Domtar reports Q4 net earnings fall to US$61M from US$325M in year-ago period, citing closure and restructuring costs, Q4 2010 tax credit of US$127M; net sales flat at US$1.37B

MONTREAL , February 3, 2012 (press release) – Domtar Corporation (NYSE: UFS - News) (TSX: UFS - News) today reported net earnings of $61 million ($1.63 per share) for the fourth quarter of 2011 compared to net earnings of $117 million ($2.95 per share) for the third quarter of 2011 and net earnings of $325 million ($7.59 per share) for the fourth quarter of 2010. Sales for the fourth quarter of 2011 amounted to $1.4 billion. Excluding items listed below, the Company had earnings before items1 of $93 million ($2.49 per share) for the fourth quarter of 2011 compared to earnings before items1 of $123 million ($3.10 per share) for the third quarter of 2011 and earnings before items1 of $103 million ($2.41 per share) for the fourth quarter of 2010.

Fourth quarter 2011 items:

Closure and restructuring costs of $38 million ($23 million after tax) mostly related to the restructuring of certain U.S. pension benefit plans; and

Charge of $12 million ($9 million after tax) related to the impairment and write-down of property, plant and equipment.

Third quarter 2011 items:

Gains on the sale of property, plant and equipment of $4 million ($3 million after tax);

Charge of $8 million ($4 million after tax) related to the impairment and write-down of property, plant and equipment;

Premium paid on debt repurchase of $4 million ($3 million after tax);

Closure and restructuring costs of $1 million ($1 million after tax); and

Negative impact of purchase accounting of $1 million ($1 million after tax).

Fourth quarter 2010 items:

Benefit from cellulosic biofuel producer income tax credit of $127 million;

Benefit from reversal of a valuation allowance on Canadian deferred income tax assets of $100 million;

Costs for debt repurchase of $7 million ($4 million after tax); and

Closure and restructuring costs of $1 million ($1 million after tax).

"Our pulp earnings were affected by the rapid decline in global pulp prices while earnings from our paper business were impacted by the typical seasonal slowdown of the fourth quarter. Nevertheless, our fourth quarter results are good results and I am pleased to see the Attends business perform to expectations," said John D. Williams, President and Chief Executive Officer.

FISCAL YEAR 2011 HIGHLIGHTS

For fiscal year 2011, net earnings amounted to $365 million ($9.08 per share) compared to net earnings of $605 million ($14.00 per share) for fiscal year 2010. The Company had earnings before items1 of $452 million ($11.24 per share) for fiscal 2011 compared to earnings before items1 of $471 million ($10.90 per share) for fiscal 2010. Sales amounted to $5.6 billion for fiscal year 2011.

Commenting on the 2011 performance, Mr. Williams said, "Looking back at 2011, we delivered another strong performance. The second half was slightly more challenging due to the decline in pulp prices however we maintained our volumes. This solid performance enabled us to pursue our commitment to returning a majority of free cash flow to shareholders. In 2011, we returned over $543 million or $13.50 per share, representing 73% of total free cash flow1, through a combination of share buyback and regular dividends."

QUARTERLY REVIEW

Operating income before items1 was $148 million in the fourth quarter of 2011 compared to an operating income before items1 of $193 million in the third quarter of 2011. Depreciation and amortization totaled $95 million in the fourth quarter of 2011.

In December 2011, Domtar signed a four-year master agreement with the United Steelworkers that covers approximately 3,000 hourly employees at nine different locations in the United States. Per the agreement, Domtar is restructuring the pension plans covering these negotiated employees. This will result in Domtar's withdrawal from a multi-employer pension plan and the transition of all covered employees not grandfathered under the existing defined-benefit pension plans to a defined-contribution pension plan for future service. As a result, Domtar incurred a $41 million charge recorded under Closure and restructuring costs.



(In millions of dollars)   4Q 2011   3Q 2011
Sales   $1,369   $1,417
Operating income (loss)        
  Pulp and Paper segment   92   189
  Distribution segment   -   (1)
  Personal Care segment   7   -
  Corporate   -   (1)
  Total   99   187
Operating income before items1   148   193
Depreciation and amortization   95   93

 


The decrease in operating income before items1 in the fourth quarter of 2011 was the result of lower average selling prices for pulp, lower shipments for paper and higher energy costs. These factors were partially offset by lower maintenance costs, lower freight costs, the positive impact of a weaker Canadian dollar and the inclusion of Attends' earnings for a full quarter.

When compared to the third quarter of 2011, paper shipments decreased 6.5% and pulp shipments increased 12.6%. Paper deliveries of ArivaTM decreased 8% when compared to the third quarter of 2011. The shipments-to-production ratio for paper was 95% in the fourth quarter of 2011, compared to 102% in the third quarter of 2011. Paper inventories increased by 40,000 tons while pulp inventories decreased by 25,000 metric tons as at the end of December, compared to September levels.

LIQUIDITY AND CAPITAL

Cash flow provided from operating activities amounted to $883 million and capital expenditures amounted to $144 million, resulting in free cash flow1 of $739 million for fiscal 2011. Domtar's net debt-to-total capitalization ratio1 stood at 12% at December 31, 2011 compared to 9% at December 31, 2010.

OUTLOOK

Prices for pulp are still expected to remain under pressure in certain geographies while market dynamics in the Asian markets are stabilizing. In fine papers, North American demand is expected to decline at a 2-4% rate in 2012, consistent with long-term trends. Any acceleration in employment growth may help mitigate the structural decline in paper demand. Inflation on input costs is expected to be moderate in 2012.

About Domtar
Domtar Corporation (NYSE: UFS - News) (TSX: UFS - News) is the largest integrated manufacturer and marketer of uncoated freesheet paper in North America and the second largest in the world based on production capacity, and is also a manufacturer of papergrade, fluff and specialty pulp. The Company designs, manufactures, markets and distributes a wide range of business, commercial printing and publishing as well as converting and specialty papers including recognized brands such as Cougar®, Lynx® Opaque Ultra, Husky® Opaque Offset, First Choice® and Domtar EarthChoice® Office Paper, part of a family of environmentally and socially responsible papers. Domtar also produces a complete line of incontinence care products and distributes washcloths marketed primarily under the Attends® brand name. Domtar owns and operates ArivaTM, an extensive network of strategically located paper distribution facilities. The Company employs approximately 8,700 people. To learn more, visit www.domtar.com.

 

Domtar Corporation                
Highlights                
(In millions of dollars, unless otherwise noted)                
                   
    Three months ended
December 31
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December 31
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December 31
    2011   2010   2011   2010
    (Unaudited)
    $   $   $   $
                   
Selected Segment Information                
               
Sales                
    Pulp and Paper 1,177   1,212   4,953   5,070
    Distribution 177   212   781   870
    Personal Care 54   -   71   -
    Wood -   -   -   150
Total for reportable segments 1,408   1,424   5,805   6,090
    Intersegment sales - Pulp and Paper (39)   (51)   (193)   (229)
    Intersegment sales - Wood -   -   -   (11)
Consolidated sales 1,369   1,373   5,612   5,850
Depreciation and amortization and impairment and write-down of property, plant and equipment              
    Pulp and Paper 91   94   368   381
    Distribution 1   1   4   4
    Personal Care 3   -   4   -
    Wood -   -   -   10
Total for reportable segments 95   95   376   395
    Impairment and write-down of property, plant and equipment - Pulp and Paper 12   -   85   50
Consolidated depreciation and amortization and impairment and write-down
of property, plant and equipment
107   95   461   445
                   
Operating income (loss)                
    Pulp and Paper 92   161   581   667
    Distribution -   (3)   -   (3)
    Personal Care 7   -   7   -
    Wood -   -   -   (54)
    Corporate -   (3)   4   (7)
Consolidated operating income 99   155   592   603
Interest expense, net 20   29   87   155
Earnings before income taxes and equity earnings 79   126   505   448
Income tax expense (benefit) 11   (199)   133   (157)
Equity loss, net of taxes 7   -   7   -
Net earnings 61   325   365   605
               
Per common share (in dollars)                
  Net earnings                  
    Basic 1.64   7.67   9.15   14.14
    Diluted 1.63   7.59   9.08   14.00
Weighted average number of common and exchangeable shares outstanding (millions)              
    Basic 37.1   42.4   39.9   42.8
    Diluted 37.4   42.8   40.2   43.2
               
Cash flows provided from operating activities 172   166   883   1,166
Additions to property, plant and equipment 80   41   144   153
               
                 
Domtar Corporation              
Consolidated Statements of Earnings              
(In millions of dollars, unless otherwise noted)              
                 
    Three months ended
December 31
  Three months ended
December 31
  Twelve months ended
December 31
  Twelve months ended
December 31
    2011   2010   2011   2010
    (Unaudited)
    $   $   $   $
                 
Sales 1,369   1,373   5,612   5,850
Operating expenses              
    Cost of sales, excluding depreciation and amortization 1,039   1,020   4,171   4,417
    Depreciation and amortization 95   95   376   395
    Selling, general and administrative 87   94   340   338
    Impairment and write-down of property, plant and equipment 12   -   85   50
    Closure and restructuring costs 38   1   52   27
    Other operating loss (income), net (1)   8   (4)   20
    1,270   1,218   5,020   5,247
Operating income 99   155   592   603
Interest expense, net 20   29   87   155
Earnings before income taxes and equity earnings 79   126   505   448
Income tax expense (benefit) 11   (199)   133   (157)
Equity loss, net of taxes 7   -   7   -
Net earnings 61   325   365   605
                 
Per common share (in dollars)              
               
  Net earnings              
    Basic 1.64   7.67   9.15   14.14
    Diluted 1.63   7.59   9.08   14.00
Weighted average number of common and exchangeable shares outstanding (millions)              
    Basic 37.1   42.4   39.9   42.8
    Diluted 37.4   42.8   40.2   43.2

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