Domtar Corporation Reports Preliminary Fourth Quarter and Fiscal Year 2018 Financial Results

Best quarterly performance since 2011
(All financial information is in U.S. dollars, and all earnings per share results are diluted, unless otherwise noted).

  • Fourth quarter 2018 net earnings of $1.38 per share; earnings before items1 of $1.63 per share
  • Higher pulp and paper price realization
  • $217 million of cash flow from operating activities

FORT MILL, S.C.–(BUSINESS WIRE)–Feb. 5, 2019– Domtar Corporation (NYSE: UFS) (TSX: UFS) today reported net earnings of $87 million ($1.38 per share) for the fourth quarter of 2018 compared to net earnings of $99 million ($1.57 per share) for the third quarter of 2018 and a net loss of $386 million ($6.16 per share) for the fourth quarter of 2017. Sales for the fourth quarter of 2018 were $1.4 billion.

Excluding items listed below, the Company had earnings before items1 of $103 million ($1.63 per share) for the fourth quarter of 2018 compared to earnings before items1 of $92 million ($1.46 per share) for the third quarter of 2018 and earnings before items1 of $40 million ($0.64 per share) for the fourth quarter of 2017.

ITEMS

Description   Segment   Line item   Amount After tax

effect

EPS impact

(per share)

            (in millions)  
Fourth quarter 2018                
                 

● Margin improvement

plan

  Personal Care  

Impairment of property, plant

and equipment

 

 

$7

 

$5

 

$0.08

                 
● Margin improvement

plan

  Personal Care   Closure and

restructuring costs

 

 

$8

 

$6

 

$0.09

                 
● U.S. Tax Reform   Corporate   Income tax expense  

 

$5

 

$5

 

$0.08

                 
Third quarter 2018                
                 
● U.S. Tax Reform   Corporate   Income tax benefit  

 

$7

 

$7

 

$0.11

                 
Fourth quarter 2017                
                 
● Non-cash goodwill

impairment charge

  Personal Care  

Impairment of goodwill

 

 

$578

 

$573

 

$9.14

                 
● Closure and

restructuring costs

  Personal Care   Closure and

restructuring costs

 

 

$2

 

$1

 

$0.02

                 
● U.S. Tax Reform   Corporate   Income tax benefit  

 

$140

 

$140

 

$2.23

                 
● Net gain on disposal

of property, plant &

equipment

  Corporate   Other operating income  

 

$9

 

$8

 

$0.13

 

FISCAL YEAR 2018 HIGHLIGHTS

For fiscal year 2018, net earnings amounted to $283 million ($4.48 per share) compared to a net loss of $258 million ($4.11 per share) for fiscal year 2017. The Company had earnings before items1 of $291 million ($4.61 per share) for fiscal year 2018 compared to earnings before items1 of $163 million ($2.60 per share) for fiscal year 2017. Sales amounted to $5.5 billion for fiscal year 2018.

Commenting on the full-year results, John D. Williams, President and Chief Executive Officer said, “We had a strong finish to a great year where we significantly improved EBITDA and cash flow. Our solid performance enabled us to return cash to shareholders, manage our balance sheet to preserve financial flexibility and better position Domtar for sustainable, long-term growth”.

 

QUARTERLY REVIEW

“The fourth quarter was one of our best in several years,” said John D. Williams, President and Chief Executive Officer. “Our results reflect a strong performance in Pulp and Paper as we benefited from solid business fundamentals, accelerating price realizations and improved productivity. I’m especially pleased with our cost performance in the quarter despite fiber availability issues at several of our facilities.”

Commenting on Personal Care, Mr. Williams added, “Results improved from the third quarter led by seasonally stronger sales in Europe while new customer volume began to ramp up in North America. Higher volume and cost improvements also drove operational efficiencies and resulted in lower overall unit cost. Although markets remain challenged with raw material cost inflation, we do see some of the underlying fundamentals beginning to improve.”

Operating income was $133 million in the fourth quarter of 2018 compared to operating income of $114 million in the third quarter of 2018. Depreciation and amortization totaled $75 million in the fourth quarter of 2018.

Operating income before items1 was $148 million in the fourth quarter of 2018 compared to an operating income before items1 of $114 million in the third quarter of 2018.

                 
(In millions of dollars)   4Q 2018     3Q 2018  
                 
Sales   $ 1,390     $ 1,367  
Operating income (loss)                
Pulp and Paper segment     148       135  
Personal Care segment     (12 )     (3 )
Corporate     (3 )     (18 )
Total operating income     133       114  
Operating income before items1     148       114  
Depreciation and amortization     75       75  

The increase in operating income in the fourth quarter of 2018 was the result of lower maintenance costs, lower selling, general and administrative expenses, higher average selling prices for pulp and paper, lower fixed costs and favorable productivity. These factors were partially offset by higher raw material costs.

When compared to the third quarter of 2018, manufactured paper shipments were down 1% and pulp shipments increased 1%. The shipments-to-production ratio for paper was 95% in the fourth quarter of 2018, compared to 98% in the third quarter of 2018. Paper inventories increased by 34,000 tons, and pulp inventories decreased by 7,000 metric tons when compared to the third quarter of 2018.

LIQUIDITY AND CAPITAL

Cash flow from operating activities amounted to $217 million and capital expenditures were $84 million, resulting in free cash flow1 of $133 million for the fourth quarter of 2018. Domtar’s net debt-to-total capitalization ratio1 stood at 23% at December 31, 2018 compared to 25% at September 30, 2018.

In 2018, cash flow from operating activities amounted to $554 million and capital expenditures were $195 million, resulting in free cash flow1 of $359 million.

OUTLOOK

In 2019, our paper shipments will increase as we respond to increased demand from our customers following the announced capacity closures while paper prices will continue to improve in the wake of the recently announced price increases across the majority of our paper grades. Softwood and fluff pulp markets will remain balanced through the year due to continued steady demand growth and limited announced new capacity. We anticipate costs, including freight, labor and raw materials, to marginally increase. Personal Care is expected to benefit from our margin improvement plan and new customer wins, partially offset by further raw material cost inflation.

EARNINGS CONFERENCE CALL

The Company will hold a conference call today at 11:00 a.m. (ET) to discuss its fourth quarter and fiscal year 2018 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 first quarter 2019 earnings results on May 1, 2019 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 10,000 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 $5.5 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 2017 as filed with the SEC and as updated by subsequently filed Form 10-Qs. 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
Highlights
(In millions of dollars, unless otherwise noted)

    Three months ended     Three months ended     Twelve months ended     Twelve months ended  
    December 31,     December 31,     December 31,     December 31,  
    2018     2017     2018     2017  
    (Unaudited)  
    $     $     $     $  
Selected Segment Information                                
Sales (1)                                
Pulp and Paper     1,154       1,090       4,523       4,216  
Personal Care     254       260       1,000       996  
Total for reportable segments     1,408       1,350       5,523       5,212  
Intersegment sales     (18 )     (15 )     (68 )     (64 )
Consolidated sales     1,390       1,335       5,455       5,148  
Depreciation and amortization                                
Pulp and Paper     58       64       238       254  
Personal Care     17       18       70       67  
Total for reportable segments     75       82       308       321  
Impairment of property plant and equipment and

goodwill – Personal Care

    7       578       7       578  
Consolidated depreciation and amortization and

impairment of property, plant and equipment

and goodwill

    82       660       315       899  
Operating income (loss)(2)                                
Pulp and Paper     148       56       438       237  
Personal Care     (12 )     (564 )     (5 )     (527 )
Corporate     (3 )     (5 )     (47 )     (38 )
Consolidated operating income (loss)     133       (513 )     386       (328 )
Interest expense, net     15       16       62       66  
Non-service components of net periodic benefit cost     (5 )     (1 )     (18 )     (11 )
Earnings (loss) before income taxes and equity loss     123       (528 )     342       (383 )
Income tax expense (benefit)     35       (142 )     57       (125 )
Equity loss, net of taxes     1             2        
Net earnings (loss)     87       (386 )     283       (258 )
Per common share (in dollars)                                
Net earnings (loss)                                
Basic     1.38       (6.16 )     4.50       (4.11 )
Diluted     1.38       (6.16 )     4.48       (4.11 )
Weighted average number of common

shares outstanding (millions)

                               
Basic     62.9       62.7       62.9       62.7  
Diluted     63.0       62.7       63.1       62.7  
Cash flows from operating activities     217       125       554       449  
Additions to property, plant and equipment     84       71       195       182  

(1) As a result of adopting ASU 2014-09 “Revenue from Contracts with Customers,” the Company has revised its 2017 segment disclosures to conform to the new guideline. (Previously reported numbers for Sales for the three and twelve months ended December 31, 2017 were as follows: Pulp and Paper: $1,090 million and $4,216 million, respectively; Personal Care: $262 million and $1,005 million, respectively; Intersegment sales: $(15) million and $(64) million, respectively.)

(2) As a result of adopting ASU 2017-07 “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,” the Company has revised its 2017 segment disclosures to conform to the new guideline. (Previously reported numbers for Operating income (loss) for the three and twelve months ended December 31, 2017 were as follows: Pulp and Paper: $58 million and $250 million, respectively; Personal Care: $(564) million and $(527) million, respectively; Corporate: $(6) million and $(40) million, respectively.)

Domtar Corporation
Consolidated Statements of Earnings (Loss)
(In millions of dollars, unless otherwise noted)

    Three months ended     Three months ended     Twelve months ended     Twelve months ended  
    December 31,     December 31,     December 31,     December 31,  
    2018     2017     2018     2017  
    (Unaudited)  
    $     $     $     $  
                                 
Sales     1,390       1,335       5,455       5,148  
Operating expenses                                
Cost of sales, excluding depreciation and amortization     1,064       1,079       4,303       4,145  
Depreciation and amortization     75       82       308       321  
Selling, general and administrative     100       115       443       444  
Impairment of property, plant and equipment and

goodwill

    7       578       7       578  
Closure and restructuring costs     8       2       8       2  
Other operating loss (income), net     3       (8 )           (14 )
      1,257       1,848       5,069       5,476  
Operating income (loss)     133       (513 )     386       (328 )
Interest expense, net     15       16       62       66  
Non-service components of net periodic benefit cost     (5 )     (1 )     (18 )     (11 )
Earnings (loss) before income taxes and equity loss     123       (528 )     342       (383 )
Income tax expense (benefit)     35       (142 )     57       (125 )
Equity loss, net of taxes     1             2        
Net earnings (loss)     87       (386 )     283       (258 )
Per common share (in dollars)                                
Net earnings (loss)                                
Basic     1.38       (6.16 )     4.50       (4.11 )
Diluted     1.38       (6.16 )     4.48       (4.11 )
Weighted average number of common

shares outstanding (millions)

                               
Basic     62.9       62.7       62.9       62.7  
Diluted     63.0       62.7       63.1       62.7  

Domtar Corporation
Consolidated Balance Sheets at
(In millions of dollars)

       
    December 31,     December 31,  
    2018     2017  
    (Unaudited)  
    $     $  
Assets                
Current assets                
Cash and cash equivalents     111       139  
Receivables, less allowances of $6 and $7     670       704  
Inventories     762       757  
Prepaid expenses     24       33  
Income and other taxes receivable     22       24  
Total current assets     1,589       1,657  
Property, plant and equipment, net     2,605       2,765  
Intangible assets, net     597       633  
Other assets     134       157  
Total assets     4,925       5,212  
Liabilities and shareholders’ equity                
Current liabilities                
Trade and other payables     757       716  
Income and other taxes payable     25       24  
Long-term debt due within one year     1       1  
Total current liabilities     783       741  
Long-term debt     853       1,129  
Deferred income taxes and other     476       491  
Other liabilities and deferred credits     275       368  
Shareholders’ equity                
Common stock     1       1  
Additional paid-in capital     1,981       1,969  
Retained earnings     1,023       849  
Accumulated other comprehensive loss     (467 )     (336 )
Total shareholders’ equity     2,538       2,483  
Total liabilities and shareholders’ equity     4,925       5,212  

Domtar Corporation
Consolidated Statements of Cash Flows
(In millions of dollars)

    For the twelve months ended  
    December 31, 2018     December 31, 2017  
    (Unaudited)  
    $     $  
Operating activities                
Net earnings (loss)     283       (258 )
Adjustments to reconcile net earnings (loss) to cash flows from operating activities                
Depreciation and amortization     308       321  
Deferred income taxes and tax uncertainties     13       (207 )
Impairment of property, plant and equipment and goodwill     7       578  
Net gains on disposals of property, plant and equipment     (4 )     (13 )
Stock-based compensation expense     8       6  
Equity loss, net     2        
Other     (1 )     2  
Changes in assets and liabilities                
Receivables     18       (72 )
Inventories     (24 )     21  
Prepaid expenses     2       5  
Trade and other payables     24       35  
Income and other taxes     (32 )     12  
Difference between employer pension and other post-retirement

contributions and pension and other post-retirement expense

    (46 )     (32 )
Other assets and other liabilities     (4 )     51  
Cash flows from operating activities     554       449  
Investing activities                
Additions to property, plant and equipment     (195 )     (182 )
Proceeds from disposals of property, plant and equipment     5       19  
Acquisition of business, net of cash acquired           (8 )
Other     (6 )      
Cash flows used for investing activities     (196 )     (171 )
Financing activities                
Dividend payments     (108 )     (104 )
Net change in bank indebtedness           (12 )
Change in revolving credit facility           (50 )
Proceeds from receivables securitization facility     85       45  
Repayments of receivables securitization facility     (60 )     (90 )
Repayments of long-term debt     (301 )     (64 )
Other     2       1  
Cash flows used for financing activities     (382 )     (274 )
Net (decrease) increase in cash and cash equivalents     (24 )     4  
Impact of foreign exchange on cash     (4 )     10  
Cash and cash equivalents at beginning of year     139       125  
Cash and cash equivalents at end of year     111       139  
Supplemental cash flow information                
Net cash payments for:                
Interest     57       58  
Income taxes     71       33  

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 are useful to understand our operating performance and benchmark with peers within the industry. The Company calculates “Earnings before items” and “EBITDA before items” by excluding the after-tax (pre-tax) effect of specified items. These metrics are presented as a complement to enhance the understanding of operating results but not in substitution for GAAP results.

              2018     2017  
              Q1     Q2     Q3     Q4     Year     Q1     Q2     Q3     Q4     Year  
Reconciliation of “Earnings before items” to Net earnings (loss)                                                                                    
      Net earnings (loss)   ($)     54       43       99       87       283       20       38       70       (386 )     (258 )
  (+)   Impairment of property, plant and equipment and goodwill   ($)                       5       5                         573       573  
  (+)   Closure and restructuring costs   ($)                       6       6                         1       1  
  (+)   Litigation settlement   ($)     2                         2                                
  (-)   Net gains on disposals of property, plant and equipment   ($)     (1 )     (2 )                 (3 )                 (3 )     (8 )     (11 )
  (-)   Reversal of contingent consideration   ($)                                               (2 )           (2 )
  (-)   U.S. Tax Reform   ($)                 (7 )     5       (2 )                       (140 )     (140 )
  (=)   Earnings before items   ($)     55       41       92       103       291       20       38       65       40       163  
  (/)   Weighted avg. number of common shares outstanding (diluted)   (millions)     62.9       63.2       63.2       63.0       63.1       62.8       62.7       62.9       62.7       62.7  
  (=)   Earnings before items per diluted share   ($)     0.87       0.65       1.46       1.63       4.61       0.32       0.61       1.03       0.64       2.60  
                                                                                           
Reconciliation of “EBITDA” and “EBITDA before items” to

Net earnings (loss)

                                                                                   
      Net earnings (loss)   ($)     54       43       99       87       283       20       38       70       (386 )     (258 )
  (+)   Equity loss, net of taxes   ($)                 1       1       2                                
  (+)   Income tax expense (benefit)   ($)     11       8       3       35       57       5       9       3       (142 )     (125 )
  (+)   Interest expense, net   ($)     16       16       15       15       62       17       17       16       16       66  
  (+)   Depreciation and amortization   ($)     79       79       75       75       308       80       79       80       82       321  
  (+)   Impairment of property, plant and equipment and goodwill   ($)                       7       7                         578       578  
  (-)   Net gains on disposals of property, plant and equipment   ($)     (1 )     (3 )                 (4 )                 (4 )     (9 )     (13 )
  (=)   EBITDA   ($)     159       143       193       220       715       122       143       165       139       569  
  (/)   Sales   ($)     1,345       1,353       1,367       1,390       5,455       1,302       1,221       1,290       1,335       5,148  
  (=)   EBITDA margin   (%)     12 %     11 %     14 %     16 %     13 %     9 %     12 %     13 %     10 %     11 %
      EBITDA   ($)     159       143       193       220       715       122       143       165       139       569  
  (+)   Closure and restructuring costs   ($)                       8       8                         2       2  
  (+)   Litigation settlement   ($)     2                         2                                
  (-)   Reversal of contingent consideration   ($)                                               (2 )           (2 )
  (=)   EBITDA before items   ($)     161       143       193       228       725       122       143       163       141       569  
  (/)   Sales   ($)     1,345       1,353       1,367       1,390       5,455       1,302       1,221       1,290       1,335       5,148  
  (=)   EBITDA margin before items   (%)     12 %     11 %     14 %     16 %     13 %     9 %     12 %     13 %     11 %     11 %
                                                                                           
Reconciliation of “Free cash flow” to Cash flows from operating activities                                                                                    
      Cash flows from operating activities   ($)     90       177       70       217       554       91       121       112       125       449  
  (-)   Additions to property, plant and equipment   ($)     (25 )     (37 )     (49 )     (84 )     (195 )     (34 )     (37 )     (40 )     (71 )     (182 )
  (=)   Free cash flow   ($)     65       140       21       133       359       57       84       72       54       267  
                                                                                           
“Net debt-to-total capitalization” computation                                                                                    
      Bank indebtedness   ($)           1                           2                            
  (+)   Long-term debt due within one year   ($)     1       1       1       1               64       1       1       1          
  (+)   Long-term debt   ($)     1,103       1,103       1,103       853               1,188       1,203       1,164       1,129          
  (=)   Debt   ($)     1,104       1,105       1,104       854               1,254       1,204       1,165       1,130          
  (-)   Cash and cash equivalents   ($)     (152 )     (264 )     (256 )     (111 )             (111 )     (124 )     (143 )     (139 )        
  (=)   Net debt   ($)     952       841       848       743               1,143       1,080       1,022       991          
  (+)   Shareholders’ equity   ($)     2,493       2,458       2,553       2,538               2,685       2,770       2,886       2,483          
  (=)   Total capitalization   ($)     3,445       3,299       3,401       3,281               3,828       3,850       3,908       3,474          
      Net debt   ($)     952       841       848       743               1,143       1,080       1,022       991          
  (/)   Total capitalization   ($)     3,445       3,299       3,401       3,281               3,828       3,850       3,908       3,474          
  (=)   Net debt-to-total capitalization   (%)     28 %     25 %     25 %     23 %             30 %     28 %     26 %     29 %        

“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 (loss), 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 2018
(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 are useful to understand our operating performance and benchmark with peers within the industry. The Company calculates the segmented “Operating income (loss) before items” by excluding the pre-tax effect of specified items. These metrics are presented as a complement to enhance the understanding of operating results but not in substitution for GAAP results.

              Pulp and Paper   Personal Care   Corporate   Total
              Q1’18   Q2’18   Q3’18   Q4’18   Year   Q1’18   Q2’18   Q3’18   Q4’18   Year   Q1’18   Q2’18   Q3’18   Q4’18   Year   Q1’18   Q2’18   Q3’18   Q4’18   Year

Reconciliation of Operating income (loss) to “Operating income (loss) before items”

 

                                                                                   
 

 

  Operating income (loss)   ($)   76   79   135   148   438   8   2   (3)   (12)   (5)   (7)   (19)   (18)   (3)   (47)   77   62   114   133   386
 

(+)

  Impairment of property, plant and equipment   ($)                   7   7                   7   7
  (-)  

Net gains on disposals of property, plant and equipment

 

  ($)   (1)   (3)       (4)                       (1)   (3)       (4)
  (+)   Closure and restructuring costs   ($)                   8   8                   8   8
  (+)   Litigation settlement   ($)                       2         2   2         2
  (=)   Operating income (loss) before items   ($)   75   76   135   148   434   8   2   (3)   3   10   (5)   (19)   (18)   (3)   (45)   78   59   114   148   399
                                                                                           

Reconciliation of “Operating income (loss) before items” to “EBITDA before items”

 

                                                                                   
      Operating income (loss) before items   ($)   75   76   135   148   434   8   2   (3)   3   10   (5)   (19)   (18)   (3)   (45)   78   59   114   148   399
  (+)   Non-service components of net periodic benefit cost   ($)   4   6   4   5   19               (1)       (1)   4   5   4   5   18
  (+)   Depreciation and amortization   ($)   61   61   58   58   238   18   18   17   17   70             79   79   75   75   308
  (=)   EBITDA before items   ($)   140   143   197   211   691   26   20   14   20   80   (5)   (20)   (18)   (3)   (46)   161   143   193   228   725
  (/)   Sales   ($)   1,100   1,123   1,146   1,154   4,523   262   247   237   254   1,000             1,362   1,370   1,383   1,408   5,523
  (=)   EBITDA margin before items   (%)   13%   13%   17%   18%   15%   10%   8%   6%   8%   8%             12%   10%   14%   16%   13%

“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 2017
(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 are useful to understand our operating performance and benchmark with peers within the industry. The Company calculates the segmented “Operating income (loss) before items” by excluding the pre-tax effect of specified items. These metrics are presented as a complement to enhance the understanding of operating results but not in substitution for GAAP results.

              Pulp and Paper   Personal Care   Corporate   Total
              Q1’17   Q2’17   Q3’17   Q4’17   Year   Q1’17   Q2’17   Q3’17   Q4’17   Year   Q1’17   Q2’17   Q3’17   Q4’17   Year   Q1’17   Q2’17   Q3’17   Q4’17   Year

Reconciliation of Operating income (loss) to “Operating income (loss) before items”

 

                                                                                   
      Operating income (loss)   ($)   30   62   89   56   237   16   13   8   (564)   (527)   (8)   (13)   (12)   (5)   (38)   38   62   85   (513)   (328)
  (+)   Impairment of goodwill   ($)                   578   578                   578   578
  (-)  

Net gains on disposals of property, plant and equipment

 

  ($)       (4)     (4)                   (9)   (9)       (4)   (9)   (13)
  (-)   Reversal of contingent consideration   ($)                           (2)     (2)       (2)     (2)
  (+)   Closure and restructuring costs   ($)                   2   2                   2   2
  (=)   Operating income (loss) before items   ($)   30   62   85   56   233   16   13   8   16   53   (8)   (13)   (14)   (14)   (49)   38   62   79   58   237
                                                                                           

Reconciliation of “Operating income (loss) before items” to “EBITDA before items”

 

                                                                                   
      Operating income (loss) before items   ($)   30   62   85   56   233   16   13   8   16   53   (8)   (13)   (14)   (14)   (49)   38   62   79   58   237
  (+)   Non-service components of net periodic benefit cost   ($)   4   3   4   2   13               (1)     (1)   (2)   4   2   4   1   11
  (+)   Depreciation and amortization   ($)   64   63   63   64   254   16   16   17   18   67             80   79   80   82   321
  (=)   EBITDA before items   ($)   98   128   152   122   500   32   29   25   34   120   (8)   (14)   (14)   (15)   (51)   122   143   163   141   569
  (/)   Sales   ($)   1,073   999   1,054   1,090   4,216   247   238   251   260   996             1,320   1,237   1,305   1,350   5,212
  (=)   EBITDA margin before items   (%)   9%   13%   14%   11%   12%   13%   12%   10%   13%   12%             9%   12%   12%   10%   11%

“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)

        2018     2017  
        Q1     Q2     Q3     Q4     Year     Q1     Q2     Q3     Q4     Year  
Pulp and Paper Segment                                                                                    
Sales   ($)     1,100       1,123       1,146       1,154       4,523       1,073       999       1,054       1,090       4,216  
Operating income   ($)     76       79       135       148       438       30       62       89       56       237  
Depreciation and

amortization

  ($)     61       61       58       58       238       64       63       63       64       254  
Paper                                                                                    
Paper Production   (‘000 ST)     739       739       743       757       2,978       709       715       745       724       2,893  
Paper Shipments –

Manufactured

  (‘000 ST)     769       754       727       721       2,971       745       698       722       726       2,891  
Communication Papers   (‘000 ST)     640       615       596       595       2,446       622       582       597       600       2,401  
Specialty and Packaging

Papers

  (‘000 ST)     129       139       131       126       525       123       116       125       126       490  
Paper Shipments – Sourced

from 3rd parties

  (‘000 ST)     28       26       30       25       109       29       26       29       25       109  
Paper Shipments – Total   (‘000 ST)     797       780       757       746       3,080       774       724       751       751       3,000  
Pulp                                                                                    
Pulp Shipments(a)   (‘000 ADMT)     374       377       390       395       1,536       453       383       424       462       1,722  
Pulp Shipments mix(b):                                                                                    
Hardwood Kraft Pulp   (%)     4 %     3 %     3 %     3 %     4 %     4 %     3 %     7 %     5 %     5 %
Softwood Kraft Pulp   (%)     58 %     56 %     56 %     55 %     56 %     67 %     62 %     61 %     54 %     61 %
Fluff Pulp   (%)     38 %     41 %     41 %     42 %     40 %     29 %     35 %     32 %     41 %     34 %
                                                                                     
Personal Care Segment                                                                                    
Sales   ($)     262       247       237       254       1,000       247       238       251       260       996  
Operating income (loss)   ($)     8       2       (3 )     (12 )     (5 )     16       13       8       (564 )     (527 )
Depreciation and

amortization

  ($)     18       18       17       17       70       16       16       17       18       67  
Impairment of property, plant and

equipment and goodwill

  ($)                       7       7                         578       578  
                                                                                     
Average Exchange Rates   $US / $CAN     1.264       1.290       1.307       1.321       1.296       1.323       1.344       1.253       1.272       1.297  
    $CAN / $US     0.791       0.775       0.765       0.757       0.772       0.756       0.744       0.798       0.786       0.771  
    € / $US     1.229       1.192       1.163       1.141       1.181       1.066       1.100       1.175       1.178       1.130  

(a) Figures represent Pulp Shipments to third parties.

(b) Percentages include Pulp Shipments to our Personal Care segment.

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

 

Source: Domtar Corporation

INVESTOR RELATIONS
Nicholas Estrela
Director
Investor Relations
Tel.: 514-848-5049

MEDIA RELATIONS
David Struhs
Vice-President
Corporate Services and Sustainability
Tel.: 803-802-8031

 

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