UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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4 DOMTAR 2018 ANNUAL REPORT
DOMTAR 2018 ANNUAL REPORT 5
MESSAGE
TO SHAREHOLDERS
6 DOMTAR 2018 ANNUAL REPORT
MANAGEMENT COMMITTEE AND
BOARD OF DIRECTORS
OUR LEADERSHIP TEAM
DOMTAR 2018 ANNUAL REPORT 7
BUSINESS OVERVIEW
PULP AND PAPER
SEGMENT
PULP AND PAPER
Favorable market conditions and higher productivity across the mill system are highlights of a successful year for Domtars pulp and paper segment in 2018. We increased paper shipments, solidifying our position as the supplier of choice for communication papers in North America, while continuing to grow our market pulp business globally. Sales of our specialty paper grades were also higher than in the prior year. |
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10 DOMTAR 2018 ANNUAL REPORT
DOMTAR 2018 ANNUAL REPORT 11
BUSINESS OVERVIEW
PULP AND PAPER
SEGMENT
EXPLORING THE POTENTIAL
OF WOOD-BASED BIOMATERIALS
14 DOMTAR 2018 ANNUAL REPORT
PERSONAL CARE
Long-term growth trends for adult incontinence and infant products remain strong but adverse market conditions made for a difficult year in 2018. Domtars vision to be a leader in this market has not changed and we are taking strong measures across the business to improve our performance. |
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DOMTAR 2018 ANNUAL REPORT 17
BUSINESS OVERVIEW
SEGMENTED INFORMATION
18 DOMTAR 2018 ANNUAL REPORT
DOMTAR 2018 ANNUAL REPORT 19
RECONCILIATION OF NON-GAAP
FINANCIAL MEASURES
(In millions of dollars, unless otherwise noted)
The following table sets forth certain non-U.S. generally accepted accounting principles (GAAP) financial metrics identified in bold as Earnings before items, Earnings before items per diluted share, EBITDA, EBITDA margin, EBITDA before items, EBITDA margin before items, Free cash flow, Net debt and Net debt-to-total capitalization. Management believes that the financial metrics are useful to understand our operating performance and benchmark with peers within the industry. The Company calculates Earnings before items and EBITDA before items by excluding the after-tax (pre-tax) effect of specified items. These metrics are presented as a complement to enhance the understanding of operating results but not in substitution for GAAP results.
2016 | 2017 | 2018 | ||||||||||||||
Reconciliation of Earnings before items to Net earnings (loss) |
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Net earnings (loss) |
($) | 128 | (258 | ) | 283 | |||||||||||
(+) |
Impairment of property, plant and equipment and goodwill |
($) | 22 | 573 | 5 | |||||||||||
(+) |
Closure and restructuring costs |
($) | 25 | 1 | 6 | |||||||||||
(+) |
Litigation settlement |
($) | 2 | | 2 | |||||||||||
(-) |
Net gains on disposals of property, plant and equipment |
($) | | (11 | ) | (3 | ) | |||||||||
(-) |
Reversal of contingent consideration |
($) | | (2 | ) | | ||||||||||
(+) |
Impact of purchase accounting |
($) | 1 | | | |||||||||||
(-) |
U.S. Tax Reform |
($) | | (140 | ) | (2 | ) | |||||||||
(=) |
Earnings before items |
($) | 178 | 163 | 291 | |||||||||||
(/) |
Weighted avg. number of common shares outstanding (diluted) |
(millions) | 62.7 | 62.7 | 63.1 | |||||||||||
(=) |
Earnings before items per diluted share |
($) | 2.84 | 2.60 | 4.61 | |||||||||||
Reconciliation of EBITDA and EBITDA before items to Net earnings (loss) |
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Net earnings (loss) |
($) | 128 | (258 | ) | 283 | |||||||||||
(+) |
Equity loss, net of taxes |
($) | | | 2 | |||||||||||
(+) |
Income tax expense (benefit) |
($) | 29 | (125 | ) | 57 | ||||||||||
(+) |
Interest expense, net |
($) | 66 | 66 | 62 | |||||||||||
(+) |
Depreciation and amortization |
($) | 348 | 321 | 308 | |||||||||||
(+) |
Impairment of property, plant and equipment and goodwill |
($) | 29 | 578 | 7 | |||||||||||
(-) |
Net gains on disposals of property, plant and equipment |
($) | | (13 | ) | (4 | ) | |||||||||
(=) |
EBITDA |
($) | 600 | 569 | 715 | |||||||||||
(/) |
Sales |
($) | 5,090 | 5,148 | 5,455 | |||||||||||
(=) |
EBITDA margin |
(%) | 12% | 11% | 13% | |||||||||||
EBITDA |
($) | 600 | 569 | 715 | ||||||||||||
(+) |
Closure and restructuring costs |
($) | 32 | 2 | 8 | |||||||||||
(+) |
Litigation settlement |
($) | 2 | | 2 | |||||||||||
(-) |
Reversal of contingent consideration |
($) | | (2 | ) | | ||||||||||
(+) |
Impact of purchase accounting |
($) | 1 | | | |||||||||||
(=) |
EBITDA before items |
($) | 635 | 569 | 725 | |||||||||||
(/) |
Sales |
($) | 5,090 | 5,148 | 5,455 | |||||||||||
(=) |
EBITDA margin before items |
(%) | 12% | 11% | 13% | |||||||||||
Reconciliation of Free cash flow to Cash flow from operating activities |
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Cash flows from operating activities |
($) | 465 | 449 | 554 | ||||||||||||
(-) |
Additions to property, plant and equipment |
($) | (347 | ) | (182 | ) | (195 | ) | ||||||||
(=) |
Free cash flow |
($) | 118 | 267 | 359 |
(Continued) |
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2016 | 2017 | 2018 | ||||||||||||||
Net debt-to-total capitalization computation |
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Bank indebtedness |
($) | 12 | | | ||||||||||||
(+) |
Long-term debt due within one year |
($) | 63 | 1 | 1 | |||||||||||
(+) |
Long-term debt |
($) | 1,218 | 1,129 | 853 | |||||||||||
(=) |
Debt |
($) | 1,293 | 1,130 | 854 | |||||||||||
(-) |
Cash and cash equivalents |
($) | (125 | ) | (139 | ) | (111 | ) | ||||||||
(=) |
Net debt |
($) | 1,168 | 991 | 743 | |||||||||||
(+) |
Shareholders equity |
($) | 2,676 | 2,483 | 2,538 | |||||||||||
(=) |
Total capitalization |
($) | 3,844 | 3,474 | 3,281 | |||||||||||
Net debt |
($) | 1,168 | 991 | 743 | ||||||||||||
(/) |
Total capitalization |
($) | 3,844 | 3,474 | 3,281 | |||||||||||
(=) |
Net debt-to-total capitalization |
(%) | 30% | 29% | 23% |
Earnings before items, Earnings before items per diluted share, EBITDA, EBITDA margin, EBITDA before items, EBITDA margin before items, Free cash flow, Net debt and Net debt-to-total capitalization have no standardized meaning prescribed by GAAP and are not necessarily comparable to similar measures presented by other companies and therefore should not be considered in isolation or as a substitute for Net earnings (loss), Operating income (loss) or any other earnings statement, cash flow statement or balance sheet financial information prepared in accordance with GAAP. It is important for readers to understand that certain items may be presented in different lines by different companies on their financial statements, thereby leading to different measures for different companies.
RECONCILIATION OF NON-GAAP
FINANCIAL MEASURES BY SEGMENT
(In millions of dollars, unless otherwise noted)
The following table sets forth certain non-U.S. generally accepted accounting principles (GAAP) financial metrics identified in bold as Operating income (loss) before items, EBITDA before items and EBITDA margin before items by reportable segment. Management believes that the financial metrics are useful to understand our operating performance and benchmark with peers within the industry. The Company calculates the segmented Operating income (loss) before items by excluding the pre-tax effect of specified items. These metrics are presented as a complement to enhance the understanding of operating results but not in substitution for GAAP results.
Pulp and Paper | Personal Care1 | Corporate | ||||||||||||||||||||||||||||||||||||||||
2016 | 2017 | 2018 | 2016 | 2017 | 2018 | 2016 | 2017 | 2018 | ||||||||||||||||||||||||||||||||||
Reconciliation of Operating income (loss) |
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to Operating income (loss) before items |
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Operating income (loss) |
($ | ) | 201 | 237 | 438 | 57 | (527 | ) | (5 | ) | (50 | ) | (38 | ) | (47 | ) | ||||||||||||||||||||||||||
(+) |
Impairment of property, plant and equipment and goodwill |
($ | ) | 29 | | | | 578 | 7 | | | | ||||||||||||||||||||||||||||||
(-) |
Net gains on disposals of property, plant and equipment |
($ | ) | | (4 | ) | (4 | ) | | | | | (9 | ) | | |||||||||||||||||||||||||||
(+) |
Closure and restructuring costs |
($ | ) | 31 | | | 1 | 2 | 8 | | | | ||||||||||||||||||||||||||||||
(+) |
Litigation settlement |
($ | ) | | | | | | | 2 | | 2 | ||||||||||||||||||||||||||||||
(+) |
Impact of purchase accounting |
($ | ) | | | | 1 | | | | | | ||||||||||||||||||||||||||||||
(-) |
Reversal of contingent consideration |
($ | ) | | | | | | | | (2 | ) | | |||||||||||||||||||||||||||||
(=) |
Operating income (loss) before items |
($ | ) | 261 | 233 | 434 | 59 | 53 | 10 | (48 | ) | (49 | ) | (45 | ) | |||||||||||||||||||||||||||
Reconciliation of Operating income (loss) |
||||||||||||||||||||||||||||||||||||||||||
before items to EBITDA before items |
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Operating income (loss) before items |
($ | ) | 261 | 233 | 434 | 59 | 53 | 10 | (48 | ) | (49 | ) | (45 | ) | ||||||||||||||||||||||||||||
(+) |
Non-service components of net periodic benefit cost |
($ | ) | 16 | 13 | 19 | | | | (1 | ) | (2 | ) | (1 | ) | |||||||||||||||||||||||||||
(+) |
Depreciation and amortization |
($ | ) | 284 | 254 | 238 | 64 | 67 | 70 | | | | ||||||||||||||||||||||||||||||
(=) |
EBITDA before items |
($ | ) | 561 | 500 | 691 | 123 | 120 | 80 | (49 | ) | (51 | ) | (46 | ) | |||||||||||||||||||||||||||
(/) |
Sales |
($ | ) | 4,239 | 4,216 | 4,523 | 909 | 996 | 1,000 | | | | ||||||||||||||||||||||||||||||
(=) |
EBITDA margin before items |
(% | ) | 13% | 12% | 15% | 14% | 12% | 8% | | | |
Operating income (loss) before items, EBITDA before items and EBITDA margin before items have no standardized meaning prescribed by GAAP and are not necessarily comparable to similar measures presented by other companies and therefore should not be considered in isolation or as a substitute for Operating income (loss) or any other earnings statement, cash flow statement or balance sheet financial information prepared in accordance with GAAP. It is important for readers to understand that certain items may be presented in different lines by different companies on their financial statements, thereby leading to different measures for different companies.
1 On October 1, 2016, the Company acquired 100% of the shares of Home Delivery Incontinent Supplies Co. in the United States.
WHERE WE WORK
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CORPORATE OFFICES |
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MARKET PULP (Annual pulp manufacturing capacity in air-dry metric tons)
Ashdown, Arkansas (516,000 tons)
Dryden, Ontario (327,000 tons)
Kamloops, British Columbia (354,000 tons)
Plymouth, North Carolina (390,000 tons)
CHIP MILLS Hawesville, Kentucky Johnsonburg, Pennsylvania Kingsport, Tennessee Marlboro (Bennettsville), South Carolina
CONVERTING AND DISTRIBUTION ONSITE Ashdown, Arkansas Rothschild, Wisconsin Windsor, Quebec |
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CONVERTING AND FORMS MANUFACTURING Addison, Illinois Brownsville, Tennessee Dallas, Texas DuBois, Pennsylvania Griffin, Georgia Owensboro, Kentucky Ridgefields, Tennessee Rock Hill, South Carolina Tatum, South Carolina Washington Court House, Ohio
ARIVA CANADA Halifax, Nova Scotia Montreal, Quebec Mount Pearl, Newfoundland and Labrador Ottawa, Ontario Quebec City, Quebec Toronto, Ontario
REGIONAL REPLENISHMENT CENTERS UNITED STATES Charlotte, North Carolina Chicago, Illinois Dallas, Texas Delran, New Jersey Indianapolis, Indiana Jacksonville, Florida Mira Loma, California Seattle, Washington |
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REGIONAL REPLENISHMENT CENTERS CANADA Richmond, Quebec Toronto, Ontario Winnipeg, Manitoba
REPRESENTATIVE OFFICE INTERNATIONAL Hong Kong, China
LOCAL DISTRIBUTION CENTERS Buffalo, New York Cincinnati, Ohio Cleveland, Ohio Des Moines, Iowa Houston, Texas Kansas City, Kansas Minneapolis, Minnesota Nashville, Tennessee Phoenix, Arizona Plain City, Ohio Richmond, Virginia Salt Lake City, Utah San Antonio, Texas San Lorenzo, California St. Louis, Missouri Vancouver, Washington Walton, Kentucky Wayne, Michigan Wisconsin Rapids, Wisconsin |
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Fort Mill, South Carolina Montreal, Quebec
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PULP AND PAPER |
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DIVISION HEADQUARTERS Fort Mill, South Carolina
UNCOATED FREESHEET (Annual paper manufacturing capacity in short tons)
Ashdown, Arkansas (265,000 tons)
Espanola, Ontario (69,000 tons)
Hawesville, Kentucky (596,000 tons)
Johnsonburg, Pennsylvania (344,000 tons)
Kingsport, Tennessee (426,000 tons)
Marlboro (Bennettsville), South Carolina (274,000 tons)
Nekoosa, Wisconsin (168,000 tons)
Port Huron, Michigan (113,000 tons)
Rothschild, Wisconsin (131,000 tons)
Windsor, Quebec (642,000 tons) |
20 DOMTAR 2018 ANNUAL REPORT
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PERSONAL CARE |
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FORWARD-LOOKING |
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PRODUCTION |
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DIVISION HEADQUARTERS Raleigh, North Carolina
MANUFACTURING AND DISTRIBUTION Aneby, Sweden Delaware, Ohio Greenville, North Carolina Jesup, Georgia Toledo, Spain Waco, Texas1
SALES OFFICES Daytona Beach, Florida Tuitjenhorn, The Netherlands Olivette, Missouri Oslo, Norway Linz, Austria Madrid, Spain Pusignan, France Rheinfelden, Switzerland Schwalbach am Taunus, Germany Stockholm, Sweden Texarkana, Arkansas Wakefield, United Kingdom |
STATEMENTS
This Annual Report contains forward-look ing statements, including statements regarding strategy, repurposing of mills, product and brand development, production, sales growth, margins, earnings objectives, continuous improvement and the impact of our Personal Care initiatives. Actual results may differ materially from those suggested by these statements for a number of reasons, including customer acceptance of new products and brands, changes in customer demand and pricing, changes in manufacturing costs, future acquisitions and divestitures, including facility closings, and the other reasons identified under Risk Factors in our Form 10-K for 2018 as filed with the Securities Exchange Commission and as updated by subsequently filed Form 10-Qs. Except to the extent required by law, we expressly disclaim any obligation to update or revise these forward-looking statements to reflect new events or circumstances or otherwise. |
NOTES
Paper Cover printed on 80 lb. Cougar® Cover, Smooth Finish. Insert printed on 70 lb. Cougar® Text, Smooth Finish.
Printing Cover and insert printed with UV inks on a Heidelberg Speedmaster CD 102 press 6-color units with in-line coater and full inter-deck and end-of-press extended delivery UV drying systems.
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1 On November 1, 2018, we announced a margin improvement plan within our Personal Care Division, including the permanent closure of our Waco, Texas, manufacturing and distribution facility. The facility is expected to cease operations in the third quarter of 2019. |
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