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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

 

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

For the quarterly period ended June 30, 2020

OR

 

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

For the transition period from ________to_______

COMMISSION FILE NUMBER 001-33164

 

DOMTAR CORPORATION

(Exact name of registrant as specified in its charter)

 

Delaware

 

20-5901152

(State of Incorporation)

 

(I.R.S. Employer

Identification No.)

234 Kingsley Park Drive, Fort Mill, SC 29715

(Address of principal executive offices)

(zip code)

(803) 802-7500

(Registrant’s telephone number)

 

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

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

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

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

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

☐  

  

Small reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

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

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

At July 31, 2020, 55,192,623 shares of the issuer’s common stock were outstanding.

 

 

 


 

DOMTAR CORPORATION

FORM 10-Q

For the Quarterly Period Ended June 30, 2020

INDEX

 

PART I.

FINANCIAL INFORMATION

3

 

 

 

ITEM 1.

FINANCIAL STATEMENTS (UNAUDITED)

3

 

 

 

 

CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME (LOSS)

3

 

 

 

 

CONSOLIDATED BALANCE SHEETS

4

 

 

 

 

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

5

 

 

 

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

7

 

 

 

 

INDEX FOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8

 

 

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9

 

 

 

ITEM 2.

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

46

 

 

 

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

59

 

 

 

ITEM 4.

CONTROLS AND PROCEDURES

59

 

 

 

PART II

OTHER INFORMATION

60

 

 

 

ITEM 1.

LEGAL PROCEEDINGS

60

 

 

 

ITEM 1A.

RISK FACTORS

60

 

 

 

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

60

 

 

 

ITEM 3.

DEFAULT UPON SENIOR SECURITIES

61

 

 

 

ITEM 4.

MINE SAFETY DISCLOSURES

61

 

 

 

ITEM 5.

OTHER INFORMATION

61

 

 

 

ITEM 6.

EXHIBITS

62

 

 

 

 

 


 

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)

 

 

For the three months ended

 

 

For the six months ended

 

 

June 30,

 

 

June 30,

 

 

June 30,

 

 

June 30,

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

(Unaudited)

 

 

$

 

 

$

 

 

$

 

 

$

 

Sales

 

1,012

 

 

 

1,317

 

 

 

2,290

 

 

 

2,693

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales, excluding depreciation and amortization

 

837

 

 

 

1,079

 

 

 

1,920

 

 

 

2,131

 

Depreciation and amortization

 

71

 

 

 

74

 

 

 

143

 

 

 

147

 

Selling, general and administrative

 

93

 

 

 

105

 

 

 

195

 

 

 

228

 

Impairment of long-lived assets (NOTE 12)

 

 

 

 

15

 

 

 

 

 

 

25

 

Closure and restructuring costs (NOTE 12)

 

1

 

 

 

8

 

 

 

1

 

 

 

12

 

Other operating (income) loss, net (NOTE 7)

 

(4

)

 

 

2

 

 

 

(2

)

 

 

1

 

 

 

998

 

 

 

1,283

 

 

 

2,257

 

 

 

2,544

 

Operating income

 

14

 

 

 

34

 

 

 

33

 

 

 

149

 

Interest expense, net

 

15

 

 

 

13

 

 

 

29

 

 

 

26

 

Non-service components of net periodic benefit cost (NOTE 6)

 

(5

)

 

 

(2

)

 

 

(9

)

 

 

(5

)

Earnings before income taxes and equity loss

 

4

 

 

 

23

 

 

 

13

 

 

 

128

 

Income tax (benefit) expense (NOTE 8)

 

(15

)

 

 

5

 

 

 

(12

)

 

 

29

 

Equity loss, net of taxes

 

 

 

 

 

 

 

1

 

 

 

1

 

Net earnings

 

19

 

 

 

18

 

 

 

24

 

 

 

98

 

Per common share (in dollars) (NOTE 5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

0.34

 

 

 

0.29

 

 

 

0.43

 

 

 

1.56

 

Diluted

 

0.34

 

 

 

0.28

 

 

 

0.43

 

 

 

1.55

 

Weighted average number of common shares

   outstanding (millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

55.2

 

 

 

63.0

 

 

 

55.6

 

 

 

63.0

 

Diluted

 

55.3

 

 

 

63.3

 

 

 

55.7

 

 

 

63.3

 

Cash dividends per common share

 

0.46

 

 

 

0.44

 

 

 

0.91

 

 

 

0.87

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

19

 

 

 

18

 

 

 

24

 

 

 

98

 

Other comprehensive income (loss) (NOTE 14):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net derivative gains (losses) on cash flow hedges:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

   $(9) and $7, respectively (2019 – $(1) and $(5),

   respectively)

 

29

 

 

 

3

 

 

 

(20

)

 

 

14

 

Less: Reclassification adjustment for losses

   included in net earnings, net of tax of $(2) and $(4),

   respectively (2019 – $(1) and $(1), respectively)

 

6

 

 

 

1

 

 

 

13

 

 

 

2

 

Foreign currency translation adjustments

 

39

 

 

 

20

 

 

 

(35

)

 

 

22

 

Change in unrecognized gains and prior service cost related to

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

   nil and $(1), respectively (2019 – $(1) and $(2), respectively)

 

2

 

 

 

2

 

 

 

3

 

 

 

5

 

Other comprehensive income (loss)

 

76

 

 

 

26

 

 

 

(39

)

 

 

43

 

Comprehensive income (loss)

 

95

 

 

 

44

 

 

 

(15

)

 

 

141

 

 

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

 

 

3

 


 

DOMTAR CORPORATION

CONSOLIDATED BALANCE SHEETS

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

 

 

 

At

 

 

 

June 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

 

 

(Unaudited)

 

 

 

$

 

 

$

 

Assets

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

124

 

 

 

61

 

Receivables, less allowances of $11 and $6

 

 

535

 

 

 

577

 

Inventories (NOTE 9)

 

 

767

 

 

 

786

 

Prepaid expenses

 

 

36

 

 

 

33

 

Income and other taxes receivable

 

 

34

 

 

 

61

 

Total current assets

 

 

1,496

 

 

 

1,518

 

Property, plant and equipment, net

 

 

2,509

 

 

 

2,567

 

Operating lease right-of-use assets (NOTE 10)

 

 

74

 

 

 

81

 

Intangible assets, net (NOTE 11)

 

 

564

 

 

 

573

 

Other assets

 

 

162

 

 

 

164

 

Total assets

 

 

4,805

 

 

 

4,903

 

Liabilities and shareholders' equity

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Bank indebtedness

 

 

 

 

 

9

 

Trade and other payables

 

 

565

 

 

 

705

 

Income and other taxes payable

 

 

33

 

 

 

23

 

Operating lease liabilities due within one year (NOTE 10)

 

 

28

 

 

 

28

 

Long-term debt due within one year

 

 

13

 

 

 

1

 

Total current liabilities

 

 

639

 

 

 

766

 

Long-term debt

 

 

1,089

 

 

 

938

 

Operating lease liabilities (NOTE 10)

 

 

62

 

 

 

69

 

Deferred income taxes and other

 

 

461

 

 

 

479

 

Other liabilities and deferred credits

 

 

277

 

 

 

275

 

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; 9,809,399 and 8,120,194 shares

 

 

 

 

 

 

Additional paid-in capital

 

 

1,711

 

 

 

1,770

 

Retained earnings

 

 

997

 

 

 

998

 

Accumulated other comprehensive loss

 

 

(432

)

 

 

(393

)

Total shareholders' equity

 

 

2,277

 

 

 

2,376

 

Total liabilities and shareholders' equity

 

 

4,805

 

 

 

4,903

 

 

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

 

 

 

4

 


 

DOMTAR CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

 

 

 

For the three months ended

 

 

 

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

 


 

DOMTAR CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

 

 

 

For the three months ended

 

 

 

June 30, 2019

 

 

 

Issued and outstanding common shares

(millions of shares)

 

 

Common stock, at par

 

 

Additional paid-in capital

 

 

Retained

earnings

 

 

Accumulated other comprehensive loss

 

 

Total shareholders' equity

 

 

 

(Unaudited)

 

 

 

 

 

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

Balance at March 31, 2019

 

 

63.1

 

 

 

1

 

 

 

1,982

 

 

 

1,075

 

 

 

(450

)

 

 

2,608

 

Stock-based compensation, net of tax

 

 

 

 

 

 

 

 

3

 

 

 

 

 

 

 

 

 

3

 

Net earnings

 

 

 

 

 

 

 

 

 

 

 

18

 

 

 

 

 

 

18

 

Net derivative gains on cash flow hedges:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net gains arising during the period,

   net of tax of $(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3

 

 

 

3

 

Less: Reclassification adjustment for losses

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

1

 

Foreign currency translation adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20

 

 

 

20

 

Change in unrecognized gains and prior service cost

   related to pension and post-retirement benefit

   plans, net of tax of $(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2

 

 

 

2

 

Stock repurchase

 

 

(0.2

)