Domtar Corporation reports preliminary third quarter 2013 financial results

Third quarter highlighted by improved pulp productivity and continued growth in personal care earnings
(All financial information is in U.S. dollars, and all earnings per share results are diluted, unless otherwise noted.)

• Third quarter 2013 net earnings of $0.82 per share, earnings before items¹ of $1.25 per share
• Closed the sale of the Ariva U.S. business
• Price increases announced for several uncoated freesheet paper grades

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

MONTREAL, Oct. 24, 2013 /PRNewswire/ - Domtar Corporation (NYSE: UFS) (TSX: UFS) today reported net earnings of $27 million ($0.82 per share) for the third quarter of 2013 compared to a net loss of $46 million ($1.38 per share) for the second quarter of 2013 and net earnings of $66 million ($1.84 per share) for the third quarter of 2012. Sales for the third quarter of 2013 were $1,375 million.

Excluding items listed below, the Company had earnings before items¹ of $41 million ($1.25 per share) for the third quarter of 2013 compared to earnings before items¹ of $16 million ($0.48 per share) for the second quarter of 2013 and earnings before items¹ of $67 million ($1.87 per share) for the third quarter of 2012.

Third quarter 2013 items:

• Loss on sale of business of $19 million ($12 million after tax); and
  
• Negative impact of purchase accounting of $2 million ($2 million after tax).

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.

Third quarter 2012 items:

• Closure and restructuring costs of $2 million ($1 million after tax).

Our third quarter results were driven by improved productivity in our pulp business and continued growth in our personal care business," said John D. Williams, President and Chief Executive Officer. "Pulp and paper plays a vital role as the cash-generation platform in our journey to expand into higher-growth opportunities, and we are focused on running the business as efficiently as possible to ensure that we continue to extract maximum value from our assets.  During the quarter, we finished the reconfiguration of our Kamloops pulp mill following the closure of a pulp line and a recovery boiler, and we continue to look for opportunities to further improve our output.  Additionally, closing the sale of the Ariva U.S. business marked further progress in our transformation as we work to drive enhanced value for our shareholders.

Mr. Williams added, "Our personal care business continues its earnings progression with the ongoing integration of the recent AHP acquisition. While third quarter results were negatively impacted by an inventory adjustment at a large retail customer, we are enthusiastic about the long-term prospects for personal care and remain on track to deliver more than $200 million of EBITDA by 2017 with our existing platform."

QUARTERLY REVIEW

Operating income before items¹ was $70 million in the third quarter of 2013 compared to an operating income before items¹ of $42 million in the second quarter of 2013. Depreciation and amortization totaled $93 million in the third quarter of 2013.

The increase in operating income before items¹ in the third quarter of 2013 was the result of lower costs for maintenance, higher productivity in pulp, the inclusion of Associated Hygienic Products since July 1 and the exclusion of Ariva U.S. since July 31st, lower raw material costs, higher average selling prices for pulp and favorable exchange rates. These factors were partially offset by higher fixed costs and lower average selling prices for paper.

When compared to the second quarter of 2013, paper shipments increased 1.6% and pulp shipments increased 2.3%. The shipments-to-production ratio for paper was 98% in the third quarter of 2013, compared to 96% in the second quarter of 2013. Lack-of-order downtime and machine slowdowns in pulp and paper totaled 18,000 short tons in the third quarter of 2013. Paper inventories increased by 5,000 tons while pulp inventories increased by 3,000 metric tons at the end of September, compared to June levels.

On July 31st, Domtar sold the Ariva U.S. business and the results of the former Distribution segment have been reclassified under the Pulp and Paper segment.

LIQUIDITY AND CAPITAL

Cash flow provided from operating activities amounted to $287 million and capital expenditures were $180 million, resulting in free cash flow¹ of $107 million for the first nine months of 2013. Domtar's net debt-to-total capitalization ratio¹ stood at 26% at September 30, 2013 compared to 16% at December 31, 2012.

Domtar returned a total of $233 million to its shareholders through a combination of dividends and share buybacks in the first nine months of 2013. Under its stock repurchase program, Domtar repurchased a total of 533,327 shares of common stock at an average price of $68.85 in the third quarter of 2013, and a total of 11,170,506 shares of common stock at an average price of $78.48 since the implementation of the program in May 2010. At the end of the third quarter of 2013, Domtar had $121 million remaining under this program.

OUTLOOK

Our pulp business should benefit from accelerating momentum in global demand, notably in China. The recently announced price increases for several paper grades are expected to positively impact results towards the end of the quarter. We expect higher input costs due to higher usage in the winter months and we should see lower paper sales volumes in the fourth quarter due to seasonality. Looking out to 2014, we should continue to benefit from the recently announced paper price increases and our personal care business will continue to see earnings growth.

EARNINGS CONFERENCE CALL

The Company will hold a conference call today at 10:00 a.m. (ET) to discuss its third quarter 2013 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 November 7, 2013.

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® brand name as well as baby diapers. In 2012, Domtar had sales of US$5.5 billion from some 50 countries. The Company employs approximately 9,500 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 2012 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.

________________________________
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 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
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.

SOURCE Domtar Corporation

Image with caption: "Domtar Personal Care manufacturing facility, Delaware, Ohio (CNW Group/Domtar Corporation)". Image available at: http://photos.newswire.ca/images/download/20131024_C6141_PHOTO_EN_32492.jpg

Image with caption: "John D. Williams, President and CEO, Domtar Corporation (CNW Group/Domtar Corporation)". Image available at: http://photos.newswire.ca/images/download/20131024_C6141_PHOTO_EN_32494.jpg

Image with caption: "Domtar market pulp bales (CNW Group/Domtar Corporation)". Image available at: http://photos.newswire.ca/images/download/20131024_C6141_PHOTO_EN_32496.jpg

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