Domtar Reports 2nd Quarter Loss on Pulp Mill Maintenance Downtime

July 25, 2013 - Domtar Corporation 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 1st 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.

1Non-GAAP financial measure.

Domtar Corporation 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. 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 9,800 people. To learn more, visit www.domtar.com.

SOURCE: Domtar Corp.