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UFS > SEC Filings for UFS > Form 10-Q on 1-Aug-2014All Recent SEC Filings

Show all filings for DOMTAR CORP

Form 10-Q for DOMTAR CORP


1-Aug-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 and six-month periods ended June 30, 2014 and 2013. The three-month and six-month periods are also referred to as the first and second quarters of 2014 and 2013 (or Q1 2014, Q1 2013, Q2 2014 and Q2 2013), and the first half of 2014 and 2013, respectively. 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 Q2 2014 and first half of 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 manufacturing, marketing and distribution of adult incontinence products, absorbent hygiene products and infant diapers.

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 Q2 2014 RESULTS

Net earnings of $40 million and operating income of $79 million in the second quarter of 2014

Lack-of-order downtime totaling 51,000 tons of paper

Higher maintenance expense when compared to Q1 2014

Recovery from extreme cold weather and related issues which negatively impacted our results in Q1 2014

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

Mark-to-market adjustments on some stock-based compensation positively impacted our results

Lower volume of paper when compared to Q1 2014

2-for-1 split of our common stock increasing our common stock outstanding from 32.5 million shares to 65 million shares

SUMMARY OF 2014 FIRST HALF RESULTS

Net earnings of $79 million and operating income of $158 million in the first half of 2014

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

Inclusion of a full six months of results of Laboratorios Indas ("Indas") following its acquisition on January 2, 2014 and Associated Hygienic Products LLC ("AHP") following its acquisition on July 1, 2013

Higher input costs mainly due to issues related to extreme cold weather in Q1 2014 and paper downtime in Q2 2014

Favorable foreign exchange positively impacted our results

Lower maintenance expense

Lower volume of paper and pulp

Higher acquisition related expenses

Mark-to-market adjustments on some stock-based compensation negatively impacted our results

Cash flows provided from operating activities of $245 million in the first half of 2014 which includes cash received of $34 million from the Spanish government related to past-due receivables of Indas

                                               Three months
                                                  ended                   Variance              Six months ended               Variance
                                                          June
                                           June 30,        30,                               June 30,       June 30,
FINANCIAL HIGHLIGHTS                         2014         2013          $          %           2014           2013           $          %
(In millions of dollars, unless
otherwise noted)
Sales                                     $    1,385     $ 1,312      $   73         6 %    $    2,779     $    2,657      $  122         5 %

Operating income (loss)                           79         (30 )       109       363 %           158             19         139       732 %

Net earnings (loss)                               40         (46 )        86       187 %            79             (1 )        80

Net earnings (loss) per common share
(in dollars)1:
Basic                                     $     0.62     $ (0.69 )    $ 1.31                $     1.22     $    (0.01 )    $ 1.23
Diluted                                   $     0.61     $ (0.69 )    $ 1.30                $     1.22     $    (0.01 )    $ 1.23




                                                                            At
                                                     At June 30,       December 31,
                                                        2014               2013
  Total assets                                      $       6,339      $       6,278
  Total long-term debt, including current portion   $       1,417      $       1,514

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


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