Domtar Corporation reports preliminary second quarter 2013 financial results

Earnings affected by higher planned maintenance costs and lower productivity in pulp
(All financial information is in U.S. dollars, and all earnings per share results are diluted, unless otherwise noted.)

• Second quarter 2013 net loss of $1.38 per share, earnings before items¹ of $0.48 per share
• EBITDA before items¹ of $135 million in the second quarter
• Share buyback totaled $100 million in the second quarter of 2013
• Completed the acquisition of AHP, the leading manufacturer of store brand baby diapers in the United States, on July 1^st, 2013

TICKER SYMBOL
(NYSE: UFS) (TSX: UFS)

MONTREAL, July 25, 2013 /PRNewswire/ - Domtar Corporation (NYSE: UFS) (TSX: UFS) today reported a net loss of $46 million ($1.38 per share) for the second quarter of 2013 compared to net earnings of $45 million ($1.29 per share) for the first quarter of 2013 and net earnings of $59 million ($1.61 per share) for the second quarter of 2012. Sales for the second quarter of 2013 amounted to $1,312 million.

Excluding items listed below, the Company had earnings before items¹ of $16 million ($0.48 per share) for the second quarter of 2013 compared to earnings before items¹ of $33 million ($0.95 per share) for the first quarter of 2013.

Second quarter 2013 items:

• Litigation settlement of $49 million ( $46 million after tax);
  
  
• Closure and restructuring charges of $18 million ($13 million after tax); and
  
  
• Charge of $5 million ($3 million after tax) related to the impairment and write-down of property, plant and equipment.

First quarter 2013 items:

• Conversion of $26 million ($18 million after tax) of alternative fuel tax credits into cellulosic biofuel producer income tax credits of $55 million ($33 million after tax) resulting in a net gain after tax of $15 million;
  
  
• Charge of $10 million ($7 million after tax) related to the impairment and write-down of property, plant and equipment;
  
  
• Gain on the sale of property, plant and equipment of $10 million ($6 million after tax); and
  
  
• Premium paid and costs related to the debt repurchase of $3 million ($2 million after tax), included in interest expense.

"Our productivity improved in our paper business in the second quarter when compared to the first quarter," said John D. Williams, President and Chief Executive Officer. "In pulp however, we had the busiest maintenance quarter on record with 10 of our 12 pulp mills taking shutdowns. Operational challenges during the start-up phase affected our costs but our mills are now running well and we are confident that those issues are behind us."

On Personal Care, John D. Williams added, "I am pleased with the acquisition of AHP. This will give us stronger access to the retail market for our adult incontinence products and synergies to the bottom line. Raw material costs had a negative impact on the segment's profitability in the quarter, but the business remains well on track."

QUARTERLY REVIEW

Operating income before items¹ was $42 million in the second quarter of 2013 compared to an operating income before items¹ of $75 million in the first quarter of 2013. Depreciation and amortization totaled $93 million in the second quarter of 2013.

The decrease in operating income before items¹ in the second quarter of 2013 was the result of higher costs for planned maintenance shutdowns, lower productivity for pulp, lower volumes for pulp and for paper, higher freight costs and higher selling, general and administrative expenses. These factors were partially offset by higher average selling prices for pulp and overall favorable exchange rates.

When compared to the first quarter of 2013, paper shipments declined 3.3% and pulp shipments declined 7.5%. The shipments-to-production ratio for paper was 96% in the second quarter of 2013, compared to 104% in the first quarter of 2013. Paper inventories increased by 37,000 tons while pulp inventories declined by 26,000 metric tons at the end of June, compared to March levels.

LIQUIDITY AND CAPITAL

Cash flow provided from operating activities amounted to $183 million and capital expenditures amounted to $118 million, resulting in free cash flow¹ of $65 million for the first six months of 2013. Domtar's net debt-to-total capitalization ratio¹ stood at 20% at June 30, 2013 compared to 16% at December 31, 2012.

Domtar returned a total of $178 million to its shareholders through a combination of dividend and share buybacks in the first six months of 2013. Under its stock repurchase program, Domtar repurchased a total of 1,370,676 shares of common stock at an average price of $72.87 in the second quarter of 2013, and a total of 10,637,179 shares of common stock at an average price of $78.97 since the implementation of the program in May 2010. At the end of the second quarter of 2013, Domtar had $158 million remaining under the current authorization.

OUTLOOK

Earnings from pulp are expected to benefit from lower planned maintenance costs, higher productivity and higher sales volumes. The completion of the AHP acquisition on July 1^st will be accretive to the Personal Care segment's earnings in the third quarter. Input costs are expected to stay relatively stable for the second half of 2013.

EARNINGS CONFERENCE CALL

The Company will hold a conference call today at 10:00 a.m. (ET) to discuss its second quarter 2013 financial results. Financial analysts are invited to participate in the call by dialing at least 10 minutes before start time 1 (866) 321-8231 (toll free - North America) or 1 (416) 642-5213 (International), while media and other interested individuals are invited to listen to the live webcast on the Domtar Corporation website at www.domtar.com.

A replay will be available by dialing 1 (888) 203-1112 (North America) or 1 (647) 436-0148 (International) using access code 5591030 until August 8, 2013.

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About Domtar
Domtar Corporation (NYSE: UFS) (TSX: UFS) designs, manufactures, markets and distributes a wide variety of fiber-based products including communication papers, specialty and packaging papers and absorbent hygiene products. The foundation of its business is a network of world class wood fiber converting assets that produce papergrade, fluff and specialty pulps. The majority of its pulp production is consumed internally to manufacture paper and consumer products. Domtar is the largest integrated marketer of uncoated freesheet paper in North America with recognized brands such as Cougar^®, Lynx^® Opaque Ultra, Husky^® Opaque Offset, First Choice^® and Domtar EarthChoice^®. Domtar is also a leading marketer and producer of a complete line of incontinence care products marketed primarily under the Attends^® brand name as well as baby diapers. Domtar owns and operates Ariva^®, a network of strategically located paper and printing supplies distribution facilities. In 2012, Domtar had sales of US$5.5 billion from some 50 countries. The Company employs approximately 9,900 people. To learn more, visit www.domtar.com.

Forward-Looking Statements
All statements in this news release that are not based on historical fact, including the statements contained under "Outlook", 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.

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1}  Non-GAAP financial measure. Refer to the Reconciliation of Non-GAAP Financial Measures in the appendix.

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 presented are frequently used by investors and are useful to evaluate our ability to service debt and our 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.

The Company calculates "Earnings before items" and "EBITDA before items" by excluding the after-tax (pre-tax) effect of items considered by management as not reflecting our current operations. 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 provides for a more complete analysis of the results of operations. Net earnings and Cash flow provided from operating activities are the most directly comparable GAAP measures.

"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, Operating income 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. 

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 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.

The Company calculates the segmented "Operating income (loss) before items" by excluding the pre-tax effect of items considered by management as not reflecting our ongoing operations.
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.

"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.

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 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.

The Company calculates the segmented "Operating income (loss) before items" by excluding the pre-tax effect of items considered by management as not reflecting our ongoing operations.
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.

"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.

SOURCE Domtar Corporation

Image with caption: "AHP manufacturing facility, Delaware, Ohio (CNW Group/Domtar Corporation)". Image available at: http://photos.newswire.ca/images/download/20130725_C8921_PHOTO_EN_29258.jpg

Image with caption: "John D. Williams, President and CEO, Domtar Corporation (CNW Group/Domtar Corporation)". Image available at: http://photos.newswire.ca/images/download/20130725_C8921_PHOTO_EN_29262.jpg

Image with caption: "Domtar pulp bales (CNW Group/Domtar Corporation)". Image available at: http://photos.newswire.ca/images/download/20130725_C8921_PHOTO_EN_29260.jpg