Domtar Corporation reports preliminary first quarter 2014 financial results

First quarter financial performance impacted by adverse weather conditions
(All financial information is in U.S. dollars, and all earnings per share results are diluted, unless otherwise noted.)

• First quarter 2014 net earnings of $1.20 per share, earnings before items¹ of $1.29 per share
• Implemented price increases for pulp and a wide range of paper products
• Weather-related issues led to additional costs of $22 million
  

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

MONTREAL, April 24, 2014 /PRNewswire/ - Domtar Corporation (NYSE: UFS) (TSX: UFS) today reported net earnings of $39 million ($1.20 per share) for the first quarter of 2014 compared to net earnings of $65 million ($2.00 per share) for the fourth quarter of 2013 and net earnings of $45 million ($1.29 per share) for the first quarter of 2013. Sales for the first quarter of 2014 were $1,394 million.

Excluding items listed below, the Company had earnings before items¹ of $42 million ($1.29 per share) for the first quarter of 2014 compared to earnings before items¹ of $68 million ($2.09 per share) for the fourth quarter of 2013 and earnings before items¹ of $33 million ($0.95 per share) for the first quarter of 2013.

First quarter 2014 items:

• Closure and restructuring costs of $1 million ($1 million after tax); and
• Negative impact of purchase accounting of $3 million ($2 million after tax).

Fourth quarter 2013 items:

• Net gain on sale of property, plant and equipment and business of $5 million ($4 million after tax); and
• Charge of $7 million ($7 million after tax) for impairment 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).

Commenting on the first quarter results, John D. Williams, President and Chief Executive Officer, said, "Severe winter weather across much of the eastern part of North America negatively impacted some of our pulp and paper operations. In particular, our mills experienced greater than normal energy and fiber costs and reduced productivity. Nonetheless, we benefited from higher pulp and paper prices with the successful implementation of price increases."

Mr. Williams added, "The integration of Indas is progressing well and the business performed in line with our expectations in the first quarter. I am pleased with the progress made so far in our Personal Care division, despite some erosion of sales in our baby diaper business. We are well underway with our adult incontinence organic growth plan and our teams are moving fast in the deployment of new machinery to begin manufacturing product-for-sale by the end of the fourth quarter. We are bringing new production online to provide the capacity and the product mix required to better serve our targeted customers."

QUARTERLY REVIEW

Operating income before items¹ was $83 million in the first quarter of 2014 compared to an operating income before items¹ of $95 million in the fourth quarter of 2013. Depreciation and amortization totaled $99 million in the first quarter of 2014.

The decrease in operating income before items¹ in the first quarter of 2014 was the result of higher fiber, energy and other costs, lower volumes for pulp and paper and higher selling, general and administrative expenses. These factors were partially offset by higher average selling prices for paper and pulp, the addition of Indas and a favorable exchange rate.

When compared to the fourth quarter of 2013, manufactured paper shipments decreased 1.6% and pulp shipments decreased 15.6%. The shipments-to-production ratio for paper was 100% in the first quarter of 2014, compared to 100% in the fourth quarter of 2013. Paper inventories decreased by 4,000 tons while pulp inventories increased by 13,000 metric tons at the end of March compared to December levels.

LIQUIDITY AND CAPITAL

Cash flow provided from operating activities amounted to $141 million and capital expenditures were $45 million, resulting in free cash flow¹ of $96 million for the first quarter of 2014. Following the completion of our acquisition of Indas on January 2, 2014, Domtar's net debt-to-total capitalization ratio¹ stood at 33% at March 31, 2014 compared to 24% at December 31, 2013.

OUTLOOK

Price realizations in paper are expected to further improve from the first quarter as a result of recently announced price increases while our volumes are expected to remain relatively stable and input costs are expected to return to more normal levels for the remainder of the year. The second quarter is expected to be affected by seasonally higher maintenance activity. Personal Care will continue to benefit from the recent acquisition of Indas and the addition of the new production lines towards the end of the year.

EARNINGS CONFERENCE CALL

The Company will hold a conference call today at 10:00 a.m. (ET) to discuss its first quarter 2014 financial results. Financial analysts are invited to participate in the call by dialing 1 (866) 321-8231 (toll free - North America) or 1 (416) 642-5213 (International) at least 10 minutes before start time, 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 5674179 until May 8, 2014.

The Company will hold its 2014 Annual Meeting of Stockholders on Wednesday, April 30, 2014 at 9:00 a.m. (ET) at the Montreal Museum of Fine Arts, Claire and Marc Bourgie Pavilion, 1339 Sherbrooke Street West, Montreal, Quebec. The Company will release its second quarter 2014 earnings on July 24, 2014 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 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 broad line of incontinence care products marketed primarily under the Attends®, IncoPack and Indasec® brand names as well as baby diapers. In 2013, Domtar had sales of US$5.4 billion from some 50 countries. The Company employs approximately 10,000 people. To learn more, visit www.domtar.com.

Forward-Looking Statements
Statements in this release about our plans, expectations and future performance, including the statements by Mr. Williams and those contained under "Outlook," are "forward-looking statements." Actual results may differ materially from those suggested by these statements for a number of reasons, including changes in customer demand and pricing, changes in manufacturing costs, future acquisitions and divestitures, including facility closings, and the other reasons identified under "Risk Factors" in our Form 10-K for 2013 as filed with the SEC and as updated by subsequently filed Form 10-Q's. Except to the extent required by law, we expressly disclaim any obligation to update or revise these forward-looking statements to reflect new events or circumstances or otherwise.

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

Domtar Corporation
Highlights
(In millions of dollars, unless otherwise noted)

Domtar Corporation
Consolidated Statements of Earnings
(In millions of dollars, unless otherwise noted)

Domtar Corporation
Consolidated Balance Sheets at
(In millions of dollars)

Domtar Corporation
Consolidated Statements of Cash Flows
(In millions of dollars)

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 2014
(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.

Domtar Corporation
Quarterly Reconciliation of Non-GAAP Financial Measures - By Segment 2013
(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.

Domtar Corporation
Supplemental Segmented Information
(In millions of dollars, unless otherwise noted)

SOURCE Domtar Corporation

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