Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
UFS > SEC Filings for UFS > Form 10-Q on 1-Nov-2013All Recent SEC Filings

Show all filings for DOMTAR CORP

Form 10-Q for DOMTAR CORP


1-Nov-2013

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") should be read in conjunction with Domtar Corporation's unaudited interim consolidated financial statements and notes thereto included elsewhere in the Quarterly Report. The MD&A should also be read in conjunction with the historical financial information contained in our Annual Report on Form 10-K for the year ended December 31, 2012, filed with the Securities and Exchange Commission ("SEC") on February 28, 2013. Throughout this MD&A, unless otherwise specified, "Domtar Corporation," "the Company," "Domtar," "we," "us" and "our" refer to Domtar Corporation and its subsidiaries, as well as its investments. Domtar Corporation's common stock is listed on the New York Stock Exchange and the Toronto Stock Exchange. Except where otherwise indicated, all financial information reflected herein is determined on the basis of accounting principles generally accepted in the United States ("GAAP").

In accordance with industry practice, in this report, the term "ton" or the symbol "ST" refers to a short ton, an imperial unit of measurement equal to 0.9072 metric tons. The term "metric ton" or the symbol "ADMT" refers to an air dry metric ton. In this report, unless otherwise indicated, all dollar amounts are expressed in U.S. dollars, and the term "dollars" and the symbol "$" refer to U.S. dollars. In the following discussion, unless otherwise noted, references to increases or decreases in income and expense items, prices, contribution to net earnings (loss), and shipment volume are based on the three-month and nine-month periods ended September 30, 2013 and 2012. The three-month and nine-month periods are also referred to as the third quarter of 2013 and 2012, and the first nine months of 2013 and 2012, respectively.

EXECUTIVE SUMMARY

On July 31, 2013, we sold our Ariva business in the United States ("Ariva U.S."). The results of our former Distribution segment have been reclassified under the Pulp and Paper segment.

In the third quarter of 2013, we reported an operating income of $49 million, an increase of $79 million compared to an operating loss of $30 million in the second quarter of 2013. Our results of the second quarter were impacted by the settlement of a litigation with George Weston Limited for $49 million. In addition, our operating results improved when compared to the second quarter of 2013 mostly from an increase in operating income in our Pulp and Paper segment.

In our Pulp and Paper segment, our operating income increased by $26 million when compared to the second quarter of 2013. This increase in operating income is mostly due to a decrease in maintenance costs ($11 million), a decrease in restructuring charges ($10 million), higher volume ($9 million), lower costs of raw materials ($5 million), higher average selling prices for pulp ($3 million, reflecting a selling price increase of approximately 1% when compared to the second quarter of 2013), and the positive impact of a weaker Canadian dollar on our Canadian denominated expenses ($3 million). These increases in operating income were partially offset by a loss on sale of Ariva U.S. business of $19 million recorded in the third quarter of 2013 as well as an increase in fixed costs and other ($5 million). For more details on this sale, refer to Item 1, Financial Statements and Supplementary Data, of this Form 10-Q, under Note 19 "Sale of Ariva U.S."

In our Personal Care segment, our operating income increased by $1 million when compared to the second quarter of 2013. This increase in operating income is mostly due to the acquisition of Associated Hygienic Products LLC ("AHP") on July 1, 2013 as well as a decrease in restructuring charges ($2 million). These increases were partially offset by higher selling, general and administrative expenses as well as costs of raw materials when compared to the second quarter of 2013.

Outlook

Our pulp business should benefit from accelerating momentum in global demand, notably in China. The recently announced price increases for several paper grades are expected to positively impact results towards the end of the fourth quarter. We expect higher input costs due to higher usage in the winter months and we should see lower paper sales volumes in the fourth quarter due to seasonality. Looking out to 2014, we should continue to benefit from the recently announced paper price increases and our personal care business will continue to see earnings growth.

Closure and Restructuring Activities and Impairment and Write-down of Property, Plant and Equipment and Intangible Assets

Multiemployer Pension Plan

In relation to the withdrawal from one of our multiemployer pension plans in 2011, we recorded an additional charge to earnings of $1 million due to a change in the estimated withdrawal liability during the first quarter of 2013. During the second quarter of 2013, we decided to withdraw from another one of our multiemployer pension plans and recorded a withdrawal liability and a charge to earnings of $3 million. At September 30, 2013, the total provision for the withdrawal liabilities is $51 million. While this is our best estimate of the ultimate cost of the withdrawal from these plans at September 30, 2013, additional withdrawal liabilities may be incurred based on the final fund assessment expected to occur in the fourth quarter of 2013. Further, we remain liable for potential additional withdrawal liabilities to the fund in the event of a mass withdrawal, as defined by statute, occurring anytime within the next three years.


Table of Contents

During the second quarter of 2013, we also incurred pension settlement losses related to the previously closed Big River sawmill and Dryden paper mill for $6 million and $7 million, respectively.

Ariva U.S.

At the end of July 2013, we sold our Ariva U.S. business. Ariva U.S. had approximately 400 employees in the United States. During the second quarter of 2013, we recorded a $5 million charge related to impairment of property, plant and equipment on our former Ariva U.S. assets, in Impairment and write-down of property, plant and equipment on the Consolidated Statement of Earnings and Comprehensive Income. In addition, in the third quarter of 2013, we recorded a loss on sale of $19 million. For more details on this sale, refer to Item 1, Financial Statements and Supplementary Data, of this Form 10-Q, under Note 19 "Sale of Ariva U.S."

Kamloops, British Columbia pulp facility - 2012 and 2013

On December 13, 2012, we announced the permanent shut down of one pulp machine at our Kamloops, British Columbia mill. This decision resulted in a permanent curtailment of our annual pulp production by approximately 120,000 air dried metric tons of sawdust softwood pulp and affected approximately 125 employees. As a result, we recorded $10 million of accelerated depreciation, a component of Impairment and write-down of property, plant and equipment on the Consolidated Statement of Earnings and Comprehensive Income in the first quarter of 2013. The pulp machine ceased production in March 2013. Furthermore, during the first quarter of 2013, we reversed $1 million of severance and termination costs. During the second quarter of 2013, we reversed an additional $1 million of severance and termination costs and $1 million of inventory obsolescence, and incurred $2 million of other costs.

Mira Loma, California converting plant - 2012

During the first quarter of 2012, we recorded a $2 million write-down of property, plant and equipment at our Mira Loma California converting plant, in Impairment and write-down of property, plant and equipment on the Consolidated Statement of Earnings and Comprehensive Income.

Other Costs

For the three and nine months ended September 30, 2013, we also incurred other costs related to previous closures which include nil and $2 million, respectively, of severance and termination costs (2012-nil and $1 million, respectively) and nil and nil, respectively, of other costs (2012- $2 million and $2 million, respectively).

We continue to evaluate potential adjustments to our production capacity, which may include additional closures of machines or entire mills, and we could recognize significant cash and/or non-cash charges relating to any such closures in future periods. For information relating to all our closure and restructuring activities, refer to Item 1, Financial Statements and Supplementary Data, of this Form 10-Q, under Note 12 "Closure and Restructuring Costs and Liability and Impairment of Property, Plant and Equipment."

OUR BUSINESS

Information relating to our business is contained in our Annual Report on Form 10-K for the year ended December 31, 2012. There has not been any material change in our business since December 31, 2012. On July 31, 2013, we sold our Ariva U.S. business and the results of the former Distribution segment have been reclassified under the Pulp and Paper segment.

We now operate in two reportable segments as described below. 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 our reportable segments:

Pulp and Paper: Our Pulp and Paper segment comprises the design, manufacturing, marketing and distribution of communication and specialty and packaging papers, as well as softwood, fluff and hardwood market pulp. We own and operate ArivaŽ, a network of strategically located paper, printing and packaging supplies distribution facilities in Canada, involved in the purchasing, warehousing, sale and distribution of our paper products and those of other manufacturers.


Table of Contents

Personal Care: Our Personal Care segment consists of the design, manufacturing, marketing and distribution of adult incontinence products, absorbent hygiene products and infant diapers.

  Add UFS to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for UFS - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.