Domtar Posts First Quarter Loss
May 1, 2009 - Domtar Corp today reported a net loss of $45 million ($0.09 per share) for the first quarter of 2009 compared to a net loss of $676 million ($1.31 per share) for the fourth quarter of 2008 and net earnings of $36 million ($0.07 per share) for the first quarter of 2008. Sales for the first quarter of 2009 amounted to $1.3 billion. Excluding items(1) listed below, the Company lost $38 million ($0.07 per share(1)) for the first quarter of 2009 compared to a loss of $20 million ($0.04 per share(1)) for the fourth quarter of 2008 and earnings of $25 million ($0.05 per share(1)) for the first quarter of 2008.
First quarter 2009:
- Refundable excise tax credit for the production and use of alternative
bio fuel mixtures of $46 million ($28 million after tax);
- Charge of $35 million ($21 million after tax) related to the write-down
of property, plant and equipment at the Plymouth, North Carolina, mill;
- Closure and restructuring costs of $24 million ($14 million after tax).
Fourth quarter 2008:
- Charge of $387 million ($270 million after tax) related to the
impairment and write-down of property, plant and equipment and
- 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
First quarter 2008:
- Reversal of a $23 million provision ($17 million after tax) due to the
early termination of an unfavorable contract by the counterparty;
- Costs of $8 million ($5 million after tax) related to synergies and
- Closure and restructuring costs of $1 million ($1 million after tax).
"We continue to face a very hostile environment in pulp with prices
reaching cyclical lows. To bring our system back in balance we have announced
the indefinite closure of our Woodland pulp mill and idled our Dryden pulp
mill for ten weeks," said John D. Williams, President and Chief Executive
"Our people have responded remarkably well to the mandate of
right-sizing the organization, improving its operating performance and
reducing procurement costs and discretionary spending. We have generated free
cash flow and our paper inventories have been significantly reduced despite a
very weak demand environment. This could prove to be a catalyst as demand for
fine paper levels off," added Williams.
Operating income before items(1) was $5 million in the first quarter of
2009 compared to operating income before items(1) of $29 million in the fourth
quarter of 2008. Depreciation and amortization totaled $94 million in the
first quarter of 2009. When compared to the fourth quarter of 2008, paper
shipments decreased 7% while pulp shipments decreased 11%. The
shipments-to-production ratio for papers was 105% in the first quarter of
2009, compared to 104% in the fourth quarter of 2008. Paper inventories were
43,000 tons lower at the end of March when compared to year-end levels.
The decrease in operating income before items(1) in the first quarter of
2009 was the result of lower average selling prices for pulp and a resulting
higher inventory revaluation charge for pulp, lower paper and pulp shipments,
higher usage for energy and higher costs for chemicals. These factors were
partially offset by lower maintenance costs, lower freight costs, lower
depreciation and amortization, lower energy and fiber costs and a favorable
exchange rate including hedging.
Operating income was $2 million in the first quarter of 2009 unchanged
from the fourth quarter of 2008. Depreciation and amortization was $1 million
in the first quarter of 2009. Deliveries decreased 1% when compared to the
fourth quarter. Lower selling prices and a decrease in deliveries were offset
by lower costs.
Operating loss before items(1) was $16 million in the first quarter of
2009, compared to operating loss before items(1) of $9 million in the fourth
quarter of 2008. Depreciation and amortization totaled $4 million in the first
quarter of 2009. When compared to the fourth quarter of 2008, lumber shipments
The increase in operating loss before items(1) in the first quarter of
2009 was primarily the result of lower average selling prices, an increase in
bad debt expense, and higher energy costs. These were partially offset by a
favorable exchange rate including hedging.
LIQUIDITY AND CAPITAL
Cash flow provided from operating activities amounted to $57 million and
free cash flow(1) amounted to $33 million in the first quarter of 2009.
Domtar's net debt-to-total capitalization ratio(1) stood at 51% at March 31,
2009 compared to 50% at December 31, 2008. Amounts drawn on the receivables
securitization program were reduced by $15 million when compared to year-end
levels to $95 million.
ALTERNATIVE FUEL CREDITS
The U.S. Internal Revenue Code permits a refundable excise tax credit for
the production and use of alternative bio fuel mixtures. Domtar submitted an
application with the U.S. Internal Revenue Service to be registered as an
alternative fuel mixer and received notification that its registration had
been accepted in late March 2009. The Company began producing and consuming
alternative fuel mixtures in February 2009 at its eligible mills. In the first
quarter of 2009, the Company has recorded $46 million in "Other operating
(income) expense" related to claims filed for the period ending March 31,
2009. The claims for the refundable credits are based on the volume of bio
fuel mixtures produced and burned during that period. The $46 million credit
represents approximately 40% of the estimated future eligible alternative fuel
tax credits available to the Company each quarter.
According to the Code, the tax credit expires at the end of 2009. The U.S.
Congress is currently reviewing the Alternative Fuel Credit law and may enact
legislation to amend the Code. Although this does create some uncertainty
related to the future of this credit, the Company believes that amounts
reflected in income to date have met the revenue recognition criteria.
Market conditions in all Domtar businesses remain challenging, although
the rapid decline of paper volumes in recent months has been abating.
transaction prices have been stabilizing in some overseas markets but
inventories are still high.
Domtar will continue to manage its working capital
requirements through inventory control and the balancing of production to meet
customer demand. The indefinite closure of the Woodland pulp mill will help
lower inventories and, in combination with the permanent closure of a paper
machine at the Plymouth pulp and paper mill, will contribute to reducing fixed
costs in the Papers segment starting in the second quarter.
(1) Non-GAAP financial measure. Refer to the Reconciliation of Non-GAAP Financial Measures in the appendix.
Domtar Corp 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.
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 nearly 11,000 people.
SOURCE: Domtar Corp.