Domtar Corporation reports preliminary fourth quarter and fiscal year 2009 financial results
Strong operational performance and pricing momentum drive solid results
(All financial information is in U.S. dollars, and all earnings (loss)
per share results are diluted, unless otherwise noted.)
- Net earnings of $2.86 per share, earnings before items(1) of $1.39 per
share
- Papers segment benefits from continued strength in the pulp markets
- Safety performance record improved by 24% in 2009 (total frequency rate
of 1.50)
TICKER SYMBOL
UFS (NYSE, TSX)
MONTREAL, Feb. 4 /PRNewswire-FirstCall/ - Domtar Corporation (NYSE/TSX: UFS) today reported net earnings of $124 million ($2.86 per share) for the fourth quarter of 2009 compared to net earnings of $183 million ($4.24 per share) for the third quarter of 2009 and a net loss of $676 million ($15.72 per share) for the fourth quarter of 2008. Sales for the fourth quarter of 2009 amounted to $1.4 billion. Excluding items listed below, the Company had earnings before items(1) of $60 million ($1.39 per share) for the fourth quarter of 2009 compared to earnings before items(1) of $57 million ($1.32 per share) for the third quarter of 2009 and a loss before items(1) of $20 million ($0.46 per share) for the fourth quarter of 2008.
Fourth quarter 2009 items:
--------------------------
- Refundable excise tax credit for the production and use of alternative
bio fuel mixtures of $162 million ($113 million after tax);
- Closure and restructuring costs of $29 million ($24 million after tax);
- Charge of $27 million ($22 million after tax) related to the impairment
and write-down of property, plant and equipment; and
- Loss on sale of property, plant and equipment of $5 million ($3 million
after tax).
Third quarter 2009 items:
-------------------------
- Refundable excise tax credit for the production and use of alternative
bio fuel mixtures of $159 million ($116 million after tax);
- Gains on sale of property, plant and equipment of $12 million
($12 million after tax); and
- Closure and restructuring costs of $4 million ($2 million after tax).
Fourth quarter 2008 items:
--------------------------
- Charge of $387 million ($270 million after tax) related to the
impairment and write-down of property, plant and equipment and
intangible assets;
- Charge of $321 million ($321 million after tax) related to the
impairment of goodwill;
- Charge of $52 million related to a valuation allowance on Canadian
deferred income tax assets;
- Closure and restructuring costs of $28 million ($18 million after tax);
- Gain on debt repurchase of $12 million ($8 million after tax); and
- Costs of $5 million ($3 million after tax) related to synergies and
integration.
"We had improved pricing for our products in the fourth quarter when compared to the third quarter. In Papers, we recorded another solid performance despite it being a seasonally slower period, with lower volumes and higher maintenance costs. Our paper inventories were reduced for a fifth consecutive quarter contributing to cash flow," said John D. Williams, President and Chief Executive Officer. "We also moved forward with the Canadian Pulp and Paper Green Transformation Program submitting numerous projects to Natural Resources Canada during the quarter. We completed the environmental assessment for one project while six others are currently undergoing their assessments," added Mr. Williams.
FISCAL YEAR 2009 HIGHLIGHTS
For fiscal year 2009, net earnings amounted to $310 million ($7.18 per share) compared to a net loss of $573 million ($13.33 per share) for fiscal year 2008. The Company had earnings before items(1) of $46 million ($1.06 per share) for fiscal 2009 compared to earnings before items(1) of $88 million ($2.05 per share) for fiscal 2008. Sales amounted to $5.5 billion for fiscal year 2009.
Commenting on the 2009 performance, Mr. Williams said, "While we faced a high level of lack-of-order downtime and a steep decline in pulp prices in the first half of the year, we benefited from stable prices in papers and kept our inventories low. Meanwhile, our efforts to reduce working capital and lower fixed costs proved to be a catalyst for the second half of 2009. The sustained focus on customers, costs, and cash helped us deliver a stronger company to our shareholders and to start 2010 with optimism."
SEGMENT REVIEW
Operating income before items(1) was $104 million in the fourth quarter of 2009 compared to operating income before items(1) of $138 million in the third quarter of 2009. Depreciation and amortization totaled $95 million in the fourth quarter of 2009. When compared to the third quarter of 2009, paper and pulp shipments decreased 3% and 13%, respectively. The shipments-to-production ratio for paper was 104% in the fourth quarter of 2009, compared to 106% in the third quarter of 2009. Paper inventories were lowered by 40,000 tons while pulp inventories increased by 39,000 metric tons at the end of December when compared to end of September levels.
The decrease in operating income before items(1) in the fourth quarter of 2009 was the result of higher usage and unit costs for energy and fiber, higher maintenance costs, lower paper and pulp shipments, and higher freight costs. These factors were partially offset by higher average selling prices for pulp and paper, and lower chemical costs.
(In millions of dollars) 4Q 2009 3Q 2009
----------------------------------------------- ----------- -----------
Sales $1,188 $1,211
Operating income $212 $294
Operating income before items(1) $104 $138
Depreciation and amortization $95 $95
On October 20, 2009, the Company announced that it would convert its Plymouth, North Carolina facility to 100% fluff pulp production by the fourth quarter of 2010. In connection with this announcement, the Company recognized, under impairment and write-down of property, plant and equipment, $13 million of accelerated depreciation in the fourth quarter of 2009 and is expected to record a further $39 million of accelerated depreciation over the first nine months of 2010 in relation to the assets that will cease productive use in October 2010. The assets of this facility have been tested for impairment and no additional impairment charge was required.
Paper Merchants
Operating income before items(1) was $3 million in the fourth quarter of 2009 compared to operating income before items(1) of $2 million in the third quarter of 2009. Depreciation and amortization was nil in the fourth quarter of 2009. Deliveries decreased 12% when compared to the third quarter of 2009. Lower deliveries were offset by higher prices.
(In millions of dollars) 4Q 2009 3Q 2009
----------------------------------------------- ----------- -----------
Sales $212 $239
Operating income $2 $2
Operating income before items(1) $3 $2
Depreciation and amortization - $1
Wood
Operating loss before items(1) was $5 million in the fourth quarter of 2009, compared to operating loss before items(1) of $9 million in the third quarter of 2009. Depreciation and amortization totaled $6 million in the fourth quarter of 2009. When compared to the third quarter of 2009, lumber shipments increased 5%.
The decrease in operating loss before items(1) in the fourth quarter of 2009 was primarily the result of higher average selling prices.
(In millions of dollars) 4Q 2009 3Q 2009
----------------------------------------------- ----------- -----------
Sales $63 $59
Operating loss ($11) ($1)
Operating loss before items(1) ($5) ($9)
Depreciation and amortization $6 $5
LIQUIDITY AND CAPITAL
Cash flow provided from operating activities amounted to $185 million and free cash flow(1) amounted to $145 million in the fourth quarter of 2009. Domtar's net debt-to-total capitalization ratio(1) stood at 35% at December 31, 2009 compared to 50% at December 31, 2008. Amounts drawn on the off balance sheet receivables securitization program are unchanged since September 30, 2009 and stood at $20 million at the end of December.
As of December 31, 2009, we had completed sales of assets for proceeds of approximately $20 million. We have agreements to sell other non-core assets which we expect to generate approximately $40 million by mid-year. As we continue to strengthen our financial position, we will carefully consider additional non-core asset sales.
OUTLOOK
We expect that the increased economic activity will partially offset the secular decline in paper demand in 2010 and that pulp demand will remain strong in the short-term. We should also benefit from the recently announced price increases in the upcoming quarters. The economic recovery being slow and patchy, Domtar will continue to manage its business conservatively.
Due to the seasonality of the business and the impact of the price increases being implemented, we expect to make working capital investments in the first quarter of 2010.
EARNINGS CONFERENCE CALL
The Company will hold a conference call today at 10:00 a.m. (ET) to discuss its fourth quarter 2009 financial results. Financial analysts are invited to participate in the call by dialing at least 10 minutes before start time 1 (888) 339-3507 (toll free - North America) or 1 (719) 325-2424 (International), 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 2010 earnings on April 30, 2010 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 Corporation (NYSE/TSX:UFS) is the largest integrated manufacturer and marketer of uncoated freesheet paper in North America and the second largest in the world based on production capacity, and is also a manufacturer of papergrade, fluff and specialty pulp. The Company designs, manufactures, markets and distributes a wide range of business, commercial printing and publishing as well as converting and specialty papers including recognized brands such as Cougar(R), Lynx(R) Opaque, Husky(R) Offset, First Choice(R) and Domtar EarthChoice(R) Office Paper, part of a family of environmentally and socially responsib
