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Domtar 2016 Annual Report

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 these metrics are also useful to measure the 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. 2014 2015 2016 Reconciliation of “Earnings before items” to Net earnings Net earnings ($) 431 142 128 (+) Impairment of property, plant and equipment ($) 2 47 22 (+) Closure and restructuring costs ($) 21 4 25 (+) Litigation settlement ($) – – 2 (-) Net gains on disposals of property, plant and equipment ($) – (12) – (+) Impact of purchase accounting ($) 2 – 1 (-) Alternative fuel tax credits ($) (18) – – (+) Debt refinancing costs ($) – 30 – (-) Internal Revenue Service audit settlement items ($) (204) – – (=) Earnings before items ($) 234 211 178 (/) Weighted avg. number of common and exchangeable shares outstanding (diluted) (millions) 64.9 63.4 62.7 (=) Earnings before items per diluted share ($) 3.61 3.33 2.84 Reconciliation of “EBITDA” and “EBITDA before items” to Net earnings Net earnings ($) 431 142 128 (+) Income tax (benefit) expense ($) (170) 14 29 (+) Interest expense, net ($) 103 132 66 (=) Operating income ($) 364 288 223 (+) Depreciation and amortization ($) 384 359 348 (+) Impairment of property, plant and equipment ($) 4 77 29 (-) Net gains on disposals of property, plant and equipment ($) – (15) – (=) EBITDA ($) 752 709 600 (/) Sales ($) 5,563 5,264 5,098 (=) EBITDA margin (%) 14% 13% 12% EBITDA ($) 752 709 600 (-) Alternative fuel tax credits ($) (18) – – (+) Closure and restructuring costs ($) 28 4 32 (+) Impact of purchase accounting ($) 3 – 1 (+) Litigation settlement ($) – – 2 (=) EBITDA before items ($) 765 713 635 (/) Sales ($) 5,563 5,264 5,098 (=) EBITDA margin before items (%) 14% 14% 12% Reconciliation of “Free cash flow” to Cash flow from operating activities Cash flow from operating activities ($) 634 453 465 (-) Additions to property, plant and equipment ($) (236) (289) (347) (=) Free cash flow ($) 398 164 118


Domtar 2016 Annual Report
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