Domtar Corporation Reports Preliminary First Quarter 2016 Financial Results

FORT MILL, S.C.--(BUSINESS WIRE)--Domtar Corporation (NYSE: UFS) (TSX: UFS) today reported net earnings of $4 million ($0.06 per share) for the first quarter of 2016 compared to net earnings of $57 million ($0.91 per share) for the fourth quarter of 2015 and net earnings of $36 million ($0.56 per share) for the first quarter of 2015. Sales for the first quarter of 2016 were $1.3 billion.

Excluding items listed below, the Company had earnings before items¹ of $22 million ($0.35 per share) for the first quarter of 2016 compared to earnings before items¹ of $70 million ($1.11 per share) for the fourth quarter of 2015 and earnings before items¹ of $48 million ($0.75 per share) for the first quarter of 2015.

First quarter 2016 items:

• Closure and restructuring costs of $2 million ($2 million after tax); and
• Impairment of property, plant & equipment of $21 million ($16 million after tax).

Fourth quarter 2015 items:

• Closure and restructuring costs of $1 million ($1 million after tax); and
• Impairment of property, plant & equipment of $20 million ($12 million after tax).

First quarter 2015 items:

• Closure and restructuring costs of $1 million ($1 million after tax);
• Gain on disposal of property, plant and equipment of $1 million ($1 million after tax); and
• Impairment of property, plant & equipment of $19 million ($12 million after tax).

“Although our teams were very agile and executed well on things under our control, our results in pulp and paper were negatively impacted by unexpected costs during the extended maintenance outages,” said John D. Williams, President and Chief Executive Officer. “Given the timing of maintenance activity and costs related to the fluff pulp conversion, our first half results are expected to remain subdued before significantly improving in the second half as the benefits from the Ashdown conversion, lower maintenance and higher prices accrue.”

Mr. Williams added, “We delivered strong year over year EBITDA growth in Personal Care with procurement initiatives and manufacturing cost savings driving the majority of the increase. During the quarter, we began delivering on our new sales growth wins including the successful launch of a partner brand and the ramping up of volume for a major account. We are on track to realize the top-line benefits of the new customer wins through 2016.”

QUARTERLY REVIEW

Operating income before items¹ was $41 million in the first quarter of 2016 compared to an operating income before items¹ of $115 million in the fourth quarter of 2015. Depreciation and amortization totaled $89 million in the first quarter of 2016.

The decrease in operating income before items¹ in the first quarter of 2016 was the result of increased maintenance costs, lower productivity in pulp and paper, lower volume, higher raw material costs, lower average selling prices, higher selling, general and administrative expenses and other costs. These factors were partially offset by favorable exchange rates and lower freight costs.

When compared to the fourth quarter of 2015, manufactured paper shipments were down 1.4% and pulp shipments decreased 4.4%. The shipments-to-production ratio for paper was 100% in the first quarter of 2016, compared to 95% in the fourth quarter of 2015. Paper inventories remained flat and pulp inventories decreased by 13,000 metric tons when compared to the fourth quarter of 2015.

LIQUIDITY AND CAPITAL

Cash flow provided from operating activities amounted to $97 million and capital expenditures were $100 million, resulting in a negative free cash flow¹ of $3 million for the first quarter of 2016. Domtar’s net debt-to-total capitalization ratio¹ stood at 30% at March 31, 2016 and at December 31, 2015.

During the quarter, Domtar repurchased $10 million of common stock under its stock repurchase program.

OUTLOOK

The second quarter is expected to be affected by seasonally higher maintenance activity in our pulp and paper business in addition to costs of approximately $23 million related to the fluff pulp conversion outage at our Ashdown mill. For the remainder of the year, Domtar paper shipments are expected to trend with market demand. Recently announced price increases should positively impact Pulp and Paper. Personal Care results should benefit from the new customer wins, market growth and cost savings from the new manufacturing platform. Costs for raw materials should marginally increase.

EARNINGS CONFERENCE CALL

The Company will hold a conference call today at 10:00 a.m. (ET) to discuss its first quarter 2016 financial results. Financial analysts are invited to participate in the call by dialing 1 (800) 499-4035 (toll free - North America) or 1 (416) 204-9269 (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.

The Company will release its second quarter 2016 earnings results on July 28, 2016 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 is a leading provider of a wide variety of fiber-based products including communication, specialty and packaging papers, market pulp and absorbent hygiene products. With approximately 9,850 employees serving more than 50 countries around the world, Domtar is driven by a commitment to turn sustainable wood fiber into useful products that people rely on every day. Domtar’s annual sales are approximately $5.3 billion and its common stock is traded on the New York and Toronto Stock Exchanges. Domtar’s principal executive office is in Fort Mill, South Carolina. 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 2015 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.

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 flows 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 2016
(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 2015
(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)

^(a) Figures are gross of market pulp purchased from other producers on the open market for some of our paper making operations. Pulp Shipments represent the amount of pulp produced in excess of our internal requirement.

Note: the term “ST” refers to a short ton and the term “ADMT” refers to an air dry metric ton.

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