Domtar Corporation

Domtar Corporation Reports Preliminary Second Quarter 2012 Financial Results

Domtar Corporation reported net earnings of $59 million ($1.61 per share) for the second quarter of 2012 compared to net earnings of $28 million ($0.76 per share) for the first quarter of 2012 and net earnings of $54 million ($1.30 per share) for the second quarter of 2011. Sales for the second quarter of 2012 amounted to $1.4 billion.

Excluding items listed below, the Company had earnings before items1 of $59 million ($1.61 per share) for the second quarter of 2012 compared to earnings before items1 of $61 million ($1.65 per share) for the first quarter of 2012 and earnings before items1 of $98 million ($2.37 per share) for the second quarter of 2011.

Second quarter 2012 items:

• None.

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).

Second quarter 2011 items:

• Charge of $62 million ($38 million after tax) related to the impairment and write-down of property, plant and equipment;

• Net losses on the sale of property, plant and equipment and business of $6 million ($5 million after tax); and

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

"We had a good operating performance in the quarter despite costs associated with lack-of-order downtime," said John D. Williams, President and CEO. "So far this year, our shipments have declined due to softness in market demand for paper but our average pricing and margins are holding up well. The ramp-up of the Appleton paper supply agreement and the conversion of the Marlboro, South Carolina mill to lightweight specialty and packaging grades will remove high volume paper capacity and help reduce the amount of potential downtime for the back half of 2012."

Commenting on the Personal Care segment, Mr. Williams added, "Our Personal Care business continues its growth, reaching annualized sales of over $425 million in the second quarter. The addition of EAM Corporation will provide a long term research capability to help further differentiate our offering and grow the business."

QUARTERLY REVIEW

Operating income before items1 was $106 million in the second quarter of 2012 compared to an operating income before items1 of $113 million in the first quarter of 2012. Depreciation and amortization totaled $96 million in the second quarter of 2012.

(In millions of dollars)                        2Q 2012                      1Q 2012

Sales                                                    $1,368                         $1,398

Operating income (loss)                                                

Pulp and Paper segment                      96                    107

Distribution segment                           (2)                    (1)

Personal Care segment                        12                    8

Corporate                                            -                       (5)

Total                                                    106                  109

Operating income before items1         106                  113

Depreciation and amortization            96                    97

The decrease in operating income before items1 in the second quarter of 2012 was the result of lower shipments for papers and pulp and higher costs for both planned maintenance and for lack-of-order downtime in papers. These factors were partially offset by higher selling prices for paper and pulp, lower SG&A costs and the inclusion of Attends Europe for a full quarter.

When compared to the first quarter of 2012, paper shipments decreased 5.9% and pulp shipments decreased 5.4%. Paper deliveries of Ariva decreased 9% when compared to the first quarter of 2012. The shipments-to-production ratio for paper was 98% in the second quarter of 2012, compared to 100% in the first quarter of 2012. Lack-of-order downtime and machine slowdowns in papers totaled 23,000 tons. Paper inventories increased by 13,000 tons while pulp inventories increased by 15,000 metric tons as at the end of June, compared to March levels.

LIQUIDITY AND CAPITAL

Cash flow provided from operating activities amounted to $175 million and capital expenditures amounted to $76 million, resulting in free cash flow1 of $99 million for the three months ended June of 2012. Domtar's net debt-to-total capitalization ratio1 stood at 19% at June 30, 2012 compared to 12% at December 31, 2011.

OUTLOOK

Paper shipments are expected to continue to decline with market demand and due to a shift to lower basis weight papers from the conversion of Communication paper to Specialty and packaging paper grades. Pulp markets are expected to remain challenging. We anticipate cost inflation to be moderate for the balance of the year.

Loading