Domtar Corporation reports preliminary fourth quarter and fiscal year 2009
financial results
Strong operational performance and pricing momentum drive solid results (All financial information is in U.S. dollars, and all earnings (loss) per share results are diluted, unless otherwise noted.) - Net earnings of $2.86 per share, earnings before items(1) of $1.39 per share - Papers segment benefits from continued strength in the pulp markets - Safety performance record improved by 24% in 2009 (total frequency rate of 1.50) TICKER SYMBOL UFS (NYSE, TSX) </pre> <p/> <p><location>MONTREAL</location>, <chron>Feb. 4</chron> /CNW Telbec/ - Domtar Corporation (NYSE/TSX: UFS) today reported net earnings of <money>$124 million</money> (<money>$2.86</money> per share) for the fourth quarter of 2009 compared to net earnings of <money>$183 million</money> (<money>$4.24</money> per share) for the third quarter of 2009 and a net loss of <money>$676 million</money> (<money>$15.72</money> per share) for the fourth quarter of 2008. Sales for the fourth quarter of 2009 amounted to <money>$1.4 billion</money>. Excluding items listed below, the Company had earnings before items(1) of <money>$60 million</money> (<money>$1.39</money> per share) for the fourth quarter of 2009 compared to earnings before items(1) of <money>$57 million</money> (<money>$1.32</money> per share) for the third quarter of 2009 and a loss before items(1) of <money>$20 million</money> (<money>$0.46</money> per share) for the fourth quarter of 2008.</p> <p/> <pre> Fourth quarter 2009 items: -------------------------- - Refundable excise tax credit for the production and use of alternative bio fuel mixtures of $162 million ($113 million after tax); - Closure and restructuring costs of $29 million ($24 million after tax); - Charge of $27 million ($22 million after tax) related to the impairment and write-down of property, plant and equipment; and - Loss on sale of property, plant and equipment of $5 million ($3 million after tax). Third quarter 2009 items: ------------------------- - Refundable excise tax credit for the production and use of alternative bio fuel mixtures of $159 million ($116 million after tax); - Gains on sale of property, plant and equipment of $12 million ($12 million after tax); and - Closure and restructuring costs of $4 million ($2 million after tax). Fourth quarter 2008 items: -------------------------- - Charge of $387 million ($270 million after tax) related to the impairment and write-down of property, plant and equipment and intangible assets; - Charge of $321 million ($321 million after tax) related to the impairment of goodwill; - Charge of $52 million related to a valuation allowance on Canadian deferred income tax assets; - Closure and restructuring costs of $28 million ($18 million after tax); - Gain on debt repurchase of $12 million ($8 million after tax); and - Costs of $5 million ($3 million after tax) related to synergies and integration. </pre> <p/> <p>"We had improved pricing for our products in the fourth quarter when compared to the third quarter. In Papers, we recorded another solid performance despite it being a seasonally slower period, with lower volumes and higher maintenance costs. Our paper inventories were reduced for a fifth consecutive quarter contributing to cash flow," said John D. Williams, President and Chief Executive Officer. "We also moved forward with the Canadian Pulp and Paper Green Transformation Program submitting numerous projects to Natural Resources <location>Canada</location> during the quarter. We completed the environmental assessment for one project while six others are currently undergoing their assessments," added <person>Mr. Williams</person>.</p> <p/> <p>FISCAL YEAR 2009 HIGHLIGHTS</p> <p/> <p>For fiscal year 2009, net earnings amounted to <money>$310 million</money> (<money>$7.18</money> per share) compared to a net loss of <money>$573 million</money> (<money>$13.33</money> per share) for fiscal year 2008. The Company had earnings before items(1) of <money>$46 million</money> (<money>$1.06</money> per share) for fiscal 2009 compared to earnings before items(1) of <money>$88 million</money> (<money>$2.05</money> per share) for fiscal 2008. Sales amounted to <money>$5.5 billion</money> for fiscal year 2009.</p> <p>Commenting on the 2009 performance, <person>Mr. Williams</person> said, "While we faced a high level of lack-of-order downtime and a steep decline in pulp prices in the first half of the year, we benefited from stable prices in papers and kept our inventories low. Meanwhile, our efforts to reduce working capital and lower fixed costs proved to be a catalyst for the second half of 2009. The sustained focus on customers, costs, and cash helped us deliver a stronger company to our shareholders and to start 2010 with optimism."</p> <p/> <p>SEGMENT REVIEW</p> <p/> <p>Papers</p> <p/> <p>Operating income before items(1) was <money>$104 million</money> in the fourth quarter of 2009 compared to operating income before items(1) of <money>$138 million</money> in the third quarter of 2009. Depreciation and amortization totaled <money>$95 million</money> in the fourth quarter of 2009. When compared to the third quarter of 2009, paper and pulp shipments decreased 3% and 13%, respectively. The shipments-to-production ratio for paper was 104% in the fourth quarter of 2009, compared to 106% in the third quarter of 2009. Paper inventories were lowered by 40,000 tons while pulp inventories increased by 39,000 metric tons at the end of December when compared to end of September levels.</p> <p>The decrease in operating income before items(1) in the fourth quarter of 2009 was the result of higher usage and unit costs for energy and fiber, higher maintenance costs, lower paper and pulp shipments, and higher freight costs. These factors were partially offset by higher average selling prices for pulp and paper, and lower chemical costs.</p> <p/> <pre> (In millions of dollars) 4Q 2009 3Q 2009 ----------------------------------------------- ----------- ----------- Sales $1,188 $1,211 Operating income $212 $294 Operating income before items(1) $104 $138 Depreciation and amortization $95 $95 </pre> <p/> <p>On <chron>October 20, 2009</chron>, the Company announced that it would convert its Plymouth, North Carolina facility to 100% fluff pulp production by the fourth quarter of 2010. In connection with this announcement, the Company recognized, under impairment and write-down of property, plant and equipment, <money>$13 million</money> of accelerated depreciation in the fourth quarter of 2009 and is expected to record a further <money>$39 million</money> of accelerated depreciation over the first nine months of 2010 in relation to the assets that will cease productive use in <chron>October 2010</chron>. The assets of this facility have been tested for impairment and no additional impairment charge was required.</p> <p/> <p>Paper Merchants</p> <p/> <p>Operating income before items(1) was <money>$3 million</money> in the fourth quarter of 2009 compared to operating income before items(1) of <money>$2 million</money> in the third quarter of 2009. Depreciation and amortization was nil in the fourth quarter of 2009. Deliveries decreased 12% when compared to the third quarter of 2009. Lower deliveries were offset by higher prices.</p> <p/> <pre> (In millions of dollars) 4Q 2009 3Q 2009 ----------------------------------------------- ----------- ----------- Sales $212 $239 Operating income $2 $2 Operating income before items(1) $3 $2 Depreciation and amortization - $1 </pre> <p/> <p>Wood</p> <p/> <p>Operating loss before items(1) was <money>$5 million</money> in the fourth quarter of 2009, compared to operating loss before items(1) of <money>$9 million</money> in the third quarter of 2009. Depreciation and amortization totaled <money>$6 million</money> in the fourth quarter of 2009. When compared to the third quarter of 2009, lumber shipments increased 5%.</p> <p>The decrease in operating loss before items(1) in the fourth quarter of 2009 was primarily the result of higher average selling prices.</p> <p/> <pre> (In millions of dollars) 4Q 2009 3Q 2009 ----------------------------------------------- ----------- ----------- Sales $63 $59 Operating loss ($11) ($1) Operating loss before items(1) ($5) ($9) Depreciation and amortization $6 $5 </pre> <p/> <p>LIQUIDITY AND CAPITAL</p> <p/> <p>Cash flow provided from operating activities amounted to <money>$185 million</money> and free cash flow(1) amounted to <money>$145 million</money> in the fourth quarter of 2009. Domtar's net debt-to-total capitalization ratio(1) stood at 35% at <chron>December 31, 2009</chron> compared to 50% at <chron>December 31, 2008</chron>. Amounts drawn on the off balance sheet receivables securitization program are unchanged since <chron>September 30, 2009</chron> and stood at <money>$20 million</money> at the end of December.</p> <p>As of <chron>December 31, 2009</chron>, we had completed sales of assets for proceeds of approximately <money>$20 million</money>. We have agreements to sell other non-core assets which we expect to generate approximately <money>$40 million</money> by mid-year. As we continue to strengthen our financial position, we will carefully consider additional non-core asset sales.</p> <p/> <p>OUTLOOK</p> <p/> <p>We expect that the increased economic activity will partially offset the secular decline in paper demand in 2010 and that pulp demand will remain strong in the short-term. We should also benefit from the recently announced price increases in the upcoming quarters. The economic recovery being slow and patchy, Domtar will continue to manage its business conservatively.</p> <p>Due to the seasonality of the business and the impact of the price increases being implemented, we expect to make working capital investments in the first quarter of 2010.</p> <p/> <p>EARNINGS CONFERENCE CALL</p> <p/> <p>The Company will hold a conference call today at <chron>10:00 a.m. (ET</chron>) to discuss its fourth quarter 2009 financial results. Financial analysts are invited to participate in the call by dialing at least 10 minutes before start time 1 (888) 339-3507 (toll free - <location>North America</location>) or 1 (719) 325-2424 (International), while media and other interested individuals are invited to listen to the live webcast on the Domtar Corporation website at <a href="http://www.domtar.com">www.domtar.com</a>.</p> <p>The Company will release its first quarter 2010 earnings on <chron>April 30, 2010</chron> before markets open, followed by a conference call at <chron>10:00 a.m. (ET</chron>) to discuss results. The date is tentative and will be confirmed approximately three weeks prior to the official earnings release date.</p> <p/> <p>About Domtar</p> <p/> <p>Domtar Corporation (NYSE/TSX:UFS) is the largest integrated manufacturer and marketer of uncoated freesheet paper in <location>North America</location> 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(R), Lynx(R) Opaque, Husky(R) Offset, First Choice(R) and Domtar EarthChoice(R) Office Paper, part of a family of environmentally and socially responsible papers. Domtar owns and operates Domtar Distribution Group, an extensive network of strategically located paper distribution facilities. Domtar also produces lumber and other specialty and industrial wood products. The Company employs over 10,000 people. To learn more, visit <a href="http://www.domtar.com">www.domtar.com</a>.</p> <p/> <p>Forward-Looking Statements</p> <p/> <p>All statements in this news release that are not based on historical fact are "forward-looking statements." While management has based any forward-looking statements contained herein on its current expectations, the information on which such expectations were based may change. These forward-looking statements rely on a number of assumptions concerning future events and are subject to a number of risks, uncertainties, and other factors, many of which are outside of our control that could cause actual results to materially differ from such statements. Such risks, uncertainties, and other factors include, but are not necessarily limited to, those set forth under the captions "Forward-Looking Statements" and "Risk Factors" of the latest Form 10-K filed with the SEC as periodically updated by subsequently filed Form 10-Q's. Unless specifically required by law, we assume no obligation to update or revise these forward-looking statements to reflect new events or circumstances.</p> <p/> <pre> ----------------------- (1) Non-GAAP financial measure. Refer to the Reconciliation of Non-GAAP Financial Measures in the appendix. Domtar Corporation Highlights (In millions of dollars, unless otherwise noted) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Three Three Twelve Twelve months months months months ended ended ended ended December December December December 31 31 31 31 ------------------------------------------------------------------------- 2009 2008 2009 2008 ------------------------------------------------------------------------- ----------------(Unaudited)------------- $ $ $ $ Selected Segment Information Sales Papers 1,188 1,240 4,632 5,440 Paper Merchants 212 228 873 990 Wood 63 59 211 268 ------------------------------------------------------------------------- Total for reportable segments 1,463 1,527 5,716 6,698 Intersegment sales - Papers (53) (56) (231) (276) Intersegment sales - Wood (6) (6) (20) (28) ------------------------------------------------------------------------- Consolidated sales 1,404 1,465 5,465 6,394 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Depreciation and amortization Papers 95 104 382 435 Paper Merchants - 1 3 3 Wood 6 5 20 25 ------------------------------------------------------------------------- Total for reportable segments 101 110 405 463 Impairment and write-down of property, plant and equipment 27 383 62 383 Impairment of goodwill and intangible assets - 325 - 325 ------------------------------------------------------------------------- Consolidated depreciation and amortization and write-down and impairment loss 128 818 467 1,171 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Operating income (loss) Papers 212 (693) 650 (369) Paper Merchants 2 2 7 8 Wood (11) (28) (42) (73) ------------------------------------------------------------------------- Total for reportable segments 203 (719) 615 (434) Corporate - - - (3) ------------------------------------------------------------------------- Consolidated operating income (loss) 203 (719) 615 (437) Interest expense 37 22 125 133 ------------------------------------------------------------------------- Earnings (loss) before income taxes 166 (741) 490 (570) Income tax expense (benefit) 42 (65) 180 3 ------------------------------------------------------------------------- Net earnings (loss) 124 (676) 310 (573) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Per common share (in dollars) Net earnings (loss) Basic 2.88 (15.72) 7.21 (13.33) Diluted 2.86 (15.72) 7.18 (13.33) Weighted average number of common and exchangeable shares outstanding (millions) Basic 43.0 43.0 43.0 43.0 Diluted 43.3 43.0 43.2 43.0 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Cash flows provided from (used for) operating activities 185 (74) 792 197 Additions to property, plant and equipment 40 49 106 163 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Domtar Corporation Consolidated Statements of Earnings (In millions of dollars, unless otherwise noted) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Three Three Twelve Twelve months months months months ended ended ended ended December December December December 31 31 31 31 ------------------------------------------------------------------------- 2009 2008 2009 2008 ------------------------------------------------------------------------- ----------------(Unaudited)------------- $ $ $ $ Sales 1,404 1,465 5,465 6,394 Operating expenses Cost of sales, excluding depreciation and amortization 1,109 1,254 4,472 5,225 Depreciation and amortization 101 110 405 463 Selling, general and administrative 91 90 345 400 Impairment and write-down of property, plant and equipment 27 383 62 383 Impairment of goodwill and intangible assets - 325 - 325 Closure and restructuring costs 29 28 63 43 Other operating income (156) (6) (497) (8) ------------------------------------------------------------------------- 1,201 2,184 4,850 6,831 ------------------------------------------------------------------------- Operating income (loss) 203 (719) 615 (437) Interest expense 37 22 125 133 ------------------------------------------------------------------------- Earnings (loss) before income taxes 166 (741) 490 (570) Income tax expense (benefit) 42 (65) 180 3 ------------------------------------------------------------------------- Net earnings (loss) 124 (676) 310 (573) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Per common share (in dollars) Net earnings (loss) Basic 2.88 (15.72) 7.21 (13.33) Diluted 2.86 (15.72) 7.18 (13.33) Weighted average number of common and exchangeable shares outstanding (millions) Basic 43.0 43.0 43.0 43.0 Diluted 43.3 43.0 43.2 43.0 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Domtar Corporation Consolidated Balance Sheets at (In millions of dollars) ------------------------------------------------------------------------- ------------------------------------------------------------------------- December 31 December 31 ------------------------------------------------------------------------- 2009 2008 -------(Unaudited)----- $ $ Assets Current assets Cash and cash equivalents 324 16 Receivables, less allowances of $8 and $11 536 477 Inventories 745 963 Prepaid expenses 46 27 Income and other taxes receivable 414 56 Deferred income taxes 137 116 ------------------------------------------------------------------------- Total current assets 2,202 1,655 Property, plant and equipment, at cost 9,575 8,963 Accumulated depreciation (5,446) (4,662) ------------------------------------------------------------------------- Net property, plant and equipment 4,129 4,301 Intangible assets, net of amortization 85 81 Other assets 103 67 ------------------------------------------------------------------------- Total assets 6,519 6,104 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Liabilities and shareholders' equity Current liabilities Bank indebtedness 43 43 Trade and other payables 686 646 Income and other taxes payable 31 36 Long-term debt due within one year 11 18 ------------------------------------------------------------------------- Total current liabilities 771 743 Long-term debt 1,701 2,110 Deferred income taxes and other 1,019 824 Other liabilities and deferred credits 366 284 Shareholders' equity Common stock - 5 Exchangeable shares 78 138 Additional paid-in capital 2,816 2,743 Accumulated deficit (216) (526) Accumulated other comprehensive loss (16) (217) ------------------------------------------------------------------------- Total shareholders' equity 2,662 2,143 ------------------------------------------------------------------------- Total liabilities and shareholders' equity 6,519 6,104 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Domtar Corporation Consolidated Statements of Cash Flows (In millions of dollars) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Twelve Twelve months months ended ended December 31 December 31 ------------------------------------------------------------------------- 2009 2008 ------------------------------------------------------------------------- -------(Unaudited)----- $ $ Operating activities Net earnings (loss) 310 (573) Adjustments to reconcile net earnings (loss) to cash flows from operating activities Depreciation and amortization 405 463 Deferred income taxes 157 (42) Impairment and write-down of property, plant and equipment 62 383 Impairment of goodwill and intangible assets - 325 Gain on repurchase of long-term debt and debt restructuring costs (12) (11) Net gains on disposals of property, plant and equipment and sale of trademarks (5) (9) Stock-based compensation expense 8 16 Other 14 12 Changes in assets and liabilities Receivables (55) 7 Inventories 261 (85) Prepaid expenses (3) (19) Trade and other payables 38 (117) Income and other taxes (357) 13 Difference between employer pension and other post-retirement contributions and pension and post-retirement expense (61) (141) Other assets and other liabilities 30 (25) ------------------------------------------------------------------------- Cash flows provided from operating activities 792 197 ------------------------------------------------------------------------- Investing activities Additions to property, plant and equipment (106) (163) Proceeds from disposals of property, plant and equipment and sale of trademarks 21 35 Business acquisition - joint venture - (12) ------------------------------------------------------------------------- Cash flows used for investing activities (85) (140) ------------------------------------------------------------------------- Financing activities Net change in bank indebtedness - (24) Change of revolving bank credit facility (60) 10 Issuance of long-term debt 385 - Repayment of long-term debt (725) (95) Debt issue and tender offer costs (14) - ------------------------------------------------------------------------- Cash flows used for financing activities (414) (109) ------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents 293 (52) Translation adjustments related to cash and cash equivalents 15 (3) Cash and cash equivalents at beginning of period 16 71 ------------------------------------------------------------------------- Cash and cash equivalents at end of period 324 16 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Supplemental cash flow information Net cash payments for: Interest 125 120 Income taxes paid (refund) (20) 49 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Domtar Corporation Reconciliation of Non-GAAP Financial Measures (In millions of dollars, unless otherwise noted) </pre> <p/> <p>The following table sets forth certain non-U.S. generally accepted accounting principles ("GAAP") financial metrics identified in bold as "Earnings (Loss) Before Items", "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 presented are frequently used by investors and are useful to evaluate our ability to service debt and the overall credit profile. Management believes these metrics are also useful to measure the operating performance and benchmark with peers within the industry. These metrics are presented as a complement to enhance the understanding of operating results but not in substitution for GAAP results.</p> <p>The Company calculates "Earnings (Loss) Before Items" and "EBITDA Before Items" by excluding the after-tax (pre-tax) effect of items considered by management as not typifying the Net earnings (loss) reported under U.S. GAAP. Management uses these measures, as well as EBITDA and Free Cash Flow, to focus on ongoing operations and believes that it is useful to investors because it enables them to perform meaningful comparisons between periods. Domtar believes that using this information along with Net earnings (loss) provides for a more complete analysis of the results of operations. Net earnings (loss) and Cash flow provided from (used for) operating activities are the most directly comparable GAAP measures.</p> <p/> <pre> --------------------------------------- --------------------------------------- 2009 --------------------------------------- --------------------------------------- ------- Q1 Q2 Q3 Q4 YTD --------------------------------------- --------------------------------------- Reconciliation of "Earnings (Loss) Before Items" to Net earnings (loss) Net earnings (loss) ($) (45) 48 183 124 310 (-) Alternative fuel tax credits ($) (28) (79) (116) (113) (336) (-) (Gains) Losses on sale of property, plant and equipment ($) (12) 3 (9) (+) Write-down of PP&E / Impairment of PP&E and intangible assets ($) 21 22 43 (+) Closure and restructuring costs ($) 14 4 2 24 44 (-) Gain on debt repurchase ($) (6) (6) (+) Impairment of goodwill ($) (+) Valuation allowance on Canadian deferred income tax assets ($) (+) Costs related to synergies, integration and optimization ($) (-) Reversal of a provision for unfavorable contract ($) (-) Gain related to the sale of trademarks ($) (=) Earnings (Loss) Before Items ($) (38) (33) 57 60 46 (/) Weighted avg. number of common shares outstanding (diluted) (millions) 43.0 43.0 43.2 43.3 43.2 (=) Earnings (Loss) Before Items per diluted share ($) (0.88) (0.76) 1.32 1.39 1.06 Reconciliation of "EBITDA" and "EBITDA Before Items" to Net earnings (loss) Net earnings (loss) ($) (45) 48 183 124 310 (+) Income tax expense (benefit) ($) (8) 68 78 42 180 (+) Interest expense ($) 31 23 34 37 125 (=) Operating income (loss) ($) (22) 139 295 203 615 (+) Depreciation and amortization ($) 99 104 101 101 405 (+) Write-down of PP&E / Impairment of goodwill, PP&E and intangible assets ($) 35 27 62 (equal) EBITDA ($) 112 243 396 331 1,082 (/) Sales ($) 1,302 1,319 1,440 1,404 5,465 (=) EBITDA Margin (%) 9% 18% 28% 24% 20% (-) Alternative fuel tax credits ($) (46) (131) (159) (162) (498) (-) (Gains) Losses on sale of property, plant and equipment ($) (12) 5 (7) (+) Closure and restructuring costs ($) 24 6 4 29 63 (-) Reversal of a provision for unfavorable contract ($) (+) Costs related to synergies, integration and optimization ($) (-) Gain related to the sale of trademarks ($) (=) EBITDA Before Items ($) 90 118 229 203 640 (/) Sales ($) 1,302 1,319 1,440 1,404 5,465 (=) EBITDA Margin Before Items (%) 7% 9% 16% 14% 12% Reconciliation of "Free Cash Flow" to Cash flow from operating activities Cash flow provided from (used for) operating activities ($) 57 306 244 185 792 (-) Additions to property, plant and equipment ($) (24) (18) (24) (40) (106) (=) Free Cash Flow ($) 33 288 220 145 686 Cash received from alternative fuel tax credits ($) 137 3 140 "Net Debt-to-Total Capitalization" Computation Bank indebtedness ($) 52 24 30 43 (+) Current portion of long-term debt ($) 18 13 13 11 (+) Long-term debt ($) 2,195 2,162 1,971 1,701 (equal) Debt ($) 2,265 2,199 2,014 1,755 (-) Cash and cash equivalents ($) (145) (381) (433) (324) (=) Net Debt ($) 2,120 1,818 1,581 1,431 (+) Shareholders' equity ($) 2,073 2,264 2,580 2,662 (=) Total capitalization ($) 4,193 4,082 4,161 4,093 Net debt ($) 2,120 1,818 1,581 1,431 (/) Total capitalization ($) 4,193 4,082 4,161 4,093 (=) Net Debt-to-Total Capitalization (%) 51% 45% 38% 35% ------- --------------------------------------- --------------------------------------- --------------------------------------- --------------------------------------- 2008 --------------------------------------- --------------------------------------- ------- Q1 Q2 Q3 Q4 YTD --------------------------------------- --------------------------------------- Reconciliation of "Earnings (Loss) Before Items" to Net earnings (loss) Net earnings (loss) ($) 36 24 43 (676) (573) (-) Alternative fuel tax credits ($) (-) (Gains) Losses on sale of property, plant and equipment ($) (+) Write-down of PP&E / Impairment of PP&E and intangible assets ($) 270 270 (+) Closure and restructuring costs ($) 1 7 2 18 28 (-) Gain on debt repurchase ($) (8) (8) (+) Impairment of goodwill ($) 321 321 (+) Valuation allowance on Canadian deferred income tax assets ($) 52 52 (+) Costs related to synergies, integration and optimization ($) 5 5 6 3 19 (-) Reversal of a provision for unfavorable contract ($) (17) (17) (-) Gain related to the sale of trademarks ($) (4) (4) (=) Earnings (Loss) Before Items ($) 25 32 51 (20) 88 (/) Weighted avg. number of common shares outstanding (diluted) (millions) 43.0 43.0 43.0 43.0 43.0 (=) Earnings (Loss) Before Items per diluted share ($) 0.58 0.74 1.19 (0.46) 2.05 Reconciliation of "EBITDA" and "EBITDA Before Items" to Net earnings (loss) Net earnings (loss) ($) 36 24 43 (676) (573) (+) Income tax expense (benefit) ($) 19 19 30 (65) 3 (+) Interest expense ($) 39 37 35 22 133 (=) Operating income (loss) ($) 94 80 108 (719) (437) (+) Depreciation and amortization ($) 116 118 119 110 463 (+) Write-down of PP&E / Impairment of goodwill, PP&E and intangible assets ($) 708 708 (equal) EBITDA ($) 210 198 227 99 734 (/) Sales ($) 1,665 1,639 1,625 1,465 6,394 (=) EBITDA Margin (%) 13% 12% 14% 7% 11% (-) Alternative fuel tax credits ($) (-) (Gains) Losses on sale of property, plant and equipment ($) (+) Closure and restructuring costs ($) 1 11 3 28 43 (-) Reversal of a provision for unfavorable contract ($) (23) (23) (+) Costs related to synergies, integration and optimization ($) 8 9 10 5 32 (-) Gain related to the sale of trademarks ($) (6) (6) (=) EBITDA Before Items ($) 196 212 240 132 780 (/) Sales ($) 1,665 1,639 1,625 1,465 6,394 (=) EBITDA Margin Before Items (%) 12% 13% 15% 9% 12% Reconciliation of "Free Cash Flow" to Cash flow from operating activities Cash flow provided from (used for) operating activities ($) 27 113 131 (74) 197 (-) Additions to property, plant and equipment ($) (29) (36) (49) (49) (163) (=) Free Cash Flow ($) (2) 77 82 (123) 34 Cash received from alternative fuel tax credits ($) "Net Debt-to-Total Capitalization" Computation Bank indebtedness ($) 86 38 36 43 (+) Current portion of long-term debt ($) 17 19 19 18 (+) Long-term debt ($) 2,155 2,122 2,118 2,110 (equal) Debt ($) 2,258 2,179 2,173 2,171 (-) Cash and cash equivalents ($) (57) (61) (127) (16) (=) Net Debt ($) 2,201 2,118 2,046 2,155 (+) Shareholders' equity ($) 3,172 3,217 3,194 2,143 (=) Total capitalization ($) 5,373 5,335 5,240 4,298 Net debt ($) 2,201 2,118 2,046 2,155 (/) Total capitalization ($) 5,373 5,335 5,240 4,298 (=) Net Debt-to-Total Capitalization (%) 41% 40% 39% 50% ------- --------------------------------------- --------------------------------------- </pre> <p/> <p>"Earnings (Loss) Before Items", "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.</p> <p/> <p/> <pre> Domtar Corporation Reconciliation of Non-GAAP Financial Measures - By Segment 2009 (In millions of dollars, unless otherwise noted) </pre> <p/> <p>The following table sets forth certain non-U.S. generally accepted accounting principles ("GAAP") financial metrics identified as "Operating Income (Loss) Before Items", "EBITDA Before Items" and "EBITDA Margin Before Items" by reportable segment. Management believes that the financial metrics presented are frequently used by investors and are useful to measure the operating performance and benchmark with peers within the industry. These metrics are presented as a complement to enhance the understanding of operating results but not in substitution for GAAP results.</p> <p>The company calculates the segmented "Operating Income (Loss) Before Items" by excluding the pre-tax effect of items considered by management as not typifying the segment Operating income (loss) reported under U.S. GAAP. Management uses these measures to focus on ongoing operations and believes that it is useful to investors because it enables them to perform meaningful comparisons between periods. Domtar believes that using this information along with Operating income (loss) provides for a more complete analysis of the results of operations. Operating income (loss) by segment is the most directly comparable GAAP measure.</p> <p/> <pre> --------------------------------------- --------------------------------------- Papers --------------------------------------- --------------------------------------- ------- Q1'09 Q2'09 Q3'09 Q4'09 YTD --------------------------------------- --------------------------------------- Reconciliation of Operating income to "Operating Income Before Items" Operating income (loss) ($) (6) 150 294 212 650 (-) Alternative fuel tax credits ($) (46) (131) (159) (162) (498) (+) Write-down of property, plant and equipment ($) 35 27 62 (+) Closure and restructuring costs ($) 22 4 4 22 52 (-) (Gains) Losses on sale of property, plant and equipment ($) (1) 5 4 (=) Operating Income (Loss) Before Items ($) 5 23 138 104 270 Reconciliation of "Operating Income Before Items" to "EBITDA Before Items" Operating Income (Loss) Before Items ($) 5 23 138 104 270 (+) Depreciation and amortization ($) 94 98 95 95 382 (=) EBITDA Before Items ($) 99 121 233 199 652 (/) Sales ($) 1,106 1,127 1,211 1,188 4,632 (=) EBITDA Margin Before Items (%) 9% 11% 19% 17% 14% ------- --------------------------------------- --------------------------------------- --------------------------------------- --------------------------------------- Paper Merchants --------------------------------------- --------------------------------------- ------- Q1'09 Q2'09 Q3'09 Q4'09 YTD --------------------------------------- --------------------------------------- Reconciliation of Operating income to "Operating Income Before Items" Operating income (loss) ($) 2 1 2 2 7 (-) Alternative fuel tax credits ($) (+) Write-down of property, plant and equipment ($) (+) Closure and restructuring costs ($) 1 1 2 (-) (Gains) Losses on sale of property, plant and equipment ($) (=) Operating Income (Loss) Before Items ($) 2 2 2 3 9 Reconciliation of "Operating Income Before Items" to "EBITDA Before Items" Operating Income (Loss) Before Items ($) 2 2 2 3 9 (+) Depreciation and amortization ($) 1 1 1 3 (=) EBITDA Before Items ($) 3 3 3 3 12 (/) Sales ($) 217 205 239 212 873 (=) EBITDA Margin Before Items (%) 1% 1% 1% 1% 1% ------- --------------------------------------- --------------------------------------- --------------------------------------- --------------------------------------- Wood --------------------------------------- --------------------------------------- ------- Q1'09 Q2'09 Q3'09 Q4'09 YTD --------------------------------------- --------------------------------------- Reconciliation of Operating income to "Operating Income Before Items" Operating income (loss) ($) (18) (12) (1) (11) (42) (-) Alternative fuel tax credits ($) (+) Write-down of property, plant and equipment ($) (+) Closure and restructuring costs ($) 2 1 6 9 (-) (Gains) Losses on sale of property, plant and equipment ($) (8) (8) (=) Operating Income (Loss) Before Items ($) (16) (11) (9) (5) (41) Reconciliation of "Operating Income Before Items" to "EBITDA Before Items" Operating Income (Loss) Before Items ($) (16) (11) (9) (5) (41) (+) Depreciation and amortization ($) 4 5 5 6 20 (=) EBITDA Before Items ($) (12) (6) (4) 1 (21) (/) Sales ($) 43 46 59 63 211 (=) EBITDA Margin Before Items (%) 2% ------- --------------------------------------- --------------------------------------- --------------------------------------- --------------------------------------- Corporate --------------------------------------- --------------------------------------- ------- Q1'09 Q2'09 Q3'09 Q4'09 YTD --------------------------------------- --------------------------------------- Reconciliation of Operating income to "Operating Income Before Items" Operating income (loss) ($) (-) Alternative fuel tax credits ($) (+) Write-down of property, plant and equipment ($) (+) Closure and restructuring costs ($) (-) (Gains) Losses on sale of property, plant and equipment ($) (3) (3) (=) Operating Income (Loss) Before Items ($) (3) (3) Reconciliation of "Operating Income Before Items" to "EBITDA Before Items" Operating Income (Loss) Before Items ($) (3) (3) (+) Depreciation and amortization ($) (=) EBITDA Before Items ($) (3) (3) (/) Sales ($) (=) EBITDA Margin Before Items (%) ------- --------------------------------------- --------------------------------------- </pre> <p/> <p>"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.</p> <p/> <p/> <pre> Domtar Corporation Reconciliation of Non-GAAP Financial Measures - By Segment 2008 (In millions of dollars, unless otherwise noted) </pre> <p/> <p>The following table sets forth certain non-U.S. generally accepted accounting principles ("GAAP") financial metrics identified as "Operating Income (Loss) Before Items", "EBITDA Before Items" and "EBITDA Margin Before Items" by reportable segment. Management believes that the financial metrics presented are frequently used by investors and are useful to measure the operating performance and benchmark with peers within the industry. These metrics are presented as a complement to enhance the understanding of operating results but not in substitution for GAAP results.</p> <p>The company calculates the segmented "Operating Income (Loss) Before Items" by excluding the pre-tax effect of items considered by management as not typifying the segment Operating income (loss) reported under U.S. GAAP. Management uses these measures to focus on ongoing operations and believes that it is useful to investors because it enables them to perform meaningful comparisons between periods. Domtar believes that using this information along with Operating income (loss) provides for a more complete analysis of the results of operations. Operating income (loss) by segment is the most directly comparable GAAP measure.</p> <p/> <pre> --------------------------------------- --------------------------------------- Papers --------------------------------------- --------------------------------------- ------- Q1'08 Q2'08 Q3'08 Q4'08 YTD --------------------------------------- --------------------------------------- Reconciliation of Operating income to "Operating Income Before Items" Operating income (loss) ($) 114 92 118 (693) (369) (+) Impairment and write-down of goodwill, PP&E and intangible assets ($) 694 694 (+) Closure and restructuring costs ($) 1 11 3 23 38 (+) Costs related to synergies, integration and optimization ($) 8 9 10 5 32 (-) Reversal of a provision for unfavorable contract ($) (23) (23) (-) Gain related to the sale of trademarks ($) (6) (6) (=) Operating Income (Loss) Before Items ($) 100 106 131 29 366 Reconciliation of "Operating Income Before Items" to "EBITDA Before Items" Operating Income (Loss) Before Items ($) 100 106 131 29 366 (+) Depreciation and amortization ($) 110 110 111 104 435 (=) EBITDA Before Items ($) 210 216 242 133 801 (/) Sales ($) 1,429 1,407 1,364 1,240 5,440 (=) EBITDA Margin Before Items (%) 15% 15% 18% 11% 15% ------- --------------------------------------- --------------------------------------- --------------------------------------- --------------------------------------- Paper Merchants --------------------------------------- --------------------------------------- ------- Q1'08 Q2'08 Q3'08 Q4'08 YTD --------------------------------------- --------------------------------------- Reconciliation of Operating income to "Operating Income Before Items" Operating income (loss) ($) 3 2 1 2 8 (+) Impairment and write-down of goodwill, PP&E and intangible assets ($) (+) Closure and restructuring costs ($) (+) Costs related to synergies, integration and optimization ($) (-) Reversal of a provision for unfavorable contract ($) (-) Gain related to the sale of trademarks ($) (=) Operating Income (Loss) Before Items ($) 3 2 1 2 8 Reconciliation of "Operating Income Before Items" to "EBITDA Before Items" Operating Income (Loss) Before Items ($) 3 2 1 2 8 (+) Depreciation and amortization ($) 1 1 1 3 (=) EBITDA Before Items ($) 3 3 2 3 11 (/) Sales ($) 262 243 257 228 990 (=) EBITDA Margin Before Items (%) 1% 1% 1% 1% 1% ------- --------------------------------------- --------------------------------------- --------------------------------------- --------------------------------------- Wood --------------------------------------- --------------------------------------- ------- Q1'08 Q2'08 Q3'08 Q4'08 YTD --------------------------------------- --------------------------------------- Reconciliation of Operating income to "Operating Income Before Items" Operating income (loss) ($) (22) (12) (11) (28) (73) (+) Impairment and write-down of goodwill, PP&E and intangible assets ($) 14 14 (+) Closure and restructuring costs ($) 5 5 (+) Costs related to synergies, integration and optimization ($) (-) Reversal of a provision for unfavorable contract ($) (-) Gain related to the sale of trademarks ($) (=) Operating Income (Loss) Before Items ($) (22) (12) (11) (9) (54) Reconciliation of "Operating Income Before Items" to "EBITDA Before Items" Operating Income (Loss) Before Items ($) (22) (12) (11) (9) (54) (+) Depreciation and amortization ($) 6 7 7 5 25 (=) EBITDA Before Items ($) (16) (5) (4) (4) (29) (/) Sales ($) 63 70 76 59 268 (=) EBITDA Margin Before Items (%) ------- --------------------------------------- --------------------------------------- --------------------------------------- --------------------------------------- Corporate --------------------------------------- --------------------------------------- ------- Q1'08 Q2'08 Q3'08 Q4'08 YTD --------------------------------------- --------------------------------------- Reconciliation of Operating income to "Operating Income Before Items" Operating income (loss) ($) (1) (2) (3) (+) Impairment and write-down of goodwill, PP&E and intangible assets ($) (+) Closure and restructuring costs ($) (+) Costs related to synergies, integration and optimization ($) (-) Reversal of a provision for unfavorable contract ($) (-) Gain related to the sale of trademarks ($) (=) Operating Income (Loss) Before Items ($) (1) (2) (3) Reconciliation of "Operating Income Before Items" to "EBITDA Before Items" Operating Income (Loss) Before Items ($) (1) (2) (3) (+) Depreciation and amortization ($) (=) EBITDA Before Items ($) (1) (2) (3) (/) Sales ($) (=) EBITDA Margin Before Items (%) ------- --------------------------------------- --------------------------------------- </pre> <p/> <p>"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.</p> <p/> <p/> <pre> Domtar Corporation Supplemental Segmented Information (In millions of dollars, unless otherwise noted) --------------------------------------- --------------------------------------- 2009 --------------------------------------- --------------------------------------- ------- Q1 Q2 Q3 Q4 YTD --------------------------------------- --------------------------------------- Papers Segment Sales ($) 1,106 1,127 1,211 1,188 4,632 Intersegment sales - Papers ($) (60) (55) (63) (53) (231) Operating income (loss) ($) (6) 150 294 212 650 Depreciation & amortization ($) 94 98 95 95 382 Impairment and write-down of goodwill and PP&E ($) 35 27 62 Papers Papers Production ('000 ST) 869 912 920 903 3,604 Papers Shipments ('000 ST) 913 929 972 943 3,757 Uncoated freesheet ('000 ST) 887 901 939 890 3,617 Coated groundwood ('000 ST) 26 28 33 53 140 Pulp Pulp Shipments(a) ('000 ADMT) 314 393 446 386 1,539 Hardwood Kraft Pulp (%) 33% 33% 40% 35% 36% Softwood Kraft Pulp (%) 54% 54% 49% 54% 52% Fluff Pulp (%) 13% 13% 11% 11% 12% Paper Merchants Segment Sales ($) 217 205 239 212 873 Operating income ($) 2 1 2 2 7 Depreciation & amortization ($) 1 1 1 3 Wood Segment Sales ($) 43 46 59 63 211 Intersegment sales - Wood ($) (4) (4) (6) (6) (20) Operating loss ($) (18) (12) (1) (11) (42) Depreciation & amortization ($) 4 5 5 6 20 Impairment of goodwill, PP&E and intangible assets ($) Lumber Production (Millions FBM) 121 131 147 161 560 Lumber Shipments (Millions FBM) 125 135 153 161 574 Average Exchange Rates CAN 1.245 1.167 1.097 1.056 1.142 US 0.803 0.857 0.911 0.947 0.876 ------- --------------------------------------- --------------------------------------- --------------------------------------- --------------------------------------- 2008 --------------------------------------- --------------------------------------- ------- Q1 Q2 Q3 Q4 YTD --------------------------------------- --------------------------------------- Papers Segment Sales ($) 1,429 1,407 1,364 1,240 5,440 Intersegment sales - Papers ($) (83) (73) (64) (56) (276) Operating income (loss) ($) 114 92 118 (693) (369) Depreciation & amortization ($) 110 110 111 104 435 Impairment and write-down of goodwill and PP&E ($) 694 694 Papers Papers Production ('000 ST) 1,173 1,146 1,115 951 4,385 Papers Shipments ('000 ST) 1,205 1,137 1,079 985 4,406 Uncoated freesheet ('000 ST) 1,149 1,096 1,044 952 4,241 Coated groundwood ('000 ST) 56 41 35 33 165 Pulp Pulp Shipments(a) ('000 ADMT) 347 347 325 353 1,372 Hardwood Kraft Pulp (%) 44% 43% 41% 37% 41% Softwood Kraft Pulp (%) 47% 46% 47% 50% 48% Fluff Pulp (%) 9% 11% 12% 13% 11% Paper Merchants Segment Sales ($) 262 243 257 228 990 Operating income ($) 3 2 1 2 8 Depreciation & amortization ($) 1 1 1 3 Wood Segment Sales ($) 63 70 76 59 268 Intersegment sales - Wood ($) (6) (8) (8) (6) (28) Operating loss ($) (22) (12) (11) (28) (73) Depreciation & amortization ($) 6 7 7 5 25 Impairment of goodwill, PP&E and intangible assets ($) 14 14 Lumber Production (Millions FBM) 168 155 163 181 667 Lumber Shipments (Millions FBM) 160 181 178 158 677 Average Exchange Rates CAN 1.004 1.010 1.042 1.212 1.067 US 0.996 0.990 0.960 0.825 0.937 ------- --------------------------------------- --------------------------------------- (a) Figures are gross of market pulp purchased from other producers on the open market for some of our paper making operations. Pulp shipments represents the amount of pulp produced in excess of our internal requirement. Note: the term "ST" refers to a short ton, the term "ADMT" refers to an air dry metric ton, and the term "FBM" refers to foot board measure.
For further information: Media and Investor Relations: Pascal Bossé, Vice-President, Corporate Communications and Investor Relations, (514) 848-5938
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