2) |
Total before tax |
|
| (10 | ) |
|
| 24 |
|
|
Tax benefit (expense) |
|
| 4 |
|
|
| (10 | ) |
|
Net of tax |
|
| (6 | ) |
|
| 14 |
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of defined benefit pension items |
|
|
|
|
|
|
|
|
|
Amortization of net actuarial loss and prior year service cost |
|
| 10 |
|
|
| 7 |
| (3) |
Tax expense |
|
| (3 | ) |
|
| (2 | ) |
|
Net of tax |
|
| 7 |
|
|
| 5 |
|
|
|
|
| These amounts are included in Cost of Sales in the Consolidated Statements of Earnings and Comprehensive |
| This amount is included in (Loss) earnings from discontinued operations, net of taxes in the Consolidated Statements of Earnings and Comprehensive Income (Loss). |
(3) | These amounts are included in the computation of net periodic benefit cost (see Note |
2635
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBERJUNE 30, 20172021
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
NOTE 13. 15.
_________________
SHAREHOLDERS’ EQUITY
DIVIDENDS
On February 21, 2017, May 3, 2017, and August 1, 2017,18, 2020, the Company’s Board of Directors approved a quarterly dividend of $0.42 per share, respectively, to be paid to holders of the Company’s common stock. Dividends of $26 million were paid on April 17, 2017, July 17, 2017 and October 16, 2017, respectively, to shareholders of record on April 3, 2017, July 3, 2017 and October 2, 2017, respectively.
On October 31, 2017, the Company’s Board of Directors approved a quarterly dividend of $0.42$0.455 per share, to be paid to holders of the Company’s common stock. This dividend is to beTotal dividends of approximately $25 million were paid on JanuaryApril 15, 2018,2020 to shareholders of record on JanuaryApril 2, 2018.2020. On May 5, 2020, due to the unprecedented market conditions and uncertainty caused by COVID-19, the Company suspended the payment of its regular quarterly dividend and stock repurchase program in order to preserve cash and provide additional flexibility in the current environment.
STOCK REPURCHASE PROGRAM
The Company’s Board of Directors has authorized a stock repurchase program (the “Program”) of up to $1.3$1.6 billion. Under the Program, theThe Company is authorized to repurchase, from time to time, shares of its outstanding common stock on the open market or in privately negotiated transactions. The timing and amount of stock repurchases will depend on a variety of factors, including the market conditions as well as corporate and regulatory considerations. The Program may be suspended, modified or discontinued at any time, and the Company has no obligation to repurchase any amount of its common stock under the Program. The Program has no set expiration date. The Company repurchases its common stock in part to reduce the dilutive effects of stock options and awards, and to improve shareholders’ returns.
The Company makes open market purchases of its common stock using general corporate funds. Additionally, the Company may enter into structured stock repurchase agreements with large financial institutions using general corporate funds in order to lower the average cost to acquire shares. The agreements would require the Company to make up-front payments to the counterparty financial institutions, which would result in either the receipt of stock at the beginning of the term of the agreements followed by a share adjustment at the maturity of the agreements, or the receipt of either stock or cash at the maturity of the agreements, depending upon the price of the stock.
On February 11, 2021, the Company announced that it would resume its stock repurchase program. The Board of Directors will continue to evaluate the Company’s capital return program based upon customary considerations, including market conditions.
On March 2, 2021, the Company announced that it entered into an accelerated share repurchase (“ASR”) agreement with JPMorgan Chase Bank, N.A. to repurchase $200 million of its common stock with available cash on hand, including cash received from the divestiture of its Personal Care segment closed on March 1, 2021.
Under the ASR agreement, the Company paid $200 million in exchange for an initial delivery of 4,430,906 shares. The final number of shares to be repurchased by Domtar will be based on the average of the daily volume-weighted average stock prices of Domtar’s common stock during the valuation period of the agreement, less a discount and subject to adjustments. The resulting adjustments may affect the total amount spent by the Company or the aggregate number of shares it repurchases.
During the first ninesix months of 2017, there were no shares repurchased under2021, in addition to the Program.
During the first nine months of 2016,ASR, the Company repurchased 304,915629,959 shares at an average price of $32.21$35.72 for a total cost of $10$23 million.
SinceDuring the inceptionfirst six months of the Program,2020, the Company has repurchased 24,853,8271,798,306 shares at an average price of $39.33$33.05 for a total cost of $977$59 million. All shares repurchased are recorded as Treasury stock on the Consolidated Balance Sheets under the par value method at $0.01 per share.
2736
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBERJUNE 30, 20172021
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
_________________
COMMITMENTS AND CONTINGENCIES
ENVIRONMENTENVIRONMENTAL MATTERS
The Company is subject to environmental laws and regulations enacted by federal, provincial, state and local authorities. The Company may also incur substantial costs in relation to enforcement actions (including orders requiring corrective measures, installation of pollution control equipment or other remedial actions) as a result of violations of, or liabilities under, environmental laws and regulations applicable to its past and present properties. The Company’s ongoing efforts to identify potential environmental concerns that may be associated with such properties may result in additional environmental costs and liabilities which cannot be reasonably estimated at this time.
A former owner of the Company’s Dryden, Ontario manufacturing site (the "Dryden Property") operated a chlor-alkali plant during the 1960s and 1970s, during which time, mercury and other pollutants were used and discharged into the environment. In conjunction with the sale and redevelopment of the Dryden Property, the Province of Ontario (the “Province”) provided a broad indemnity (the "Indemnity") in 1985 to the then purchaser of the Dryden Property and its successors and assigns with respect to the discharge of any pollutants, including mercury, by the historical operators of the Dryden Property. This Indemnity subsequently was assigned to the Company in connection with its 2007 purchase of the Dryden Property.
As the current owner of the Dryden Property, the Company is actively engaged with the Province with respect to the management of the historical contamination.
The Province issued a Director's order under environmental laws to certain prior owners of the Dryden Property in connection with a nearby waste disposal site that never has been owned by the Company. The Director's order required certain work to be conducted by those prior owners. The prior owners asserted that the Indemnity covered the work required by the Director’s order. Following extensive litigation, the Supreme Court of Canada found, among other things, that the Indemnity covered third-party claims, but not first-party claims, such as the Director's order.
In the future, the Province may challenge whether the Company has the benefit of the Indemnity. In addition to the Indemnity, Domtar has other recourses relating to the historical contamination.
The situation involving the historical contamination is continuing to develop, and the Company cannot predict its outcome. While the Company currently does not believe that it will be required to incur costs that would have a material impact on its results of operations or financial condition, there is no certainty that this is in fact the case.
The following table reflects changes in the reserve for environmental remediation and asset retirement obligations:
|
|
|
| |
|
| $ |
| |
Balance at beginning of year |
|
|
|
|
Additions and other changes |
|
|
|
|
Environmental spending |
|
| ( | ) |
|
| |||
Balance at end of period |
|
|
|
|
The Company is subject to environmental laws and regulations enacted by federal, provincial, state and local authorities.
On February 16, 2010, the government of British Columbia issued a Remediation Order to Seaspan International Ltd. (“Seaspan”) and the Company, in order to define and implement a remediation plan to address soil, sediment and groundwater issues. Construction began in January 2017 and is expected to be completed in 2019. The Company previously recorded an environmental reserve to address its estimated exposure. The possible cost in excess of the reserve is not considered to be material for this matter.
The U.S. Environmental Protection Agency (“EPA”(the “EPA”) and/or various state agencies have notified the Company that it may be a potentially responsible party under the Comprehensive Environmental Response Compensation and Liability Act, commonly known as “Superfund,” and similar state laws with respect to other hazardous waste sites as to which no proceedings have been instituted against the Company. The Company continues to take remedial action under its Care and Control Program at its former wood preserving sites, and at a number of former operating sites due to possible soil, sediment or groundwater contamination.
Climate change regulation
Various national and local laws and regulations have been established or are emerging in jurisdictions where the Company currently has, or may have in the future, manufacturing facilities or investments. The Company does not expect to be disproportionately affected by these measures compared with other pulp and paper producers located in these jurisdictions.contamination.
The United States EPA Clean Power Plan regulation is being litigated and has been stayed. EPA is also proposing to repeal the Clean Power Plan in accordance with President Trump’s Executive Order issued on March 28, 2017. The EPA has filed a motion with the D.C. Circuit to hold the case in abeyance while it reconsiders the rule, which the D.C. Circuit granted in part to allow time for additional briefing on how and whether the litigation should proceed. Regardless of the outcome for the Clean Power Plan, the Company does not expect to be disproportionately affected compared with other pulp and paper producers located in the states where the Company operates.
The Government of Canada is reviewing national policies to further reduce greenhouse gases (“GHG”) and has announced its intent to impose a cost on carbon emissions. The Company does not expect its facilities to be disproportionately affected by these measures compared with other pulp and paper producers in Canada.
2837
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBERJUNE 30, 20172021
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
NOTE 14.16. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The provinces of Quebec and Ontario have GHG cap-and-trade systems with reduction targets. British Columbia has a carbon tax that applies to the purchase of fossil fuels within the province. The Company does not expect to be disproportionately affected compared to the other pulp and paper producers located in these provinces.
CONTINGENCIES
In the normal course of operations, the Company becomes involved in various legal actions mostly related to contract disputes, patent infringements, environmental and product warranty claims, and labor issues. While the final outcome with respect to actions outstanding or pending at SeptemberJune 30, 20172021, cannot be predicted with certainty, it is management’s opinion that their resolution will not have a material adverse effect on the Company’s financial position, results of operations or cash flows.
Spanish Competition Investigation
On October 15, 2015, the Competition Directorate of Spain’s National Commission of Markets and Competition (“CNMC”) filed a Statement of Objections against a number of industry participants alleging the existence of a series of agreements between manufacturers, distributors and pharmacists to fix prices and to allocate margins for heavy adult incontinence products within the pharmacy channel in Spain during the period from December 1996 through January 2014. Among the parties named in the Statement of Objections was Indas, which the Company acquired in January 2014, and two of its affiliates.
On January 4, 2016, the Competition Directorate issued a proposed decision confirming the allegations of the Statement of Objections. The proposed decision recommended the imposition of fines on the parties without recommending the amount of any fines. The Company recorded a €0.2 million ($0.2 million) provision in the fourth quarter of 2015 in Other operating (income) loss, net.
On May 26, 2016, the CNMC rendered its final decision, which declared that a number of manufacturers of adult heavy incontinence products, the sector association and certain individuals participated in price fixing during the period from December 1996 through January 2014. Indas and one of its subsidiaries were fined a total of €13.5 million ($14.9 million) for their participation. A provision was recorded in the second quarter of 2016 in the amount of €13.3 million ($14.7 million) in Other operating (income) loss, net.
The sellers of Indas made representations and warranties to the Company in the purchase agreement regarding, among other things, Indas’ and its subsidiary’s compliance with competition laws. The liability retained by the sellers was backed by a retained purchase price of €3 million ($3.3 million) and bank guarantees of €9 million ($9.9 million).
On June 27, 2016, in light of the CNMC decision, the sellers, in terms of their indemnity obligations, agreed to the appropriation by the Company of the retained purchase price and the release of the bank guarantees. Accordingly, a recovery of €12 million ($13.2 million) was recorded in the second quarter of 2016 and included in Other operating (income) loss, net.
In July 2016, the fines were paid and Indas and two of its affiliates named in the final decision appealed the decision to the Spanish courts.
The Company purchased limited insurance coverage with respect to the purchase agreement, and is seeking to recover the remaining €1.5 million ($1.7 million) under the insurance policy. Any recovery from the insurers would be recorded in the period when the proceeds are received.
29
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
NOTE 14. COMMITMENTS AND CONTINGENCIES (CONTINUED)
In the normal course of business, the Company offers indemnifications relating to the sale of its businesses and real estate. In general, these indemnifications may relate to claims from past business operations, compliance with laws, the failure to abide by covenants and the breach of representations and warranties included in the sales agreements. Typically, such representations and warranties relate to taxation, environmental, product and employee matters. The terms of these indemnification agreements are generally for an unlimited period of time. At SeptemberJune 30, 2017,2021, the Company is unable to estimate the potential maximum liabilities for these types of indemnification guarantees as the amounts are contingent upon the outcome of future events, the nature and likelihood of which cannot be reasonably estimated at this time. Accordingly, no0 provision has been recorded. These indemnifications have not yielded a significant expense in the past.
Pension Plans
The Company has indemnified and held harmless the trustees of its pension funds, and the respective officers, directors, employees and agents of such trustees, from any and all costs and expenses arising out of the performance of their obligations under the relevant trust agreements, including in respect of their reliance on authorized instructions from the Company or for failing to act in the absence of authorized instructions. These indemnifications survive the termination of such agreements. At Septemberagreements. As of June 30, 2017,2021, the Company has not0t recorded a liability associated with these indemnifications, as it does not expect to make any payments pertaining to these indemnifications.
CLIMATE CHANGE AND AIR QUALITY REGULATION
Various national and local laws and regulations relating to climate change have been established or are emerging in jurisdictions where the Company currently has, or may have in the future, manufacturing facilities or investments.
The EPA repealed the Clean Power Plan and replaced it with the “Affordable Clean Energy” (“ACE”) rule. The ACE rule was legally challenged in the U.S. Court of Appeals for the D.C. Circuit. The Court ruled the EPA wrongly understood the Clean Air Act vacated the ACE rule, sending it back to EPA for further consideration. The court also rejected the embedded repeal of the Clean Power Plan, but the court stayed its mandate as to that part of its decision to avoid reinstating that now outdated Clean Power Plan. Four petitions of certiorari have been filed with the United States Supreme Court seeking review of the D.C. Circuit’s decision, and the Supreme Court is expected to decide whether to take the case this Fall. Regardless of the outcome of the petitions for certiorari and EPA’s further consideration, the Company does not expect to be disproportionately affected compared with other pulp and paper producers located in the states where the Company operates.
30The province of Quebec has a greenhouse gas (“GHG”) cap-and-trade system with reduction targets. British Columbia has a carbon tax that applies to the purchase of fossil fuels within the province. The Company does not expect its facilities to be disproportionately affected by these measures compared to the other pulp and paper producers located in these provinces.
The Government of Canada has established a federal carbon pricing system in provinces that do not already impose a cost on carbon emissions. The Government of Canada has imposed its carbon pricing program for regulating GHG emissions in Ontario, which took effect on January 1, 2019. To reduce GHG emissions and recognize the unique circumstances of the province’s diverse economy, Ontario finalized its own GHG Emission Performance Standards regulation. The Canadian Government has accepted Ontario’s program as an alternative to the federal program and the transition for Ontario facilities from the federal program to the Ontario program is expected to occur on January 1, 2022. The Company does not expect to be disproportionately affected compared with other pulp and paper producers located in Ontario.
38
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBERJUNE 30, 20172021
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
NOTE 15. 16. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The EPA proposed to revise its Industrial Boiler Maximum Achievable Control Technology Standard (“MACT”), or Boiler MACT, in a notice published on August 24, 2020. The proposed rule is a response to two court decisions that remanded certain issues for further review by the EPA, and it includes revisions to 34 different emission limitations that could apply to some of the Company’s facilities. The EPA has indicated that it plans to issue the final rule in September 2021. Although the EPA has indicated that a small number of facilities may need to reduce emissions further compared to the current limits, the Company does not expect its facilities to be disproportionately affected compared to other U.S. pulp and paper producers.
39
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
NOTE 17.
_________________
SEGMENT DISCLOSURES
The Company’s two reportable segments described below also represent its two operating segments. Each reportable segment offers different products and services and requires different manufacturing processes, technology and marketing strategies. The following summary briefly describesFollowing the operations included in eachsale of the Company’s reportable segments:
Pulp and Paper – consists of the design, manufacturing, marketing and distribution of communication, specialty and packaging papers, as well as softwood, fluff and hardwood market pulp.
Personal Care – consists ofbusiness on March 1, 2021, the design, manufacturing, marketing and distribution of absorbent hygiene products.Company now operates as a single reportable segment as described below, which also represents its only operating segment:
• | Pulp and Paper – consists of the design, manufacturing, marketing and distribution of communication, specialty and packaging papers, as well as softwood, hardwood and fluff pulp, and high quality airlaid ultrathin laminated cores. |
An analysis and reconciliation of the Company’s business segment information to the respective information in the financial statements is as follows:
|
| For the three months ended |
|
| For the nine months ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
|
| September 30, |
|
| September 30, |
| ||||
SEGMENT DATA |
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Sales by segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pulp and Paper |
|
| 1,054 |
|
|
| 1,054 |
|
|
| 3,126 |
|
|
| 3,193 |
|
Personal Care |
|
| 253 |
|
|
| 231 |
|
|
| 743 |
|
|
| 675 |
|
Total for reportable segments |
|
| 1,307 |
|
|
| 1,285 |
|
|
| 3,869 |
|
|
| 3,868 |
|
Intersegment sales |
|
| (15 | ) |
|
| (15 | ) |
|
| (49 | ) |
|
| (44 | ) |
Consolidated sales |
|
| 1,292 |
|
|
| 1,270 |
|
|
| 3,820 |
|
|
| 3,824 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales by product group |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Communication papers |
|
| 597 |
|
|
| 638 |
|
|
| 1,798 |
|
|
| 1,952 |
|
Specialty and packaging papers |
|
| 167 |
|
|
| 172 |
|
|
| 486 |
|
|
| 518 |
|
Market pulp |
|
| 275 |
|
|
| 229 |
|
|
| 793 |
|
|
| 679 |
|
Absorbent hygiene products |
|
| 253 |
|
|
| 231 |
|
|
| 743 |
|
|
| 675 |
|
Consolidated sales |
|
| 1,292 |
|
|
| 1,270 |
|
|
| 3,820 |
|
|
| 3,824 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization of property, plant and equipment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pulp and Paper |
|
| 63 |
|
|
| 71 |
|
|
| 190 |
|
|
| 216 |
|
Personal Care |
|
| 17 |
|
|
| 16 |
|
|
| 49 |
|
|
| 47 |
|
Total for reportable segments |
|
| 80 |
|
|
| 87 |
|
|
| 239 |
|
|
| 263 |
|
Impairment of property, plant and equipment - Pulp and Paper |
|
| — |
|
|
| 5 |
|
|
| — |
|
|
| 29 |
|
Consolidated depreciation and amortization and impairment of property, plant and equipment |
|
| 80 |
|
|
| 92 |
|
|
| 239 |
|
|
| 292 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pulp and Paper |
|
| 93 |
|
|
| 89 |
|
|
| 192 |
|
|
| 143 |
|
Personal Care |
|
| 8 |
|
|
| 15 |
|
|
| 37 |
|
|
| 44 |
|
Corporate |
|
| (12 | ) |
|
| (12 | ) |
|
| (34 | ) |
|
| (38 | ) |
Consolidated operating income |
|
| 89 |
|
|
| 92 |
|
|
| 195 |
|
|
| 149 |
|
Interest expense, net |
|
| 16 |
|
|
| 17 |
|
|
| 50 |
|
|
| 49 |
|
Earnings before income taxes |
|
| 73 |
|
|
| 75 |
|
|
| 145 |
|
|
| 100 |
|
Income tax expense |
|
| 3 |
|
|
| 16 |
|
|
| 17 |
|
|
| 19 |
|
Net earnings |
|
| 70 |
|
|
| 59 |
|
|
| 128 |
|
|
| 81 |
|
|
| For the three months ended |
|
| For the six months ended |
| ||||||||||
SEGMENT DATA |
| June 30, 2021 |
|
| June 30, 2020 |
|
| June 30, 2021 |
|
| June 30, 2020 |
| ||||
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
Sales by product group |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Communication papers |
|
| 498 |
|
|
| 385 |
|
|
| 986 |
|
|
| 1,008 |
|
Specialty and packaging papers |
|
| 145 |
|
|
| 127 |
|
|
| 282 |
|
|
| 277 |
|
Market pulp |
|
| 357 |
|
|
| 278 |
|
|
| 665 |
|
|
| 525 |
|
Absorbent core materials |
|
| 10 |
|
|
| 12 |
|
|
| 21 |
|
|
| 23 |
|
Consolidated sales |
|
| 1,010 |
|
|
| 802 |
|
|
| 1,954 |
|
|
| 1,833 |
|
Operating income (loss) from continuing operations (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pulp and Paper |
|
| 95 |
|
|
| 3 |
|
|
| 107 |
|
|
| 7 |
|
Corporate |
|
| (27 | ) |
|
| (7 | ) |
|
| (37 | ) |
|
| (12 | ) |
Consolidated operating income (loss) from continuing operations |
|
| 68 |
|
|
| (4 | ) |
|
| 70 |
|
|
| (5 | ) |
Interest expense, net |
|
| 20 |
|
|
| 15 |
|
|
| 35 |
|
|
| 29 |
|
Non-service components of net periodic benefit cost |
|
| (6 | ) |
|
| (5 | ) |
|
| (12 | ) |
|
| (9 | ) |
Earnings (loss) before income taxes and equity loss |
|
| 54 |
|
|
| (14 | ) |
|
| 47 |
|
|
| (25 | ) |
Income tax expense (benefit) |
|
| 16 |
|
|
| (11 | ) |
|
| 16 |
|
|
| (8 | ) |
Equity method investment loss, net of taxes |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
Earnings (loss) from continuing operations |
|
| 38 |
|
|
| (3 | ) |
|
| 31 |
|
|
| (18 | ) |
(Loss) earnings from discontinued operations, net of taxes |
|
| (1 | ) |
|
| 22 |
|
|
| (23 | ) |
|
| 42 |
|
Net earnings |
|
| 37 |
|
|
| 19 |
|
|
| 8 |
|
|
| 24 |
|
31
(1) | The Government of Canada created the Canada Emergency Wage Subsidy (“CEWS”) to provide financial support for businesses during the COVID-19 pandemic and prevent large layoffs. For the six months ended June 30, 2021, the Company recognized $6 million as a reduction of costs related to this program (CDN $8 million) ($5 million in Cost of sales (CDN $6 million) and $1 million in Selling, general and administrative (CDN $2 million)). |
40
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBERJUNE 30, 20172021
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
_________________
SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION
The following information is presented as required under Rule 3-10 of Regulation S-X, in connection with the Company’s issuance of debt securities that are fully and unconditionally guaranteed by Domtar’s significant 100% owned domestic subsidiaries, including Domtar Paper Company, LLC, a 100% owned subsidiary of the Company, Domtar Industries LLC (and subsidiaries, excluding Domtar Funding LLC), Domtar A.W. LLC, Attends Healthcare Products Inc.,and EAM Corporation, Associated Hygienic Products LLC and Home Delivery Incontinent Supplies Co., all 100% owned subsidiaries of the Company (“Guarantor Subsidiaries”), on a joint and several basis. Pursuant to the amendment and restatement of the 2016 Credit Agreement on August 18, 2016, theThe Guaranteed Debt willis not be guaranteed by certain of Domtar’s foreign and non-significant domestic subsidiaries, all 100% owned, subsidiaries; including Domtar Delaware Holdings Inc. and its foreign subsidiaries, including Attends Healthcare Limited, Domtar Inc. and Laboratorios Indas. S.A.U.. Also excluded are Ariva Distribution Inc., Domtar Delaware Investments Inc., Domtar Delaware Holdings LLC, Domtar AI Inc., Domtar Personal Care Absorbent Hygiene Inc., Domtar Wisconsin Dam Corp. and Palmetto Enterprises LLC, (collectively the “Non-Guarantor Subsidiaries”). TheA subsidiary’s guarantee may be released in certain customary circumstances, such as if the subsidiary is sold or sells all of its assets, if the subsidiary’s guarantee of the Credit Agreement is terminated or released and if the requirements for legal defeasance to discharge the indenture have been satisfied.
Prior to the sale of the Company’s Personal Care Business on March 1, 2021, Attends Healthcare Products Inc., Associated Hygienic Products LLC and Home Delivery Incontinent Supplies Co, were Guarantor Subsidiaries.
The following supplemental condensed consolidating financial information sets forth, on an unconsolidated basis, the Balance Sheets at SeptemberJune 30, 20172021 and December 31, 2016,2020, the Statements of Earnings and Comprehensive Income (Loss) for the three and ninesix months ended SeptemberJune 30, 20172021 and 20162020 and the Statements of Cash Flows for the ninesix months ended SeptemberJune 30, 20172021 and 20162020 for Domtar Corporation (the “Parent”), and on a combined basis for the Guarantor Subsidiaries and, on a combined basis, the Non-Guarantor Subsidiaries. The supplemental condensed consolidating financial information reflects the investments of the Parent in the Guarantor Subsidiaries, as well as the investments of the Guarantor Subsidiaries in the Non-Guarantor Subsidiaries, using the equity method.
|
| For the three months ended |
|
| For the three months ended |
| ||||||||||||||||||||||||||||||||||
|
| September 30, 2017 |
|
| June 30, 2021 |
| ||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| Non- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Non- |
|
|
|
|
|
|
|
|
| ||
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS |
|
|
|
|
| Guarantor |
|
| Guarantor |
|
| Consolidating |
|
|
|
|
|
|
|
|
|
| Guarantor |
|
| Guarantor |
|
| Consolidating |
|
|
|
|
| ||||||
AND COMPREHENSIVE INCOME |
| Parent |
|
| Subsidiaries |
|
| Subsidiaries |
|
| Adjustments |
|
| Consolidated |
|
| Parent |
|
| Subsidiaries |
|
| Subsidiaries |
|
| Adjustments |
|
| Consolidated |
| ||||||||||
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||||
Sales |
|
| — |
|
|
| 1,059 |
|
|
| 522 |
|
|
| (289 | ) |
|
| 1,292 |
|
|
| — |
|
|
| 857 |
|
|
| 415 |
|
|
| (262 | ) |
|
| 1,010 |
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales, excluding depreciation and amortization |
|
| — |
|
|
| 901 |
|
|
| 400 |
|
|
| (289 | ) |
|
| 1,012 |
|
|
| — |
|
|
| 728 |
|
|
| 323 |
|
|
| (262 | ) |
|
| 789 |
|
Depreciation and amortization |
|
| — |
|
|
| 58 |
|
|
| 22 |
|
|
| — |
|
|
| 80 |
|
|
| — |
|
|
| 38 |
|
|
| 15 |
|
|
| — |
|
|
| 53 |
|
Selling, general and administrative |
|
| 4 |
|
|
| 37 |
|
|
| 77 |
|
|
| — |
|
|
| 118 |
|
|
| (3 | ) |
|
| (19 | ) |
|
| 90 |
|
|
| — |
|
|
| 68 |
|
Other operating income, net |
|
| — |
|
|
| — |
|
|
| (7 | ) |
|
| — |
|
|
| (7 | ) | ||||||||||||||||||||
Impairment of long-lived assets |
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| 1 |
| ||||||||||||||||||||
Closure and restructuring costs |
|
| 15 |
|
|
| 9 |
|
|
| 1 |
|
|
| — |
|
|
| 25 |
| ||||||||||||||||||||
Asset conversion costs |
|
| — |
|
|
| 5 |
|
|
| — |
|
|
| — |
|
|
| 5 |
| ||||||||||||||||||||
Other operating loss (income), net |
|
| 1 |
|
|
| (2 | ) |
|
| 2 |
|
|
| — |
|
|
| 1 |
| ||||||||||||||||||||
|
|
| 4 |
|
|
| 996 |
|
|
| 492 |
|
|
| (289 | ) |
|
| 1,203 |
|
|
| 13 |
|
|
| 760 |
|
|
| 431 |
|
|
| (262 | ) |
|
| 942 |
|
Operating (loss) income |
|
| (4 | ) |
|
| 63 |
|
|
| 30 |
|
|
| — |
|
|
| 89 |
|
|
| (13 | ) |
|
| 97 |
|
|
| (16 | ) |
|
| — |
|
|
| 68 |
|
Interest expense (income), net |
|
| 15 |
|
|
| 21 |
|
|
| (20 | ) |
|
| — |
|
|
| 16 |
|
|
| 20 |
|
|
| 16 |
|
|
| (16 | ) |
|
| — |
|
|
| 20 |
|
Non-service components of net periodic benefit cost |
|
| — |
|
|
| (3 | ) |
|
| (3 | ) |
|
| — |
|
|
| (6 | ) | ||||||||||||||||||||
(Loss) earnings before income taxes |
|
| (19 | ) |
|
| 42 |
|
|
| 50 |
|
|
| — |
|
|
| 73 |
|
|
| (33 | ) |
|
| 84 |
|
|
| 3 |
|
|
| — |
|
|
| 54 |
|
Income tax (benefit) expense |
|
| (4 | ) |
|
| (4 | ) |
|
| 11 |
|
|
| — |
|
|
| 3 |
| ||||||||||||||||||||
Income tax expense |
|
| — |
|
|
| 16 |
|
|
| — |
|
|
| — |
|
|
| 16 |
| ||||||||||||||||||||
Share in earnings of equity accounted investees |
|
| 85 |
|
|
| 39 |
|
|
| — |
|
|
| (124 | ) |
|
| — |
|
|
| 70 |
|
|
| 2 |
|
|
| — |
|
|
| (72 | ) |
|
| — |
|
Earnings from continuing operations |
|
| 37 |
|
|
| 70 |
|
|
| 3 |
|
|
| (72 | ) |
|
| 38 |
| ||||||||||||||||||||
Loss from discontinued operations, net of taxes |
|
| — |
|
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| (1 | ) | ||||||||||||||||||||
Net earnings |
|
| 70 |
|
|
| 85 |
|
|
| 39 |
|
|
| (124 | ) |
|
| 70 |
|
|
| 37 |
|
|
| 70 |
|
|
| 2 |
|
|
| (72 | ) |
|
| 37 |
|
Other comprehensive income |
|
| 69 |
|
|
| 69 |
|
|
| 61 |
|
|
| (130 | ) |
|
| 69 |
|
|
| 38 |
|
|
| 30 |
|
|
| 13 |
|
|
| (43 | ) |
|
| 38 |
|
Comprehensive income |
|
| 139 |
|
|
| 154 |
|
|
| 100 |
|
|
| (254 | ) |
|
| 139 |
|
|
| 75 |
|
|
| 100 |
|
|
| 15 |
|
|
| (115 | ) |
|
| 75 |
|
3241
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBERJUNE 30, 20172021
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
NOTE 16.18. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)
| For the nine months ended |
|
| For the six months ended |
| |||||||||||||||||||||||||||||||||||
|
| September 30, 2017 |
|
| June 30, 2021 |
| ||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| Non- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Non- |
|
|
|
|
|
|
|
|
| ||
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS |
|
|
|
|
| Guarantor |
|
| Guarantor |
|
| Consolidating |
|
|
|
|
|
|
|
|
|
| Guarantor |
|
| Guarantor |
|
| Consolidating |
|
|
|
|
| ||||||
AND COMPREHENSIVE INCOME |
| Parent |
|
| Subsidiaries |
|
| Subsidiaries |
|
| Adjustments |
|
| Consolidated |
|
| Parent |
|
| Subsidiaries |
|
| Subsidiaries |
|
| Adjustments |
|
| Consolidated |
| ||||||||||
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||||
Sales |
|
| — |
|
|
| 3,156 |
|
|
| 1,537 |
|
|
| (873 | ) |
|
| 3,820 |
|
|
| — |
|
|
| 1,671 |
|
|
| 818 |
|
|
| (535 | ) |
|
| 1,954 |
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales, excluding depreciation and amortization |
|
| — |
|
|
| 2,749 |
|
|
| 1,179 |
|
|
| (873 | ) |
|
| 3,055 |
|
|
| — |
|
|
| 1,487 |
|
|
| 646 |
|
|
| (535 | ) |
|
| 1,598 |
|
Depreciation and amortization |
|
| — |
|
|
| 175 |
|
|
| 64 |
|
|
| — |
|
|
| 239 |
|
|
| — |
|
|
| 76 |
|
|
| 31 |
|
|
| — |
|
|
| 107 |
|
Selling, general and administrative |
|
| 8 |
|
|
| 101 |
|
|
| 228 |
|
|
| — |
|
|
| 337 |
|
|
| (1 | ) |
|
| 10 |
|
|
| 123 |
|
|
| — |
|
|
| 132 |
|
Other operating income, net |
|
| — |
|
|
| (2 | ) |
|
| (4 | ) |
|
| — |
|
|
| (6 | ) | ||||||||||||||||||||
Impairment of long-lived assets |
|
| — |
|
|
| 7 |
|
|
| — |
|
|
| — |
|
|
| 7 |
| ||||||||||||||||||||
Closure and restructuring costs |
|
| 15 |
|
|
| 12 |
|
|
| 1 |
|
|
| — |
|
|
| 28 |
| ||||||||||||||||||||
Asset conversion costs |
|
| — |
|
|
| 13 |
|
|
| — |
|
|
| — |
|
|
| 13 |
| ||||||||||||||||||||
Other operating (income) loss, net |
|
| (1 | ) |
|
| (2 | ) |
|
| 2 |
|
|
| — |
|
|
| (1 | ) | ||||||||||||||||||||
|
|
| 8 |
|
|
| 3,023 |
|
|
| 1,467 |
|
|
| (873 | ) |
|
| 3,625 |
|
|
| 13 |
|
|
| 1,603 |
|
|
| 803 |
|
|
| (535 | ) |
|
| 1,884 |
|
Operating (loss) income |
|
| (8 | ) |
|
| 133 |
|
|
| 70 |
|
|
| — |
|
|
| 195 |
|
|
| (13 | ) |
|
| 68 |
|
|
| 15 |
|
|
| — |
|
|
| 70 |
|
Interest expense (income), net |
|
| 48 |
|
|
| 63 |
|
|
| (61 | ) |
|
| — |
|
|
| 50 |
|
|
| 36 |
|
|
| 30 |
|
|
| (31 | ) |
|
| — |
|
|
| 35 |
|
Non-service components of net periodic benefit cost |
|
| — |
|
|
| (5 | ) |
|
| (7 | ) |
|
| — |
|
|
| (12 | ) | ||||||||||||||||||||
(Loss) earnings before income taxes |
|
| (56 | ) |
|
| 70 |
|
|
| 131 |
|
|
| — |
|
|
| 145 |
|
|
| (49 | ) |
|
| 43 |
|
|
| 53 |
|
|
| — |
|
|
| 47 |
|
Income tax (benefit) expense |
|
| (13 | ) |
|
| 1 |
|
|
| 29 |
|
|
| — |
|
|
| 17 |
|
|
| (9 | ) |
|
| 11 |
|
|
| 14 |
|
|
| — |
|
|
| 16 |
|
Share in earnings of equity accounted investees |
|
| 171 |
|
|
| 102 |
|
|
| — |
|
|
| (273 | ) |
|
| — |
|
|
| 61 |
|
|
| 45 |
|
|
| — |
|
|
| (106 | ) |
|
| — |
|
Earnings from continuing operations |
|
| 21 |
|
|
| 77 |
|
|
| 39 |
|
|
| (106 | ) |
|
| 31 |
| ||||||||||||||||||||
(Loss) earnings from discontinued operations, net of taxes |
|
| (13 | ) |
|
| (16 | ) |
|
| 6 |
|
|
| — |
|
|
| (23 | ) | ||||||||||||||||||||
Net earnings |
|
| 128 |
|
|
| 171 |
|
|
| 102 |
|
|
| (273 | ) |
|
| 128 |
|
|
| 8 |
|
|
| 61 |
|
|
| 45 |
|
|
| (106 | ) |
|
| 8 |
|
Other comprehensive income |
|
| 154 |
|
|
| 163 |
|
|
| 146 |
|
|
| (309 | ) |
|
| 154 |
|
|
| 122 |
|
|
| 112 |
|
|
| 89 |
|
|
| (201 | ) |
|
| 122 |
|
Comprehensive income |
|
| 282 |
|
|
| 334 |
|
|
| 248 |
|
|
| (582 | ) |
|
| 282 |
|
|
| 130 |
|
|
| 173 |
|
|
| 134 |
|
|
| (307 | ) |
|
| 130 |
|
|
| For the three months ended |
| |||||||||||||||||
|
| September 30, 2016 |
| |||||||||||||||||
|
|
|
|
|
|
|
|
|
| Non- |
|
|
|
|
|
|
|
|
| |
CONDENSED CONSOLIDATING STATEMENT OF |
|
|
|
|
| Guarantor |
|
| Guarantor |
|
| Consolidating |
|
|
|
|
| |||
EARNINGS AND COMPREHENSIVE INCOME |
| Parent |
|
| Subsidiaries |
|
| Subsidiaries |
|
| Adjustments |
|
| Consolidated |
| |||||
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
Sales |
|
| — |
|
|
| 1,044 |
|
|
| 516 |
|
|
| (290 | ) |
|
| 1,270 |
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales, excluding depreciation and amortization |
|
| — |
|
|
| 879 |
|
|
| 380 |
|
|
| (290 | ) |
|
| 969 |
|
Depreciation and amortization |
|
| — |
|
|
| 65 |
|
|
| 22 |
|
|
| — |
|
|
| 87 |
|
Selling, general and administrative |
|
| 3 |
|
|
| 28 |
|
|
| 76 |
|
|
| — |
|
|
| 107 |
|
Impairment of property, plant and equipment |
|
| — |
|
|
| 5 |
|
|
| — |
|
|
| — |
|
|
| 5 |
|
Closure and restructuring costs |
|
| — |
|
|
| 10 |
|
|
| — |
|
|
| — |
|
|
| 10 |
|
Other operating (income) loss, net |
|
| — |
|
|
| (1 | ) |
|
| 1 |
|
|
| — |
|
|
| — |
|
|
|
| 3 |
|
|
| 986 |
|
|
| 479 |
|
|
| (290 | ) |
|
| 1,178 |
|
Operating (loss) income |
|
| (3 | ) |
|
| 58 |
|
|
| 37 |
|
|
| — |
|
|
| 92 |
|
Interest expense (income), net |
|
| 16 |
|
|
| 14 |
|
|
| (13 | ) |
|
| — |
|
|
| 17 |
|
(Loss) earnings before income taxes |
|
| (19 | ) |
|
| 44 |
|
|
| 50 |
|
|
| — |
|
|
| 75 |
|
Income tax (benefit) expense |
|
| (4 | ) |
|
| (3 | ) |
|
| 23 |
|
|
| — |
|
|
| 16 |
|
Share in earnings of equity accounted investees |
|
| 74 |
|
|
| 27 |
|
|
| — |
|
|
| (101 | ) |
|
| — |
|
Net earnings |
|
| 59 |
|
|
| 74 |
|
|
| 27 |
|
|
| (101 | ) |
|
| 59 |
|
Other comprehensive income |
|
| 3 |
|
|
| 7 |
|
|
| 7 |
|
|
| (14 | ) |
|
| 3 |
|
Comprehensive income |
|
| 62 |
|
|
| 81 |
|
|
| 34 |
|
|
| (115 | ) |
|
| 62 |
|
3342
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBERJUNE 30, 20172021
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
NOTE 16. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)
| For the nine months ended |
| ||||||||||||||||||
|
| September 30, 2016 |
| |||||||||||||||||
|
|
|
|
|
|
|
|
|
| Non- |
|
|
|
|
|
|
|
|
| |
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS |
|
|
|
|
| Guarantor |
|
| Guarantor |
|
| Consolidating |
|
|
|
|
| |||
AND COMPREHENSIVE INCOME |
| Parent |
|
| Subsidiaries |
|
| Subsidiaries |
|
| Adjustments |
|
| Consolidated |
| |||||
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
Sales |
|
| — |
|
|
| 3,150 |
|
|
| 1,535 |
|
|
| (861 | ) |
|
| 3,824 |
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales, excluding depreciation and amortization |
|
| — |
|
|
| 2,725 |
|
|
| 1,168 |
|
|
| (861 | ) |
|
| 3,032 |
|
Depreciation and amortization |
|
| — |
|
|
| 193 |
|
|
| 70 |
|
|
| — |
|
|
| 263 |
|
Selling, general and administrative |
|
| 13 |
|
|
| 80 |
|
|
| 221 |
|
|
| — |
|
|
| 314 |
|
Impairment of property, plant and equipment |
|
| — |
|
|
| 29 |
|
|
| — |
|
|
| — |
|
|
| 29 |
|
Closure and restructuring costs |
|
| — |
|
|
| 33 |
|
|
| — |
|
|
| — |
|
|
| 33 |
|
Other operating loss (income), net |
|
| 1 |
|
|
| (2 | ) |
|
| 5 |
|
|
| — |
|
|
| 4 |
|
|
|
| 14 |
|
|
| 3,058 |
|
|
| 1,464 |
|
|
| (861 | ) |
|
| 3,675 |
|
Operating (loss) income |
|
| (14 | ) |
|
| 92 |
|
|
| 71 |
|
|
| — |
|
|
| 149 |
|
Interest expense (income), net |
|
| 48 |
|
|
| 30 |
|
|
| (29 | ) |
|
| — |
|
|
| 49 |
|
(Loss) earnings before income taxes |
|
| (62 | ) |
|
| 62 |
|
|
| 100 |
|
|
| — |
|
|
| 100 |
|
Income tax (benefit) expense |
|
| (14 | ) |
|
| 1 |
|
|
| 32 |
|
|
| — |
|
|
| 19 |
|
Share in earnings of equity accounted investees |
|
| 129 |
|
|
| 68 |
|
|
| — |
|
|
| (197 | ) |
|
| — |
|
Net earnings |
|
| 81 |
|
|
| 129 |
|
|
| 68 |
|
|
| (197 | ) |
|
| 81 |
|
Other comprehensive income |
|
| 103 |
|
|
| 97 |
|
|
| 63 |
|
|
| (160 | ) |
|
| 103 |
|
Comprehensive income |
|
| 184 |
|
|
| 226 |
|
|
| 131 |
|
|
| (357 | ) |
|
| 184 |
|
34
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
NOTE 16.18. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)
|
| September 30, 2017 |
| |||||||||||||||||
|
|
|
|
|
|
|
|
|
| Non- |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
| Guarantor |
|
| Guarantor |
|
| Consolidating |
|
|
|
|
| |||
CONDENSED CONSOLIDATING BALANCE SHEET |
| Parent |
|
| Subsidiaries |
|
| Subsidiaries |
|
| Adjustments |
|
| Consolidated |
| |||||
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
Assets |
|
|
| |||||||||||||||||
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
| 10 |
|
|
| 3 |
|
|
| 130 |
|
|
| — |
|
|
| 143 |
|
Receivables |
|
| — |
|
|
| 335 |
|
|
| 324 |
|
|
| — |
|
|
| 659 |
|
Inventories |
|
| — |
|
|
| 536 |
|
|
| 251 |
|
|
| — |
|
|
| 787 |
|
Prepaid expenses |
|
| 11 |
|
|
| 27 |
|
|
| 9 |
|
|
| — |
|
|
| 47 |
|
Income and other taxes receivable |
|
| — |
|
|
| 3 |
|
|
| 14 |
|
|
| (4 | ) |
|
| 13 |
|
Intercompany accounts |
|
| 292 |
|
|
| 367 |
|
|
| 85 |
|
|
| (744 | ) |
|
| — |
|
Total current assets |
|
| 313 |
|
|
| 1,271 |
|
|
| 813 |
|
|
| (748 | ) |
|
| 1,649 |
|
Property, plant and equipment, net |
|
| — |
|
|
| 1,888 |
|
|
| 886 |
|
|
| — |
|
|
| 2,774 |
|
Goodwill |
|
| — |
|
|
| 313 |
|
|
| 265 |
|
|
| — |
|
|
| 578 |
|
Intangible assets, net |
|
| — |
|
|
| 270 |
|
|
| 362 |
|
|
| — |
|
|
| 632 |
|
Investments in affiliates |
|
| 4,310 |
|
|
| 2,898 |
|
|
| — |
|
|
| (7,208 | ) |
|
| — |
|
Intercompany long-term advances |
|
| 6 |
|
|
| 81 |
|
|
| 1,466 |
|
|
| (1,553 | ) |
|
| — |
|
Other assets |
|
| 36 |
|
|
| 28 |
|
|
| 134 |
|
|
| (47 | ) |
|
| 151 |
|
Total assets |
|
| 4,665 |
|
|
| 6,749 |
|
|
| 3,926 |
|
|
| (9,556 | ) |
|
| 5,784 |
|
Liabilities and shareholders' equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other payables |
|
| 47 |
|
|
| 405 |
|
|
| 235 |
|
|
| — |
|
|
| 687 |
|
Intercompany accounts |
|
| 299 |
|
|
| 97 |
|
|
| 348 |
|
|
| (744 | ) |
|
| — |
|
Income and other taxes payable |
|
| 11 |
|
|
| — |
|
|
| 25 |
|
|
| (4 | ) |
|
| 32 |
|
Long-term debt due within one year |
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 1 |
|
Total current liabilities |
|
| 357 |
|
|
| 502 |
|
|
| 609 |
|
|
| (748 | ) |
|
| 720 |
|
Long-term debt |
|
| 792 |
|
|
| 299 |
|
|
| 73 |
|
|
| — |
|
|
| 1,164 |
|
Intercompany long-term loans |
|
| 610 |
|
|
| 942 |
|
|
| 1 |
|
|
| (1,553 | ) |
|
| — |
|
Deferred income taxes and other |
|
| — |
|
|
| 558 |
|
|
| 170 |
|
|
| (47 | ) |
|
| 681 |
|
Other liabilities and deferred credits |
|
| 20 |
|
|
| 138 |
|
|
| 175 |
|
|
| — |
|
|
| 333 |
|
Shareholders' equity |
|
| 2,886 |
|
|
| 4,310 |
|
|
| 2,898 |
|
|
| (7,208 | ) |
|
| 2,886 |
|
Total liabilities and shareholders' equity |
|
| 4,665 |
|
|
| 6,749 |
|
|
| 3,926 |
|
|
| (9,556 | ) |
|
| 5,784 |
|
|
| For the three months ended |
| |||||||||||||||||
|
| June 30, 2020 |
| |||||||||||||||||
|
|
|
|
|
|
|
|
|
| Non- |
|
|
|
|
|
|
|
|
| |
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS |
|
|
|
|
| Guarantor |
|
| Guarantor |
|
| Consolidating |
|
|
|
|
| |||
(LOSS) AND COMPREHENSIVE INCOME (LOSS) |
| Parent |
|
| Subsidiaries |
|
| Subsidiaries |
|
| Adjustments |
|
| Consolidated |
| |||||
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
Sales |
|
| — |
|
|
| 703 |
|
|
| 315 |
|
|
| (216 | ) |
|
| 802 |
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales, excluding depreciation and amortization |
|
| — |
|
|
| 665 |
|
|
| 244 |
|
|
| (216 | ) |
|
| 693 |
|
Depreciation and amortization |
|
| — |
|
|
| 42 |
|
|
| 14 |
|
|
| — |
|
|
| 56 |
|
Selling, general and administrative |
|
| 3 |
|
|
| 27 |
|
|
| 31 |
|
|
| — |
|
|
| 61 |
|
Closure and restructuring costs |
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
Other operating loss (income), net |
|
| 1 |
|
|
| — |
|
|
| (6 | ) |
|
| — |
|
|
| (5 | ) |
|
|
| 4 |
|
|
| 735 |
|
|
| 283 |
|
|
| (216 | ) |
|
| 806 |
|
Operating (loss) income |
|
| (4 | ) |
|
| (32 | ) |
|
| 32 |
|
|
| — |
|
|
| (4 | ) |
Interest expense (income), net |
|
| 16 |
|
|
| 19 |
|
|
| (20 | ) |
|
| — |
|
|
| 15 |
|
Non-service components of net periodic benefit cost |
|
| — |
|
|
| (3 | ) |
|
| (2 | ) |
|
| — |
|
|
| (5 | ) |
(Loss) earnings before income taxes |
|
| (20 | ) |
|
| (48 | ) |
|
| 54 |
|
|
| — |
|
|
| (14 | ) |
Income tax (benefit) expense |
|
| (92 | ) |
|
| 53 |
|
|
| 28 |
|
|
| — |
|
|
| (11 | ) |
Share in earnings of equity accounted investees |
|
| (53 | ) |
|
| (112 | ) |
|
| — |
|
|
| 165 |
|
|
| — |
|
Earnings (loss) from continuing operations |
|
| 19 |
|
|
| (213 | ) |
|
| 26 |
|
|
| 165 |
|
|
| (3 | ) |
Earnings (loss) from discontinued operations, net of taxes |
|
| — |
|
|
| 160 |
|
|
| (138 | ) |
|
| — |
|
|
| 22 |
|
Net earnings (loss) |
|
| 19 |
|
|
| (53 | ) |
|
| (112 | ) |
|
| 165 |
|
|
| 19 |
|
Other comprehensive income |
|
| 76 |
|
|
| 74 |
|
|
| 40 |
|
|
| (114 | ) |
|
| 76 |
|
Comprehensive income (loss) |
|
| 95 |
|
|
| 21 |
|
|
| (72 | ) |
|
| 51 |
|
|
| 95 |
|
35
43
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBERJUNE 30, 20172021
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
NOTE 16.18. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)
|
| For the six months ended |
| |||||||||||||||||
|
| June 30, 2020 |
| |||||||||||||||||
|
|
|
|
|
|
|
|
|
| Non- |
|
|
|
|
|
|
|
|
| |
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS |
|
|
|
|
| Guarantor |
|
| Guarantor |
|
| Consolidating |
|
|
|
|
| |||
(LOSS) AND COMPREHENSIVE LOSS |
| Parent |
|
| Subsidiaries |
|
| Subsidiaries |
|
| Adjustments |
|
| Consolidated |
| |||||
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
Sales |
|
| — |
|
|
| 1,613 |
|
|
| 664 |
|
|
| (444 | ) |
|
| 1,833 |
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales, excluding depreciation and amortization |
|
| — |
|
|
| 1,509 |
|
|
| 534 |
|
|
| (444 | ) |
|
| 1,599 |
|
Depreciation and amortization |
|
| — |
|
|
| 85 |
|
|
| 29 |
|
|
| — |
|
|
| 114 |
|
Selling, general and administrative |
|
| 5 |
|
|
| 31 |
|
|
| 91 |
|
|
| — |
|
|
| 127 |
|
Closure and restructuring costs |
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
Other operating loss (income), net |
|
| 1 |
|
|
| 3 |
|
|
| (7 | ) |
|
| — |
|
|
| (3 | ) |
|
|
| 6 |
|
|
| 1,629 |
|
|
| 647 |
|
|
| (444 | ) |
|
| 1,838 |
|
Operating (loss) income |
|
| (6 | ) |
|
| (16 | ) |
|
| 17 |
|
|
| — |
|
|
| (5 | ) |
Interest expense (income), net |
|
| 32 |
|
|
| 38 |
|
|
| (41 | ) |
|
| — |
|
|
| 29 |
|
Non-service components of net periodic benefit cost |
|
| — |
|
|
| (4 | ) |
|
| (5 | ) |
|
| — |
|
|
| (9 | ) |
(Loss) earnings before income taxes and equity loss |
|
| (38 | ) |
|
| (50 | ) |
|
| 63 |
|
|
| — |
|
|
| (25 | ) |
Income tax (benefit) expense |
|
| (94 | ) |
|
| 60 |
|
|
| 26 |
|
|
| — |
|
|
| (8 | ) |
Equity method investment loss, net of taxes |
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
Share in earnings of equity accounted investees |
|
| (32 | ) |
|
| (86 | ) |
|
| — |
|
|
| 118 |
|
|
| — |
|
Earnings (loss) from continuing operations |
|
| 24 |
|
|
| (197 | ) |
|
| 37 |
|
|
| 118 |
|
|
| (18 | ) |
Earnings (loss) from discontinued operations, net of taxes |
|
| — |
|
|
| 165 |
|
|
| (123 | ) |
|
| — |
|
|
| 42 |
|
Net earnings (loss) |
|
| 24 |
|
|
| (32 | ) |
|
| (86 | ) |
|
| 118 |
|
|
| 24 |
|
Other comprehensive loss |
|
| (39 | ) |
|
| (43 | ) |
|
| (33 | ) |
|
| 76 |
|
|
| (39 | ) |
Comprehensive loss |
|
| (15 | ) |
|
| (75 | ) |
|
| (119 | ) |
|
| 194 |
|
|
| (15 | ) |
44
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
NOTE 18. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)
|
| June 30, 2021 |
| |||||||||||||||||
|
|
|
|
|
|
|
|
|
| Non- |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
| Guarantor |
|
| Guarantor |
|
| Consolidating |
|
|
|
|
| |||
CONDENSED CONSOLIDATING BALANCE SHEET |
| Parent |
|
| Subsidiaries |
|
| Subsidiaries |
|
| Adjustments |
|
| Consolidated |
| |||||
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
Assets |
|
|
| |||||||||||||||||
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
| 331 |
|
|
| 8 |
|
|
| 7 |
|
|
| — |
|
|
| 346 |
|
Receivables |
|
| 1 |
|
|
| 109 |
|
|
| 410 |
|
|
| — |
|
|
| 520 |
|
Inventories |
|
| — |
|
|
| 396 |
|
|
| 221 |
|
|
| — |
|
|
| 617 |
|
Prepaid expenses |
|
| 15 |
|
|
| 44 |
|
|
| 8 |
|
|
| — |
|
|
| 67 |
|
Income and other taxes receivable |
|
| 44 |
|
|
| — |
|
|
| 16 |
|
|
| (16 | ) |
|
| 44 |
|
Intercompany accounts |
|
| 1,080 |
|
|
| 1,237 |
|
|
| 730 |
|
|
| (3,047 | ) |
|
| — |
|
Total current assets |
|
| 1,471 |
|
|
| 1,794 |
|
|
| 1,392 |
|
|
| (3,063 | ) |
|
| 1,594 |
|
Property, plant and equipment, net |
|
| — |
|
|
| 1,361 |
|
|
| 679 |
|
|
| — |
|
|
| 2,040 |
|
Operating lease right-of-use assets |
|
| — |
|
|
| 41 |
|
|
| 9 |
|
|
| — |
|
|
| 50 |
|
Intangible assets, net |
|
| — |
|
|
| 24 |
|
|
| 5 |
|
|
| — |
|
|
| 29 |
|
Investments in affiliates |
|
| 2,846 |
|
|
| 1,825 |
|
|
| — |
|
|
| (4,671 | ) |
|
| — |
|
Intercompany long-term advances |
|
| 5 |
|
|
| — |
|
|
| 1,266 |
|
|
| (1,271 | ) |
|
| — |
|
Other assets |
|
| 28 |
|
|
| 40 |
|
|
| 153 |
|
|
| (12 | ) |
|
| 209 |
|
Total assets |
|
| 4,350 |
|
|
| 5,085 |
|
|
| 3,504 |
|
|
| (9,017 | ) |
|
| 3,922 |
|
Liabilities and shareholders' equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other payables |
|
| 18 |
|
|
| 363 |
|
|
| 158 |
|
|
| — |
|
|
| 539 |
|
Intercompany accounts |
|
| 1,028 |
|
|
| 780 |
|
|
| 1,239 |
|
|
| (3,047 | ) |
|
| — |
|
Income and other taxes payable |
|
| 3 |
|
|
| 24 |
|
|
| 8 |
|
|
| (16 | ) |
|
| 19 |
|
Operating lease liabilities due within one year |
|
| — |
|
|
| 15 |
|
|
| 4 |
|
|
| — |
|
|
| 19 |
|
Long-term debt due within one year |
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 1 |
|
Total current liabilities |
|
| 1,049 |
|
|
| 1,182 |
|
|
| 1,410 |
|
|
| (3,063 | ) |
|
| 578 |
|
Long-term debt |
|
| 495 |
|
|
| — |
|
|
| 8 |
|
|
| — |
|
|
| 503 |
|
Operating lease liabilities |
|
| — |
|
|
| 39 |
|
|
| 5 |
|
|
| — |
|
|
| 44 |
|
Intercompany long-term loans |
|
| 602 |
|
|
| 669 |
|
|
| — |
|
|
| (1,271 | ) |
|
| — |
|
Deferred income taxes and other |
|
| 3 |
|
|
| 251 |
|
|
| 92 |
|
|
| (12 | ) |
|
| 334 |
|
Other liabilities and deferred credits |
|
| 28 |
|
|
| 98 |
|
|
| 164 |
|
|
| — |
|
|
| 290 |
|
Shareholders' equity |
|
| 2,173 |
|
|
| 2,846 |
|
|
| 1,825 |
|
|
| (4,671 | ) |
|
| 2,173 |
|
Total liabilities and shareholders' equity |
|
| 4,350 |
|
|
| 5,085 |
|
|
| 3,504 |
|
|
| (9,017 | ) |
|
| 3,922 |
|
45
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
NOTE 18. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)
|
| December 31, 2020 |
| |||||||||||||||||
|
|
|
|
|
|
|
|
|
| Non- |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
| Guarantor |
|
| Guarantor |
|
| Consolidating |
|
|
|
|
| |||
CONDENSED CONSOLIDATING BALANCE SHEET |
| Parent |
|
| Subsidiaries |
|
| Subsidiaries |
|
| Adjustments |
|
| Consolidated |
| |||||
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
| 208 |
|
|
| 5 |
|
|
| 96 |
|
|
| — |
|
|
| 309 |
|
Receivables |
|
| — |
|
|
| 65 |
|
|
| 315 |
|
|
| — |
|
|
| 380 |
|
Inventories |
|
| — |
|
|
| 425 |
|
|
| 205 |
|
|
| — |
|
|
| 630 |
|
Prepaid expenses |
|
| 8 |
|
|
| 37 |
|
|
| 5 |
|
|
| — |
|
|
| 50 |
|
Income and other taxes receivable |
|
| 36 |
|
|
| — |
|
|
| 18 |
|
|
| — |
|
|
| 54 |
|
Intercompany accounts |
|
| 759 |
|
|
| 902 |
|
|
| 433 |
|
|
| (2,094 | ) |
|
| — |
|
Asset held for sale |
|
| — |
|
|
| 488 |
|
|
| 648 |
|
|
| (3 | ) |
|
| 1,133 |
|
Total current assets |
|
| 1,011 |
|
|
| 1,922 |
|
|
| 1,720 |
|
|
| (2,097 | ) |
|
| 2,556 |
|
Property, plant and equipment, net |
|
| — |
|
|
| 1,348 |
|
|
| 675 |
|
|
| — |
|
|
| 2,023 |
|
Operating lease right-of-use assets |
|
| — |
|
|
| 48 |
|
|
| 11 |
|
|
| — |
|
|
| 59 |
|
Intangible assets, net |
|
| — |
|
|
| 24 |
|
|
| 5 |
|
|
| — |
|
|
| 29 |
|
Investments in affiliates |
|
| 3,558 |
|
|
| 2,169 |
|
|
| — |
|
|
| (5,727 | ) |
|
| — |
|
Intercompany long-term advances |
|
| 5 |
|
|
| — |
|
|
| 1,157 |
|
|
| (1,162 | ) |
|
| — |
|
Other assets |
|
| 11 |
|
|
| 41 |
|
|
| 143 |
|
|
| (6 | ) |
|
| 189 |
|
Total assets |
|
| 4,585 |
|
|
| 5,552 |
|
|
| 3,711 |
|
|
| (8,992 | ) |
|
| 4,856 |
|
Liabilities and shareholders' equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other payables |
|
| 26 |
|
|
| 294 |
|
|
| 167 |
|
|
| (3 | ) |
|
| 484 |
|
Intercompany accounts |
|
| 677 |
|
|
| 491 |
|
|
| 926 |
|
|
| (2,094 | ) |
|
| — |
|
Income and other taxes payable |
|
| 3 |
|
|
| 11 |
|
|
| 1 |
|
|
| — |
|
|
| 15 |
|
Operating lease liabilities due within one year |
|
| — |
|
|
| 15 |
|
|
| 5 |
|
|
|
|
|
|
| 20 |
|
Long-term debt due within one year |
|
| 12 |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 13 |
|
Liabilities held for sale |
|
| — |
|
|
| 121 |
|
|
| 174 |
|
|
| — |
|
|
| 295 |
|
Total current liabilities |
|
| 718 |
|
|
| 932 |
|
|
| 1,274 |
|
|
| (2,097 | ) |
|
| 827 |
|
Long-term debt |
|
| 1,075 |
|
|
| — |
|
|
| 9 |
|
|
| — |
|
|
| 1,084 |
|
Operating lease liabilities |
|
| — |
|
|
| 44 |
|
|
| 6 |
|
|
| — |
|
|
| 50 |
|
Intercompany long-term loans |
|
| 509 |
|
|
| 653 |
|
|
| — |
|
|
| (1,162 | ) |
|
| — |
|
Deferred income taxes and other |
|
| — |
|
|
| 237 |
|
|
| 90 |
|
|
| (6 | ) |
|
| 321 |
|
Other liabilities and deferred credits |
|
| 23 |
|
|
| 128 |
|
|
| 163 |
|
|
| — |
|
|
| 314 |
|
Shareholders' equity |
|
| 2,260 |
|
|
| 3,558 |
|
|
| 2,169 |
|
|
| (5,727 | ) |
|
| 2,260 |
|
Total liabilities and shareholders' equity |
|
| 4,585 |
|
|
| 5,552 |
|
|
| 3,711 |
|
|
| (8,992 | ) |
|
| 4,856 |
|
46
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
NOTE 18. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)
|
| For the six months ended |
| |||||||||||||||||
|
| June 30, 2021 |
| |||||||||||||||||
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS |
| Parent |
|
| Guarantor Subsidiaries |
|
| Non- Guarantor Subsidiaries |
|
| Consolidating Adjustments |
|
| Consolidated |
| |||||
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
Operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
| 8 |
|
|
| 61 |
|
|
| 45 |
|
|
| (106 | ) |
|
| 8 |
|
Changes in operating and intercompany assets and liabilities and non-cash items, included in net earnings |
| (48 | ) |
|
| 59 |
|
|
| (35 | ) |
|
| 106 |
|
|
| 82 |
| |
Cash flows (used for) provided from operating activities |
|
| (40 | ) |
|
| 120 |
|
|
| 10 |
|
|
| — |
|
|
| 90 |
|
Investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant and equipment |
|
| — |
|
|
| (97 | ) |
|
| (25 | ) |
|
| — |
|
|
| (122 | ) |
Proceeds from disposals of property, plant and equipment |
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
Proceeds from sale of business, net of cash disposed |
|
| — |
|
|
| — |
|
|
| 897 |
|
|
| — |
|
|
| 897 |
|
Cash flows (used for) provided from investing activities |
|
| — |
|
|
| (96 | ) |
|
| 872 |
|
|
| — |
|
|
| 776 |
|
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock repurchase |
|
| (223 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (223 | ) |
Repayments of long-term debt, including make-whole premium |
|
| (605 | ) |
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| (606 | ) |
Increase in long-term advances to related parties |
|
| — |
|
|
| (21 | ) |
|
| (970 | ) |
|
| 991 |
|
|
| — |
|
Decrease in long-term advances to related parties |
|
| 991 |
|
|
| — |
|
|
| — |
|
|
| (991 | ) |
|
| — |
|
Cash flows provided from (used for) financing activities |
|
| 163 |
|
|
| (21 | ) |
|
| (971 | ) |
|
| — |
|
|
| (829 | ) |
Net increase (decrease) in cash and cash equivalents |
|
| 123 |
|
|
| 3 |
|
|
| (89 | ) |
|
| — |
|
|
| 37 |
|
Cash and cash equivalents at beginning of period |
|
| 208 |
|
|
| 5 |
|
|
| 96 |
|
|
| — |
|
|
| 309 |
|
Cash and cash equivalents at end of period |
|
| 331 |
|
|
| 8 |
|
|
| 7 |
|
|
| — |
|
|
| 346 |
|
47
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
NOTE 18. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)
|
| December 31, 2016 |
| |||||||||||||||||
|
|
|
|
|
|
|
|
|
| Non- |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
| Guarantor |
|
| Guarantor |
|
| Consolidating |
|
|
|
|
| |||
CONDENSED CONSOLIDATING BALANCE SHEET |
| Parent |
|
| Subsidiaries |
|
| Subsidiaries |
|
| Adjustments |
|
| Consolidated |
| |||||
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
| 17 |
|
|
| 14 |
|
|
| 94 |
|
|
| — |
|
|
| 125 |
|
Receivables |
|
| — |
|
|
| 305 |
|
|
| 308 |
|
|
| — |
|
|
| 613 |
|
Inventories |
|
| — |
|
|
| 548 |
|
|
| 211 |
|
|
| — |
|
|
| 759 |
|
Prepaid expenses |
|
| 15 |
|
|
| 19 |
|
|
| 6 |
|
|
| — |
|
|
| 40 |
|
Income and other taxes receivable |
|
| — |
|
|
| 16 |
|
|
| 15 |
|
|
| — |
|
|
| 31 |
|
Intercompany accounts |
|
| 331 |
|
|
| 184 |
|
|
| 47 |
|
|
| (562 | ) |
|
| — |
|
Total current assets |
|
| 363 |
|
|
| 1,086 |
|
|
| 681 |
|
|
| (562 | ) |
|
| 1,568 |
|
Property, plant and equipment, net |
|
| — |
|
|
| 2,000 |
|
|
| 825 |
|
|
| — |
|
|
| 2,825 |
|
Goodwill |
|
| — |
|
|
| 313 |
|
|
| 237 |
|
|
| — |
|
|
| 550 |
|
Intangible assets, net |
|
| — |
|
|
| 279 |
|
|
| 329 |
|
|
| — |
|
|
| 608 |
|
Investments in affiliates |
|
| 3,976 |
|
|
| 2,678 |
|
|
| — |
|
|
| (6,654 | ) |
|
| — |
|
Intercompany long-term advances |
|
| 6 |
|
|
| 80 |
|
|
| 1,411 |
|
|
| (1,497 | ) |
|
| — |
|
Other assets |
|
| 15 |
|
|
| 18 |
|
|
| 103 |
|
|
| (7 | ) |
|
| 129 |
|
Total assets |
|
| 4,360 |
|
|
| 6,454 |
|
|
| 3,586 |
|
|
| (8,720 | ) |
|
| 5,680 |
|
Liabilities and shareholders' equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank indebtedness |
|
| — |
|
|
| 12 |
|
|
| — |
|
|
| — |
|
|
| 12 |
|
Trade and other payables |
|
| 48 |
|
|
| 391 |
|
|
| 217 |
|
|
| — |
|
|
| 656 |
|
Intercompany accounts |
|
| 136 |
|
|
| 115 |
|
|
| 311 |
|
|
| (562 | ) |
|
| — |
|
Income and other taxes payable |
|
| 16 |
|
|
| — |
|
|
| 6 |
|
|
| — |
|
|
| 22 |
|
Long-term debt due within one year |
|
| 63 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 63 |
|
Total current liabilities |
|
| 263 |
|
|
| 518 |
|
|
| 534 |
|
|
| (562 | ) |
|
| 753 |
|
Long-term debt |
|
| 841 |
|
|
| 299 |
|
|
| 78 |
|
|
| — |
|
|
| 1,218 |
|
Intercompany long-term loans |
|
| 560 |
|
|
| 937 |
|
|
| — |
|
|
| (1,497 | ) |
|
| — |
|
Deferred income taxes and other |
|
| — |
|
|
| 556 |
|
|
| 126 |
|
|
| (7 | ) |
|
| 675 |
|
Other liabilities and deferred credits |
|
| 20 |
|
|
| 168 |
|
|
| 170 |
|
|
| — |
|
|
| 358 |
|
Shareholders' equity |
|
| 2,676 |
|
|
| 3,976 |
|
|
| 2,678 |
|
|
| (6,654 | ) |
|
| 2,676 |
|
Total liabilities and shareholders' equity |
|
| 4,360 |
|
|
| 6,454 |
|
|
| 3,586 |
|
|
| (8,720 | ) |
|
| 5,680 |
|
36
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
NOTE 16. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)
|
| For the nine months ended |
| |||||||||||||||||
|
| September 30, 2017 |
| |||||||||||||||||
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS |
| Parent |
|
| Guarantor Subsidiaries |
|
| Non- Guarantor Subsidiaries |
|
| Consolidating Adjustments |
|
| Consolidated |
| |||||
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| |||||
Operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
| 128 |
|
|
| 171 |
|
|
| 102 |
|
|
| (273 | ) |
|
| 128 |
|
Changes in operating and intercompany assets and liabilities and non-cash items, included in net earnings |
| 43 |
|
|
| (176 | ) |
|
| 56 |
|
|
| 273 |
|
|
| 196 |
| |
Cash flows provided from (used for) operating activities |
|
| 171 |
|
|
| (5 | ) |
|
| 158 |
|
|
| — |
|
|
| 324 |
|
Investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant and equipment |
|
| — |
|
|
| (61 | ) |
|
| (50 | ) |
|
| — |
|
|
| (111 | ) |
Proceeds from disposals of property, plant and equipment |
|
| — |
|
|
| — |
|
|
| 8 |
|
|
| — |
|
|
| 8 |
|
Cash flows used for investing activities |
|
| — |
|
|
| (61 | ) |
|
| (42 | ) |
|
| — |
|
|
| (103 | ) |
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend payments |
|
| (78 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (78 | ) |
Net change in bank indebtedness |
|
| — |
|
|
| (12 | ) |
|
| — |
|
|
| — |
|
|
| (12 | ) |
Change in revolving credit facility |
|
| (50 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (50 | ) |
Proceeds from receivables securitization facility |
|
| — |
|
|
| — |
|
|
| 25 |
|
|
| — |
|
|
| 25 |
|
Repayments of receivables securitization facility |
|
| — |
|
|
| — |
|
|
| (35 | ) |
|
| — |
|
|
| (35 | ) |
Repayments of long-term debt |
|
| (63 | ) |
|
| — |
|
|
| — |
|
|
| �� |
|
|
| (63 | ) |
Increase in long-term advances to related parties |
|
| — |
|
|
| — |
|
|
| (79 | ) |
|
| 79 |
|
|
| — |
|
Decrease in long-term advances to related parties |
|
| 12 |
|
|
| 67 |
|
|
| — |
|
|
| (79 | ) |
|
| — |
|
Other |
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
Cash flows (used for) provided from financing activities |
|
| (178 | ) |
|
| 55 |
|
|
| (89 | ) |
|
| — |
|
|
| (212 | ) |
Net (decrease) increase in cash and cash equivalents |
|
| (7 | ) |
|
| (11 | ) |
|
| 27 |
|
|
| — |
|
|
| 9 |
|
Impact of foreign exchange on cash |
|
| — |
|
|
| — |
|
|
| 9 |
|
|
| — |
|
|
| 9 |
|
Cash and cash equivalents at beginning of period |
|
| 17 |
|
|
| 14 |
|
|
| 94 |
|
|
| — |
|
|
| 125 |
|
Cash and cash equivalents at end of period |
|
| 10 |
|
|
| 3 |
|
|
| 130 |
|
|
| — |
|
|
| 143 |
|
37
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2017
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)
(UNAUDITED)
NOTE 16. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)
|
| For the nine months ended |
|
| For the six months ended |
| ||||||||||||||||||||||||||||||||||
|
| September 30, 2016 |
|
| June 30, 2020 |
| ||||||||||||||||||||||||||||||||||
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS |
| Parent |
|
| Guarantor Subsidiaries |
|
| Non- Guarantor Subsidiaries |
|
| Consolidating Adjustments |
|
| Consolidated |
|
| Parent |
|
| Guarantor Subsidiaries |
|
| Non- Guarantor Subsidiaries |
|
| Consolidating Adjustments |
|
| Consolidated |
| ||||||||||
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||||
Operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings |
|
| 81 |
|
|
| 129 |
|
|
| 68 |
|
|
| (197 | ) |
|
| 81 |
| ||||||||||||||||||||
Changes in operating and intercompany assets and liabilities and non-cash items, included in net earnings |
| (4,288 | ) |
|
| 4,205 |
|
|
| 115 |
|
|
| 197 |
|
|
| 229 |
| |||||||||||||||||||||
Net earnings (loss) |
|
| 24 |
|
|
| (32 | ) |
|
| (86 | ) |
|
| 118 |
|
|
| 24 |
| ||||||||||||||||||||
Changes in operating and intercompany assets and liabilities and non-cash items, included in net earnings (loss) | Changes in operating and intercompany assets and liabilities and non-cash items, included in net earnings (loss) |
| (182 | ) |
|
| 57 |
|
|
| 374 |
|
|
| (118 | ) |
|
| 131 |
| ||||||||||||||||||||
Cash flows (used for) provided from operating activities |
|
| (4,207 | ) |
|
| 4,334 |
|
|
| 183 |
|
|
| — |
|
|
| 310 |
|
|
| (158 | ) |
|
| 25 |
|
|
| 288 |
|
|
| — |
|
|
| 155 |
|
Investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant and equipment |
|
| — |
|
|
| (246 | ) |
|
| (56 | ) |
|
| — |
|
|
| (302 | ) |
|
| — |
|
|
| (61 | ) |
|
| (41 | ) |
|
| — |
|
|
| (102 | ) |
Acquisition of business, net of cash acquired |
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| — |
|
|
| (30 | ) |
|
| — |
|
|
| (30 | ) |
Other |
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 1 |
| ||||||||||||||||||||
Cash flows used for investing activities |
|
| — |
|
|
| (247 | ) |
|
| (55 | ) |
|
| — |
|
|
| (302 | ) |
|
| — |
|
|
| (61 | ) |
|
| (71 | ) |
|
| — |
|
|
| (132 | ) |
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend payments |
|
| (76 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (76 | ) |
|
| (51 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (51 | ) |
Stock repurchase |
|
| (10 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (10 | ) |
|
| (59 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (59 | ) |
Net change in bank indebtedness |
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| (10 | ) |
|
| — |
|
|
| — |
|
|
| (10 | ) |
Change in revolving credit facility |
|
| 60 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 60 |
|
|
| (80 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (80 | ) |
Proceeds from receivables securitization facility |
|
| — |
|
|
| — |
|
|
| 140 |
|
|
| — |
|
|
| 140 |
|
|
| — |
|
|
| — |
|
|
| 25 |
|
|
| — |
|
|
| 25 |
|
Repayments of receivables securitization facility |
|
| — |
|
|
| — |
|
|
| (40 | ) |
|
| — |
|
|
| (40 | ) |
|
| — |
|
|
| — |
|
|
| (80 | ) |
|
| — |
|
|
| (80 | ) |
Repayments of long-term debt |
|
| (38 | ) |
|
| (1 | ) |
|
| (1 | ) |
|
| — |
|
|
| (40 | ) | ||||||||||||||||||||
Issuance of long-term debt |
|
| 300 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 300 |
| ||||||||||||||||||||
Increase in long-term advances to related parties |
|
| — |
|
|
| (4,089 | ) |
|
| (172 | ) |
|
| 4,261 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (141 | ) |
|
| 141 |
|
|
| — |
|
Decrease in long-term advances to related parties |
|
| 4,261 |
|
|
| — |
|
|
| — |
|
|
| (4,261 | ) |
|
| — |
|
|
| 75 |
|
|
| 66 |
|
|
| — |
|
|
| (141 | ) |
|
| — |
|
Other |
|
| (3 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3 | ) |
|
| (4 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (4 | ) |
Cash flows provided from (used for) financing activities |
|
| 4,194 |
|
|
| (4,089 | ) |
|
| (73 | ) |
|
| — |
|
|
| 32 |
|
|
| 181 |
|
|
| 56 |
|
|
| (196 | ) |
|
| — |
|
|
| 41 |
|
Net (decrease) increase in cash and cash equivalents |
|
| (13 | ) |
|
| (2 | ) |
|
| 55 |
|
|
| — |
|
|
| 40 |
| ||||||||||||||||||||
Net increase in cash and cash equivalents |
|
| 23 |
|
|
| 20 |
|
|
| 21 |
|
|
| — |
|
|
| 64 |
| ||||||||||||||||||||
Impact of foreign exchange on cash |
|
| — |
|
|
| — |
|
|
| 2 |
|
|
| — |
|
|
| 2 |
|
|
| — |
|
|
| — |
|
|
| (1 | ) |
|
| — |
|
|
| (1 | ) |
Cash and cash equivalents at beginning of period |
|
| 49 |
|
|
| 2 |
|
|
| 75 |
|
|
| — |
|
|
| 126 |
|
|
| 1 |
|
|
| 11 |
|
|
| 49 |
|
|
| — |
|
|
| 61 |
|
Cash and cash equivalents at end of period |
|
| 36 |
|
|
| — |
|
|
| 132 |
|
|
| — |
|
|
| 168 |
|
|
| 24 |
|
|
| 31 |
|
|
| 69 |
|
|
| — |
|
|
| 124 |
|
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with Domtar Corporation’s unaudited interim financial statements and notes thereto included in this Quarterly Report on Form 10-Q. This MD&A should also be read in conjunction with the historical financial information contained in our Annual Report on Form 10-K for the year ended December 31, 2016,2020, filed with the Securities and Exchange Commission (“SEC”) on February 24, 2017.March 1, 2021. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those discussed in forward-looking statements. Factors that might cause a difference include, but are not limited to, those discussed below under “outlook”, “Forward-looking statements”, as well as in Item 1A, Risk Factors, in Part II, of this report. Throughout this MD&A, unless otherwise specified, “Domtar Corporation,” “the Company,” “Domtar,” “we,” “us” and “our” refers to Domtar Corporation and its subsidiaries. Domtar Corporation’s common stock is listed on the New York Stock Exchange and the Toronto Stock Exchange. Except where otherwise indicated, all financial information reflected herein is determined on the basis of accounting principles generally accepted in the United States.
The information contained on our website, www.domtar.com, is not incorporated by reference into this Form 10-Q and should in no way be construed as a part of this or any other report that we file with or furnish to the SEC.
In accordance with industry practice, in this report, the term “ton” or the symbol “ST” refers to a short ton, an imperial unit of measurement equal to 0.9072 metric tons. The term “metric ton” or the symbol “ADMT” refers to an air dry metric ton. In this report, unless otherwise indicated, all dollar amounts are expressed in U.S. dollars, and the term “dollars” and the symbol “$” refer to U.S. dollars. In the following discussion, unless otherwise noted, references to increases or decreases in income and expense items, prices, contribution to net earnings (loss), and shipment volumes are based on the three and ninesix months ended SeptemberJune 30, 20172021 and 2016.June 30, 2020. The three month and ninesix month periods are also referred to as the thirdsecond quarter and first nine monthshalf of 20172021 and 2016.2020. Reference to notes refers to footnotes to the consolidated financial statements and notes thereto included in Item 1 ofin this Form 10-Q.
This MD&A is intended to provide investors with an understanding of our recent performance, financial condition and outlook. Topics discussed and analyzed include:
Overview
• | Overview |
• | Highlights for the three month and six month periods ended June 30, 2021 |
• | COVID-19 Update and Outlook |
• | Cost Reduction Program |
• | Review of Continuing Operations |
• | Discontinued Operations of our Personal Care Business |
• | Liquidity and Capital Resources |
HighlightsPaper Excellence to Acquire Domtar Corporation
On May 10, 2021, Domtar and Paper Excellence, a global diversified manufacturer of pulp and specialty, printing, writing, and packaging papers, entered into a business combination transaction (the “Paper Excellence transaction” or “transaction”) under which the Paper Excellence group of companies will acquire all of the issued and outstanding shares of Domtar common stock for $55.50 per share, in cash. The all-cash transaction represents an enterprise value of approximately $3 billion. After the three monthtransaction closes, Paper Excellence intends to continue the operations of Domtar as a stand-alone business entity. As such, Domtar will continue to be led by its management team and nine month periods ended September 30, 2017
Outlook
Paper Excellence plans to retain its corporate and production locations. The transaction is expected to close in the second half of 2021, subject to receipt of the required regulatory approvals and other customary closing conditions. On July 29, 2021, Domtar’s shareholders approved the transaction. During the second quarter of 2021, we recorded $18 million of transaction fees under Closure and restructuring costs on the Consolidated ResultsStatement of OperationsEarnings and Segment ReviewComprehensive Income (Loss).
LiquidityRestart of the paper machine at our Ashdown, Arkansas mill
On July 15, 2021, we announced our intention to restart the paper machine at our Ashdown, Arkansas mill to add an additional 185,000 tons per year of uncoated freesheet production capacity to our manufacturing network. The increase is necessary to meet growing customer demand as the economy recovers from the COVID-19 pandemic. The additional paper capacity will also result in a capacity reduction of 185,000 ADMT per year of baled SBSK pulp at the mill. However, it will not impact Ashdown's fluff pulp production capacity, or our commitment to serving our key hygiene customers around the world. Additionally, we have a dedicated team developing a kraft linerboard project for our Ashdown mill, and Capital Resourcesthe decision to restart the paper machine will not impact our
intention to produce containerboard and other packaging products at the facility. The machine is expected to resume full operation in January 2022 following a period of time to ramp up to full production. We estimate the restart will cost approximately $10 million.
Sale of Personal Care Business
On March 1, 2021, we completed the previously announced sale of our Personal Care business to American Industrial Partners (“AIP”) for a purchase price of $920 million in cash, including elements of working capital estimated at $130 million, subject to customary adjustments. We received a net amount of $897 million, which represents the selling price minus the estimated settlements of the net indebtedness and other elements of working capital adjustments. For financial reporting purposes, our former Personal Care business is presented as a discontinued operation. For more information, refer to Item 1, Financial Statements and Supplemental Data, under Note 3, “Discontinued Operations”.
OVERVIEW
We design, manufacture, market and distribute a wide variety of fiber-based products including communication papers, specialty and packaging papers, and absorbent hygiene products.papers. The foundation of our business is a network of wood fiber converting assets that produce paper grade, fluff and specialty pulp. More than 50%Approximately 40% of our pulp production is consumed internally to manufacture paper, and other consumer products, with the balance sold as market pulp. We are the largest integrated marketer of uncoated freesheet paper in North America serving a variety of customers, including merchants, retail outlets, stationers, printers, publishers, converters and end-users. We are also a marketer and producer of a broad line of incontinence care products as well as infant diapers. To learn more, visit www.domtar.com.
We have twooperate as a single reportable segmentssegment as described below, which also representrepresents our twoonly operating segments. Each reportable segment offers different products and services and requires different manufacturing processes, technology and marketing strategies. The following summary briefly describes the operations included in each of our reportable segments.segment.
Pulp and Paper: Our Pulp and Paper segment consistsConsists of the design, manufacturing, marketing and distribution of communication, specialty and packaging papers, as well as softwood, hardwood and fluff pulp and hardwoodhigh quality airlaid and ultrathin laminated cores.
Our segment measure of profit (operating income (loss) from continuing operations) is used by management to evaluate performance and make operational decisions. Management believes that this measure allows for a better understanding of cost trends, operating efficiencies, prices and volume. Business segment operating income (loss) is defined as earnings (loss) from continuing operations before income taxes and equity losses, excluding corporate items, interest expense, net, and non-service components of net periodic benefit cost. Corporate expenses are allocated to our segment with the exception of certain discretionary charges and credits, which we present under “Corporate” and do not allocate to the segment.
Conversion of our Kingsport, Tennessee mill
We plan to enter the linerboard market pulp.with the conversion of our Kingsport paper machine. Once in full operation, the mill will produce and market approximately 600,000 tons annually of high-quality recycled linerboard and medium, providing us with a strategic footprint in a growing adjacent market. The conversion is expected to be completed by the end of 2022.
Personal Care: Our Personal Care segment consists ofWe estimate the design, manufacturing, marketing and distribution of absorbent hygiene products.conversion cost to be approximately $350 million. Once fully operational, the mill is expected to be a low-cost, first quartile recycled linerboard facility in North America. The converted mill is expected to directly employ approximately 160 employees.
HIGHLIGHTS FOR THE THREE MONTH PERIOD ENDED SEPTEMBERJUNE 30, 20172021
Operating income decreased by 3% while net earnings increased by 19%, from the third quarter of 2016.
• | Operating income and net earnings increased by 1800% and 95%, respectively, from the second quarter of 2020 |
Sales increased by 2% from the third quarter of 2016, mostly due to the inclusion of results of Home Delivery Incontinent Supplies (“HDIS”), acquired on October 1, 2016. Net average selling prices for paper were down from the third quarter of 2016 while net average selling prices for pulp were up. Our manufactured paper volumes were down while our pulp volumes were up when compared to the third quarter of 2016.
• | We reported earnings from continuing operations of $38 million compared to a loss from continuing operations of $3 million in the second quarter of 2020 |
• | Sales increased by 26% from the second quarter of 2020. Our net average selling prices for pulp and paper were up from the second quarter of 2020. Our manufacturing paper volumes were up, while our pulp volumes were slightly down, when compared to the second quarter of 2020 |
• | Recognition of closure and restructuring charges and asset conversion costs of $25 million and $5 million respectively, related mostly to the Paper Excellence transaction, our cost reduction program and our previously announced decision to repurpose assets at our Kingsport mill |
• | Repaid $311 million of outstanding indebtedness under our 4.4% Notes, including make-whole premium of $11 million |
We paid $26 million in dividends.
HIGHLIGHTS FOR THE NINESIX MONTH PERIOD ENDED SEPTEMBERJUNE 30, 20172021
Operating income and net earnings increased by 31% and 58%, respectively, from the first nine months of 2016.
• | Operating income increased by 1500% while net earnings decreased by 67%, respectively, from the first half of 2020 |
Sales were relatively flat as compared to the first nine months of 2016. Net average selling prices for paper were down from the first nine months of 2016 while net average selling prices for pulp were up. Our manufactured paper volumes were down while our pulp volumes were up when compared to the first nine months of 2016. Our Personal Care sales were up, in part due to the acquisition of HDIS.
• | We reported earnings from continuing operations of $31 million compared to a loss from continuing operations of $18 million in the first half of 2020 |
• | Loss from discontinued operations, net of taxes amounted to $23 million in the first half of 2021, including a net loss on disposition from discontinued operations of $33 million |
We paid $78 million in dividends.
• | Sales increased by 7% from the first half of 2020. Our net average selling prices for pulp and paper and our pulp volumes were up while our manufacturing paper volumes were down from the first half of 2020 |
• | Recognition of closure and restructuring charges and asset conversion costs of $28 million and $13 million respectively, related mostly to the Paper Excellence transaction, our cost reduction program and our previously announced decision to repurpose assets at our Kingsport mill |
• | Repaid $605 million of outstanding indebtedness under our 4.4% Notes and Term Loan Agreement, including make-whole premium of $11 million and repurchased $223 million of our common stock |
|
| Three months ended |
|
| Nine months ended |
|
| Three months ended |
|
| Six months ended |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| Variance |
|
|
|
|
|
|
|
|
|
| Variance |
|
|
|
|
|
|
|
|
|
| Variance |
|
|
|
|
|
|
|
|
|
| Variance |
| ||||||||||||||||||||
FINANCIAL HIGHLIGHTS |
| September 30, 2017 |
|
| September 30, 2016 |
|
| $ |
|
| % |
|
| September 30, 2017 |
|
| September 30, 2016 |
|
| $ |
|
| % |
|
| June 30, 2021 |
|
| June 30, 2020 |
|
| $ |
|
| % |
|
| June 30, 2021 |
|
| June 30, 2020 |
|
| $ |
|
| % |
| ||||||||||||||||
(In millions of dollars, unless otherwise noted) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales |
| $ | 1,292 |
|
| $ | 1,270 |
|
| $ | 22 |
|
|
| 2 | % |
| $ | 3,820 |
|
| $ | 3,824 |
|
| $ | (4 | ) |
|
| - | % |
| $ | 1,010 |
|
| $ | 802 |
|
| $ | 208 |
|
|
| 26 | % |
| $ | 1,954 |
|
| $ | 1,833 |
|
| $ | 121 |
|
|
| 7 | % |
Operating income |
| 89 |
|
|
| 92 |
|
|
| (3 | ) |
|
| (3 | %) |
|
| 195 |
|
|
| 149 |
|
|
| 46 |
|
|
| 31 | % | |||||||||||||||||||||||||||||||||
Operating income (loss) | Operating income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
Pulp and Paper |
|
| 95 |
|
|
| 3 |
|
|
| 92 |
|
|
| 3067 | % |
|
| 107 |
|
|
| 7 |
|
|
| 100 |
|
|
| 1429 | % | ||||||||||||||||||||||||||||||||
Corporate |
|
| (27 | ) |
|
| (7 | ) |
|
| (20 | ) |
|
| (286 | %) |
|
| (37 | ) |
|
| (12 | ) |
|
| (25 | ) |
|
| (208 | %) | ||||||||||||||||||||||||||||||||
Operating income (loss) |
|
| 68 |
|
|
| (4 | ) |
|
| 72 |
|
|
| 1800 | % |
|
| 70 |
|
|
| (5 | ) |
|
| 75 |
|
|
| 1500 | % | ||||||||||||||||||||||||||||||||
Earnings (loss) from continuing operations |
|
| 38 |
|
|
| (3 | ) |
|
| 41 |
|
|
| 1367 | % |
|
| 31 |
|
|
| (18 | ) |
|
| 49 |
|
|
| (272 | %) | ||||||||||||||||||||||||||||||||
(Loss) earnings from discontinued operations, net of taxes |
|
| (1 | ) |
|
| 22 |
|
|
| (23 | ) |
|
| (105 | %) |
|
| (23 | ) |
|
| 42 |
|
|
| (65 | ) |
|
| (155 | %) | ||||||||||||||||||||||||||||||||
Net earnings |
|
| 70 |
|
|
| 59 |
|
|
| 11 |
|
|
| 19 | % |
|
| 128 |
|
|
| 81 |
|
|
| 47 |
|
|
| 58 | % |
|
| 37 |
|
|
| 19 |
|
|
| 18 |
|
|
| 95 | % |
|
| 8 |
|
|
| 24 |
|
|
| (16 | ) |
|
| (67 | %) |
Net earnings per common share (in dollars)1: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
Basic |
| $ | 1.12 |
|
| $ | 0.94 |
|
| $ | 0.18 |
|
|
| 19 | % |
| $ | 2.04 |
|
| $ | 1.29 |
|
| $ | 0.75 |
|
|
| 58 | % | ||||||||||||||||||||||||||||||||
Diluted |
| $ | 1.11 |
|
| $ | 0.94 |
|
| $ | 0.17 |
|
|
| 18 | % |
| $ | 2.04 |
|
| $ | 1.29 |
|
| $ | 0.75 |
|
|
| 58 | % | ||||||||||||||||||||||||||||||||
Basic net earnings per common share (in dollars) (a): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
Earnings (loss) from continuing operations |
| $ | 0.76 |
|
| $ | (0.05 | ) |
| $ | 0.81 |
|
|
|
|
|
|
| 0.59 |
|
|
| (0.32 | ) |
| $ | 0.91 |
|
|
|
|
| ||||||||||||||||||||||||||||||||
(Loss) earnings from discontinued operations |
| $ | (0.02 | ) |
| $ | 0.39 |
|
| $ | (0.41 | ) |
|
|
|
|
|
| (0.44 | ) |
|
| 0.75 |
|
| $ | (1.19 | ) |
|
|
|
| ||||||||||||||||||||||||||||||||
Basic net earnings |
| $ | 0.74 |
|
| $ | 0.34 |
|
| $ | 0.40 |
|
|
|
|
|
|
| 0.15 |
|
|
| 0.43 |
|
| $ | (0.28 | ) |
|
|
|
| ||||||||||||||||||||||||||||||||
Diluted net earnings per common share (in dollars) (a): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||
Earnings (loss) from continuing operations |
| $ | 0.75 |
|
| $ | (0.05 | ) |
| $ | 0.80 |
|
|
|
|
|
|
| 0.59 |
|
|
| (0.32 | ) |
| $ | 0.91 |
|
|
|
|
| ||||||||||||||||||||||||||||||||
(Loss) earnings from discontinued operations |
| $ | (0.02 | ) |
| $ | 0.39 |
|
| $ | (0.41 | ) |
|
|
|
|
|
| (0.44 | ) |
|
| 0.75 |
|
| $ | (1.19 | ) |
|
|
|
| ||||||||||||||||||||||||||||||||
Diluted net earnings |
| $ | 0.73 |
|
| $ | 0.34 |
|
| $ | 0.39 |
|
|
|
|
|
|
| 0.15 |
|
|
| 0.43 |
|
| $ | (0.28 | ) |
|
|
|
| ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| At September 30, 2017 |
|
| At December 31, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| At June 30, 2021 |
|
| At December 31, 2020 |
| ||||
Total assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 5,784 |
|
| $ | 5,680 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 3,922 |
|
| $ | 4,856 |
|
Total long-term debt, including current portion |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 1,165 |
|
| $ | 1,281 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 504 |
|
| $ | 1,097 |
|
| See Note |
information on the calculation of net earnings per common share. |
COVID-19 UPATE
First identified in people in late 2019, COVID-19 spread rapidly throughout the world and, in March 2020, the World Health Organization characterized COVID-19 as a pandemic. With the unprecedented and rapid spread of COVID-19 and social distancing measures implemented throughout the world due to the pandemic, this virus has had a profound impact on human health, the global economy and society in general. We are actively monitoring the impact of COVID-19 on all aspects of our business, including our employees, operations, customers, suppliers, liquidity and capital resources.
We took a variety of actions during 2020 and 2021 to help mitigate the financial impact, including a cost reduction program, reducing our capital spending, suspended our regular quarterly dividend, and proactively managing our working capital.
Our focus has been on the health and safety of our employees throughout the pandemic and we will continue to maintain the safety protocols we established. As guidance from authorities such as the U.S. Centers for Disease Control evolves, we will update our practices accordingly, as we have done throughout the pandemic.
Our operations are essential services in the jurisdictions where we operate. Certain of our paper products are used in the testing for COVID-19 as well as for personal protection medical gowns. Beginning in April 2020, we saw a significant decline in demand for our paper, largely due to work-from-home rules and the overall economic slowdown. In the fourthsecond quarter of 2021, there has been an increase in demand for our paper as the economy recovers from the effects of the COVID-19 pandemic. In response to the increase, on July 15, 2021, we expectannounced the restart of the paper machine at our Ashdown, Arkansas mill, discussed above. For the second quarter of 2021, our paper shipments were higher maintenanceby approximately 20% when compared to the second quarter of 2020.
The Government of Canada created the Canada Emergency Wage Subsidy (“CEWS”) to provide financial support for businesses during the COVID-19 pandemic and prevent large layoffs. For the six months ended June 30, 2021, we recognized $6 million as a reduction of costs related to this program (CDN $8 million) ($5 million in PulpCost of sales (CDN $6 million) and Paper. $1 million in Selling, general and administrative (CDN $2 million)).
OUTLOOK
Paper demand will remain dependent upon recovery from COVID-19, but demand is expected to be negatively impacted by seasonally unfavorable mix while Pulpaccelerate as people return to offices and schools. We expect to sell all paper production for the balance of the year. Near-term pulp markets should remain balanced due to steady demand growth and limited new supply. Paper prices are expected to continue to realize higher pricesincrease following recently announced price increases. Personal Care should benefit from higher volume, favorableincreases while pulp prices are expected to see some seasonal volatility. Overall raw material costs are expected to remain stable while freight costs will increase.
COST REDUCTION PROGRAM
On August 7, 2020, we announced the implementation of a cost reduction program, targeting $200 million in annual run-rate cost savings to be realized by the end of 2021. As of June 30, 2021, we have achieved and seasonally lower marketing expenses.closed our cost reduction program. The goal of the program was to build a stronger business operation, enhance our cost efficiency, improve operating margins and maximize productivity and cash flow. The costs saving initiatives included capacity reduction and asset closures, mill-level cost savings and rightsizing support functions.
CONSOLIDATED RESULTSOur cost reduction program included the permanent closure of the uncoated freesheet manufacturing at our Kingsport, Tennessee and Port Huron, Michigan mills, the remaining paper machine at our Ashdown, Arkansas mill and the converting center in Ridgefields, Tennessee. Additionally, on May 7, 2021, we announced the closure of our converting center in Dallas, Texas. These actions reduced our annual uncoated freesheet paper capacity by approximately 721,000 short tons and resulted in a workforce reduction of approximately 750 employees. Our Ridgefields converting center ceased operations at the end of the third quarter of 2020, our Port Huron mill ceased operations in the first quarter of 2021 and our Dallas converting center ceased operations at the beginning of July 2021.
For the three and six months ended June 30, 2021, we recorded $1 million and $7 million, respectively, of accelerated depreciation under Impairment of long-lived assets, $1 million and $4 million, respectively, of severance and termination costs, $1 million and $1 million, respectively, of pension settlement loss and $5 million and $5 million, respectively, of other costs under Closure and restructuring costs on the Consolidated Statement of Earnings and Comprehensive Income (Loss). Additionally, we recorded $5 million and $13 million, respectively, under Asset Conversion Costs on the Consolidated Statement of Earnings and Comprehensive Income (Loss) as part of the conversion of our Kingsport, Tennessee mill to a linerboard facility.
REVIEW OF OPERATIONS AND SEGMENT REVIEW
This section presents a discussion and analysis of our thirdsecond quarter and first nine monthshalf of 20172021 and 20162020 sales, operating income (loss) and other information relevant to the understanding of our results of operations.
ANALYSIS OF NET SALES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By Business Segment |
| Three months ended |
|
| Nine months ended |
| ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| Variance |
|
|
|
|
|
|
|
|
|
| Variance |
| ||||||||||
|
| September 30, 2017 |
|
| September 30, 2016 |
|
| $ |
|
| % |
|
| September 30, 2017 |
|
| September 30, 2016 |
|
| $ |
|
| % |
| ||||||||
Pulp and Paper |
| $ | 1,054 |
|
| $ | 1,054 |
|
|
| - |
|
|
| -% |
|
| $ | 3,126 |
|
| $ | 3,193 |
|
|
| (67 | ) |
|
| -2% |
|
Personal Care |
|
| 253 |
|
|
| 231 |
|
|
| 22 |
|
|
| 10% |
|
|
| 743 |
|
|
| 675 |
|
|
| 68 |
|
|
| 10% |
|
Total for reportable segments |
|
| 1,307 |
|
|
| 1,285 |
|
|
| 22 |
|
|
| 2% |
|
|
| 3,869 |
|
|
| 3,868 |
|
|
| 1 |
|
|
| -% |
|
Intersegment sales |
|
| (15 | ) |
|
| (15 | ) |
|
| - |
|
|
|
|
|
|
| (49 | ) |
|
| (44 | ) |
|
| (5 | ) |
|
|
|
|
Consolidated |
|
| 1,292 |
|
|
| 1,270 |
|
|
| 22 |
|
|
| 2% |
|
|
| 3,820 |
|
|
| 3,824 |
|
|
| (4 | ) |
|
| -% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shipments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paper - manufactured (in thousands of ST) |
|
| 722 |
|
|
| 744 |
|
|
| (22 | ) |
|
| -3% |
|
|
| 2,165 |
|
|
| 2,282 |
|
|
| (117 | ) |
|
| -5% |
|
Communication papers |
|
| 597 |
|
|
| 620 |
|
|
| (23 | ) |
|
| -4% |
|
|
| 1,801 |
|
|
| 1,904 |
|
|
| (103 | ) |
|
| -5% |
|
Specialty and Packaging papers |
|
| 125 |
|
|
| 124 |
|
|
| 1 |
|
|
| 1% |
|
|
| 364 |
|
|
| 378 |
|
|
| (14 | ) |
|
| -4% |
|
Paper - sourced from third parties (in thousands of ST) |
|
| 29 |
|
|
| 35 |
|
|
| (6 | ) |
|
| -17% |
|
|
| 84 |
|
|
| 96 |
|
|
| (12 | ) |
|
| -13% |
|
Paper - total (in thousands of ST) |
|
| 751 |
|
|
| 779 |
|
|
| (28 | ) |
|
| -4% |
|
|
| 2,249 |
|
|
| 2,378 |
|
|
| (129 | ) |
|
| -5% |
|
Pulp (in thousands of ADMT) |
|
| 424 |
|
|
| 369 |
|
|
| 55 |
|
|
| 15% |
|
|
| 1,260 |
|
|
| 1,098 |
|
|
| 162 |
|
|
| 15% |
|
ANALYSIS OF NET SALES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three months ended |
|
| Six months ended |
| ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| Variance |
|
|
|
|
|
|
|
|
|
| Variance |
| ||||||||||
|
| June 30, 2021 |
|
| June 30, 2020 |
|
| $ |
|
| % |
|
| June 30, 2021 |
|
| June 30, 2020 |
|
| $ |
|
| % |
| ||||||||
Sales |
|
| 1,010 |
|
|
| 802 |
|
|
| 208 |
|
| 26% |
|
|
| 1,954 |
|
|
| 1,833 |
|
|
| 121 |
|
| 7% |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shipments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paper - manufactured (in thousands of ST) |
|
| 549 |
|
|
| 459 |
|
|
| 90 |
|
| 20% |
|
|
| 1,095 |
|
|
| 1,138 |
|
|
| (43 | ) |
| (4%) |
| ||
Communication Papers |
|
| 454 |
|
|
| 366 |
|
|
| 88 |
|
| 24% |
|
|
| 907 |
|
|
| 935 |
|
|
| (28 | ) |
| (3%) |
| ||
Specialty and Packaging papers |
|
| 95 |
|
|
| 93 |
|
|
| 2 |
|
| 2% |
|
|
| 188 |
|
|
| 203 |
|
|
| (15 | ) |
| (7%) |
| ||
Paper - sourced from third parties (in thousands of ST) |
|
| 18 |
|
|
| 12 |
|
|
| 6 |
|
| 50% |
|
|
| 36 |
|
|
| 34 |
|
|
| 2 |
|
| 6% |
| ||
Paper - total (in thousands of ST) |
|
| 567 |
|
|
| 471 |
|
|
| 96 |
|
| 20% |
|
|
| 1,131 |
|
|
| 1,172 |
|
|
| (41 | ) |
| (3%) |
| ||
Pulp (in thousands of ADMT) |
|
| 454 |
|
|
| 459 |
|
|
| (5 | ) |
| (1%) |
|
|
| 935 |
|
|
| 881 |
|
|
| 54 |
|
| 6% |
|
ANALYSIS OF CHANGES IN SALES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
| Second quarter of 2021 versus Second quarter of 2020 |
|
| First half of 2021 versus First half of 2020 |
| ||||||||||||||||||
|
| % Change in Sales due to |
|
| % Change in Sales due to |
| ||||||||||||||||||
|
| Net Price |
|
| Volume / Mix |
|
| Total |
|
| Net Price |
|
| Volume / Mix |
|
| Total |
| ||||||
Sales |
|
| 13 | % |
|
| 13 | % |
|
| 26 | % |
|
| 8 | % |
|
| (1 | %) |
|
| 7 | % |
Sales in the second quarter of 2021 increased by $208 million, or 26%, when compared to sales in the second quarter of 2020. This increase in sales is mostly due to an increase in our net average selling prices for pulp and paper and an increase in our paper sales volume as the economy recovers from the effects of the pandemic. This increase was partially offset by a decrease in our pulp sales volumes.
Sales in the first half of 2021 increased by $121 million, or 7% when compared to sales in the first half of 2020. This increase in sales is mostly due to an increase in our net average selling prices for pulp and paper and our pulp sales volumes. This increase was partially offset by a decrease in our paper sales volumes as a result of work-from-home rules and the overall economic slowdown due to the pandemic in the early 2021.
ANALYSIS OF CHANGES IN OPERATING INCOME (LOSS) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second quarter of 2021 versus Second quarter of 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ Change in Operating Income (Loss) due to |
| ||||||||||||||||||||||||||||||||
|
| Volume/Mix |
|
| Net Price |
|
| Input Costs (a) |
|
| Operating Expenses (b) |
|
| Currency |
| Depreciation/ Impairment (c) |
|
| Restructuring/ Conversion (d) |
|
| Other Income/ Expense (e) |
|
| Total |
| |||||||||
Pulp and Paper |
|
| 18 |
|
|
| 107 |
|
|
| 4 |
|
|
| (21 | ) |
|
| (2 | ) |
| 4 |
|
|
| (12 | ) |
|
| (6 | ) |
|
| 92 |
|
Corporate |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3 | ) |
|
| — |
|
| — |
|
|
| (17 | ) |
|
| — |
|
|
| (20 | ) |
Operating income (loss) |
|
| 18 |
|
|
| 107 |
|
|
| 4 |
|
|
| (24 | ) |
|
| (2 | ) |
| 4 |
|
|
| (29 | ) |
|
| (6 | ) |
|
| 72 |
|
ANALYSIS OF CHANGES IN SALES |
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| Third quarter of 2017 versus Third quarter of 2016 |
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| First nine months of 2017 versus First nine months of 2016 |
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| % Change in Net Sales due to |
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| % Change in Sales due to |
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| Net Price |
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| Volume / Mix |
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| Currency |
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| Total |
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| Net Price |
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| Volume / Mix |
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| Currency |
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| Total |
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Pulp and Paper |
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| - | % |
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| - | % |
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| - | % |
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| - | % |
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| -1 | % |
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| -1 | % |
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| - | % |
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| -2 | % |
Personal Care |
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| -1 | % |
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| 9 | % | (a) |
| 2 | % |
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| 10 | % |
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| -2 | % |
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| 13 | % | (a) |
| -1 | % |
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| 10 | % |
Consolidated sales |
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| - | % |
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| 2 | % |
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| - | % |
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| 2 | % |
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| -1 | % |
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| 1 | % |
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| - | % |
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| - | % |
Commentary:
(a) |
| Includes |
ANALYSIS OF OPERATING INCOME (LOSS) |
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| Three months ended |
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| Nine months ended |
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By Business Segment |
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| Variance |
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| Variance |
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| September 30, 2017 |
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| September 30, 2016 |
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| $ |
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| % |
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| September 30, 2017 |
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| September 30, 2016 |
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| $ |
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| % |
| ||||||||
Operating income (loss) |
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|
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|
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Pulp and Paper |
|
| 93 |
|
|
| 89 |
|
|
| 4 |
|
|
| 4 | % |
|
| 192 |
|
|
| 143 |
|
|
| 49 |
|
|
| 34 | % |
Personal Care |
|
| 8 |
|
|
| 15 |
|
|
| (7 | ) |
|
| -47 | % |
|
| 37 |
|
|
| 44 |
|
|
| (7 | ) |
|
| -16 | % |
Corporate |
|
| (12 | ) |
|
| (12 | ) |
|
| - |
|
|
| - | % |
|
| (34 | ) |
|
| (38 | ) |
|
| 4 |
|
|
| 11 | % |
Consolidated operating income (loss) |
|
| 89 |
|
|
| 92 |
|
|
| (3 | ) |
|
| -3 | % |
|
| 195 |
|
|
| 149 |
|
|
| 46 |
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| 31 | % |
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| $ Change in Segmented Operating Income (Loss) due to |
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| Volume/Mix |
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| Net Price |
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| Input Costs (b) |
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| Operating Expenses (c) |
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| Currency |
| Depreciation/ Impairment (d) |
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| Restructuring (e) |
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| Other Income/ Expense (f) |
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| Total |
| |||||||||
Pulp and Paper |
|
| 2 |
|
|
| (4 | ) |
|
| 3 |
|
|
| (25 | ) |
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| (1 | ) |
| 14 |
|
|
| 10 |
|
|
| 5 |
|
|
| 4 |
|
Personal Care |
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| — |
| (a) |
| (3 | ) |
|
| (2 | ) |
|
| (1 | ) |
|
| (1 | ) |
| — |
|
|
| — |
|
|
| — |
|
|
| (7 | ) |
Corporate |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2 | ) |
|
| — |
|
| — |
|
|
| — |
|
|
| 2 |
|
|
| — |
|
Consolidated operating income (loss) |
|
| 2 |
|
|
| (7 | ) |
|
| 1 |
|
|
| (28 | ) |
|
| (2 | ) |
| 14 |
|
|
| 10 |
|
|
| 7 |
|
|
| (3 | ) |
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|
(b) |
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| Includes maintenance, freight costs, selling, general and administrative (“SG&A”) expenses and other costs. |
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|
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(f)
(d) | We recorded $25 million of restructuring charges in the second quarter of 2021 related to transaction fees for the Paper Excellence transaction and our cost reduction program, compared to $1 million in the second quarter of 2020. We also recorded $5 million of asset conversion costs at our Kingsport mill as part of the conversion to a linerboard facility. |
income/expense includes: |
income/expense includes: |
-
|
|
Commentary –Third quarter of 2017 compared to Third quarter of 2016
Interest Expense, net
We incurred $16 million of net interest expense in the third quarter of 2017, a decrease of $1 million compared to net interest expense of $17 million in the third quarter of 2016. This decrease is mostly due to a decrease in interest expense as a result of the repayment at maturity of the 9.5% Notes due in August 2016 and of the 10.75% Notes due in June 2017 and a reduction in the amortization of debt issue costs. This decrease was partially offset by a reduction in capitalized interest and an increase in interest expense related to the Term Loan Agreement.
Income Taxes
In the third quarter of 2017, our income tax expense was $3 million, consisting of current income tax expense of $10 million and a deferred income tax benefit of $7 million. This compares to an income tax expense of $16 million in the third quarter of 2016, consisting of a current income tax expense of $5 million and a deferred income tax expense of $11 million. We made income tax payments, net of refunds, of $3 million during the third quarter of 2017. Our effective tax rate was 4% compared with an effective tax rate of 21% in the third quarter of 2016. The effective tax rate for the third quarter of 2017 was favorably impacted by the recognition of previously unrecognized tax benefits due to the expiration of certain statutes of limitations. The effective tax rates for both the third quarter of 2017 and third quarter of 2016 were impacted by the finalization of certain estimates in connection with the filing of our 2016 and 2015 income tax returns, respectively.
First nine months of 2017 versus First nine months of 2016 |
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| $ Change in Segmented Operating Income (Loss) due to |
| |||||||||||||||||||||||||||||||||
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| Volume/Mix |
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| Net Price |
|
| Input Costs (b) |
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| Operating Expenses (c) |
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| Currency |
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| Depreciation/ Impairment (d) |
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| Restructuring (e) |
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| Other Income/ Expense (f) |
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| Total |
| |||||||||
Pulp and Paper |
|
| (18 | ) |
|
| (32 | ) |
|
| 14 |
|
|
| (23 | ) |
|
| 13 |
|
|
| 55 |
|
|
| 33 |
|
|
| 7 |
|
|
| 49 |
|
Personal Care |
|
| 7 |
| (a) |
| (11 | ) |
|
| 4 |
|
|
| (4 | ) |
|
| (3 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (7 | ) |
Corporate |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2 |
|
|
| (1 | ) |
|
| — |
|
|
| — |
|
|
| 3 |
|
|
| 4 |
|
Consolidated operating income (loss) |
|
| (11 | ) |
|
| (43 | ) |
|
| 18 |
|
|
| (25 | ) |
|
| 9 |
|
|
| 55 |
|
|
| 33 |
|
|
| 10 |
|
|
| 46 |
|
|
|
|
|
|
|
|
|
|
|
(f)
|
|
-
- Bad debt expense ($1 million) - Foreign
|
|
Commentary – First nine monthsSecond quarter of 20172021 compared to first nine months of 2016
Interest Expense, net
We incurred $50 million of net interest expense in the first nine months of 2017, an increase of $1 million compared to net interest expense of $49 million in the first nine months of 2016. This increase was mostly due to a reduction in capitalized interest and an increase in interest expense related to the Term Loan Agreement. This increase was partially offset by the repayment at maturity of the 9.5% Notes due in August 2016 and of the maturity of the 10.75% Notes due in June 2017.
Income Taxes
In the first nine months of 2017, our income tax expense was $17 million, consisting of current income tax expense of $36 million and a deferred income tax benefit of $19 million. This compares to an income tax expense of $19 million in the first nine months of 2016, consisting of a current income tax expense of $13 million and a deferred income tax expense of $6 million. We made income tax payments, net of refunds, of $18 million during the first nine months of 2017. Our effective tax rate was 12% compared to an effective tax rate of 19% in the first nine months of 2016. The effective tax rate for the first nine months of 2017 was favorably impacted by the recognition of previously unrecognized tax benefits due to the expiration of certain statutes of limitations as well as by various enacted law changes in several U.S. states. The effective tax rates for both the first nine months of 2017 and the first nine months of 2016 were impacted by the finalization of certain estimates in connection with the filing of our 2016 and 2015 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.
Pulp and Paper Segment
Sales in our Pulp and Paper segment remained relatively flat when compared to sales in the thirdSecond quarter of 2016. Our net average selling price for paper decreased while our net average selling price for pulp increased. Paper sales volume decreased from the third quarter of 2016 while pulp sales volume increased from the third quarter of 2016.2020
Operating income in our Pulp and Paper segment amounted to $93$95 million in the thirdsecond quarter of 2017,2021, an increase of $4$92 million, when compared to operating income of $89$3 million in the thirdsecond quarter of 2016.2020. Our results were positively impacted by:
• | Higher net average selling prices for pulp and paper ($107 million) |
• | Higher volume and mix ($18 million) |
• | Lower input costs ($4 million) mostly related to favorable market conditions for fiber |
• | Lower depreciation/impairment charges ($4 million). Depreciation charges were lower by $5 million when compared to the second quarter of 2020. We recorded $1 million of accelerated depreciation under Impairment of long-lived assets, related to our cost reduction program in the second quarter of 2021 and there were no accelerated depreciation charges in the second quarter of 2020 |
Lower depreciationThese increases were partially offset by:
• | Higher operating expenses ($21 million) mostly related to lower amounts recognized from the CEWS in the second quarter of 2021, higher maintenance in part due to the timing of some major maintenance and higher freight costs. This increase was partially offset by higher production |
• | Higher restructuring and conversion charges ($12 million) in the second quarter of 2021 mostly related to our cost reduction program including the conversion of our Kingsport mill to a linerboard facility. We recorded $1 million of restructuring charges or conversion costs in the second quarter of 2020. |
• | Lower other income ($6 million) |
• | Negative impact of a stronger Canadian dollar on our Canadian dollar denominated expenses, net of our hedging program ($2 million) |
OTHER FACTORS
Corporate
We incurred $27 million of corporate charges ($14 million)in the second quarter of 2021, an increase of $20 million compared to corporate charges of $7 million in the second quarter of 2020. This increase was mostly due to accelerated depreciation related to our 2014 decision to convert a paper machine at our Ashdown facility to a high quality fluff pulp linetransaction fees for the Paper Excellence transaction. There were no restructuring charges in the thirdsecond quarter of 2016 and lower depreciation charges2020. SG&A expenses were higher in the second quarter of 2021 mostly due to certain assets being fully depreciatedhigher variable compensation when compared to the second quarter of 2020.
Lower restructuring costs mostlyInterest Expense, net
We incurred $20 million of net interest expense in the second quarter of 2021, an increase of $5 million compared to net interest expense of $15 million in the second quarter of 2020. We paid $11 million in make-whole premium fees related to the conversionearly retirement of a paper machine to a high quality fluff pulp line at our Ashdown mill, recordedthe 4.4% Notes originally due March 2022, in the thirdsecond quarter of 2016 ($5 million) and the announced closure of a pulp dryer and idling of related assets at our Plymouth mill ($5 million) related to our plan to optimize fluff pulp manufacturing
Lower other operating income/expense ($5 million)
Lower input costs ($3 million) mostly related to lower energy costs due to a boiler conversion and lower fiber costs as a result of improved yields, partially offset by higher chemical costs
Higher volume/mix ($2 million) mostly related to higher volume of pulp2021. This was partially offset by lower volume of paper
This increase was partially offset by:
Higher operating expenses ($25 million) mostlyinterest on the 4.4% Notes due to higher maintenance costs as a result of timing of outages
Lower average selling prices for paper partially offset by higher average selling prices for pulp ($4 million)
Negative impact of a stronger Canadian dollar on our Canadian denominated expenses, partially offset by our hedging program ($1 million)
Salesthe early retirement in our Pulp and Paper segment decreased by $67 million, or 2% when compared to sales in the first nine months of 2016. This decrease in sales is mostly due to a decrease in net average selling prices for paperApril 2021 as well as lower interest on the Term loan due to the early repayment in the March 2021.
Income Taxes
For the second quarter of 2021, our income tax expense was $16 million, consisting of a decreasecurrent income tax expense of $16 million and no deferred income tax expense. This compares to an income tax benefit of $11 million in the second quarter of 2020, consisting of a current income tax benefit of $2 million and a deferred income tax benefit of $9 million. We made income tax payments, net of refunds, of $8 million during the second quarter of 2021. The effective tax rate for the second quarter of 2021 was 30% compared with an effective tax rate of 79% in the second quarter of 2020. The effective tax rate for the second quarter of 2021 was impacted by certain transaction costs incurred during the quarter related to our paper sales volumes. This decreasepotential acquisition by Paper Excellence which provided no tax benefit. Our tax provision for interim periods is determined using an estimate of the annual effective tax rate and then adjusting for
discrete items arising in that quarter. In each interim quarter we update the estimate of the annual effective tax rate and, if the estimated annual tax rate changes, make a cumulative adjustment in that quarter. The effective tax rate for the second quarter of 2020 was partially offsetsignificantly impacted by such an increaseadjustment. The effective tax rate for the second quarter of 2020 was also favorably impacted by our recognition of additional tax credits in our pulp sales volumes and an increasevarious jurisdictions, as well as by the CARES Act, which granted the ability to carry back tax losses generated in net average selling prices for pulp.the U.S. in 2020 to a tax year with a higher statutory tax rate.
First half of 2021 versus First half of 2020 |
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By Business Segment |
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| $ Change in Segmented Operating Income (Loss) due to |
| |||||||||||||||||||||||||||||||||
|
| Volume/Mix |
|
| Net Price |
|
| Input Costs (a) |
|
| Operating Expenses (b) |
|
| Currency |
|
| Depreciation/ Impairment (c) |
|
| Restructuring/ Conversion (d) |
|
| Other Income/ Expense (e) |
|
| Total |
| |||||||||
Pulp and Paper |
|
| (10 | ) |
|
| 134 |
|
|
| (11 | ) |
|
| 10 |
|
|
| 1 |
|
|
| 2 |
|
|
| (22 | ) |
|
| (4 | ) |
|
| 100 |
|
Corporate |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (6 | ) |
|
| (3 | ) |
|
| — |
|
|
| (18 | ) |
|
| 2 |
|
|
| (25 | ) |
Operating income (loss) |
|
| (10 | ) |
|
| 134 |
|
|
| (11 | ) |
|
| 4 |
|
|
| (2 | ) |
|
| 2 |
|
|
| (40 | ) |
|
| (2 | ) |
|
| 75 |
|
(a) | Includes raw materials (such as fiber and chemicals) and energy costs. |
(b) | Includes maintenance, freight costs, SG&A expenses and other costs. |
(c) | Depreciation charges were lower by $9 million in the first half of 2021, excluding foreign currency impact and we recorded $7 million of accelerated depreciation under Impairment of long-lived assets, related to our cost reduction program. There were no accelerated depreciation charges in the first half of 2020. |
(d) | We recorded $28 million of restructuring charges in the first half of 2021 related to transaction fees for the Paper Excellence transaction and our cost reduction program. We recorded $1 million of restructuring charges in the first half of 2020. We also recorded $13 million of asset conversion costs at our Kingsport mill as part of the conversion to a linerboard facility in the first half of 2021. |
(e) First half of 2021 other operating income/ expense includes: | First half of 2020 other operating income/ expense includes: |
- Bad debt recovery ($2 million) - Foreign currency loss on working capital items ($2 million) - Environmental provision ($1 million) - Other income ($2 million) | - Income from termination of non-production agreement ($7 million) - Foreign currency gain on working capital items ($1 million) - Bad debt expense ($5 million) - Environmental provision ($1 million) - Other income ($1 million) |
Commentary – First half of 2021 compared to first half of 2020
Operating income in our Pulp and Paper segment amounted to $192$107 million in the first nine monthshalf of 2017,2021, an increase of $49$100 million, when compared to operating income of $143$7 million in the first nine monthshalf of 2016.2020. Our results were positively impacted by:
• | Higher net average selling prices for pulp and paper ($134 million) |
• | Lower operating expenses ($10 million) mostly related to lower maintenance costs in part due to the timing of some major maintenance, and lower costs due to our 2020 cost reduction program, including lower salaries and wages. Partially offset by higher freight costs |
• | Lower depreciation/impairment charges ($2 million). Depreciation charges were lower by $9 million when compared to the first half of 2020. We recorded $7 million of accelerated depreciation under Impairment of long-lived assets, related to our cost reduction program in the first half of 2021 and there were no accelerated depreciation charges in the first half of 2020. |
• | Positive impact of our foreign currency hedging program partially offset by a stronger Canadian dollar on our Canadian dollar denominated expenses ($1 million) |
Lower depreciationThese increases were partially offset by:
• | Higher restructuring and conversion charges ($22 million) in the first half of 2021 mostly related to our cost reduction program including the conversion of our Kingsport mill to a linerboard facility. We recorded $1 million of restructuring charges or conversion costs in the first half of 2020 |
• | Higher input costs ($11 million) mostly related to higher cost of chemicals due to a business acquisition in the second quarter of 2020, unfavorable market conditions as well as higher energy costs mostly due to severe weather issues in the first quarter of 2021 |
• | Lower volume and mix ($10 million) |
• | Lower other income ($4 million) |
OTHER FACTORS
Corporate
We incurred $37 million of corporate charges ($55 million) due to accelerated depreciation related to our 2014 decision to convert a paper machine at our Ashdown facility to a high quality fluff pulp line in the first nine monthshalf of 2016 and lower depreciation2021, an increase of $25 million compared to corporate charges due to certain assets being fully depreciated
Lower restructuring costs mostly related to the conversion of a paper machine to a high quality fluff pulp line at our Ashdown mill and the announced closure of a pulp dryer and idling of related assets at our Plymouth mill related to our plan to optimize fluff pulp manufacturing, recorded$12 million in the first nine monthshalf of 2016 ($33 million)
Lower input costs ($14 million) mostly related to lower fiber costs as a result of improved yields and better weather and lower energy costs, partially offset by higher chemicals costs
Positive impact of our hedging program, partially offset by a stronger Canadian dollar on our Canadian denominated expenses ($13 million)
Lower other operating income/expense ($7 million)
2020. This increase was partially offset by:
Lower average selling pricesmostly due to transaction fees incurred for paper, partially offset bythe Paper Excellence transaction. There were no restructuring charges in the first half of 2020. SG&A expenses were higher average selling prices for pulp ($32 million)
Higher operating expenses ($23 million)in the first half of 2021 mostly due to higher freight, packagingvariable compensation when compared to the first half of 2020.
Interest Expense, net
We incurred $35 million of net interest expense in the first half of 2021, an increase of $6 million compared to net interest expense of $29 million in the first half of 2020. We paid $11 million in make-whole premium fees related to the early retirement of the 4.4% Notes originally due March 2022 and compensationwrote-off $2 million of unamortized debt issuance costs andrelated to the repayment of the Term Loan in the second quarter of 2021. This was partially offset by lower maintenanceinterest on the 4.4% Notes due to the early retirement.
Income Taxes
For the first six months of 2021, our income tax expense was $16 million, consisting of a current income tax expense of $15 million and a deferred income tax expense of $1 million. This compares to an income tax benefit of $8 million in the first six months of 2020, consisting of a current income tax benefit of $5 million and a deferred income tax benefit of $3 million. We made income tax payments, net of refunds, of $1 million during the first six months of 2021. The effective tax rate was 34% compared to an effective tax rate of 32% in the first six months of 2020. The effective tax rate for the first six months of 2021 was significantly impacted by certain transaction costs
Lower volume/mix ($18 million) mostly incurred during the period related to lower volumeour potential acquisition by Paper Excellence which provide no tax benefit. The effective tax rate for the first six months of paper,2020 was significantly impacted by our mix of earnings or loss in our major jurisdictions, by our recognition of additional tax credits in various jurisdictions, and by our ability to carry back U.S. tax losses generated in 2020 to a tax year with a higher statutory tax rate. These favorable impacts were partially offset by higher volumean increase in the valuation allowance related to the expected realization of pulpcertain U.S. state tax credits.
Economic conditions and uncertainties
The markets in which our pulp and paper business operate are highly competitive with well-established domestic and foreign manufacturers. In uncoated freesheet, we compete primarily on the basis of product quality, breadth of offering, service solutions and competitively priced paper products. We also compete with electronic transmission and document storage alternatives. As a result of
such competition, we are experiencing ongoing decreasing demand for most of our existing paper products. Most of our products are commodities andthat are widely available from other producers as well. Because commodity products have few distinguishing qualities from producer to producer, competition for these products is based primarily on price, which is determined by supply relative to demand.
We also compete on the basis of product quality, breadth of offering and service solutions. Further, we compete against electronic transmission and document storage alternatives. As a result of such competition, we are experiencing ongoing decreasing demand for most of our existing paper products. In addition, current global economic conditions are highly volatile due to the COVID-19 pandemic, resulting in both market size contractions in certain countries due to economic slowdowns and government restrictions on movement.
The pulp market is highly fragmented with many manufacturers competing worldwide. Competition is primarily on the basis of access to low-cost wood fiber, product quality and competitively pricedpricing of other pulp products.
InThe high degree of uncertainty and volatility day-to-day and the fourth quarter, we expect higher maintenance costs.longer-term potential impacts of the economic slowdown remain unclear. Paper demand will remain dependent upon recovery from COVID-19, but demand is expected to be negatively impacted by seasonally unfavorable mix while Pulp should continue to realize higherrebound through the year as people return to schools and offices. We expect to sell all paper production for the balance of the year. Near-term pulp markets should remain balanced due to steady demand growth and limited new supply. Paper prices are expected to continue to increase following recently announced price increases.increases while pulp prices are expected to see some seasonal volatility. Overall raw material costs are expected to remain stable while freight costs will increase.
Personal Care SegmentDISCONTINUED OPERATION
Sales inOn March 1, 2021, we completed the sale of our Personal Care segment increased by $22 million, or 10% when compared to sales inbusiness. Its results of operations are reported as discontinued operations for all periods presented. For the third quarterfirst half of 2016. This increase in sales was driven by higher sales volume/mix of 9% mostly due to the acquisition of HDIS on October 1, 2016 and favorable foreign currency of 2%,2021, we reported a loss from discontinued operations, net of our hedging program, mostly between the Euro and U.S Dollar. This increase was partially offset by lower selling pricestaxes, of 1%.
Operating income decreased by $7$23 million or 47% in the third quarter(first half of 2017 compared to the third quarter of 2016. Our results were negatively impacted by:
Lower average net selling prices ($3 million)
Higher input costs ($2 million) mostly due to higher raw material indices and usage of fluff
Higher operating expenses ($1 million) mostly due to higher salaries and wages and higher SG&A expenses
Negative impact of our hedging program partially offset by favorable foreign exchange mostly between the U.S. Dollar and Euro ($1 million)
Sales in our Personal Care segment increased by $68 million, or 10% when compared to sales in the first nine months of 2016. This increase in sales was driven by higher sales volume/mix of 13% mostly due to the acquisition of HDIS on October 1, 2016, partially offset by lower selling prices of 2% and unfavorable foreign currency rates of 1% due to fluctuations between European currencies.
Operating income decreased $7 million, or 16% in the first nine months of 2017 when compared to the first nine months of 2016.
Our results were negatively impacted by:
Lower average net selling prices ($11 million)
Higher operating expenses ($4 million) mostly due to higher salaries and wages and higher SG&A expenses
Unfavorable foreign exchange mostly between the GBP and Euro,2020 – earnings from discontinued operations, net of our hedging program ($taxes of $42 million). For more information, refer to Item 1, Financial Statements and Supplemental Data, under Note 3, million)
This decrease was partially offset by:
Higher sales volume and mix ($7 million)
Lower input costs ($4 million) mostly due to favorable pricing as a result of lower negotiated contract pricing
In our absorbent hygiene products business, we compete in an industry with fundamental drivers for long-term growth. While we are expected to benefit from the overall increase in healthcare spending due to an aging population, it is not clear how recent administrative changes in the various national governments may impact the source of the funding. Changes in the balance of public versus private funding may be forthcoming and these could impact overall consumption or the channels in which consumption occurs. The principal methods and elements of competition include brand recognition and loyalty, product innovation, quality and performance, price and marketing and distribution capabilities.
In the fourth quarter, we expect to benefit from higher volume, favorable raw material costs and seasonally lower marketing expenses.“Discontinued Operations”.
STOCK-BASED COMPENSATION EXPENSE
For the first nine monthshalf of 2017,2021, stock-based compensation expense recognized in our results of from continuing and discontinued operations was $15 million for all outstanding awards which includes the mark-to-market expense related to liability awards of $1 million. This compares to a stock-based compensation expense of $11$6 million for all outstanding awards which includes the mark-to-market recovery, net of hedging, related to liability awards of $2$1 million. This compares to a stock-based compensation expense of nil from continuing and discontinued operations for all outstanding awards which includes the mark-to-market recovery, net of hedging, related to liability awards of $9 million in the first nine monthshalf of 2016.2020. Compensation costs for performance awards are based on management’s best estimate of the final performance measurement.
LIQUIDITY AND CAPITAL RESOURCES
Our principal cash requirements are for ongoing operating costs, pension contributions, working capital and capital expenditures, as well as principal and interest payments on our debt and income tax payments. We expect to fund our liquidity needs primarily with internally generated funds from our operations and, to the extent necessary, through borrowings under our contractually committed $700 million credit facility, of which $700$672 million is currently undrawn and available, or through our $150 million receivables securitization facility, of which $39$111 million is currently undrawn and available. Under adverse market conditions, there can be no assurance that these agreements would be available or sufficient. See “Capital Resources” below.
Our ability to make payments on the requirements mentioned above will depend on our ability to generate cash in the future, which is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. Our credit and receivable securitization facilities and debt indentures impose various restrictions and covenants on us that could limit our ability to respond to market conditions, to provide for unanticipated capital investments or to take advantage of business opportunities.
A portion of our cash is held outside the U.S. by foreign subsidiaries. The earnings of the foreign subsidiaries which reflect full provision for local income taxes, are currentlytaxes. We remain indefinitely reinvested in the outside basis differences of our foreign operations. We do not intend on repatriating those funds and no provision is made for income taxes that would be payable upon the distribution of earnings from foreign subsidiaries as computation of these amounts is not practical.subsidiaries.
Operating Activities
Our operating cash flow requirements are primarily for salaries and benefits, the purchase of raw materials, including fiber and energy, and other expenses such as income tax and property taxes.
Cash flows from operating activities, including discontinued operations, totaled $324$90 million in the first nine monthshalf of 2017,2021, a $14$65 million increasedecrease compared to cash flows from operating activities of $310$155 million in the first nine monthshalf of 2016.2020. This increasedecrease in cash flows provided from operating activities is primarily due to a decreasean increase in working capital requirements in the first nine months of 2017 when compared to the first nine months of 2016 as well as an increasea decrease in profitability (excluding the non-cash impairment charge of $29 million in the first nine months of 2016). profitability. We made income tax payments, net of refunds, of $18$1 million during the first half of 2021 compared to income tax refunds, net of payments, of $24 million in the first nine monthshalf of 2017 compared to income tax payments, net of refunds of $37 million during the first nine months of 2016. We paid $33 million of employer pension and other post-retirement contribution in excess of pension and other post-retirement expense in the first nine months of 2017 compared to $16 million in the first nine months of 2016.2020.
Investing Activities
Cash flows used forprovided from investing activities, including discontinued operations in the first nine monthshalf of 20172021 amounted to $103$776 million, a $199$908 million decreaseincrease compared to cash flows used for investing activities of $302$132 million in the first nine monthshalf of 2016.2020.
The source of cash provided from investing activities in the first half of 2021 was attributable to the proceeds from the sale of our Personal Care business ($897 million) and was partially offset by the additions to property, plant and equipment of $122 million.
The use of cash in the first nine monthshalf of 20172020 was attributable to additions to property, plant and equipment of $111$102 million partially offset by proceeds from disposalsand the acquisition of property, plant and equipmentthe Appvion Point of $8 million.
The use of cashSale Business in the first nine monthssecond quarter of 2016 was attributable to additions to property, plant and equipment of $302 million.2020 ($30 million).
Our annual capital expenditures for 20172021 should increase mostly due to our Kingsport mill conversion and are expected to be approximately between $185$310 million and $190$330 million.
Financing Activities
Cash flows used for financing activities, including discontinued operations, totaled $212$829 million in the first nine monthshalf of 20172021 compared to cash flows provided from financing activities of $32$41 million in the first nine monthshalf of 2016.2020.
The use of cash flows for financing activities in the first nine monthshalf of 20172021, was primarilymostly due from the resultearly repayment of dividend paymentsthe Term Loan and 4.4% Notes, including the make-whole premium ($78605 million), as well as for the net repaymentsrepurchase of borrowingsour common stock ($223 million) of which a $200 million payment was made under our credit facilities (revolver and receivable securitization) and long-term debt ($123 million) and a decrease in our bank indebtedness ($12 million).the ASR agreement.
The primary source of cash flows provided from financing activities in the first nine monthshalf of 20162020, was primarilyfrom proceeds of the resultTerm Loan in the first half of net proceeds from2020 ($300 million). This was partially offset by the decrease in borrowings under our credit facilities (revolver and receivablereceivables securitization) ($120135 million) and an increase in our bank indebtedness ($1 million). These were partially offset by dividend payments ($76 million) and, the repurchase of our common stock ($59 million), dividend payments ($51 million) and a decrease in bank indebtedness ($10 million).
Capital Resources
Net indebtedness, consisting of bank indebtedness and long-term debt, net of cash and cash equivalents, was $1,022$158 million as of SeptemberJune 30, 20172021 compared to $1,168$788 million as of December 31, 2016.2020.
Use of proceeds from the sale of our Personal Care business
On April 8, 2021, we redeemed the 4.4% Notes, Maturity
Our 9.5% Notes,originally due in aggregateMarch 2022, at a redemption price of 100% of the principal amount of $39$300 million, maturedplus accrued and unpaid interest, as well as a make-whole premium of $11 million. The debt extinguishment as well as the related loss on August 1, 2016.
Our 10.75% Notes,debt extinguishment was recognized in aggregate principal amount of $63 million, matured on June 1, 2017.
Term Loan
In the thirdsecond quarter of 2015, a wholly owned subsidiary of Domtar borrowed $3002021.
On March 11, 2021, we repaid $294 million remaining under an unsecured 10-yearour Term Loan Agreement that matures on July 20, 2025, with certain domestic banks. The Company and certain significant domestic subsidiarieshad an original maturity in May 2025. A write-off of the Company unconditionally guarantee any obligations from time to time arising under the Term Loan Agreement. On August 18, 2016, Domtar entered into an amendment to its Term Loan Agreement, pursuant to which, among other things, certain insignificant subsidiaries were released from their guarantees$2 million of the borrower’s obligations under the Term Loan Agreement.
Borrowings under the Term Loan Agreement bear interest at LIBOR plus a margin of 1.875%. The Term Loan Agreement contains customary covenants, including two financial covenants: (i) an interest coverage ratio, as definedunamortized debt issuance costs is included in the Term Loan Agreement, that must be maintained at a levelInterest Expense line item on the Consolidated Statement of not less than 3 to 1 and (ii) a leverage ratio, as defined in the Term Loan Agreement that must be maintained at a level of not greater than 3.75 to 1. At September 30, 2017, we were in compliance with these financial covenants.Earnings.
Revolving Credit Facility
In August 2016, we amended and restated ourWe have an unsecured $700 million revolving credit facility (the “Credit Agreement”) with certain domestic and foreign banks increasing the amount available from $600 million to $700 million and extending the Credit Agreement’s maturity date from October 3, 2019 tothat matures on August 18, 2021. The amendment also allows certain foreign subsidiaries to be borrowers under the facility. The maturity date of the facility may be extended by one year and the lender commitments may be increased by up to $400 million, subject to lender approval and customary requirements.22, 2023.
Borrowings by the Company under the Credit Agreement are guaranteed by our significant domestic subsidiaries. Borrowings by certain foreign borrowerssubsidiaries under the Credit Agreement are guaranteed by the Company, our significant domestic subsidiaries and certain of our significant foreign significant subsidiaries. The amendment allowed certain insignificant domestic subsidiaries that were previously guarantors, to be released from their guarantees of any obligations under the credit facility.
Borrowings under the Credit Agreement bear interest at the LIBOR, EURIBOR, Canadian bankers’bankers' acceptance or prime rate, as applicable, plus a margin linked to our credit rating. In addition, we pay facility fees quarterly at rates dependent on our credit ratings. The Financial Conduct Authority in the United Kingdom plans to phase out LIBOR by the end of 2021. We do not anticipate a significant impact to our financial position from the planned phase out of LIBOR.
The Credit Agreement contains customary covenants and events of default for transactions of this type, including two financial covenants: (i) an interest coverage ratio, as defined in the Credit Agreement, that must be maintained at a level of not less than 3 to 1 and (ii) a leverage ratio, as defined in the Credit Agreement, that must be maintained at a level of not greater than 3.75 to 1 (or 4.00 to 1 upon the occurrence of certain qualifying material acquisitions). At SeptemberJune 30, 2017,2021 and June 30, 2020, we were in compliance with these financial covenants. At September 30, 2017, wecovenants, and had no borrowings (Septemberunder the Credit Agreement (June 30, 20162020 – $110 million)nil). At June 30, 2021 and noJune 30, 2020, we had $28 million and $49 million, respectively, of outstanding letters of credit, (September 30, 2016 – nil), leaving $700$672 million unused and available under this facility. facility (June 30, 2020 – $651 million).
This agreement will terminate upon completion of the Paper Excellence transaction, to be replaced by other financing arrangements.
Receivables Securitization
We have a $150 million receivables securitization facility that matures in March 2019.November 2021.
At SeptemberJune 30, 2017,2021, we had no borrowings under the receivables securitization facility amounted to $60and $28 million and $51 million of outstanding letters of credit were issued under the program (September(June 30, 20162020 – $100 millionnil and $48 million,nil, respectively). The program contains certain termination events, which include, but are not limited to, matters related to receivable performance, certain defaults occurring under the credit facilityCredit Agreement or our failure to repay or satisfy material obligations. At SeptemberJune 30, 2017,2021, we had $39$111 million unused and available under thisthe receivable securitization facility.
This agreement will terminate upon completion of the Paper Excellence transaction, to be replaced by another financing arrangement.
Common Stock
On May 5, 2020, due to the unprecedented market conditions cause by COVID-19, we suspended the payment of our regular quarterly dividend and stock repurchase program in order to preserve cash and provide additional flexibility in the current environment.
On February 21, 2017, May 3, 2017 and August 1, 2017,11, 2021, we announced that we resumed our stock repurchase program. Our Board of Directors approved awill continue to evaluate our capital return program based upon customary considerations, including market conditions.
Due to the Paper Excellence transaction, we have discontinued further share repurchases.
On March 2, 2021, we entered into an ASR agreement under which we paid an aggregate of $200 million and received an aggregate initial share delivery of 4,430,906 shares of our common stock, which were immediately retired. The final number of shares to be repurchased under the ASR agreement and the average price paid per share will be determined upon settlement of the agreement during the third quarter of 2021. Based upon the current share price, we expect to make an additional payment of approximately $16 million, with no additional shares being delivered. For more information, refer to item 1, Financial Statements and Supplemental Data, under Note 15, “Shareholders’ Equity”.
During 2020, we declared one quarterly dividend of $0.42$0.455 per share, respectively, to be paid to holders of our common stock. Dividends of $26Total dividends aggregating $25 million were paid on April 17, 2017, July 17, 2017 and October 16, 2017, respectively,15, 2020 to shareholders of record onas of April 3, 2017, July 3, 2017 and October 2, 2017, respectively.2020.
On October 31, 2017, our Board of Directors approved a quarterly dividend of $0.42 per share to be paid to holders of our common stock. This dividend is to be paid on January 15, 2018, to shareholders of record on January 2, 2018.
OFF BALANCE SHEET ARRANGEMENTS
In the normal course of business, we finance certain of our activities off balance sheet through operating leases.
GUARANTEES
Indemnifications
In the normal course of business, we offer indemnifications relating to the sale of our businesses and real estate. In general, these indemnifications may relate to claims from past business operations, compliance with laws, the failure to abide by covenants and the breach of representations and warranties included in sales agreements. Typically, such representations and warranties relate to taxation, environmental, product and employee matters. The terms of these indemnification agreements are generally for an unlimited period of time. At SeptemberJune 30, 2017,2021, we were unable to estimate the potential maximum liabilities for these types of indemnification guarantees as the amounts are contingent upon the outcome of future events, the nature and likelihood of which cannot be reasonably estimated at this time. Accordingly, no provision has been recorded. These indemnifications have not yielded significant expenses in the past.
Pension Plans
We have indemnified and held harmless the trustees of our pension funds, and the respective officers, directors, employees and agents of such trustees, from any and all costs and expenses arising out of the performance of their obligations under the relevant trust agreements, including in respect of their reliance on authorized instructions from us or for failing to act in the absence of authorized instructions. These indemnifications survive the termination of such agreements. At SeptemberJune 30, 2017,2021, we have not recorded a liability associated with these indemnifications, as we do not expect to make any payments pertaining to these indemnifications.
RECENT ACCOUNTING PRONOUNCEMENTS
Refer to Note 2 “Recent Accounting Pronouncements,” of the financial statements in this Quarterly Report on Form 10-Q.
CRITICAL ACCOUNTING ESTIMATES AND POLICIES
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates, assumptions and choices amongst acceptable accounting methods that affect our reported results of operations and financial position. Critical accounting estimates pertain to matters that contain a significant level of management estimates about future events, encompass the most complex and subjective judgments and are subject to a fair degree of measurement uncertainty. On an ongoing basis, management reviews its estimates, including those related to environmental matters and asset retirement obligations, impairment and useful lives of long-lived assets, closure and restructuring costs, goodwill and intangible assets impairment, pension and other post-retirement benefit plans, income taxes business combinations and contingencies related to legal claims. These critical accounting estimates and policies have been reviewed with the Audit Committee of our Board of Directors. We believe these accounting policies, and others, should be reviewed as they are essential to understanding our results of operations, cash flows and financial condition. Actual results could differ from those estimates.
There has not been any material change to our policies since December 31, 2016. For more details on critical accounting policies, refer to our Annual Report on Form 10-K for the year ended December 31, 2016.2020.
There has not been any material change to our policies since December 31, 2020. For more details, refer to Note 2 “Recent Accounting Pronouncements” of the financial statements in this Quarterly Report on Form 10-Q.
FORWARD-LOOKING STATEMENTS
The information included in this Quarterly Report on Form 10-Q contains forward-looking statements relating to trends in, or representing management’s beliefs about, Domtar Corporation’s future growth, results of operations, performance, liquidity and business prospects and opportunities. These forward-looking statements are generally denoted by the use of words such as “anticipate”, “believe”, “expect”, “intend”, “aim”, “target”, “plan”, “continue”, “estimate”, “project”, “may”, “will”, “should” and similar expressions. These statements reflect management’s current beliefs and are based on information currently available to management. Forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable by management, are inherently subject to known and unknown risks and uncertainties and other factors that could cause actual results to differ materially from historical results or those anticipated. Accordingly, no assurances can be given that any of the events anticipated by the forward-looking statements will occur, or if any occurs,occur, what effect they will have on Domtar Corporation’sour results of operations or financial condition. These factors include, but are not limited to:
continued decline in usage of fine paper products in our core North American market;
• | continued decline in usage of fine paper products in our core North American market; |
our ability to implement our business diversification initiatives, including strategic acquisitions;
• | our ability to implement our business diversification initiatives, including repurposing of assets and strategic acquisitions or divestitures, including facility closures; |
product selling prices;
• | conversion costs in excess of our expectations and demand for linerboard; |
raw material prices, including fiber, chemical and energy;
• | product selling prices; |
conditions in the global capital and credit markets, and the economy generally, particularly in the U.S., Canada and Europe;
• | raw material prices, including wood fiber, chemical and energy; |
performance of Domtar Corporation’s manufacturing operations, including unexpected maintenance requirements;
• | conditions in the global capital and credit markets, and the general economy, particularly in the U.S., and Canada; |
the level of competition from domestic and foreign producers;
• | performance of our manufacturing operations, including unexpected maintenance requirements; |
the effect of, or change in, forestry, land use, environmental and other governmental regulations (including tax), and accounting regulations;
• | the level of competition from domestic and foreign producers; |
the effect of weather and the risk of loss from fires, floods, windstorms, hurricanes and other natural disasters;
• | cyberattacks or other security breaches; |
transportation costs;
• | the effect of, or change in, forestry, land use, environmental and other governmental regulations and accounting regulations; |
the loss of current customers or the inability to obtain new customers;
• | the effect of weather and the risk of loss from fires, floods, windstorms, hurricanes and other natural disasters; |
legal proceedings;
• | transportation costs; |
changes in asset valuations, including impairment of goodwill, property, plant and equipment, inventory, accounts receivable or other assets for impairment or other reasons;
• | the loss of current customers or the inability to obtain new customers; |
changes in currency exchange rates, particularly the relative value of the U.S. dollar to the Canadian dollar and European currencies;
• | legal proceedings; |
the effect of timing of retirements and changes in the market price of Domtar Corporation’s common stock on charges for stock-based compensation;
• | changes in asset valuations, including impairment of long-lived assets, inventory, accounts receivable or other assets or other reasons; |
performance of pension fund investments and related derivatives, if any; and
• | changes in currency exchange rates, particularly the relative value of the U.S. dollar to the Canadian dollar; |
• | the effect of timing of retirements and changes in the market price of Domtar Corporation’s common stock on charges for stock-based compensation; |
the other factors described under “Risk Factors”, in item 1A of our Annual Report on Form 10-K, for the year ended December 31, 2016.
• | performance of pension fund investments and related derivatives, if any; |
• | a material disruption in our supply chain, manufacturing, distribution operations or customer demand such as public health crises that impact trade or the general economy, including COVID-19 and other viruses, diseases or illnesses; and |
• | the other factors described under “Risk Factors”, in item 1A of our Annual Report on Form 10-K, for the year ended December 31, 2020. |
You are cautioned not to unduly rely on such forward-looking statements, which speak only as of the date made, when evaluating the information presented in this Quarterly Report on Form 10-Q. Unless specifically required by law, Domtar Corporation disclaims any obligation to update or revise these forward-looking statements to reflect new events or circumstances.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Information relating to quantitative and qualitative disclosure about market risk is contained in our Annual Report on Form 10-K for the year ended December 31, 2016. 2020. There havehas not been noany material changes inchange in our exposure to market risk since December 31, 2016.2020. A full discussion on Quantitative and Qualitative Disclosure about Market Risk, is found in Note 35 “Derivatives and Hedging Activities and Fair Value Measurement,” of the financial statements in this Quarterly Report on Form 10-Q.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our reports under the Securities and Exchange Act of 1934, as amended (“Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. As of SeptemberJune 30, 2017,2021, an evaluation was performed by members of management, at the direction and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Exchange Act). Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of SeptemberJune 30, 2017,2021, our disclosure controls and procedures were effective.
Change in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect our internal control over financial reporting during the period covered by this report.
See Note 1416 “Commitments and Contingencies” of the financial statements in this Quarterly Report on Form 10-Q for the discussion regarding legal proceedings.
For a description of previously reported legal proceedings refer to Part I, Item 3, “Legal Proceedings,” of our Annual Report on Form 10-K for the year ended December 31, 2016.2020.
Our Annual Report on Form 10-K for the year ended December 31, 2016,2020, contains important risk factors that could cause our actual results to differ materially from those projected in any forward-looking statement. There have beenExcept as stated below, there were no material changes fromto the risk factors described in our Annual Report on Form 10-K for the year ended December 31, 2016.2020.
The proposed business combination transaction of the Company with Paper Excellence (the “Paper Excellence transaction” or “transaction”), is subject to certain closing conditions that, if not satisfied or waived, will result in the transaction not being completed, which may cause the market price of the Company’s common stock to decline.
The Paper Excellence transaction is subject to customary conditions to closing, including the receipt of required regulatory approvals and other customary closing conditions. If any condition to the transaction is not satisfied or, if permissible, waived, the transaction will not be completed. In addition, Paper Excellence and the Company may terminate the transaction in certain circumstances. If Paper Excellence and the Company do not complete the transaction, the market price of the Company’s Common Stock may fluctuate to the extent that the current market prices of those shares reflect a market assumption that the transaction will be completed. The Company will also be obligated to pay certain fees and expenses in connection with the transaction, whether or not the transaction is completed. In addition, the Company has diverted significant management resources in an effort to complete the transaction and is subject to restrictions contained in the agreement on the conduct of its business. If the transaction is not completed, the Company will have incurred significant costs, including the diversion of management resources, for which it will have received little or no benefit. Further, in specified circumstances, the Company may be required to pay Paper Excellence a Company Termination Fee of up to $83 million if the transaction is terminated.
Whether or not the Paper Excellence transaction is completed, the announcement and pendency of the transaction could cause disruptions in the businesses of the Company, which could have an adverse effect on our business and financial results.
Whether or not the Paper Excellence transaction is completed, the announcement and pendency of the transaction could cause disruptions in the businesses of the Company. Specifically:
× | the announcement of the transaction could have an adverse effect on the ability of the Company to retain and hire key personnel and maintain relationships with customers, suppliers and others with whom the Company does business; |
× | the announcement of the transaction could have an adverse effect on the Company’s operating results and business generally; |
× | the transaction could disrupt current plans and operations of the Company and could result in potential difficulties in employee retention as a result of the transaction; and |
× | the outcome of any legal proceedings related to the transaction could have an adverse effect on the business and financial results of the Company. |
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the thirdsecond quarter and the first nine months of 2017,2021, we did not repurchase any shares under our stockshare repurchase program (the “Program”). We currentlyAs of June 30, 2021, we have $323$121 million of remaining availability under our Program.
The Program may be suspended, modified or discontinued at any time and we have no obligation to repurchase any amount of our common stock under the Program. The Program has no set expiration date. We repurchase our common stock from time to time, in part to reduce the dilutive effects of our stock options and awards and to improve shareholders’ returns. The timing and amount of stock repurchases will depend on a variety of factors, including market conditions, availability under the program as well as corporate and regulatory considerations. All shares repurchased are recorded as Treasury stock on the Consolidated Balance Sheets under the par value method at $0.01 per share.
Due to the Paper Excellence transaction, we have discontinued our share repurchase program.
In March 2021, we entered into an ASR agreement under which we paid an aggregate of $200 million and received an aggregate initial share delivery of 4,430,906 shares of our common stock, which were immediately retired. The final number of shares to be repurchased under the ASR agreement and the average price paid per share will be determined upon settlement of the agreement during the third quarter of 2021. Based upon the current share price, we expect to make an additional payment of approximately $16 million, with no additional shares being delivered. For more information, refer to Item 1, Financial Statements and Supplemental Data, under Note 15, “Shareholders’ Equity”.
During the first half of 2021, in addition to the ASR, we repurchased 629,959 shares at an average price of $35.72 for a total cost of $23 million.
During the first half of 2020, we repurchased 1,798,306 shares at an average price of $33.05 for a total cost of $59 million.
ITEM 3. DEFAULT UPON SENIOR SECURITIES
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
Not applicable.
ITEM 6. EXHIBITS
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized.
DOMTAR CORPORATION | |
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Date: | |
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By: | /s/ Daniel Buron |
| Daniel Buron |
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By: | /s/ |
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5364