Domtar Reports 1st Quarter Profit on Strong Paper Shipments

April 28, 2011 - Domtar Corporation today reported net earnings of $133 million ($3.14 per share) for the first quarter of 2011 compared to net earnings of $325 million ($7.59 per share) for the fourth quarter of 2010 and net earnings of $58 million ($1.34 per share) for the first quarter of 2010. Sales for the first quarter of 2011 amounted to $1.4 billion.

Excluding items listed below, the Company had earnings before items1 of $138 million ($3.25 per share) for the first quarter of 2011 compared to earnings before items1 of $103 million ($2.41 per share) for the fourth quarter of 2010 and earnings before items1 of $69 million ($1.59 per share) for the first quarter of 2010.

First quarter 2011 items:

  • Closure and restructuring costs of $11 million ($8 million after tax);
  • Gain on the sale of property, plant and equipment and business of $7 million ($5 million after tax); and
  • Charge of $3 million ($2 million after tax) related to the impairment and write-down of property, plant and equipment.
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).
First quarter 2010 items:
  • Refundable excise tax credit for the production and use of alternative bio fuel mixtures of $25 million ($18 million after tax);
  • Charge of $22 million ($16 million after tax) related to the impairment and write-down of property, plant and equipment;
  • Closure and restructuring costs of $20 million ($14 million after tax); and
  • Gain on sale of property, plant and equipment of $1 million ($1 million after tax).

"Our operations ran well in the first quarter and we were able to overcome the production related issues that affected our fourth quarter 2010 financial results. We experienced strong paper shipments and continued momentum in pulp markets while keeping our costs under control. The implementation of the recently announced price increases in pulp and for numerous paper grades will help offset the inflation in input costs stemming from rising global materials prices," said John D. Williams, President and Chief Executive Officer.

Commenting on capital allocation, Mr. Williams said, "We also resumed our stock repurchase activity in the first quarter and in doing so, we have returned $80 million to shareholders through the combination of stock buyback and regular dividend. Stock repurchases continue to be our preferred method to returning capital to shareholders."

QUARTERLY REVIEW

Operating income before items1 was $218 million in the first quarter of 2011 compared to an operating income before items1 of $156 million in the fourth quarter of 2010. Depreciation and amortization totaled $93 million in the first quarter of 2011. When compared to the fourth quarter of 2010, paper shipments increased 7% while pulp shipments remained stable. The shipments-to-production ratio for paper was 102% in the first quarter of 2011, compared to 97% in the fourth quarter of 2010. Paper inventories declined by 13,000 tons while pulp inventories increased by 3,000 metric tons as at the end of March, compared to year-end levels. Paper deliveries of Ariva™, Domtar's paper merchants business, increased 1% when compared to the fourth quarter of 2010.

The increase in operating income before items1 in the first quarter of 2011 was the result of higher paper shipments, higher average selling prices in pulp and lower maintenance costs. These factors were partially offset by higher unit costs for chemicals, lower average selling prices in paper and the negative impact of a strong Canadian dollar including hedging.

LIQUIDITY AND CAPITAL

Cash flow provided from operating activities amounted to $148 million and capital expenditures amounted to $13 million, resulting in free cash flow1 of $135 million in the first quarter of 2011. Domtar's net debt-to-total capitalization ratio1 stood at 7% at March 31, 2011 compared to 9% at December 31, 2010.

Under its stock repurchase program, Domtar repurchased 789,957 shares of common stock at an average price of $87.79 during the first quarter of 2011. Since the implementation of the program, the Company has repurchased a total of 1,528,004 shares of common stock at an average price of $74.35.

OUTLOOK

Paper shipments are expected to decline moderately throughout 2011. The announced closure of a paper machine at our Ashdown, Arkansas mill will help balance our production to our customer demand. Rising commodity and energy prices are expected to put pressure on some of our input costs in 2011 however we are expected to benefit from our recently announced price increases for softwood pulp and for commercial printing and converting papers. We will continue to manage our business conservatively, looking to grow profitably and to create sustainable long-term shareholder value.

Domtar Corporation 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 Ariva, an extensive network of strategically located paper distribution facilities.

1 Non-GAAP financial measure.

SOURCE: Domtar Corp.