Domtar Corporation reports preliminary first quarter 2012 financial results

Trough pulp prices and higher costs affect first quarter results
(All financial information is in U.S. dollars, and all earnings per share results are diluted, unless otherwise noted.)

• First quarter 2012 net earnings of $0.76 per share, earnings before items¹ of $1.65 per share
• Signed an historic 15-year supply agreement with Appleton Papers
• Acquired Attends Healthcare Limited ("Attends Europe")

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

MONTREAL, April 26, 2012 /PRNewswire/ - Domtar Corporation (NYSE: UFS) (TSX: UFS) today reported net earnings of $28 million ($0.76 per share) for the first quarter of 2012 compared to net earnings of $61 million ($1.63 per share) for the fourth quarter of 2011 and net earnings of $133 million ($3.14 per share) for the first quarter of 2011. Sales for the first quarter of 2012 amounted to $1.4 billion.

Excluding items listed below, the Company had earnings before items¹ of $61 million ($1.65 per share) for the first quarter of 2012 compared to earnings before items¹ of $93 million ($2.49 per share) for the fourth quarter of 2011 and earnings before items¹ of $138 million ($3.25 per share) for the first quarter of 2011.

First quarter 2012 items:

• Premium paid and costs related to the debt repurchase of $50 million ($30 million after tax);
• Closure and restructuring costs, including write-down of property, plant and equipment, of $3 million ($2 million after tax); and
• Negative impact of purchase accounting of $1 million ($1 million after tax).

Fourth quarter 2011 items:

• Closure and restructuring costs of $38 million ($23 million after tax), mostly related to the restructuring of certain U.S. pension benefit plans; and
• Charge of $12 million ($9 million after tax) related to the impairment and write-down of property, plant and equipment.

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.

"Our businesses performed well in the quarter, but cyclically low prices in global pulp markets and higher costs affected results," said John D. Williams, President and Chief Executive Officer. "On strategy, we announced and completed the acquisition of Attends Europe further expanding our Personal Care segment and we announced an innovative 15-year supply agreement with Appleton Papers that will result in the conversion of high volume communication paper capacity to specialty paper grades, securing a growing business long-term."

QUARTERLY REVIEW

Operating income before items¹ was $113 million in the first quarter of 2012 compared to an operating income before items¹ of $148 million in the fourth quarter of 2011. Depreciation and amortization totaled $97 million in the first quarter of 2012.

The decrease in operating income before items¹ in the first quarter of 2012 was the result of lower selling prices for paper and pulp, higher input costs, transaction costs and the negative impact of a stronger Canadian dollar. These factors were partially offset by higher shipments for papers and lower maintenance costs.

When compared to the fourth quarter of 2011, paper shipments increased 4.7% and pulp shipments decreased 3.5%. Paper deliveries of Ariva^TM increased 5.1% when compared to the fourth quarter of 2011. The shipments-to-production ratio for paper was 100% in the first quarter of 2012, compared to 95% in the fourth quarter of 2011. Paper inventories decreased by 1,000 tons while pulp inventories decreased by 26,000 metric tons as at the end of March, compared to December levels.

LIQUIDITY AND CAPITAL

Cash flow provided from operating activities amounted to $30 million and capital expenditures amounted to $29 million, resulting in free cash flow¹ of $1 million for the first quarter of 2012. Domtar's net debt-to-total capitalization ratio¹ stood at 18% at March 31, 2012 compared to 12% at December 31, 2011.

In the first quarter of 2012, Domtar paid $47 million in premiums in relation to the completion of a tender offer for certain outstanding Notes.  Excluding these premiums, free cash flow was $48 million for the period ended March 31, 2012.

OUTLOOK

Price realizations in pulp are expected to improve from trough first quarter prices as a result of recently announced price increases. In paper, both volumes and prices are expected to positively impact results due to new business in specialty and packaging papers and price increases in the process of being implemented. The second quarter will be affected by the usual seasonal higher maintenance activity.

EARNINGS CONFERENCE CALL

The Company will hold a conference call today at 10:00 a.m. (ET) to discuss its first quarter 2012 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.

The Company will release its second quarter 2012 earnings on July 27, 2012 before markets open, followed by a conference call at 10:00 a.m. (ET) to discuss results. The date is tentative and will be confirmed approximately three weeks prior to the official earnings release date.

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 adult incontinence 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. Domtar owns and operates ArivaTM, an extensive network of strategically located paper and printing supplies distribution facilities. In 2011, Domtar had sales of US$5.6 billion from nearly 50 countries. The Company employs approximately 9,100 people. To learn more, visit www.domtar.com.

Forward-Looking Statements
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.

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

Domtar Corporation
Quarterly Reconciliation of Non-GAAP Financial Measures
(In millions of dollars, unless otherwise noted)

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.

Domtar Corporation
Quarterly Reconciliation of Non-GAAP Financial Measures - By Segment 2012
(In millions of dollars, unless otherwise noted)

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.

⁽¹⁾ On March 1, 2012, the Company acquired 100% of the shares of Attends Healthcare Limited. 

Domtar Corporation
Quarterly Reconciliation of Non-GAAP Financial Measures - By Segment 2011
(In millions of dollars, unless otherwise noted)


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.

⁽¹⁾ On September 1, 2011, the Company acquired 100% of the shares of Attends Healthcare, Inc.

SOURCE DOMTAR CORPORATION