(All financial information is in U.S. dollars, and all earnings per share results are diluted, unless otherwise noted.)
• Fourth quarter 2012 net earnings of $0.54 per share, earnings before items1 of $1.31 per share
• Closed the sale of the Ottawa/Gatineau hydro assets for CDN$46 million
• Free cash flow1 payout of 68% in 2012 through regular dividends and share buybacks
Domtar Corporation reported net earnings of $19 million ($0.54 per share) for the fourth quarter of 2012 compared to net earnings of $66 million ($1.84 per share) for the third quarter of 2012 and net earnings of $61 million ($1.63 per share) for the fourth quarter of 2011. Sales for the fourth quarter of 2012 amounted to $1.3 billion.
Excluding items listed below, the Company had earnings before items1 of $46 million ($1.31 per share) for the fourth quarter of 2012 compared to earnings before items1 of $67 million ($1.87 per share) for the third quarter of 2012 and earnings before items1 of $93 million ($2.49 per share) for the fourth quarter of 2011.
Fourth quarter 2012 items:
• Closure and restructuring costs of $27 million ($18 million after tax);
• Charge of $12 million ($8 million after tax) related to the impairment and write-down of property, plant and equipment and intangible assets; and
• Net losses on the sale of property, plant and equipment of $2 million ($1 million after tax).
Third quarter 2012 items:
• Closure and restructuring costs of $2 million ($1 million after tax).
Fourth quarter 2011 items:
• Closure and restructuring costs of $38 million ($23 million after tax); and
• Charge of $12 million ($9 million after tax) related to the impairment and write-down of property, plant and equipment.
"Our paper and pulp businesses performed largely in-line with expectations from a sales standpoint in the fourth quarter," said John D. Williams, President and Chief Executive Officer. "Higher costs for fiber and energy and unexpected costs incurred at a pulp mill following a planned maintenance outage affected results."
FISCAL YEAR 2012 HIGHLIGHTS
For fiscal year 2012, net earnings amounted to $172 million ($4.76 per share) compared to net earnings of $365 million ($9.08 per share) for fiscal year 2011. The Company had earnings before items1 of $233 million ($6.45 per share) for fiscal 2012 compared to earnings before items1 of $452 million ($11.24 per share) for fiscal 2011. Sales amounted to $5.5 billion for fiscal year 2012.
Commenting on the year, Mr. Williams said, "The down cycle in pulp prices contributed to the majority of the decline in Domtar's earnings. We accomplished a great deal again in 2012 nevertheless. We completed two acquisitions in our Personal Care business, we announced the conversion of a world-class commodity paper mill to manufacture specialty papers and launched several innovative projects that provide alternative uses for our wood fiber and the by-products of our manufacturing process. Our journey to build a growing fiber-based business is well underway," added Mr. Williams.
Operating income before items1 was $84 million in the fourth quarter of 2012 compared to an operating income before items1 of $111 million in the third quarter of 2012. Depreciation and amortization totaled $96 million in the fourth quarter of 2012.
(In millions of dollars) 4Q 2012 3Q 2012
Sales $1,327 $1,389
Operating income (loss)
Pulp and Paper segment 40 103
Distribution segment (8) (5)
Personal Care segment 13 12
Corporate (2) (1)
Total 43 109
Operating income before items 84 111
Depreciation and amortization 96 96
The decrease in operating income before items1 in the fourth quarter of 2012 was the result of lower average selling prices for pulp and paper, higher unit costs for fiber and energy, higher SG&A, freight, and maintenance costs and lower volumes for pulp and paper. These factors were partially offset by high productivity and lower costs for lack-of-order downtime in paper.
When compared to the third quarter of 2012, paper shipments decreased 2.5% and pulp shipments decreased 7.2%. Paper deliveries of Ariva decreased 10.4% when compared to the third quarter of 2012. The shipments-to-production ratio for paper was 97% in the fourth quarter of 2012, compared to 105% in the third quarter of 2012. Lack-of-order downtime and machine slowdowns in papers totaled 23,000 short tons in the fourth quarter of 2012. Paper inventories increased by 27,000 tons while pulp inventories increased by 3,000 metric tons as at the end of December, compared to September levels.
LIQUIDITY AND CAPITAL
Cash flow provided from operating activities amounted to $551 million and capital expenditures amounted to $236 million, resulting in free cash flow1 of $315 million for fiscal year 2012. Domtar's net debt-to-total capitalization ratio1 stood at 16% at December 31, 2012 compared to 12% at December 31, 2011.
Domtar returned a total of $215 million to its shareholders through a combination of dividends and share buybacks in 2012. Under its stock repurchase program, Domtar repurchased 2,000,925 shares of common stock throughout 2012 and a total of 8,660,703 shares of common stock at an average price of $80.04 since the implementation of the program in May 2010. At the end of the year, Domtar had $304 million remaining under this program.
In 2013, we expect market demand for uncoated freesheet paper to decline at a 3 to 4% rate in North America, but our shipments are expected to trend slightly better than market due to an exposure to stable specialty and packaging papers and the incremental volume from the supply agreement signed with Appleton. Paper prices are expected to trend at levels similar to year-end while we expect a slow and steady recovery in pulp prices. The implementation of our growth plans in the Personal Care segment are expected to yield incremental earnings beginning in the fourth quarter of 2013.