ufs-10q_20200930.htm

Large accelerated filer

Accelerated filer

Non-accelerated filer

Small reporting company

Emerging growth company

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.

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, 2020, 55,194,538 shares of the issuer’s common stock were outstanding.

	For the three months ended						For the nine months ended
	September 30,			September 30,			September 30,			September 30,
	2020			2019			2020			2019
	(Unaudited)
	$			$			$			$
Sales		1,124			1,283			3,414			3,976
Operating expenses
Cost of sales, excluding depreciation and amortization		911			1,041			2,831			3,172
Depreciation and amortization		71			72			214			219
Selling, general and administrative		99			94			294			322
Impairment of long-lived assets (NOTE 12)		111			33			111			58
Closure and restructuring costs (NOTE 12)		68			11			69			23
Other operating loss (income), net (NOTE 7)		—			3			(2	)		4
		1,260			1,254			3,517			3,798
Operating (loss) income		(136	)		29			(103	)		178
Interest expense, net		14			12			43			38
Non-service components of net periodic benefit cost (NOTE 6)		(4	)		(2	)		(13	)		(7	)
(Loss) earnings before income taxes and equity loss		(146	)		19			(133	)		147
Income tax (benefit) expense (NOTE 8)		(55	)		(1	)		(67	)		28
Equity loss, net of taxes		1			—			2			1
Net (loss) earnings		(92	)		20			(68	)		118
Per common share (in dollars) (NOTE 5)
Net (loss) earnings
Basic		(1.67	)		0.33			(1.23	)		1.89
Diluted		(1.67	)		0.32			(1.23	)		1.88
Weighted average number of common shares outstanding (millions)
Basic		55.2			61.5			55.5			62.5
Diluted		55.2			61.7			55.5			62.7
Cash dividends per common share		—			0.46			0.91			1.33

Net (loss) earnings		(92	)		20			(68	)		118
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 $(7) and nil, respectively (2019 – $4 and $(1), respectively)		20			(9	)		—			5
Less: Reclassification adjustment for losses included in net earnings (loss), net of tax of $(1) and $(5), respectively (2019 – $(1) and $(2), respectively)		1			3			14			5
Foreign currency translation adjustments		40			(34	)		5			(12	)
Change in unrecognized (losses) gains and prior service cost (losses) related to pension and post-retirement benefit plans, net of tax of $12 and $11, respectively (2019 – $(1) and $(3), respectively)		(38	)		2			(35	)		7
Other comprehensive income (loss)		23			(38	)		(16	)		5
Comprehensive (loss) income		(69	)		(18	)		(84	)		123

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

	At
	September 30,			December 31,
	2020			2019
	(Unaudited)
	$			$
Assets
Current assets
Cash and cash equivalents		218			61
Receivables, less allowances of $11 and $6		543			577
Inventories (NOTE 9)		764			786
Prepaid expenses		36			33
Income and other taxes receivable		44			61
Total current assets		1,605			1,518
Property, plant and equipment, net		2,378			2,567
Operating lease right-of-use assets (NOTE 10)		72			81
Intangible assets, net (NOTE 11)		573			573
Other assets		163			164
Total assets		4,791			4,903
Liabilities and shareholders' equity
Current liabilities
Bank indebtedness		—			9
Trade and other payables		626			705
Income and other taxes payable		37			23
Operating lease liabilities due within one year (NOTE 10)		27			28
Long-term debt due within one year		13			1
Total current liabilities		703			766
Long-term debt		1,086			938
Operating lease liabilities (NOTE 10)		58			69
Deferred income taxes and other		413			479
Other liabilities and deferred credits		320			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; 9,808,481 and 8,120,194 shares		—			—
Additional paid-in capital		1,714			1,770
Retained earnings		905			998
Accumulated other comprehensive loss		(409	)		(393	)
Total shareholders' equity		2,211			2,376
Total liabilities and shareholders' equity		4,791			4,903

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

	For the three months ended
	September 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 June 30, 2020		55.2		1		1,711		997			(432	)		2,277
Stock-based compensation, net of tax		—		—		3		—			—			3
Net loss		—		—		—		(92	)		—			(92	)
Net derivative gains on cash flow hedges:
Net gains arising during the period, net of tax of $(7)		—		—		—		—			20			20
Less: Reclassification adjustment for losses included in net loss, net of tax of $(1)		—		—		—		—			1			1
Foreign currency translation adjustments		—		—		—		—			40			40
Change in unrecognized losses and prior service cost related to pension and post-retirement benefit plans, net of tax of $12		—		—		—		—			(38	)		(38	)
Balance at September 30, 2020		55.2		1		1,714		905			(409	)		2,211

	For the nine months ended
	September 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			—		3			—			—			3
Net loss		—			—		—			(68	)		—			(68	)
Net derivative gains on cash flow hedges:
Net losses arising during the period, net of tax of nil		—			—		—			—			—			—
Less: Reclassification adjustment for losses included in net loss, net of tax of $(5)		—			—		—			—			14			14
Foreign currency translation adjustments		—			—		—			—			5			5
Change in unrecognized losses and prior service cost related to pension and post-retirement benefit plans, net of tax of $11		—			—		—			—			(35	)		(35	)
Stock repurchase		(1.8	)		—		(59	)		—			—			(59	)
Cash dividends declared		—			—		—			(25	)		—			(25	)
Balance at September 30, 2020		55.2			1		1,714			905			(409	)		2,211

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

	For the three months ended
	September 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 June 30, 2019		62.9		1		1,977		1,065		(424	)		2,619
Stock-based compensation, net of tax		—		—		2		—		—			2
Net earnings		—		—		—		20		—			20
Net derivative losses on cash flow hedges:
Net losses arising during the period, net of tax of $4		—		—		—		—		(9	)		(9	)
Less: Reclassification adjustment for losses included in net earnings, net of tax of $(1)		—		—		—		—		3			3
Foreign currency translation adjustments		—		—		—		—		(34	)		(34	)
Change in unrecognized gains and prior service cost related to pension and post-retirement benefit plans, net of tax of $(1)		—		—		—

PART I.	FINANCIAL INFORMATION	3

ITEM 1.	FINANCIAL STATEMENTS (UNAUDITED)	3

	CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) 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	60

ITEM 4.	CONTROLS AND PROCEDURES	60

PART II	OTHER INFORMATION	61

ITEM 1.	LEGAL PROCEEDINGS	61

ITEM 1A.	RISK FACTORS	61

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	62

ITEM 3.	DEFAULT UPON SENIOR SECURITIES	62

ITEM 4.	MINE SAFETY DISCLOSURES	62

ITEM 5.	OTHER INFORMATION	62

ITEM 6.	EXHIBITS	63