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Cellulose Fibers HOW WE DID IN 2007 We report sales volume and annual production data for our Cellulose Fibers business segment in Our Business/What We Do/Cellulose Fibers. Here is a comparison of net sales and revenues and contribution to earnings for the last three years: Net Sales and Revenues and Contribution to Earnings for Cellulose Fibers  COMPARING 2007 WITH 2006 In 2007: • Net sales and revenues decreased $124 million, or 6 percent. • Contribution to earnings increased $87 million or 61 percent. Net sales and revenues Net sales and revenues decreased primarily due to a decrease in pulp sales volume, which was partially offset by an increase in average price realizations for pulp and liquid packaging board: • Average price realizations for pulp and liquid packaging improved primarily due to a weaker U.S. dollar and strong demand. – Pulp price realizations improved $82 per ton, or 13 percent. – Liquid packaging board price realizations improved $33 per ton, or 4 percent. • Sales volume of pulp declined approximately 551,000 tons or 21 percent. The volume decrease was primarily due to the divestiture of the Kamloops, British Columbia mill and other white paper mills in the Domtar Transaction and the closures of the Prince Albert, Saskatchewan mill in March 2006, and the Cosmopolis, Washington mill in September 2006. • Sales volume of liquid packaging increased approximately 11,000 tons, or 4 percent. Contribution to earnings Contribution to earnings increased primarily due to the following: • increased price realizations resulting from improved market conditions provided approximately $188 million in additional contribution – $170 million from pulp and $18 million from liquid packaging board; and • lower charges for chemicals and energy and increased cost recovery from slush pulp sales reduced expenses by approximately $23 million. Partially offsetting these increases in earnings were the following: • an increase in raw material costs of approximately $53 million, primarily related to higher prices paid for chips; • lower pulp sales volumes, which reduced segment earnings by $37 million; • a $22 million increase in operating costs, including maintenance, depreciation and the effect of the strengthening of the Canadian exchange rate on Canadian operating costs; and • a $17 million decline in earnings from our interest in our newsprint joint venture, primarily due to lower North American newsprint market prices. COMPARING 2006 WITH 2005 In 2006: • Net sales and revenues increased $220 million, or 13 percent. • Contribution to earnings increased $140 million. Net sales and revenues Net sales and revenues increased primarily due to the following: • Average price realizations of pulp and liquid packaging improved.
Contribution to earnings increased primarily due to the following: • Improved price realizations provided approximately $117 million in additional contribution – $104 million from pulp and $13 million from liquid packaging board. This improvement was primarily due to improved market conditions; • charges for facility closures decreased $20 million; • energy, maintenance, and the cost of purchased pulp costs decreased approximately $11 million, $8 million and $5 million, respectively; and • productivity improvements resulted in cost reductions of $18 million. Partially offsetting these increases in earnings were the following: • the strengthening of the Canadian to U.S. dollar exchange rate which increased operating costs of our Canadian operations by $23 million; • an increase in raw material costs of approximately $19 million, primarily driven by chip price increases; and • higher freight costs, which increased $13 million. OUR OUTLOOK We expect first quarter 2008 earnings for this segment to be slightly below the fourth quarter of 2007. Pulp and liquid packaging board prices are expected to increase in the first quarter. Manufacturing costs are expected to increase as a result of a scheduled increase in annual maintenance outages in the first quarter compared with none in the fourth quarter. |