The accompanying notes are an integral part of the consolidated financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017
(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 three months of the year may not necessarily be indicative of full year results. It is suggested that these consolidated financial statements be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Domtar Corporation Annual Report on Form 10-K for the fiscal year ended December 31, 2016, as filed with the Securities and Exchange Commission. The December 31, 2016 Consolidated Balance Sheet, presented for comparative purposes in this interim report, was derived from audited consolidated financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.
8
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED
)
(UNAUDITED)
NOTE
2
.
_________________
RECENT ACCOUNTING PRONOUNCEMENTS
ACCOUNTING CHANGES IMPLEMENTED
INVENTORY
In July 2015, the FASB issued Accounting Standard Update (“ASU”) 2015-11, “
Simplifying the Measurement of Inventory,
” which simplifies the measurement of inventories valued under FIFO – first-in, first-out – and moving average methods. Under this new guidance, inventories valued under these methods would be valued at the lower of cost or net realizable value. Net realizable value is defined as the estimated selling costs less reasonable costs to sell the inventory. This ASU does not change the measurement principles for inventories valued under the LIFO – last-in, first-out – method.
The Company adopted the new guidance on January 1, 2017 with no impact on the consolidated financial statements.
SHARE-BASED PAYMENTS
In March 2016, the FASB issued ASU 2016-09, “
Improvements to Employee Share-Based Payment Accounting,
” which simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows.
The Company adopted the new guidance on January 1, 2017 with no significant impact on the consolidated financial statements.
FUTURE ACCOUNTING CHANGES
REVENUE FROM CONTRACTS WITH CUSTOMERS
In May 2014, the FASB issued ASU 2014-09, “
Revenue from Contracts with Customers.
” The core principal of this 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 assessing the impact that the guidance will have on the consolidated financial statements and related disclosures. The Company currently expects to adopt the new revenue standards in its first quarter of 2018 utilizing the modified retrospective transition method. Further, the Company expects to identify similar performance obligations under the new guidance as compared with deliverables previously identified. As a result, the Company expects the timing of its revenue to remain substantially the same.
While the Company is still evaluating the impact of adopting the new standard, it does not expect this new guidance to have a material impact on the consolidated earnings.
9
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED
)
(UNAUDITED)
NOTE 2. RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
FINANCIAL INSTRUMENTS
In January 2016, the FASB issued ASU 2016-01, “
Recognition and Measurement of Financial Assets and Financial Liabilities,
” which amends the guidance on the classification and measurement of financial instruments. Although the ASU retains many current requirements, it significantly revises an entity’s accounting related to the classification and measurement of investments in equity securities and the presentation of certain fair value changes for financial liabilities measured at fair value. The ASU also amends certain disclosure requirements associated with the fair value of financial instruments.
The amendments in this update are effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2017. To adopt the amendments, 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.
LEASES
In February
2016
, the FASB issued ASU 2016-02, “
Leases,
” which requires lessees to recognize a right-of-use asset and a lease liability for all of their leases with a lease term greater than 12 months while continuing to recognize expenses in the statement of earnings in a manner similar to current accounting standards. For lessors, the new standard modifies the classification criteria and the accounting for sales-type and direct financing leases.
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 after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted as of the beginning of an interim or annual reporting period.
The Company is currently evaluating the impact of this guidance on the consolidated financial statements, including analyzing all contracts that contain a lease.
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.
10
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED
)
(UNAUDITED)
NOTE 2. RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
CL
ASSIFICATION 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.
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 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.
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.
11
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED
)
(UNAUDITED)
NOTE
3.
_________________
DERIVATIVES AND HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENT
HEDGING PROGRAMS
The Company is exposed to market risk, such as changes in currency exchange rates, commodity prices, and interest rates. To the extent the Company decides to manage the volatility related to these exposures, the Company may enter into various financial derivatives that are accounted for under the derivatives and hedging guidance. These transactions are governed by the Company's hedging policies which provide direction on acceptable hedging activities, including instrument type and acceptable counterparty exposure.
Upon inception, the Company formally documents the relationship between hedging instruments and hedged items. At inception and quarterly thereafter, the Company formally assesses whether the financial instruments used in hedging transactions are effective at offsetting changes in either the cash flow or the fair value of the underlying exposures. The ineffective portion of the qualifying instrument is immediately recognized to earnings. The amount of ineffectiveness recognized was immaterial for all periods presented. The Company does not hold derivative financial instruments for trading purposes.
CREDIT RISK
The Company is exposed to credit risk on the accounts receivable from its customers. In order to reduce this risk, the Company reviews new customers’ credit history before granting credit and conducts regular reviews of existing customers’ credit performance. As of March 31, 2017, one of Domtar’s Pulp and Paper segment customers located in the U.S. represented 13% or $85 million (2016 – 12% or $74 million) of the Company’s receivables.
The Company is exposed to credit risk in the event of non-performance by counterparties to its financial instruments. The Company attempts to minimize this exposure by entering into contracts with counterparties that are believed to be of high credit quality. Collateral or other security to support financial instruments subject to credit risk is usually not obtained. The credit standing of counterparties is regularly monitored.
INTEREST RATE RISK
The Company is exposed to interest rate risk arising from fluctuations in interest rates on its cash and cash equivalents, bank indebtedness, revolving credit facility and long-term debt. The Company’s objective in managing exposure to interest rate changes is to minimize the impact of interest rate changes on earnings and cash flows and to lower its overall borrowing costs. The Company may manage this interest rate exposure through the use of derivative instruments such as interest rate swap contracts, whereby it agrees to exchange the difference between fixed and variable interest amounts calculated by reference to an agreed upon notional principal amount.
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 60 months.
12
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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 March 31, 2017 to hedge forecasted purchases:
Commodity
|
|
Notional contractual quantity
under derivative contracts
MMBTU
(3)
|
|
|
Notional contractual value
under derivative contracts
(in millions of dollars)
|
|
Percentage of forecasted
purchases under
derivative contracts
|
|
Natural Gas
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
(1)
|
|
|
6,205,000
|
|
|
|
$
|
20
|
|
|
|
|
35%
|
|
2018
|
|
|
10,485,000
|
|
|
|
$
|
31
|
|
|
|
|
41%
|
|
2019
|
|
|
9,175,000
|
|
|
|
$
|
27
|
|
|
|
|
36%
|
|
2020
|
|
|
5,750,000
|
|
|
|
$
|
18
|
|
|
|
|
23%
|
|
2021
|
|
|
3,920,000
|
|
|
|
$
|
12
|
|
|
|
|
15%
|
|
2022
(2)
|
|
|
1,185,000
|
|
|
|
$
|
4
|
|
|
|
|
16%
|
|
(1)
|
Represents the remaining nine months of 2017
|
(2)
|
Represents the first three months of 2022
|
(3)
|
MMBTU: Millions of British thermal units
|
The natural gas derivative contracts were fully effective as of March 31, 2017. There were no amounts reflected in the Consolidated Statements of Earnings and Comprehensive Income for the three months ended March 31, 2017 resulting from hedge ineffectiveness (three months ended March 31, 2016 – nil).
FOREIGN CURRENCY RISK
Cash flow hedges:
The Company has manufacturing operations in the United States, Canada and Europe. As a result, it is exposed to movements in foreign currency exchange rates in Canada and Europe. Moreover, certain assets and liabilities are denominated in currencies other than the U.S. dollar and are exposed to foreign currency movements. Accordingly, the Company’s earnings are affected by increases or decreases in the value of the Canadian dollar and the European currencies. The Company’s European subsidiaries are also exposed to movements in foreign currency exchange rates on transactions denominated in a currency other than their Euro functional currency. The Company’s risk management policy allows it to hedge a significant portion of its exposure to fluctuations in foreign currency exchange rates for periods up to three years. The Company may use derivative financial instruments (currency options and foreign exchange forward contracts) to mitigate its exposure to fluctuations in foreign currency exchange rates.
Derivatives are used to hedge forecasted purchases in Canadian dollars by the Company’s Canadian subsidiary over the next 24 months. Derivatives are currently used to hedge a portion of forecasted sales by its U.S. subsidiaries in Euros and in British pounds over a period of between 3 to 9 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 a period of between 12 to 15 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
MARCH 31, 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 pursuan
t to currency derivatives outstanding as of March 31, 2017 to hedge forecasted purchases and sales:
Currency exposure hedged
|
|
Business Segment
|
|
Year of
maturity
|
|
Notional
contractual value
|
|
Percentage of
forecasted net
exposures under
contracts
|
|
|
Average
Protection rate
|
|
Average
Obligation rate
|
|
|
|
|
2017
(1)
|
|
|
|
|
|
|
|
|
|
|
CDN/USD
|
|
Pulp and Paper
|
|
|
|
380 CDN
|
|
|
65%
|
|
|
1 USD = 1.3058
|
|
1 USD = 1.3580
|
USD/Euro
|
|
Personal Care
|
|
|
|
41 USD
|
|
|
82%
|
|
|
1 Euro = 1.1394
|
|
1 Euro = 1.1394
|
Euro/USD
|
|
Pulp and Paper
|
|
|
|
9 EUR
|
|
|
12%
|
|
|
1 Euro = 1.1389
|
|
1 Euro = 1.1389
|
|
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
CDN/USD
|
|
Pulp and Paper
|
|
|
|
280 CDN
|
|
|
36%
|
|
|
1 USD = 1.2933
|
|
1 USD = 1.3507
|
USD/Euro
|
|
Personal Care
|
|
|
|
19 USD
|
|
|
29%
|
|
|
1 Euro = 1.1307
|
|
1 Euro = 1.1307
|
|
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
CDN/USD
|
|
Pulp and Paper
|
|
|
|
48 CDN
|
|
|
6%
|
|
|
1 USD = 1.2743
|
|
1 USD = 1.3401
|
(1)
|
Represents the remaining nine months of 2017
|
The foreign exchange derivative contracts were fully effective as of March 31, 2017. There were no amounts reflected in the Consolidated Statements of Earnings and Comprehensive Income for the three months ended March 31, 2017 resulting from hedge ineffectiveness (three months ended March 31, 2016 – nil).
FAIR VALUE MEASUREMENT
The accounting standards for fair value measurements and disclosures, establishes a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three levels. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is available and significant to the fair value measurement.
|
Level 1
|
Quoted prices in active markets for identical assets or liabilities.
|
|
Level 2
|
Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
|
|
Level 3
|
Inputs that are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability.
|
14
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED
)
(UNAUDITED)
NOTE 3. DERIVATIVES AND HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENT (CONTINUED)
The following tables present information about the Company’s financial assets and financial liabilities measured at fair value on a recurring basis (except Long-term debt
, see (b) below) at March 31, 2017 and December 31, 2016, 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 f
air value.
Fair Value of financial instruments at:
|
|
March 31, 2017
|
|
|
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
|
|
|
14
|
|
|
|
—
|
|
|
|
14
|
|
|
|
—
|
|
(a)
|
Prepaid expenses
|
Natural gas swap contracts
|
|
|
4
|
|
|
|
—
|
|
|
|
4
|
|
|
|
—
|
|
(a)
|
Prepaid expenses
|
Currency derivatives
|
|
|
4
|
|
|
|
—
|
|
|
|
4
|
|
|
|
—
|
|
(a)
|
Other assets
|
Total Assets
|
|
|
22
|
|
|
|
—
|
|
|
|
22
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency derivatives
|
|
|
6
|
|
|
|
—
|
|
|
|
6
|
|
|
|
—
|
|
(a)
|
Trade and other payables
|
Natural gas swap contracts
|
|
|
1
|
|
|
|
—
|
|
|
|
1
|
|
|
|
—
|
|
(a)
|
Trade and other payables
|
Currency derivatives
|
|
|
4
|
|
|
|
—
|
|
|
|
4
|
|
|
|
—
|
|
(a)
|
Other
liabilities and deferred credits
|
Natural gas swap contracts
|
|
|
5
|
|
|
|
—
|
|
|
|
5
|
|
|
|
—
|
|
(a)
|
Other liabilities and deferred credits
|
Total Liabilities
|
|
|
16
|
|
|
|
—
|
|
|
|
16
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation -
liability awards
|
|
|
3
|
|
|
|
3
|
|
|
|
—
|
|
|
|
—
|
|
|
Trade and other payables
|
Stock-based compensation -
liability awards
|
|
|
13
|
|
|
|
13
|
|
|
|
—
|
|
|
|
—
|
|
|
Other liabilities and deferred credits
|
Long-term debt
|
|
|
1,288
|
|
|
|
—
|
|
|
|
1,288
|
|
|
|
—
|
|
(b)
|
Long-term debt
|
The net cumulative loss recorded in Accumulated other comprehensive loss relating to natural gas contracts is $2 million at March 31, 2017, of which a gain of $3 million will 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 March 31, 2017.
The net cumulative gain recorded in Accumulated other comprehensive loss relating to currency options and forwards hedging forecasted purchases of $8 million at March 31, 2017, will 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 March 31, 2017.
15
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED
)
(UNAUDITED)
NOTE 3. 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
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
Derivatives designated as
hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency derivatives
|
|
|
18
|
|
|
|
—
|
|
|
|
18
|
|
|
|
—
|
|
(a)
|
Prepaid expenses
|
Natural gas swap contracts
|
|
|
6
|
|
|
|
—
|
|
|
|
6
|
|
|
|
—
|
|
(a)
|
Prepaid expenses
|
Currency derivatives
|
|
|
6
|
|
|
|
—
|
|
|
|
6
|
|
|
|
—
|
|
(a)
|
Other assets
|
Natural gas swap contracts
|
|
|
2
|
|
|
|
—
|
|
|
|
2
|
|
|
|
—
|
|
(a)
|
Other assets
|
Total Assets
|
|
|
32
|
|
|
|
—
|
|
|
|
32
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities derivatives
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency derivatives
|
|
|
10
|
|
|
|
—
|
|
|
|
10
|
|
|
|
—
|
|
(a)
|
Trade and other payables
|
Natural gas swap contracts
|
|
|
1
|
|
|
|
—
|
|
|
|
1
|
|
|
|
—
|
|
(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
|
Total Liabilities
|
|
|
21
|
|
|
|
—
|
|
|
|
21
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation -
liability awards
|
|
|
2
|
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
Trade and other payables
|
Stock-based compensation -
liability awards
|
|
|
17
|
|
|
|
17
|
|
|
|
—
|
|
|
|
—
|
|
|
Other liabilities and deferred credits
|
Long-term debt
|
|
|
1,313
|
|
|
|
—
|
|
|
|
1,313
|
|
|
|
—
|
|
(b)
|
Long-term debt
|
(a)
|
Fair value of the Company’s derivatives are classified under Level 2 (inputs that are observable; directly or indirectly) as it is measured as follows:
|
|
-
|
For currency derivatives: Fair value is measured using techniques derived from the Black-Scholes pricing model. Interest rates, forward market rates and volatility are used as inputs for such valuation techniques.
|
|
-
|
For natural gas contracts: Fair value is measured using the discounted difference between contractual rates and quoted market future rates.
|
(b)
|
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 March 31, 2017 and December 31, 2016. However, fair value disclosure is required. The carrying value of the Company’s long-term debt is $1,252 million and $1,281 million at March 31, 2017 and December 31, 2016, respectively.
|
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.
16
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED
)
(UNAUDITED)
NOTE
4
.
_________________
EARNINGS PER COMMON SHARE
The following table provides the reconciliation between basic and diluted earnings per common share:
|
|
For the three months ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Net earnings
|
|
$
|
20
|
|
|
$
|
4
|
|
Weighted average number of common shares
outstanding (millions)
|
|
|
62.6
|
|
|
|
62.7
|
|
Effect of dilutive securities (millions)
|
|
|
0.2
|
|
|
|
0.1
|
|
Weighted average number of diluted common shares
outstanding (millions)
|
|
|
62.8
|
|
|
|
62.8
|
|
|
|
|
|
|
|
|
|
|
Basic net earnings per common share (in dollars)
|
|
$
|
0.32
|
|
|
$
|
0.06
|
|
Diluted
net
earnings
per
common
share
(in
dollars)
|
|
$
|
0.32
|
|
|
$
|
0.06
|
|
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
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Options
|
|
|
419,161
|
|
|
|
415,922
|
|
17
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED
)
(UNAUDITED)
NOTE
5.
_________________
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 months ended March 31, 2017, the pension expense was $11 million (2016 – $10 million).
DEFINED BENEFIT PLANS AND OTHER POST-RETIREMENT BENEFIT PLANS
The Company sponsors both contributory and non-contributory U.S. and non-U.S. defined benefit pension plans. Non-unionized employees in Canada joining the Company after January 1, 1998 participate in a defined contribution pension plan. Salaried employees in the U.S. joining the Company after January 1, 2008 participate in a defined contribution pension plan. Unionized and non-union hourly employees in the U.S. who are not grandfathered under the existing defined benefit pension plans, participate in a defined contribution pension plan for future service. The Company also sponsors a number of other post-retirement benefit plans for eligible U.S. and non-U.S. employees; the plans are unfunded and include life insurance programs and medical and dental benefits. The Company also provides supplemental unfunded defined benefit pension plans and supplemental unfunded defined contribution pension plans to certain senior management employees.
Components of net periodic benefit cost for pension plans and other post-retirement benefit plans:
|
|
For the three months ended
|
|
|
|
March 31, 2017
|
|
|
|
Pension plans
|
|
|
Other post-retirement benefit plans
|
|
|
|
$
|
|
|
$
|
|
Service cost
|
|
|
8
|
|
|
|
—
|
|
Interest expense
|
|
|
12
|
|
|
|
1
|
|
Expected return on plan assets
|
|
|
(20
|
)
|
|
|
—
|
|
Amortization of net actuarial loss
|
|
|
2
|
|
|
|
—
|
|
Amortization of prior year service costs
|
|
|
1
|
|
|
|
—
|
|
Net periodic benefit cost
|
|
|
3
|
|
|
|
1
|
|
Components of net periodic benefit cost for pension plans and other post-retirement benefit plans:
|
|
For the three months ended
|
|
|
|
March 31, 2016
|
|
|
|
Pension plans
|
|
|
Other post-retirement benefit plans
|
|
|
|
$
|
|
|
$
|
|
Service cost
|
|
|
8
|
|
|
|
—
|
|
Interest expense
|
|
|
12
|
|
|
|
1
|
|
Expected return on plan assets
|
|
|
(19
|
)
|
|
|
—
|
|
Amortization of net actuarial loss
|
|
|
1
|
|
|
|
—
|
|
Amortization of prior year service costs
|
|
|
1
|
|
|
|
—
|
|
Net periodic benefit cost
|
|
|
3
|
|
|
|
1
|
|
For the three months ended March 31, 2017, the Company contributed $3 million (2016 – $4 million) to the pension plans and $1 million (2016 – $1 million) to the other post-retirement benefit plans.
18
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED
)
(UNAUDITED)
NOTE
6.
_________________
OTHER OPERATING (INCOME) LOSS, NET
Other operating (income) loss, net is an aggregate of both recurring and occasional loss or income items and, as a result, can fluctuate from period to period. The Company’s other operating (income) loss, net includes the following:
|
|
For the three months ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
$
|
|
|
$
|
|
Foreign exchange loss
|
|
|
1
|
|
|
|
4
|
|
Other
|
|
|
(2
|
)
|
|
|
—
|
|
Other operating (income) loss, net
|
|
|
(1
|
)
|
|
|
4
|
|
19
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED
)
(UNAUDITED)
NOTE
7.
_________________
INCOME TAXES
For the first quarter of 2017, the Company’s income tax expense was $5 million, consisting of $9 million of current income tax expense and a deferred income tax benefit of $4 million. This compares to an income tax benefit of $3 million in the first quarter of 2016, consisting of no current income tax expense and a deferred income tax benefit of $3 million. The Company received income tax refunds, net of payments, of $8 million during the first quarter of 2017. The effective tax rate was 20% compared with an effective tax rate of -300% in the first quarter of 2016. The effective tax rate for the first quarter of 2017 was favorably impacted by the recognition of $1 million of previously unrecognized tax benefits due to a statute expiration in a foreign jurisdiction and a U.S. state tax audit finalization. The effective tax rate for the first quarter of 2016 was impacted by the approval of a state tax credit in the U.S.
20
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED
)
(UNAUDITED)
NOTE
8.
_________________
INVENTORIES
The following table presents the components of inventories:
|
|
March 31,
|
|
|
December 31,
|
|
|
2017
|
|
|
2016
|
|
|
$
|
|
|
$
|
Work in process and finished goods
|
|
|
362
|
|
|
413
|
Raw materials
|
|
|
145
|
|
|
132
|
Operating and maintenance supplies
|
|
|
215
|
|
|
214
|
|
|
|
722
|
|
|
759
|
21
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED
)
(UNAUDITED)
NOTE
9.
_________________
GOODWILL
Changes in the carrying value of goodwill are as follows:
|
|
March 31, 2017
|
|
|
|
$
|
|
Balance at December 31, 2016
|
|
|
550
|
|
Effect of foreign currency exchange rate change
|
|
|
3
|
|
Balance at end of period
|
|
|
553
|
|
|
|
|
|
|
The goodwill at March 31, 2017 is entirely related to the Personal Care reporting segment.
22
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED
)
(UNAUDITED)
NOTE
10.
_________________
INTANGIBLE ASSETS
The following table presents the components of intangible assets:
|
|
|
|
March 31, 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
|
|
|
372
|
|
|
|
(64
|
)
|
|
|
308
|
|
|
|
369
|
|
|
|
(60
|
)
|
|
|
309
|
|
Technology
|
|
7 – 20
|
|
|
8
|
|
|
|
(3
|
)
|
|
|
5
|
|
|
|
8
|
|
|
|
(3
|
)
|
|
|
5
|
|
Non-Compete
|
|
9
|
|
|
1
|
|
|
|
(1
|
)
|
|
|
—
|
|
|
|
1
|
|
|
|
—
|
|
|
|
1
|
|
License rights
|
|
12
|
|
|
28
|
|
|
|
(9
|
)
|
|
|
19
|
|
|
|
28
|
|
|
|
(8
|
)
|
|
|
20
|
|
|
|
|
|
|
412
|
|
|
|
(78
|
)
|
|
|
334
|
|
|
|
409
|
|
|
|
(72
|
)
|
|
|
337
|
|
Indefinite-lived intangible
assets not subject
to amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Water rights
|
|
|
|
|
4
|
|
|
|
—
|
|
|
|
4
|
|
|
|
4
|
|
|
|
—
|
|
|
|
4
|
|
Trade names
|
|
|
|
|
227
|
|
|
|
—
|
|
|
|
227
|
|
|
|
225
|
|
|
|
—
|
|
|
|
225
|
|
License rights
|
|
|
|
|
6
|
|
|
|
—
|
|
|
|
6
|
|
|
|
6
|
|
|
|
—
|
|
|
|
6
|
|
Catalog rights
|
|
|
|
|
36
|
|
|
|
—
|
|
|
|
36
|
|
|
|
36
|
|
|
|
—
|
|
|
|
36
|
|
Total
|
|
|
|
|
685
|
|
|
|
(78
|
)
|
|
|
607
|
|
|
|
680
|
|
|
|
(72
|
)
|
|
|
608
|
|
Amortization expense related to intangible assets for the three months ended March 31, 2017 was $5 million (2016 – $5 million).
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
|
|
|
|
20
|
|
|
|
20
|
|
|
|
20
|
|
|
|
20
|
|
23
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED
)
(UNAUDITED)
NOTE
11.
_________________
CLOSURE AND RESTRUCTURING COSTS AND LIABILITY AND IMPAIRMENT OF PROPERTY, PLANT AND EQUIPMENT
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 qualification period began in the fourth 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.
For the three months ended March 31, 2016, the Company recorded $21 million of accelerated depreciation under Impairment of property, plant and equipment on the Consolidated Statement of Earnings and Comprehensive Income. The Company also recorded $1 million of severance and termination costs under Closure and restructuring costs.
Other costs
During the first quarter of 2016, other costs related to previous and ongoing closures include $1 million of severance and termination costs related to Pulp and Paper.
24
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED
)
(UNAUDITED)
NOTE
12.
_________________
CHANGES IN ACCUMULATED OTHER COMPREHENSIVE LOSS BY COMPONENT
The following table presents the changes in Accumulated other comprehensive loss by component
(1)
for the three months ended March 31, 2017 and the year ended December 31, 2016:
|
|
Net
derivative
(losses) gains
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
|
)
|
Natural gas swap contracts
|
|
|
4
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
|
4
|
|
Net investment hedge
|
|
|
(1
|
)
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
|
(1
|
)
|
Currency options
|
|
|
8
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
|
8
|
|
Foreign exchange forward contracts
|
|
|
16
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
|
16
|
|
Net gain
|
|
N/A
|
|
|
|
(38
|
)
|
|
|
(1
|
)
|
|
N/A
|
|
|
|
(39
|
)
|
Foreign currency items
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
|
(7
|
)
|
|
|
(7
|
)
|
Other comprehensive income (loss)
before reclassifications
|
|
|
27
|
|
|
|
(38
|
)
|
|
|
(1
|
)
|
|
|
(7
|
)
|
|
|
(19
|
)
|
Amounts reclassified from Accumulated
other comprehensive loss
|
|
|
14
|
|
|
|
7
|
|
|
|
—
|
|
|
|
—
|
|
|
|
21
|
|
Net current period other comprehensive
income (loss)
|
|
|
41
|
|
|
|
(31
|
)
|
|
|
(1
|
)
|
|
|
(7
|
)
|
|
|
2
|
|
Balance at December 31, 2016
|
|
|
11
|
|
|
|
(221
|
)
|
|
|
(11
|
)
|
|
|
(278
|
)
|
|
|
(499
|
)
|
Natural gas swap contracts
|
|
|
(2
|
)
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
|
(2
|
)
|
Net investment hedge
|
|
|
—
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
|
—
|
|
Currency options
|
|
|
2
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
|
2
|
|
Foreign exchange forward contracts
|
|
|
—
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
|
—
|
|
Net gain
|
|
N/A
|
|
|
|
—
|
|
|
|
—
|
|
|
N/A
|
|
|
|
—
|
|
Foreign currency items
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
|
15
|
|
|
|
15
|
|
Other comprehensive income
before reclassifications
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
15
|
|
|
|
15
|
|
Amounts reclassified from Accumulated
other comprehensive loss
|
|
|
(3
|
)
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1
|
)
|
Net current period other comprehensive
(loss) income
|
|
|
(3
|
)
|
|
|
2
|
|
|
|
—
|
|
|
|
15
|
|
|
|
14
|
|
Balance at March 31, 2017
|
|
|
8
|
|
|
|
(219
|
)
|
|
|
(11
|
)
|
|
|
(263
|
)
|
|
|
(485
|
)
|
(1)
|
All amounts are after tax. Amounts in parentheses indicate losses.
|
(2)
|
The accrued benefit obligation is actuarially determined on an annual basis as of December 31.
|
25
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED
)
(UNAUDITED)
NOTE 12. CHANGES IN ACCUMULATED OTHER COMPREHENSIVE LOSS BY COMPONENT (CONTINUED)
The following table presents reclassifications out of Accumulated other
comprehensive loss:
Details about Accumulated other comprehensive loss components
|
|
Amount reclassified from
Accumulated other
comprehensive loss
(1)
|
|
|
|
|
For the three months ended
|
|
|
|
|
March 31, 2017
|
|
|
March 31, 2016
|
|
|
|
|
$
|
|
|
$
|
|
|
Net derivative (losses) gains on cash flow hedge
|
|
|
|
|
|
|
|
|
|
Natural gas swap contracts
|
|
|
(1
|
)
|
|
|
5
|
|
(2)
|
Currency options and forwards
|
|
|
(4
|
)
|
|
|
8
|
|
(2)
|
Total before tax
|
|
|
(5
|
)
|
|
|
13
|
|
|
Tax benefit (expense)
|
|
|
2
|
|
|
|
(5
|
)
|
|
Net of tax
|
|
|
(3
|
)
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of defined benefit pension items
|
|
|
|
|
|
|
|
|
|
Amortization of net actuarial loss and prior year
service cost
|
|
|
3
|
|
|
|
2
|
|
(3)
|
Tax expense
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
Net of tax
|
|
|
2
|
|
|
|
1
|
|
|
(1)
|
Amounts in parentheses indicate losses.
|
(2)
|
These amounts are included in Cost of Sales in the Consolidated Statements of Earnings and Comprehensive Income.
|
(3)
|
These amounts are included in the computation of net periodic benefit cost (see Note 5 “Pension Plans and Other Post-Retirement Benefit Plans” for more details).
|
26
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED
)
(UNAUDITED)
NOTE
13.
_________________
SHAREHOLDERS’ EQUITY
On February 21, 2017, the Company’s Board of Directors approved a quarterly dividend of $0.415 per share to be paid to holders of the Company’s common stock. Total dividends of approximately $26 million were paid on April 17, 2017 to shareholders of record on April 3, 2017.
On May 3, 2017, the Company’s Board of Directors approved a quarterly dividend of $0.415 per share to be paid to holders of the Company’s common stock. This dividend is to be paid on July 17, 2017, to shareholders of record on July 3, 2017.
STOCK REPURCHASE PROGRAM
The Company’s Board of Directors has authorized a stock repurchase program (the “Program”) of up to $1.3 billion. Under the Program, the 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, from time to time, 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.
During the first quarter of 2017, there were no shares repurchased under the Program.
During the first quarter of 2016, the Company repurchased 304,915 shares at an average price of $32.21 for a total cost of $10 million.
Since the inception of the Program, the Company has repurchased 24,853,827 shares at an average price of $39.33 for a total cost of $977 million. All shares repurchased are recorded as Treasury stock on the Consolidated Balance Sheets under the par value method at $0.01 per share.
27
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED
)
(UNAUDITED)
NOTE
1
4
.
_________________
COMMITMENTS AND CONTINGENCIES
ENVIRONMENT MATTERS
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 an action plan to address soil, sediment and groundwater issues. Working with authorities, Seaspan and the Company selected a remedial plan and obtained permitting approval on May 14, 2015 from the Vancouver Fraser Port Authority. Construction began in January 2017. The Company has 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 following table reflects changes in the reserve for environmental remediation and asset retirement obligations:
|
|
March 31, 2017
|
|
|
|
$
|
|
Balance at beginning of year
|
|
|
50
|
|
Additions
|
|
|
1
|
|
Environmental spending
|
|
|
(2
|
)
|
Effect of foreign currency exchange rate change
|
|
|
—
|
|
Balance at end of period
|
|
|
49
|
|
The U.S. Environmental Protection Agency (“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 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.
In the United States, EPA’s Clean Power Plan requires states to develop compliance plans to reduce greenhouse gases (“GHG”) emissions beginning in 2022 from existing electric utilities. The Clean Power Plan requirements could result in significant changes to state energy resources and increase the cost of purchased energy in most states. The final rule is being litigated and on February 9, 2016, the U.S. Supreme Court stayed the implementation of the Clean Power Plan until the litigation is resolved. Oral argument was held before the U.S. Court of Appeals for the D.C. Circuit on September 27, 2016, and a final decision is expected within months, although subsequent appeals to the U.S. Supreme Court are possible, and President Trump issued an Executive Order on March 28, 2017, directing his Administration to review and then suspend, revise, or rescind the Clean Power Plan, as appropriate and consistent with law. 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 GHG reductions 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.
28
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED
)
(UNAUDITED)
NOTE 14. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The province of Quebec has a 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 province of Ontario has finalized a cap-and-tra
de program with the first compliance
period beginning January 1, 2017 through 2020.
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 March 31, 2017, 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 heavy adult 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
MARCH 31, 2017
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED
)
(UNAUDITED)
NOTE 14. COMMITMENTS AND CONTINGENCIES (CONTINUED)
INDEMNIFICATIONS
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, 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 March 31, 2017, 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, no 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 March 31, 2017 the Company has not recorded a liability associated with these indemnifications, as it does not expect to make any payments pertaining to these indemnifications.
30
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED
)
(UNAUDITED)
NOTE 15.
_________________
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/or marketing strategies. The following summary briefly describes the operations included in each 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 of the design, manufacturing, marketing and distribution of absorbent hygiene products.
|
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
|
|
|
|
March 31,
|
|
|
March 31,
|
|
SEGMENT DATA
|
|
2017
|
|
|
2016
|
|
|
|
$
|
|
|
$
|
|
Sales
|
|
|
|
|
|
|
|
|
Pulp and Paper
|
|
|
1,073
|
|
|
|
1,085
|
|
Personal Care
|
|
|
249
|
|
|
|
216
|
|
Total for reportable segments
|
|
|
1,322
|
|
|
|
1,301
|
|
Intersegment sales
|
|
|
(18
|
)
|
|
|
(14
|
)
|
Consolidated sales
|
|
|
1,304
|
|
|
|
1,287
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
of property, plant and equipment
|
|
|
|
|
|
|
|
|
Pulp and Paper
|
|
|
64
|
|
|
|
73
|
|
Personal Care
|
|
|
16
|
|
|
|
16
|
|
Total for reportable segments
|
|
|
80
|
|
|
|
89
|
|
Impairment of property, plant and
equipment - Pulp and Paper
|
|
|
—
|
|
|
|
21
|
|
Consolidated depreciation and amortization and impairment
of property, plant and equipment
|
|
|
80
|
|
|
|
110
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
|
|
|
|
|
|
Pulp and Paper
|
|
|
34
|
|
|
|
19
|
|
Personal Care
|
|
|
16
|
|
|
|
14
|
|
Corporate
|
|
|
(8
|
)
|
|
|
(15
|
)
|
Consolidated operating income
|
|
|
42
|
|
|
|
18
|
|
Interest expense, net
|
|
|
17
|
|
|
|
17
|
|
Earnings before income taxes
|
|
|
25
|
|
|
|
1
|
|
Income tax expense (benefit)
|
|
|
5
|
|
|
|
(3
|
)
|
Net earnings
|
|
|
20
|
|
|
|
4
|
|
31
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED
)
(UNAUDITED)
NOTE
16.
_________________
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 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., 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, the Guaranteed Debt will not be guaranteed by certain of Domtar’s 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”). The 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.
The following supplemental condensed consolidating financial information sets forth, on an unconsolidated basis, the Balance Sheets at March 31, 2017 and December 31, 2016, the Statements of Earnings and Comprehensive Income and Cash Flows for the three months ended March 31, 2017 and 2016 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
|
|
|
|
March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
|
|
|
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
Consolidating
|
|
|
|
|
|
AND COMPREHENSIVE INCOME
|
|
Parent
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Sales
|
|
|
—
|
|
|
|
1,086
|
|
|
|
516
|
|
|
|
(298
|
)
|
|
|
1,304
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales, excluding depreciation and amortization
|
|
|
—
|
|
|
|
970
|
|
|
|
403
|
|
|
|
(298
|
)
|
|
|
1,075
|
|
Depreciation and amortization
|
|
|
—
|
|
|
|
59
|
|
|
|
21
|
|
|
|
—
|
|
|
|
80
|
|
Selling, general and administrative
|
|
|
2
|
|
|
|
33
|
|
|
|
73
|
|
|
|
—
|
|
|
|
108
|
|
Other operating (income) loss, net
|
|
|
—
|
|
|
|
(2
|
)
|
|
|
1
|
|
|
|
—
|
|
|
|
(1
|
)
|
|
|
|
2
|
|
|
|
1,060
|
|
|
|
498
|
|
|
|
(298
|
)
|
|
|
1,262
|
|
Operating (loss) income
|
|
|
(2
|
)
|
|
|
26
|
|
|
|
18
|
|
|
|
—
|
|
|
|
42
|
|
Interest expense (income), net
|
|
|
17
|
|
|
|
20
|
|
|
|
(20
|
)
|
|
|
—
|
|
|
|
17
|
|
(Loss) earnings before income taxes
|
|
|
(19
|
)
|
|
|
6
|
|
|
|
38
|
|
|
|
—
|
|
|
|
25
|
|
Income tax (benefit) expense
|
|
|
(4
|
)
|
|
|
2
|
|
|
|
7
|
|
|
|
—
|
|
|
|
5
|
|
Share in earnings of equity accounted investees
|
|
|
35
|
|
|
|
31
|
|
|
|
—
|
|
|
|
(66
|
)
|
|
|
—
|
|
Net earnings
|
|
|
20
|
|
|
|
35
|
|
|
|
31
|
|
|
|
(66
|
)
|
|
|
20
|
|
Other comprehensive income
|
|
|
14
|
|
|
|
18
|
|
|
|
16
|
|
|
|
(34
|
)
|
|
|
14
|
|
Comprehensive income
|
|
|
34
|
|
|
|
53
|
|
|
|
47
|
|
|
|
(100
|
)
|
|
|
34
|
|
32
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED
)
(UNAUDITED)
NOTE 16. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)
|
|
For the three months ended
|
|
|
|
March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS
|
|
|
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
Consolidating
|
|
|
|
|
|
AND COMPREHENSIVE INCOME
|
|
Parent
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Sales
|
|
|
—
|
|
|
|
1,061
|
|
|
|
521
|
|
|
|
(295
|
)
|
|
|
1,287
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales, excluding depreciation and amortization
|
|
|
—
|
|
|
|
967
|
|
|
|
378
|
|
|
|
(295
|
)
|
|
|
1,050
|
|
Depreciation and amortization
|
|
|
—
|
|
|
|
65
|
|
|
|
24
|
|
|
|
—
|
|
|
|
89
|
|
Selling, general and administrative
|
|
|
8
|
|
|
|
27
|
|
|
|
68
|
|
|
|
—
|
|
|
|
103
|
|
Impairment of property, plant and equipment
|
|
|
—
|
|
|
|
21
|
|
|
|
—
|
|
|
|
—
|
|
|
|
21
|
|
Closure and restructuring costs
|
|
|
—
|
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2
|
|
Other operating loss, net
|
|
|
—
|
|
|
|
—
|
|
|
|
4
|
|
|
|
—
|
|
|
|
4
|
|
|
|
|
8
|
|
|
|
1,082
|
|
|
|
474
|
|
|
|
(295
|
)
|
|
|
1,269
|
|
Operating (loss) income
|
|
|
(8
|
)
|
|
|
(21
|
)
|
|
|
47
|
|
|
|
—
|
|
|
|
18
|
|
Interest expense (income), net
|
|
|
16
|
|
|
|
9
|
|
|
|
(8
|
)
|
|
|
—
|
|
|
|
17
|
|
(Loss) earnings before income taxes
|
|
|
(24
|
)
|
|
|
(30
|
)
|
|
|
55
|
|
|
|
—
|
|
|
|
1
|
|
Income tax (benefit) expense
|
|
|
(5
|
)
|
|
|
(8
|
)
|
|
|
10
|
|
|
|
—
|
|
|
|
(3
|
)
|
Share in earnings of equity accounted investees
|
|
|
23
|
|
|
|
45
|
|
|
|
—
|
|
|
|
(68
|
)
|
|
|
—
|
|
Net earnings
|
|
|
4
|
|
|
|
23
|
|
|
|
45
|
|
|
|
(68
|
)
|
|
|
4
|
|
Other comprehensive income
|
|
|
114
|
|
|
|
115
|
|
|
|
85
|
|
|
|
(200
|
)
|
|
|
114
|
|
Comprehensive income
|
|
|
118
|
|
|
|
138
|
|
|
|
130
|
|
|
|
(268
|
)
|
|
|
118
|
|
33
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED
)
(UNAUDITED)
NOTE 16. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)
|
|
March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
Guarantor
|
|
|
Consolidating
|
|
|
|
|
|
CONDENSED CONSOLIDATING BALANCE SHEET
|
|
Parent
|
|
|
Subsidiaries
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Assets
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
7
|
|
|
|
5
|
|
|
|
99
|
|
|
|
—
|
|
|
|
111
|
|
Receivables
|
|
|
—
|
|
|
|
359
|
|
|
|
303
|
|
|
|
—
|
|
|
|
662
|
|
Inventories
|
|
|
—
|
|
|
|
494
|
|
|
|
228
|
|
|
|
—
|
|
|
|
722
|
|
Prepaid expenses
|
|
|
11
|
|
|
|
17
|
|
|
|
6
|
|
|
|
—
|
|
|
|
34
|
|
Income and other taxes receivable
|
|
|
—
|
|
|
|
8
|
|
|
|
13
|
|
|
|
(6
|
)
|
|
|
15
|
|
Intercompany accounts
|
|
|
371
|
|
|
|
311
|
|
|
|
202
|
|
|
|
(884
|
)
|
|
|
—
|
|
Total current assets
|
|
|
389
|
|
|
|
1,194
|
|
|
|
851
|
|
|
|
(890
|
)
|
|
|
1,544
|
|
Property, plant and equipment, net
|
|
|
—
|
|
|
|
1,958
|
|
|
|
831
|
|
|
|
—
|
|
|
|
2,789
|
|
Goodwill
|
|
|
—
|
|
|
|
313
|
|
|
|
240
|
|
|
|
—
|
|
|
|
553
|
|
Intangible assets, net
|
|
|
—
|
|
|
|
276
|
|
|
|
331
|
|
|
|
—
|
|
|
|
607
|
|
Investments in affiliates
|
|
|
4,030
|
|
|
|
2,726
|
|
|
|
—
|
|
|
|
(6,756
|
)
|
|
|
—
|
|
Intercompany long-term advances
|
|
|
6
|
|
|
|
80
|
|
|
|
1,432
|
|
|
|
(1,518
|
)
|
|
|
—
|
|
Other assets
|
|
|
14
|
|
|
|
12
|
|
|
|
106
|
|
|
|
—
|
|
|
|
132
|
|
Total assets
|
|
|
4,439
|
|
|
|
6,559
|
|
|
|
3,791
|
|
|
|
(9,164
|
)
|
|
|
5,625
|
|
Liabilities and shareholders' equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank indebtedness
|
|
|
—
|
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2
|
|
Trade and other payables
|
|
|
45
|
|
|
|
366
|
|
|
|
222
|
|
|
|
—
|
|
|
|
633
|
|
Intercompany accounts
|
|
|
203
|
|
|
|
214
|
|
|
|
467
|
|
|
|
(884
|
)
|
|
|
—
|
|
Income and other taxes payable
|
|
|
21
|
|
|
|
—
|
|
|
|
10
|
|
|
|
(6
|
)
|
|
|
25
|
|
Long-term debt due within one year
|
|
|
63
|
|
|
|
—
|
|
|
|
1
|
|
|
|
—
|
|
|
|
64
|
|
Total current liabilities
|
|
|
332
|
|
|
|
582
|
|
|
|
700
|
|
|
|
(890
|
)
|
|
|
724
|
|
Long-term debt
|
|
|
822
|
|
|
|
299
|
|
|
|
67
|
|
|
|
—
|
|
|
|
1,188
|
|
Intercompany long-term loans
|
|
|
582
|
|
|
|
936
|
|
|
|
—
|
|
|
|
(1,518
|
)
|
|
|
—
|
|
Deferred income taxes and other
|
|
|
—
|
|
|
|
542
|
|
|
|
130
|
|
|
|
—
|
|
|
|
672
|
|
Other liabilities and deferred credits
|
|
|
18
|
|
|
|
170
|
|
|
|
168
|
|
|
|
—
|
|
|
|
356
|
|
Shareholders' equity
|
|
|
2,685
|
|
|
|
4,030
|
|
|
|
2,726
|
|
|
|
(6,756
|
)
|
|
|
2,685
|
|
Total liabilities and shareholders' equity
|
|
|
4,439
|
|
|
|
6,559
|
|
|
|
3,791
|
|
|
|
(9,164
|
)
|
|
|
5,625
|
|
34
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED
)
(UNAUDITED)
NOTE 16. 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
|
|
35
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED
)
(UNAUDITED)
NOTE 16. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)
|
|
For the three months ended
|
|
|
|
March 31, 2017
|
|
CONDENSED CONSOLIDATING STATEMENT OF
CASH FLOWS
|
|
Parent
|
|
|
Guarantor
Subsidiaries
|
|
|
Non-
Guarantor
Subsidiaries
|
|
|
Consolidating
Adjustments
|
|
|
Consolidated
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
20
|
|
|
|
35
|
|
|
|
31
|
|
|
|
(66
|
)
|
|
|
20
|
|
Changes in operating and intercompany assets and
liabilities and non-cash items, included in net earnings
|
|
—
|
|
|
|
(20
|
)
|
|
|
25
|
|
|
|
66
|
|
|
|
71
|
|
Cash flows from operating activities
|
|
|
20
|
|
|
|
15
|
|
|
|
56
|
|
|
|
—
|
|
|
|
91
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant and equipment
|
|
|
—
|
|
|
|
(15
|
)
|
|
|
(19
|
)
|
|
|
—
|
|
|
|
(34
|
)
|
Cash flows used for investing activities
|
|
|
—
|
|
|
|
(15
|
)
|
|
|
(19
|
)
|
|
|
—
|
|
|
|
(34
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend payments
|
|
|
(26
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(26
|
)
|
Net change in bank indebtedness
|
|
|
—
|
|
|
|
(10
|
)
|
|
|
(1
|
)
|
|
|
—
|
|
|
|
(11
|
)
|
Change in revolving credit facility
|
|
|
(20
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(20
|
)
|
Repayments of receivables securitization facility
|
|
|
—
|
|
|
|
—
|
|
|
|
(15
|
)
|
|
|
—
|
|
|
|
(15
|
)
|
Increase in long-term advances to related parties
|
|
|
—
|
|
|
|
—
|
|
|
|
(17
|
)
|
|
|
17
|
|
|
|
—
|
|
Decrease in long-term advances to related parties
|
|
|
16
|
|
|
|
1
|
|
|
|
—
|
|
|
|
(17
|
)
|
|
|
—
|
|
Cash flows used for financing activities
|
|
|
(30
|
)
|
|
|
(9
|
)
|
|
|
(33
|
)
|
|
|
—
|
|
|
|
(72
|
)
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(10
|
)
|
|
|
(9
|
)
|
|
|
4
|
|
|
|
—
|
|
|
|
(15
|
)
|
Impact of foreign exchange on cash
|
|
|
—
|
|
|
|
—
|
|
|
|
1
|
|
|
|
—
|
|
|
|
1
|
|
Cash and cash equivalents at beginning of period
|
|
|
17
|
|
|
|
14
|
|
|
|
94
|
|
|
|
—
|
|
|
|
125
|
|
Cash and cash equivalents at end of period
|
|
|
7
|
|
|
|
5
|
|
|
|
99
|
|
|
|
—
|
|
|
|
111
|
|
36
DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2017
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED
)
(UNAUDITED)
NOTE 16. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)
|
|
For the three months ended
|
|
|
|
March 31, 2016
|
|
CONDENSED CONSOLIDATING STATEMENT OF
CASH FLOWS
|
|
Parent
|
|
|
Guarantor
Subsidiaries
|
|
|
Non-
Guarantor
Subsidiaries
|
|
|
Consolidating
Adjustments
|
|
|
Consolidated
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
4
|
|
|
|
23
|
|
|
|
45
|
|
|
|
(68
|
)
|
|
|
4
|
|
Changes in operating and intercompany assets and
liabilities and non-cash items, included in net earnings
|
|
(9
|
)
|
|
|
29
|
|
|
|
5
|
|
|
|
68
|
|
|
|
93
|
|
Cash flows (used for) provided from operating activities
|
|
|
(5
|
)
|
|
|
52
|
|
|
|
50
|
|
|
|
—
|
|
|
|
97
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant and equipment
|
|
|
—
|
|
|
|
(80
|
)
|
|
|
(20
|
)
|
|
|
—
|
|
|
|
(100
|
)
|
Cash flows used for investing activities
|
|
|
—
|
|
|
|
(80
|
)
|
|
|
(20
|
)
|
|
|
—
|
|
|
|
(100
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend payments
|
|
|
(25
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(25
|
)
|
Stock repurchase
|
|
|
(10
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(10
|
)
|
Net change in bank indebtedness
|
|
|
—
|
|
|
|
7
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7
|
|
Proceeds from receivables securitization facility
|
|
|
—
|
|
|
|
—
|
|
|
|
20
|
|
|
|
—
|
|
|
|
20
|
|
Repayments of receivables securitization facility
|
|
|
—
|
|
|
|
—
|
|
|
|
(20
|
)
|
|
|
—
|
|
|
|
(20
|
)
|
Repayments of long-term debt
|
|
|
—
|
|
|
|
(1
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(1
|
)
|
Increase in long-term advances to related parties
|
|
|
—
|
|
|
|
—
|
|
|
|
(39
|
)
|
|
|
39
|
|
|
|
—
|
|
Decrease in long-term advances to related parties
|
|
|
14
|
|
|
|
25
|
|
|
|
—
|
|
|
|
(39
|
)
|
|
|
—
|
|
Cash flows (used for) provided from financing
activities
|
|
|
(21
|
)
|
|
|
31
|
|
|
|
(39
|
)
|
|
|
—
|
|
|
|
(29
|
)
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(26
|
)
|
|
|
3
|
|
|
|
(9
|
)
|
|
|
—
|
|
|
|
(32
|
)
|
Impact of foreign exchange on cash
|
|
|
—
|
|
|
|
—
|
|
|
|
3
|
|
|
|
—
|
|
|
|
3
|
|
Cash and cash equivalents at beginning of period
|
|
|
49
|
|
|
|
2
|
|
|
|
75
|
|
|
|
—
|
|
|
|
126
|
|
Cash and cash equivalents at end of period
|
|
|
23
|
|
|
|
5
|
|
|
|
69
|
|
|
|
—
|
|
|
|
97
|
|
37