Domtar Corp. (UFS, Financial) filed Quarterly Report for the period ended 2009-03-31.
Domtar is a major North American manufacturer of pulp and forest products fine papers and packaging that fosters sustainable development through the rigorous application of its integrated forest management policy. A leading manufacturer and marketer of printing and writing papers Domtar is also a significant Canadian producer of containerboard and corrugated containers and a major Eastern Canadian lumber producer. Domtar Corp. has a market cap of $866.7 million; its shares were traded at around $1.75 with a P/E ratio of 10.3 and P/S ratio of 0.1.
Sales for the first quarter of 2009 amounted to $1,302 million, a decrease of $363 million, or 22%, from sales of $1,665 million in the first quarter of 2008. The decrease in sales was mainly attributable to lower shipments for pulp and paper ($283 million) reflecting softer shipments for uncoated freesheet in our Papers business which declined approximately 23% when compared to the first quarter of 2008 resulting in the implementation of further restructuring activities in 2008 and first quarter of 2009 (refer to the Executive Summary, section Restructuring activities, above), lower average selling prices for pulp ($65 million) as well as lower shipments and lower average selling prices for our wood products ($14 million and $4 million, respectively). These factors were partially offset by higher average selling prices for paper ($48 million) reflecting the price increases implemented in 2008.
Cost of sales, excluding depreciation and amortization, amounted to $1,123 million in the first quarter of 2009, a decrease of $219 million, or 16%, compared to cost of sales, excluding depreciation and amortization, of $1,342 million in the first quarter of 2008. This decrease was mainly attributable to lower shipments for paper and pulp ($106 million), the favorable impact of a weaker Canadian dollar on our Canadian denominated expenses, net of our hedging program ($44 million), lower costs for maintenance ($17 million), lower freight costs ($13 million) and the realization of savings stemming from restructuring activities. These factors were partially offset by higher costs for raw materials, including chemicals ($17 million) and fiber ($10 million), higher costs related to the increase in lack-of-order downtime and machine slowdowns ($50 million) as well as a higher inventory revaluation charge due to the significant decline in pulp price ($15 million). In the first quarter of 2008, we recorded a reversal of a provision for $23 million due to the early termination by the counterparty of an unfavorable contract.
Operating loss in the first quarter of 2009 amounted to $22 million, a decrease of $116 million compared to operating income in the first quarter of 2008 of $94 million, in part due to a $35 million accelerated depreciation charge for the write-down on property, plant and equipment in the first quarter of 2009, related to the closure of a paper machine at our Plymouth pulp and paper mill. The decrease is also attributable to the factors mentioned above as well as higher closure and restructuring costs ($23 million) in the first quarter of 2009. The increase in closure and restructuring costs is primarily due to the closure of one paper machine at our Plymouth pulp and paper mill, effective in the first quarter of 2009, as well as the closure of our paper machine at our Dryden pulp and paper mill effective in the fourth quarter of 2008.
Income tax benefit amounted to $8 million in the first quarter of 2009, which was comprised of current tax expense of $7 million and a deferred tax benefit of $15 million, compared to income tax expense of $19 million in the first quarter of 2008, which was comprised of current tax expense of $7 million and deferred tax expense of $12 million. We made no income tax payments and received no significant income tax refunds during the first quarter of 2009. In the first quarter of 2009, our effective tax rate was 15%, due to managements estimate that no tax benefits will be realized on additional Canadian operating losses, as compared to an effective tax rate of 35% in the first quarter of 2008. As a result, the actual effective tax rate of future periods could be impacted by a change in the ratio of separate Canadian income or loss to total consolidated income or loss for 2009. The effective tax rate for the first quarter of 2009 was also impacted by state tax law changes that provided additional tax benefit.
Net loss amounted to $45 million ($0.09 per common share on a diluted basis) in the first quarter of 2009, a decrease of $81 million compared to net earnings of $36 million ($0.07 per common share on a diluted basis) in the first quarter of 2008, mainly due to the factors mentioned above.
Read the The complete ReportUFS is in the portfolios of Seth Klarman of The Baupost Group, Dodge & Cox, NWQ Managers of NWQ Investment Management Co, PRIMECAP Management.
Domtar is a major North American manufacturer of pulp and forest products fine papers and packaging that fosters sustainable development through the rigorous application of its integrated forest management policy. A leading manufacturer and marketer of printing and writing papers Domtar is also a significant Canadian producer of containerboard and corrugated containers and a major Eastern Canadian lumber producer. Domtar Corp. has a market cap of $866.7 million; its shares were traded at around $1.75 with a P/E ratio of 10.3 and P/S ratio of 0.1.
Highlight of Business Operations:
In the first quarter of 2009, we reported an operating loss of $22 million, an improvement of $697 million when compared to operating loss of $719 million in the fourth quarter of 2008. This improvement in operating loss was mostly attributable to an aggregate $708 million charge for the impairment and write-off of goodwill, property, plant and equipment and intangible assets recorded in the fourth quarter of 2008 compared to a $35 million charge in the first quarter of 2009 attributable to the write-down of property, plant and equipment for accelerated depreciation due to the permanent closure of a paper machine. Our first quarter of 2009 results were negatively impacted by the decrease in our Papers business, which has experienced a 7% decrease in shipments in the first quarter of 2009 compared to the fourth quarter of 2008. Our strategy of maintaining our production levels in line with meeting our customer demand has resulted in Domtar permanently curtailing production since the beginning of 2008 by approximately 780,000 tons of paper, reducing our headcount by approximately 2,200 employees since the beginning of 2008 and by taking lack-of-order downtime and machine slowdowns of 185,000 tons of paper and 75,000 metric tons of pulp in the first quarter of 2009 compared to 205,000 tons and 100,000 metric tons, respectively, in the fourth quarter of 2008. The permanent shut downs have also resulted in additional closure costs in the first quarter of 2009 of $24 million and the $35 million write-down charge compared to $28 million and the $708 million impairment charge in the fourth quarter of 2008. The lack-of-order downtime and machine slowdowns continued to negatively impact our earnings. Our Papers business has seen higher costs of chemicals and energy, and continued to see a significant decrease in average selling prices for pulp, which resulted in a higher pulp inventory revaluation charge in the first quarter of 2009. However, in the first quarter of 2009, we recorded a refundable excise tax credit of $46 million for the production and use of alternative bio fuel mixtures. In addition, we had lower costs related to maintenance, lower freight costs, lower costs related to synergies and integration and our paper prices remained relatively stable when compared to the fourth quarter of 2008.Sales for the first quarter of 2009 amounted to $1,302 million, a decrease of $363 million, or 22%, from sales of $1,665 million in the first quarter of 2008. The decrease in sales was mainly attributable to lower shipments for pulp and paper ($283 million) reflecting softer shipments for uncoated freesheet in our Papers business which declined approximately 23% when compared to the first quarter of 2008 resulting in the implementation of further restructuring activities in 2008 and first quarter of 2009 (refer to the Executive Summary, section Restructuring activities, above), lower average selling prices for pulp ($65 million) as well as lower shipments and lower average selling prices for our wood products ($14 million and $4 million, respectively). These factors were partially offset by higher average selling prices for paper ($48 million) reflecting the price increases implemented in 2008.
Cost of sales, excluding depreciation and amortization, amounted to $1,123 million in the first quarter of 2009, a decrease of $219 million, or 16%, compared to cost of sales, excluding depreciation and amortization, of $1,342 million in the first quarter of 2008. This decrease was mainly attributable to lower shipments for paper and pulp ($106 million), the favorable impact of a weaker Canadian dollar on our Canadian denominated expenses, net of our hedging program ($44 million), lower costs for maintenance ($17 million), lower freight costs ($13 million) and the realization of savings stemming from restructuring activities. These factors were partially offset by higher costs for raw materials, including chemicals ($17 million) and fiber ($10 million), higher costs related to the increase in lack-of-order downtime and machine slowdowns ($50 million) as well as a higher inventory revaluation charge due to the significant decline in pulp price ($15 million). In the first quarter of 2008, we recorded a reversal of a provision for $23 million due to the early termination by the counterparty of an unfavorable contract.
Operating loss in the first quarter of 2009 amounted to $22 million, a decrease of $116 million compared to operating income in the first quarter of 2008 of $94 million, in part due to a $35 million accelerated depreciation charge for the write-down on property, plant and equipment in the first quarter of 2009, related to the closure of a paper machine at our Plymouth pulp and paper mill. The decrease is also attributable to the factors mentioned above as well as higher closure and restructuring costs ($23 million) in the first quarter of 2009. The increase in closure and restructuring costs is primarily due to the closure of one paper machine at our Plymouth pulp and paper mill, effective in the first quarter of 2009, as well as the closure of our paper machine at our Dryden pulp and paper mill effective in the fourth quarter of 2008.
Income tax benefit amounted to $8 million in the first quarter of 2009, which was comprised of current tax expense of $7 million and a deferred tax benefit of $15 million, compared to income tax expense of $19 million in the first quarter of 2008, which was comprised of current tax expense of $7 million and deferred tax expense of $12 million. We made no income tax payments and received no significant income tax refunds during the first quarter of 2009. In the first quarter of 2009, our effective tax rate was 15%, due to managements estimate that no tax benefits will be realized on additional Canadian operating losses, as compared to an effective tax rate of 35% in the first quarter of 2008. As a result, the actual effective tax rate of future periods could be impacted by a change in the ratio of separate Canadian income or loss to total consolidated income or loss for 2009. The effective tax rate for the first quarter of 2009 was also impacted by state tax law changes that provided additional tax benefit.
Net loss amounted to $45 million ($0.09 per common share on a diluted basis) in the first quarter of 2009, a decrease of $81 million compared to net earnings of $36 million ($0.07 per common share on a diluted basis) in the first quarter of 2008, mainly due to the factors mentioned above.
Read the The complete ReportUFS is in the portfolios of Seth Klarman of The Baupost Group, Dodge & Cox, NWQ Managers of NWQ Investment Management Co, PRIMECAP Management.
