Domtar Corporation reports preliminary fourth quarter and fiscal year 2011 financial results

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

Good financial results despite softness in global pulp markets
(All financial information is in U.S. dollars, and all earnings (loss) per share results are diluted, unless otherwise noted.)

• Fourth quarter 2011 net earnings of $1.63 per share, earnings before items¹ of $2.49 per share
  
• Personal care segment delivers financial performance in line with expectations
  
• Share buyback totaled $494 million in 2011; share count reduced by 14% from December 2010
  

MONTREAL, Feb. 3, 2012 /PRNewswire/ - Domtar Corporation (NYSE: UFS) (TSX: UFS) today reported net earnings of $61 million ($1.63 per share) for the fourth quarter of 2011 compared to net earnings of $117 million ($2.95 per share) for the third quarter of 2011 and net earnings of $325 million ($7.59 per share) for the fourth quarter of 2010. Sales for the fourth quarter of 2011 amounted to $1.4 billion. Excluding items listed below, the Company had earnings before items¹ of $93 million ($2.49 per share) for the fourth quarter of 2011 compared to earnings before items¹ of $123 million ($3.10 per share) for the third quarter of 2011 and earnings before items¹ of $103 million ($2.41 per share) for the fourth quarter of 2010.

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.

Third quarter 2011 items:

• Gains on the sale of property, plant and equipment of $4 million ($3 million after tax);
  
  
• Charge of $8 million ($4 million after tax) related to the impairment and write-down of property, plant and equipment;
  
  
• Premium paid on debt repurchase of $4 million ($3 million after tax);
  
  
• Closure and restructuring costs of $1 million ($1 million after tax); and
  
  
• Negative impact of purchase accounting of $1 million ($1 million after tax).

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).

"Our pulp earnings were affected by the rapid decline in global pulp prices while earnings from our paper business were impacted by the typical seasonal slowdown of the fourth quarter. Nevertheless, our fourth quarter results are good results and I am pleased to see the Attends business perform to expectations," said John D. Williams, President and Chief Executive Officer.

FISCAL YEAR 2011 HIGHLIGHTS

For fiscal year 2011, net earnings amounted to $365 million ($9.08 per share) compared to net earnings of $605 million ($14.00 per share) for fiscal year 2010. The Company had earnings before items¹ of $452 million ($11.24 per share) for fiscal 2011 compared to earnings before items¹ of $471 million ($10.90 per share) for fiscal 2010. Sales amounted to $5.6 billion for fiscal year 2011.

Commenting on the 2011 performance, Mr. Williams said, "Looking back at 2011, we delivered another strong performance. The second half was slightly more challenging due to the decline in pulp prices however we maintained our volumes. This solid performance enabled us to pursue our commitment to returning a majority of free cash flow to shareholders. In 2011, we returned over $543 million or $13.50 per share, representing 73% of total free cash flow¹, through a combination of share buyback and regular dividends."

QUARTERLY REVIEW

Operating income before items¹ was $148 million in the fourth quarter of 2011 compared to an operating income before items¹ of $193 million in the third quarter of 2011. Depreciation and amortization totaled $95 million in the fourth quarter of 2011.

In December 2011, Domtar signed a four-year master agreement with the United Steelworkers that covers approximately 3,000 hourly employees at nine different locations in the United States. Per the agreement, Domtar is restructuring the pension plans covering these negotiated employees. This will result in Domtar's withdrawal from a multi-employer pension plan and the transition of all covered employees not grandfathered under the existing defined-benefit pension plans to a defined-contribution pension plan for future service. As a result, Domtar incurred a $41 million charge recorded under Closure and restructuring costs.

The decrease in operating income before items¹ in the fourth quarter of 2011 was the result of lower average selling prices for pulp, lower shipments for paper and higher energy costs. These factors were partially offset by lower maintenance costs, lower freight costs, the positive impact of a weaker Canadian dollar and the inclusion of Attends' earnings for a full quarter.

When compared to the third quarter of 2011, paper shipments decreased 6.5% and pulp shipments increased 12.6%. Paper deliveries of Ariva^TM decreased 8% when compared to the third quarter of 2011. The shipments-to-production ratio for paper was 95% in the fourth quarter of 2011, compared to 102% in the third quarter of 2011. Paper inventories increased by 40,000 tons while pulp inventories decreased by 25,000 metric tons as at the end of December, compared to September levels.

LIQUIDITY AND CAPITAL

Cash flow provided from operating activities amounted to $883 million and capital expenditures amounted to $144 million, resulting in free cash flow¹ of $739 million for fiscal 2011. Domtar's net debt-to-total capitalization ratio¹ stood at 12% at December 31, 2011 compared to 9% at December 31, 2010.

OUTLOOK

Prices for pulp are still expected to remain under pressure in certain geographies while market dynamics in the Asian markets are stabilizing. In fine papers, North American demand is expected to decline at a 2-4% rate in 2012, consistent with long-term trends. Any acceleration in employment growth may help mitigate the structural decline in paper demand. Inflation on input costs is expected to be moderate in 2012.

EARNINGS CONFERENCE CALL

The Company will hold a conference call today at 11:00 a.m. (ET) to discuss its fourth quarter 2011 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 first quarter 2012 earnings on April 26, 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) 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. The Company designs, manufactures, markets and distributes a wide range of business, commercial printing and publishing as well as converting and specialty papers including recognized brands such as Cougar^®, Lynx^® Opaque Ultra, Husky^® Opaque Offset, First Choice^® and Domtar EarthChoice^® Office Paper, part of a family of environmentally and socially responsible papers. Domtar also produces a complete line of incontinence care products and distributes washcloths marketed primarily under the Attends^® brand name. Domtar owns and operates Ariva^TM, an extensive network of strategically located paper distribution facilities. The Company employs approximately 8,700 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.

^{_______________________________
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 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. 

Domtar Corporation
Quarterly Reconciliation of Non-GAAP Financial Measures - By Segment 2010
(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⁾ As previously reported, Domtar sold 88% of the Wood segment on June 30, 2010 to EACOM Timber Corporation ("EACOM"). During the fourth quarter of 2010, in an unrelated transaction, Domtar sold the remaining 12% of common stock held in EACOM.

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

SOURCE DOMTAR CORPORATION

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