UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
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MESSAGE
TO SHAREHOLDERS
With a legacy of 170 years, Domtar is ready for the future. Our confidence stems from our clear strategy to create value by remaining the supplier of choice to our paper customers, while building new businesses in growing markets.
Domtar generated $725 million of EBITDA before items1 and cash flows from operating activities of $554 million in 2018. We returned $108 million to shareholders in the form of dividends,re-invested $195 million in our business, and repaid $276 million of debt. Our netdebt-to-total capitalization ratio1 atyear-end stood at a comfortable 23%.
Our strong financial performance was driven by our papers business, complemented by one of our strongest performances in market pulp. We closed the year with a robust fourth quarter, strong momentum in pulp and paper, and greater visibility on our path forward.
The results and progress achieved in 2018 demonstrate that we are well-positioned to create value in the years ahead.
1 | Non-GAAP financial measure. Please see “Reconciliation ofnon-GAAP Financial Measures” at the end of this document. |
EXECUTING OUR PAPER STRATEGY
The North American paper market reached a positive inflection point in 2018 driven by improved demand and permanent supply curtailments in the industry. Through a combination of market share gains, price increases and higher productivity across our mill system, we achieved a strong performance in this business.
We were able to capitalize on the favorable market dynamics because of our long-standing commitment to be the leading North American supplier of uncoated freesheet. In this regard, the significant cash flows we derive annually from this business are evidence of its resilience.
THE RECENT DECISION BY A MAJOR SUPPLIER TO EXIT THE UNCOATED FREESHEET MARKET IS STRENGTHENING DOMTAR’S POSITION. IN LINE WITH OUR LONG-TERM STRATEGY, WE WILL CONTINUE TO FOCUS ON EXTENDING THE CASH FLOW RUNWAY IN PAPER BY LEVERAGING OURLOW-COST POSITION, FLEXIBLE SERVICE MODEL AND CUSTOMER RELATIONSHIPS.
GENERATING HIGH RETURNS IN PULP
In market pulp, we benefited from strong global demand for tissue, absorbent hygiene products and packaging, as well as rising prices to more than double our EBITDA1 in 2018 compared to the prior year. In so doing, we confirmed the potential of market pulp as a major source of cash flow for Domtar.
4 DOMTAR 2018 ANNUAL REPORT
As a result of investments in mill conversions, we now have the capacity to produce 1.8 millionair-dry metric tons of market pulp – mostly in softwood, fluff and specialty grades – for a global customer base.
Now that we have achieved scale, our focus is on driving growth and enhancing our customer value proposition. We are also investing in high-return initiatives to optimize production and increase efficiencies across our mills with the objective of driving cost performance. As one of the leaders in the global softwood and fluff markets, we are looking at pulp as along-term generator of earnings growth for Domtar.
LEVERAGING OUR ASSET BASE
While generating steady cash flows, we have been actively finding new uses for our paper mills and repurposing these assets to manufacture products in growing markets. Over the past several years, we have reduced paper capacity by 1.5 million short tons to balance our supply with our customer demand. Today, these repurposed mills produce market pulp and/or specialty papers, thereby maximizing the value of these assets and maintaining the thousands of jobs they support in our communities.
WE ADDED AN IMPORTANT NEW DIMENSION TO OUR STRATEGY IN 2018 BY DETAILING A LONG-TERM CONVERSION ROADMAP FOR FOUR OF OUR LARGEST PAPER MILLS.
Our studies have confirmed that Domtar can be a significant and competitive supplier to the containerboard market in addition to increasing our pulp production.
The optionality embedded in our paper assets provides a path for their future. Our conversion roadmap significantlyde-risks our business for the benefit of Domtar’s many stakeholders – shareholders, employees and communities among them.
We are taking a long-term view, with the timing and sequence of potential mill conversions to be determined by market and economic conditions affecting our paper business.
IMPROVING MARGINS IN PERSONAL CARE
Over several years, we have established a billion-dollar business in the personal care market. Although this business is currently not providing the returns we expected, its long-term value is underpinned by attractive demographic and market trends, as well as an efficient manufacturing platform.
Stiff headwinds in the form of escalating raw materials prices and intense price competition have led to disappointing results. Faced with margin erosion, we initiated actions across the division in 2018 to improve our financial performance.
These actions include division-wide cost reductions, product rationalization, and manufacturing optimization with the closure of one North American facility and equipment relocation to sister plants. The objective is to realize annual margin improvement of approximately $25 million to $30 million, with fullrun-rate effect by the end of 2020.
Global demand for adult incontinence products is growing at a rate of3-5% annually due to an aging population and increased product adoption rates. The sizeable infant diaper category continues to see a shift to store-brand products in North America and Europe, creating a significant opportunity for market penetration. By executing its margin improvement plan, our personal care division will be a more agile competitor in a growing market.
DOMTAR 2018 ANNUAL REPORT 5
MESSAGE
TO SHAREHOLDERS
OPTIMIZING CAPITAL DEPLOYMENT
Our businesses have remained highly cash-generative throughout the years, and we have been very disciplined in our capital deployment decisions to strike an optimal balance between shareholder returns and the execution of our business strategy.
Since 2011, Domtar has returned $1.6 billion to shareholders in the form of dividends and share repurchases. Our annual dividend payout for 2018 was $108 million and the yield for our shareholders is among the highest in our industry. In the years ahead, we will remain true to our commitment of returning the majority of our free cash flow to shareholders while continuing to invest in the future of our businesses.
OPERATING RESPONSIBLY
Our long-standing pursuit of sustainable business practices remains an integral part of our DNA and of our long-term strategy. Our track record in environmental and social responsibility differentiates us in the eyes of our customers and contributes to our financial results.
PULP AND PAPER TOTAL INJURY FREQUENCY RATES | PERSONAL CARE TOTAL INJURY FREQUENCY RATES |
Over the past decade, we have made progress in key areas such as forest certification, environmental performance, and the beneficial reuse of manufacturing byproducts. Our workplaces are inclusive, welcoming people from diverse backgrounds. We treat our employees with respect and prioritize their health and safety.
I am also proud to highlight Domtar’s award-winning disclosure in environmental and social reporting. We will publish our next Sustainability Report in 2019, outlining our targets, challenges and achievements.
READY FOR THE FUTURE
We ended 2018 feeling confident about our short-term prospects and our positioning for the long term. We have some of the best paper assets in North America, a world-class pulp business, great asset optionality, and flexibility in the timing of future conversions.
I THANK OUR EMPLOYEES FOR THEIR EFFORTS, OUR SHAREHOLDERS FOR THEIR CONTINUED CONFIDENCE, AND THE MEMBERS OF OUR BOARD OF DIRECTORS FOR THEIR VALUED COUNSEL AND SUPPORT.
Our strategy as a leadingfiber-based technology company is delivering value and we are keenly focused on seizing market opportunities. Domtar is ready for the future.
John D. Williams
President and Chief Executive Officer
6 DOMTAR 2018 ANNUAL REPORT
MANAGEMENT COMMITTEE AND
BOARD OF DIRECTORS
OUR LEADERSHIP TEAM
Domtar upholds the highest standards of business integrity and corporate social responsibility. Our commitment to operating responsibly is supported by ourCode of Business Conduct and Ethics applicable to Board members and employees alike. Strict Corporate Governance Guidelines are the basis for a robust compliance program.
We have adopted a wide range of policies, regularly reviewed and updated, to promote strong governance, best practices, diversity and sustainability. For more information on governance at Domtar, or to consult our proxy statement, please visitdomtar.com.
MANAGEMENT COMMITTEE
John D. Williams President and | Daniel Buron Senior Vice President and Chief Financial Officer | |||||
Michael D. Garcia President | Michael Fagan President | |||||
Zygmunt Jablonski Senior Vice President | Patrick Loulou Senior Vice President |
BOARD OF DIRECTORS
Robert E. Apple Chairman of the Board Miami, Florida | Giannella Alvarez Chief Executive Officer Austin, Texas | |||||
David J. Illingworth Corporate Director Orchid, Florida | Brian M. Levitt Chairman of the Board | |||||
David G. Maffucci Corporate Director | Pamela B. Strobel Corporate Director | |||||
Denis Turcotte Managing Partner | John D. Williams President and | |||||
Mary A. Winston President WinsCo Enterprises, Inc. |
DOMTAR 2018 ANNUAL REPORT 7
BUSINESS OVERVIEW
PULP AND PAPER
SEGMENT
PULP AND PAPER
Favorable market conditions and higher productivity across the mill system are highlights of a successful year for Domtar’s pulp and paper segment in 2018. We increased paper shipments, solidifying our position as the supplier of choice for communication papers in North America, while continuing to grow our market pulp business globally. Sales of our specialty paper grades were also higher than in the prior year. |
|
STRONG
PAPER
PERFORMANCE
Domtar’s sales of uncoated freesheet papers increased 7% in 2018, while shipments were up 3% to approximately 3 million short tons. Already North America’s largest manufacturer of communication papers, we gained new business as some competitors announced permanent uncoated freesheet capacity reductions.
North American production of uncoated freesheet paper declined 3.4% in 2018 to 7.1 million short tons. Demand was approximately 7.5 million short tons, a 0.5% decrease compared to 2017. Global demand for uncoated freesheet was estimated at 44.4 million short tons in 2018, similar to the previous year.
Several of Domtar’s communication paper mills achieved records in slush pulp and paper production in 2018. Paper productivity and daily production of slush pulp – wood fiber that is ready for making paper or market pulp – both exceeded our annual targets. Paper production was 3% higher than in the prior year.
We entered 2019 with high operating rates and improved paper prices. In addition, permanent capacity closures have been announced by competitors effective during the first half of 2019 and into 2020.
DOMTAR PAPER PRODUCTS AND APPLICATIONS
| ||||||||||||||||||||
Communication
|
Specialty and
| |||||||||||||||||||
CATEGORY |
Business |
Commercial Printing and Publishing Papers | • Thermal papers
• Food packaging
• Bag stock
• Security papers
• Imaging papers
• Label papers
• Medical disposables | |||||||||||||||||
Papers
| ||||||||||||||||||||
GRADE | • Copy | • Premium imaging
• Technology papers | • Offset
• Colors
• Index
• Tag
• Bristol | • Opaques
• Premium opaques
• Lightweight
• Tradebook | ||||||||||||||||
APPLICATION | • Photocopies
• Office documents
• Presentations | • Presentations • Reports
| • Commercial printing
• Direct mail
• Pamphlets
• Brochures
• Cards
• Posters
| • Stationery
• Brochures
• Annual reports
• Books
• Catalogs
• Forms and Envelopes | • Food and candy packaging
• Fast food takeout bag stock
• Check and security papers
• Surgical gowns | |||||||||||||||
10 DOMTAR 2018 ANNUAL REPORT
RELIABLE
LONG-TERM
PAPER SUPPLIER
Domtar has been steadfast in its strategy to remain North America’s largest uncoated freesheet producer and reliable long-term supplier to its customers. This strategy has served us well and continues to be our path.
We are keeping our promise to customers by investing annually in our paper mills to increase operational reliability and efficiency, as well as in ongoing product development and innovation to meet their needs.
We offer a broad selection of high-quality uncoated papers – from office, printing, publishing, digital and inkjet papers, to innovative converting and specialty papers – and responsive, world-class service.
NORTH AMERICAN
UNCOATED FREESHEET
CAPACITY1
Domtar Market Share vs. Next Four Competitors
Source: RISI
1 | Reflects the decision by a major supplier to curtail its uncoated freesheet capacity in 2019. |
A strong culture of sustainability is embedded throughout our operations. Our commitment to sustainable forest management, responsible use of resources, and safe and healthy workplaces help our customers achieve their own social responsibility goals.
At the same time, Domtar is taking a deliberate approach to finding new uses for its paper assets in growing markets. But we are not going to repurpose our mills prematurely, simply becausewe can.
Making and selling uncoated freesheet in the current market environment is highly attractive, and Domtar is committed to remain the supplier of choice to its customers in 2019 – and for the long term.
DOMTAR 2018 ANNUAL REPORT 11
BUSINESS OVERVIEW
PULP AND PAPER
SEGMENT
HIGH RETURNS
IN PULP
Domtar’s market pulp shipments totalled1.5 millionair-dry metric tons in 2018, with strong demand in the markets we serve and higher prices across all
product categories. We are one of the world’s largest producers of market pulp, selling our products to customers in over 40 countries.
Global demand for chemical market pulp was approximately 61.5 million tons in 2018, similar to the prior year. North American demand decreased4.8% to 7.5 million tons, while in China, a key driver of global pulp consumption, demand was 20.9 million tons, stable when compared to 2017.
Supply disruptions were a key factor in the global pulp market in 2018, with significant unplanned capacity outages
in the industry due to weather and other events. Domtar experienced an orderly weather-related shutdown at one location, but total production across the mill system was consistent with the prior year.
We entered 2019 with sound market fundamentals, with strong demand in our end markets, and no major industry capacity increase announcements. Because China has accounted for a significant share of demand growth for softwood pulp over the past several years, its economy will be an important factor in price trends in 2019.
EXPLORING THE POTENTIAL
OF WOOD-BASED BIOMATERIALS
In a world seeking to transition from petroleum-based products, Domtar is exploring the potential for using wood fiber as a viable replacement or supplement. As fiber experts and innovators, we know that trees can be used as feedstock for developing a variety of sustainable and biodegradable alternatives to materials or chemicals currently made with petroleum.
In 2018, Domtar acquired an interest in a company that uses lignin to make engineered plastic
compounds such as acrylonitrile butadiene styrene (ABS), a material widely used in injection molding and 3D manufacturing, as well as other high-value fiber and lignin applications. We also installed a demonstration plant in Canada to show how lignin pellets can potentially be used as abio-alternative to petroleum-based products, including plastics.
These are but two tangible initiatives led by our BioMaterials Innovation team. They are also looking at extractives, advanced fibers and thermochemical
fuels. While material revenues are not expected from biomaterials in the short term, we see compelling reasons to continue our research and development for the benefit of Domtar and our planet.
14 DOMTAR 2018 ANNUAL REPORT
PERSONAL CARE
Long-term growth trends for adult incontinence and infant products remain strong but adverse market conditions made for a difficult year in 2018. Domtar’s vision to be a leader in this market has not changed and we are taking strong measures across the business to improve our performance. |
|
|
A YEAR OF TRANSITION
Significant increases in input costs, over and above the commodity inflation experienced in the prior year, and intense pricing pressure have compressed margins in our personal care business in 2018. We were also affected by an unfavorable tender balance, and costs associated with ramping up a significant new customer beginning in the final quarter of the year.
We responded to market conditions by launching a division-wide margin improvement plan in the second half of 2018. This included streamlining administrative and sales expenses, cost reductions, product rationalization, and commercial initiatives.
Our Waco, Texas facility will be permanently shut by the third quarter of 2019, and some of the equipment will be installed in other locations as part of a manufacturing optimization. Our guiding principle is to reduce complexity to improve efficiency and productivity.
We expect these actions to generate $25 million to $30 million in annual margin improvement and to strengthen our long-term competitive position. The full run rate effect of the margin improvement initiatives is expected by the end of 2020.
FOCUS ON PRODUCTS AND CUSTOMERS
A globally integrated provider of absorbent hygiene solutions, Domtar is gaining traction as a supplier of partner-branded adult incontinence and infant products in North America and Europe. This strategy continues to be a major focus going forward.
We are making inroads in the institutional market for adult incontinence products in Europe, and we completed the installation of a new protective underwear line with the objective of capturing additional market share.
Continued investments will also be made in ourdirect-to-consumer channel in North America to drive sales of our full line of branded adult incontinence products, including protective underwear, briefs, underpads, pads and washcloths.
With our ability to create high-quality andcost-effective products, our well-invested manufacturing footprint, and dedicated employees, we are determined to rise to the challenge of a competitive market and to champion health, dignity and comfort through effective and affordable care.
DOMTAR 2018 ANNUAL REPORT 17
BUSINESS OVERVIEW
SEGMENTED INFORMATION
PULP AND PAPER
Years ended December 31
| 2016 | 2017 | 2018 | |||||||||
(In millions of dollars)
| ||||||||||||
Sales(including sales to Personal Care) | 4,239 | 4,216 | 4,523 | |||||||||
Operating income | 201 | 237 | 438 | |||||||||
Depreciation and amortization | 284 | 254 | 238 | |||||||||
Capital expenditures | 287 | 128 | 164 | |||||||||
Total assets | 3,637 | 3,649 | 3,475 | |||||||||
Paper shipments–manufactured(‘000 ST) | 3,021 | 2,891 | 2,971 | |||||||||
Market pulp shipments(‘000 ADMT)
| 1,513 | 1,722 | 1,536 |
PERSONAL CARE
Years ended December 31
| 2016 | 1 | 2017 | 2018 | ||||||||
(In millions of dollars)
| ||||||||||||
Sales | 909 | 996 | 1,000 | |||||||||
Operating income (loss) | 57 | (527 | ) | (5 | ) | |||||||
Depreciation and amortization | 64 | 67 | 70 | |||||||||
Capital expenditures | 55 | 48 | 37 | |||||||||
Total assets
| 1,884 | 1,406 | 1,331 |
1 Including HDIS since October 1, 2016
18 DOMTAR 2018 ANNUAL REPORT
SHAREHOLDER INFORMATION
DIVIDENDS DECLARED IN 2018 | ||||||||
Declared
| Record Date
| Payable Date
| Amount
| |||||
February 8, 2018 | April 2, 2018 | April 16, 2018 | $0.435 | |||||
May 8, 2018 | July 3, 2018 | July 16, 2018 | $0.435 | |||||
August 8, 2018 | October 2, 2018 | October 15, 2018 | $0.435 | |||||
November 7, 2018
| January 2, 2019
| January 15, 2019
|
| $0.435
|
|
EXCHANGE LISTINGS
NYSE: UFS
TSX: UFS
DIVIDEND POLICY
Subject to approval by its Board of
Directors, Domtar pays a quarterly
dividend on its common stock.
TRANSFER AGENT
AND REGISTRAR
By regular mail
Computershare
PO Box 505000
Louisville, KY 40233-5000
By overnight delivery
Computershare
462 South 4th Street, Suite 1600
Louisville, KY 40202
North American Toll Free Number:
1-877-282-1168
Tel.:1-781-575-2879
computershare.com/investor
TENTATIVE EARNINGS
RELEASE SCHEDULE
First Quarter 2019: Wednesday, May 1, 2019
Second Quarter 2019: Thursday, August 1, 2019
Third Quarter 2019: Thursday, October 31, 2019 Fourth Quarter 2019: Thursday, February 6, 2020
INVESTOR RELATIONS
Investor Relations Department
Domtar Corporation
395 de Maisonneuve Blvd. West
Montreal, QC H3A 1L6
Tel.:514-848-5049
Email: ir@domtar.com
Electronic versions of this report, SEC
filings and other publications are
available atdomtar.com
ANNUAL MEETING
May 8, 2019, 7:45 a.m. ET
Domtar Corporate Office
234 Kingsley Park Drive
Fort Mill, SC 29715
DOMTAR 2018 ANNUAL REPORT 19
RECONCILIATION OFNON-GAAP
FINANCIAL MEASURES
(In millions of dollars, unless otherwise noted)
The following table sets forth certainnon-U.S. generally accepted accounting principles (“GAAP”) financial metrics identified in bold as “Earnings before items”, “Earnings before items per diluted share”, “EBITDA”, “EBITDA margin”, “EBITDA before items”, “EBITDA margin before items”, “Free cash flow”, “Net debt” and“Netdebt-to-total capitalization”. Management believes that the financial metrics are useful to understand our operating performance and benchmark with peers within the industry. The Company calculates “Earnings before items” and “EBITDA before items” by excluding theafter-tax(pre-tax) effect of specified items.These metrics are presented as a complement to enhance the understanding of operating results but not in substitution for GAAP results.
2016 | 2017 | 2018 | ||||||||||||||
Reconciliation of “Earnings before items” to Net earnings (loss) | ||||||||||||||||
Net earnings (loss) | ($) | 128 | (258 | ) | 283 | |||||||||||
(+) | Impairment of property, plant and equipment and goodwill | ($) | 22 | 573 | 5 | |||||||||||
(+) | Closure and restructuring costs | ($) | 25 | 1 | 6 | |||||||||||
(+) | Litigation settlement | ($) | 2 | — | 2 | |||||||||||
(-) | Net gains on disposals of property, plant and equipment | ($) | — | (11 | ) | (3 | ) | |||||||||
(-) | Reversal of contingent consideration | ($) | — | (2 | ) | — | ||||||||||
(+) | Impact of purchase accounting | ($) | 1 | — | — | |||||||||||
(-) | U.S. Tax Reform | ($) | — | (140 | ) | (2 | ) | |||||||||
(=) | Earnings before items | ($) | 178 | 163 | 291 | |||||||||||
(/) | Weighted avg. number of common shares outstanding (diluted) | (millions) | 62.7 | 62.7 | 63.1 | |||||||||||
(=) | Earnings before items per diluted share | ($) | 2.84 | 2.60 | 4.61 | |||||||||||
Reconciliation of “EBITDA” and “EBITDA before items” to Net earnings (loss) | ||||||||||||||||
Net earnings (loss) | ($) | 128 | (258 | ) | 283 | |||||||||||
(+) | Equity loss, net of taxes | ($) | — | — | 2 | |||||||||||
(+) | Income tax expense (benefit) | ($) | 29 | (125 | ) | 57 | ||||||||||
(+) | Interest expense, net | ($) | 66 | 66 | 62 | |||||||||||
(+) | Depreciation and amortization | ($) | 348 | 321 | 308 | |||||||||||
(+) | Impairment of property, plant and equipment and goodwill | ($) | 29 | 578 | 7 | |||||||||||
(-) | Net gains on disposals of property, plant and equipment | ($) | — | (13 | ) | (4 | ) | |||||||||
(=) | EBITDA | ($) | 600 | 569 | 715 | |||||||||||
(/) | Sales | ($) | 5,090 | 5,148 | 5,455 | |||||||||||
(=) | EBITDA margin | (%) | 12% | 11% | 13% | |||||||||||
EBITDA | ($) | 600 | 569 | 715 | ||||||||||||
(+) | Closure and restructuring costs | ($) | 32 | 2 | 8 | |||||||||||
(+) | Litigation settlement | ($) | 2 | — | 2 | |||||||||||
(-) | Reversal of contingent consideration | ($) | — | (2 | ) | — | ||||||||||
(+) | Impact of purchase accounting | ($) | 1 | — | — | |||||||||||
(=) | EBITDA before items | ($) | 635 | 569 | 725 | |||||||||||
(/) | Sales | ($) | 5,090 | 5,148 | 5,455 | |||||||||||
(=) | EBITDA margin before items | (%) | 12% | 11% | 13% | |||||||||||
Reconciliation of “Free cash flow” to Cash flow from operating activities | ||||||||||||||||
Cash flows from operating activities | ($) | 465 | 449 | 554 | ||||||||||||
(-) | Additions to property, plant and equipment | ($) | (347 | ) | (182 | ) | (195 | ) | ||||||||
(=) | Free cash flow | ($) | 118 | 267 | 359 |
(Continued) | ||||||||||||||||
2016 | 2017 | 2018 | ||||||||||||||
“Netdebt-to-total capitalization” computation | ||||||||||||||||
Bank indebtedness | ($) | 12 | — | — | ||||||||||||
(+) | Long-term debt due within one year | ($) | 63 | 1 | 1 | |||||||||||
(+) | Long-term debt | ($) | 1,218 | 1,129 | 853 | |||||||||||
(=) | Debt | ($) | 1,293 | 1,130 | 854 | |||||||||||
(-) | Cash and cash equivalents | ($) | (125 | ) | (139 | ) | (111 | ) | ||||||||
(=) | Net debt | ($) | 1,168 | 991 | 743 | |||||||||||
(+) | Shareholders’ equity | ($) | 2,676 | 2,483 | 2,538 | |||||||||||
(=) | Total capitalization | ($) | 3,844 | 3,474 | 3,281 | |||||||||||
Net debt | ($) | 1,168 | 991 | 743 | ||||||||||||
(/) | Total capitalization | ($) | 3,844 | 3,474 | 3,281 | |||||||||||
(=) | Netdebt-to-total capitalization | (%) | 30% | 29% | 23% |
“Earnings before items”, “Earnings before items per diluted share”, “EBITDA”, “EBITDA margin”, “EBITDA before items”, “EBITDA margin before items”, “Free cash flow”, “Net debt” and “Netdebt-to-total capitalization” have no standardized meaning prescribed by GAAP and are not necessarily comparable to similar measures presented by other companies and therefore should not be considered in isolation or as a substitute for Net earnings (loss), Operating income (loss) or any other earnings statement, cash flow statement or balance sheet financial information prepared in accordance with GAAP. It is important for readers to understand that certain items may be presented in different lines by different companies on their financial statements, thereby leading to different measures for different companies.
RECONCILIATION OFNON-GAAP
FINANCIAL MEASURES BY SEGMENT
(In millions of dollars, unless otherwise noted)
The following table sets forth certainnon-U.S. generally accepted accounting principles (“GAAP”) financial metrics identified in bold as “Operating income (loss) before items”, “EBITDA before items” and “EBITDA margin before items” by reportable segment. Management believes that the financial metrics are useful to understand our operating performance and benchmark with peers within the industry. The Company calculates the segmented “Operating income (loss) before items” by excluding thepre-tax effect of specified items. These metrics are presented as a complement to enhance the understanding of operating results but not in substitution for GAAP results.
Pulp and Paper | Personal Care1 | Corporate | ||||||||||||||||||||||||||||||||||||||||
2016 | 2017 | 2018 | 2016 | 2017 | 2018 | 2016 | 2017 | 2018 | ||||||||||||||||||||||||||||||||||
“Reconciliation of Operating income (loss) | ||||||||||||||||||||||||||||||||||||||||||
to “Operating income (loss) before items” | ||||||||||||||||||||||||||||||||||||||||||
Operating income (loss) | ($ | ) | 201 | 237 | 438 | 57 | (527 | ) | (5 | ) | (50 | ) | (38 | ) | (47 | ) | ||||||||||||||||||||||||||
(+) | Impairment of property, plant and equipment and goodwill | ($ | ) | 29 | — | — | — | 578 | 7 | — | — | — | ||||||||||||||||||||||||||||||
(-) | Net gains on disposals of property, plant and equipment | ($ | ) | — | (4 | ) | (4 | ) | — | — | — | — | (9 | ) | — | |||||||||||||||||||||||||||
(+) | Closure and restructuring costs | ($ | ) | 31 | — | — | 1 | 2 | 8 | — | — | — | ||||||||||||||||||||||||||||||
(+) | Litigation settlement | ($ | ) | — | — | — | — | — | — | 2 | — | 2 | ||||||||||||||||||||||||||||||
(+) | Impact of purchase accounting | ($ | ) | — | — | — | 1 | — | — | — | — | — | ||||||||||||||||||||||||||||||
(-) | Reversal of contingent consideration | ($ | ) | — | — | — | — | — | — | — | (2 | ) | — | |||||||||||||||||||||||||||||
(=) | Operating income (loss) before items | ($ | ) | 261 | 233 | 434 | 59 | 53 | 10 | (48 | ) | (49 | ) | (45 | ) | |||||||||||||||||||||||||||
Reconciliation of “Operating income (loss) | ||||||||||||||||||||||||||||||||||||||||||
before items” to “EBITDA before items” | ||||||||||||||||||||||||||||||||||||||||||
Operating income (loss) before items | ($ | ) | 261 | 233 | 434 | 59 | 53 | 10 | (48 | ) | (49 | ) | (45 | ) | ||||||||||||||||||||||||||||
(+) | Non-service components of net periodic benefit cost | ($ | ) | 16 | 13 | 19 | — | — | — | (1 | ) | (2 | ) | (1 | ) | |||||||||||||||||||||||||||
(+) | Depreciation and amortization | ($ | ) | 284 | 254 | 238 | 64 | 67 | 70 | — | — | — | ||||||||||||||||||||||||||||||
(=) | EBITDA before items | ($ | ) | 561 | 500 | 691 | 123 | 120 | 80 | (49 | ) | (51 | ) | (46 | ) | |||||||||||||||||||||||||||
(/) | Sales | ($ | ) | 4,239 | 4,216 | 4,523 | 909 | 996 | 1,000 | — | — | — | ||||||||||||||||||||||||||||||
(=) | EBITDA margin before items | (% | ) | 13% | 12% | 15% | 14% | 12% | 8% | — | — | — |
“Operating income (loss) before items”, “EBITDA before items” and “EBITDA margin before items” have no standardized meaning prescribed by GAAP and are not necessarily comparable to similar measures presented by other companies and therefore should not be considered in isolation or as a substitute for Operating income (loss) or any other earnings statement, cash flow statement or balance sheet financial information prepared in accordance with GAAP. It is important for readers to understand that certain items may be presented in different lines by different companies on their financial statements, thereby leading to different measures for different companies.
1 On October 1, 2016, the Company acquired 100% of the shares of Home Delivery Incontinent Supplies Co. in the United States.
WHERE WE WORK
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CORPORATE OFFICES |
| MARKET PULP (Annual pulp manufacturing capacity inair-dry metric tons)
Ashdown, Arkansas (516,000 tons)
Dryden, Ontario (327,000 tons)
Kamloops, British Columbia (354,000 tons)
Plymouth, North Carolina (390,000 tons)
CHIP MILLS Hawesville, Kentucky Johnsonburg, Pennsylvania Kingsport, Tennessee Marlboro (Bennettsville), South Carolina
CONVERTING AND DISTRIBUTION – ONSITE Ashdown, Arkansas Rothschild, Wisconsin Windsor, Quebec |
| CONVERTING AND FORMS MANUFACTURING Addison, Illinois Brownsville, Tennessee Dallas, Texas DuBois, Pennsylvania Griffin, Georgia Owensboro, Kentucky Ridgefields, Tennessee Rock Hill, South Carolina Tatum, South Carolina Washington Court House, Ohio
ARIVA – CANADA Halifax, Nova Scotia Montreal, Quebec Mount Pearl, Newfoundland and Labrador Ottawa, Ontario Quebec City, Quebec Toronto, Ontario
REGIONAL REPLENISHMENT CENTERS – UNITED STATES Charlotte, North Carolina Chicago, Illinois Dallas, Texas Delran, New Jersey Indianapolis, Indiana Jacksonville, Florida Mira Loma, California Seattle, Washington |
| REGIONAL REPLENISHMENT CENTERS – CANADA Richmond, Quebec Toronto, Ontario Winnipeg, Manitoba
REPRESENTATIVE OFFICE – INTERNATIONAL Hong Kong, China
LOCAL DISTRIBUTION CENTERS Buffalo, New York Cincinnati, Ohio Cleveland, Ohio Des Moines, Iowa Houston, Texas Kansas City, Kansas Minneapolis, Minnesota Nashville, Tennessee Phoenix, Arizona Plain City, Ohio Richmond, Virginia Salt Lake City, Utah San Antonio, Texas San Lorenzo, California St. Louis, Missouri Vancouver, Washington Walton, Kentucky Wayne, Michigan Wisconsin Rapids, Wisconsin |
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Fort Mill, South Carolina Montreal, Quebec
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PULP AND PAPER | ||||||||||||||||
DIVISION HEADQUARTERS Fort Mill, South Carolina
UNCOATED FREESHEET (Annual paper manufacturing capacity in short tons)
Ashdown, Arkansas (265,000 tons)
Espanola, Ontario (69,000 tons)
Hawesville, Kentucky (596,000 tons)
Johnsonburg, Pennsylvania (344,000 tons)
Kingsport, Tennessee (426,000 tons)
Marlboro (Bennettsville), South Carolina (274,000 tons)
Nekoosa, Wisconsin (168,000 tons)
Port Huron, Michigan (113,000 tons)
Rothschild, Wisconsin (131,000 tons)
Windsor, Quebec (642,000 tons) |
20 DOMTAR 2018 ANNUAL REPORT
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PERSONAL CARE |
| FORWARD-LOOKING |
| PRODUCTION |
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DIVISION HEADQUARTERS Raleigh, North Carolina
MANUFACTURING AND DISTRIBUTION Aneby, Sweden Delaware, Ohio Greenville, North Carolina Jesup, Georgia Toledo, Spain Waco, Texas1
SALES OFFICES Daytona Beach, Florida Tuitjenhorn, The Netherlands Olivette, Missouri Oslo, Norway Linz, Austria Madrid, Spain Pusignan, France Rheinfelden, Switzerland Schwalbach am Taunus, Germany Stockholm, Sweden Texarkana, Arkansas Wakefield, United Kingdom | STATEMENTS
This Annual Report contains forward-look ing statements, including statements regarding strategy, repurposing of mills, product and brand development, production, sales growth, margins, earnings objectives, continuous improvement and the impact of our Personal Care initiatives. Actual results may differ materially from those suggested by these statements for a number of reasons, including customer acceptance of new products and brands, changes in customer demand and pricing, changes in manufacturing costs, future acquisitions and divestitures, including facility closings, and the other reasons identified under “Risk Factors” in our Form10-K for 2018 as filed with the Securities Exchange Commission and as updated by subsequently filed Form10-Q’s. Except to the extent required by law, we expressly disclaim any obligation to update or revise these forward-looking statements to reflect new events or circumstancesor otherwise. | NOTES
Paper Cover printed on 80 lb. Cougar® Cover, Smooth Finish. Insert printed on 70 lb. Cougar® Text, Smooth Finish.
Printing Cover and insert printed with UV inks on a Heidelberg Speedmaster CD 102 press6-color units within-line coater and full inter-deck andend-of-press extended delivery UV drying systems.
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1 On November 1, 2018, we announced a margin improvement plan within our Personal Care Division, including the permanent closure of our Waco, Texas, manufacturing and distribution facility. The facility is expected to cease operations in the third quarter of 2019. |