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UFS > SEC Filings for UFS > Form 10-Q on 2-May-2014All Recent SEC Filings

Show all filings for DOMTAR CORP

Form 10-Q for DOMTAR CORP


2-May-2014

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 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, 2013, filed with the Securities and Exchange Commission ("SEC") on February 24, 2014. Throughout this MD&A, unless otherwise specified, "Domtar Corporation," "the Company," "Domtar," "we," "us" and "our" refers 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 periods ended March 31, 2014 and 2013. The three month periods are also referred to as the first quarter of 2014 and 2013. Reference to notes refers to footnotes to the consolidated financial statements found in Item 1 of this form 10-Q.

The MD&A is organized in the following sections:

Overview

Summary of Q1 2014 results

Consolidated Results of Operations and Segment Review

Outlook

Liquidity and Capital Resources

Accounting Changes Implemented and Critical Accounting Policies

OVERVIEW

We 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 consists of the design, manufacturing, marketing and distribution of communication and specialty and packaging papers, as well as softwood, fluff and hardwood market pulp.

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

We continue to focus on sustaining profitable growth through high performance in our Pulp and Paper business as well as continued growth in our Personal Care division through organic growth and acquisitions.


Table of Contents

SUMMARY OF Q1 2014 RESULTS

Net earnings of $39 million and operating income of $79 million in the first quarter of 2014

Continued execution of our growth strategy through the acquisition of Laboratorios Indas ("Indas") on January 2, 2014 (refer to Note 3 "Acquisition of Business")

Inclusion of a full quarter of results of Associated Hygienic Products LLC ("AHP") following its acquisition on July 1, 2013

Extreme cold weather and related issues negatively impacted our results

Favorable foreign exchange positively impacted our results

Higher average selling prices in pulp and paper as a result of the implementation of our recently announced price increases

Higher mark-to-market adjustments on some stock-based compensation and acquisition related expenses negatively impacted our results

Lower volume of pulp and manufactured paper

Charge related to the sale of inventory that had been marked to fair value at the time of acquisition of Indas in our Personal Care segment

Cash flows provided from operating activities of $141 million in the first quarter of 2014 which includes cash received of $34 million from the Spanish government related to past-due receivables of Indas

                                                           Three months ended                  Variance
                                                     March 31,          March 31,
FINANCIAL HIGHLIGHTS                                   2014                2013              $           %
(In millions of dollars, unless otherwise noted)

Sales                                               $     1,394       $        1,345           49          4 %

Operating income                                    $        79       $           49           30         61 %

Net earnings                                                 39                   45           (6 )      -13 %

Net earnings per common share (in dollars)1:
Basic                                                      1.20                 1.29      ($ 0.09 )       -7 %
Diluted                                                    1.20                 1.29      ($ 0.09 )       -7 %

                                                        At                  At
                                                     March 31,         December 31,
                                                       2014                2013
Total assets                                        $     6,376       $        6,278
Total long-term debt, including current portion     $     1,505       $        1,514

1 See Note 5 for more information on the calculation of net earnings per common share.


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