Domtar Corporation reports preliminary first quarter 2009 financial results



    
    TICKER SYMBOL
    UFS (NYSE, TSX)

    Company generates free cash flow despite costs for downtime and a steep
    decline in pulp prices

    (All financial information is in U.S. dollars, and all earnings (loss)
    per share results are diluted, unless otherwise noted.)

    - Net loss of $0.09 per share, loss before items(1) of $0.07 per share
    - Cash flow provided from operating activities of $57 million
    - Lack-of-order downtime and machine slowdowns totaling 185 thousand
      tons of paper and 75 thousand metric tons of pulp
    

    MONTREAL, May 1 /CNW Telbec/ - Domtar Corporation (NYSE/TSX: UFS) today
reported a net loss of $45 million ($0.09 per share) for the first quarter of
2009 compared to a net loss of $676 million ($1.31 per share) for the fourth
quarter of 2008 and net earnings of $36 million ($0.07 per share) for the
first quarter of 2008. Sales for the first quarter of 2009 amounted to $1.3
billion. Excluding items(1) listed below, the Company lost $38 million ($0.07
per share(1)) for the first quarter of 2009 compared to a loss of $20 million
($0.04 per share(1)) for the fourth quarter of 2008 and earnings of $25
million ($0.05 per share(1)) for the first quarter of 2008.

    
    First quarter 2009:
    ------------------

    - Refundable excise tax credit for the production and use of alternative
      bio fuel mixtures of $46 million ($28 million after tax);
    - Charge of $35 million ($21 million after tax) related to the write-down
      of property, plant and equipment at the Plymouth, North Carolina, mill;
      and
    - Closure and restructuring costs of $24 million ($14 million after tax).

    Fourth quarter 2008:
    -------------------

    - 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.

    First quarter 2008:
    ------------------

    - Reversal of a $23 million provision ($17 million after tax) due to the
      early termination of an unfavorable contract by the counterparty;
    - Costs of $8 million ($5 million after tax) related to synergies and
      integration; and
    - Closure and restructuring costs of $1 million ($1 million after tax).

    "We continue to face a very hostile environment in pulp with prices
reaching cyclical lows. To bring our system back in balance we have announced
the indefinite closure of our Woodland pulp mill and idled our Dryden pulp
mill for ten weeks," said John D. Williams, President and Chief Executive
Officer. "Our people have responded remarkably well to the mandate of
right-sizing the organization, improving its operating performance and
reducing procurement costs and discretionary spending. We have generated free
cash flow and our paper inventories have been significantly reduced despite a
very weak demand environment. This could prove to be a catalyst as demand for
fine paper levels off," added Mr. Williams.

    SEGMENT REVIEW

    Papers

    Operating income before items(1) was $5 million in the first quarter of
2009 compared to operating income before items(1) of $29 million in the fourth
quarter of 2008. Depreciation and amortization totaled $94 million in the
first quarter of 2009. When compared to the fourth quarter of 2008, paper
shipments decreased 7% while pulp shipments decreased 11%. The
shipments-to-production ratio for papers was 105% in the first quarter of
2009, compared to 104% in the fourth quarter of 2008. Paper inventories were
43,000 tons lower at the end of March when compared to year-end levels.
    The decrease in operating income before items(1) in the first quarter of
2009 was the result of lower average selling prices for pulp and a resulting
higher inventory revaluation charge for pulp, lower paper and pulp shipments,
higher usage for energy and higher costs for chemicals. These factors were
partially offset by lower maintenance costs, lower freight costs, lower
depreciation and amortization, lower energy and fiber costs and a favorable
exchange rate including hedging.

    (In millions of dollars)                            1Q 2009      4Q 2008
    ------------------------------------------------  ----------- -----------

    Sales                                                $1,106       $1,240

    Operating income (loss)                                 ($6)       ($693)

    Operating income before items(1)                         $5          $29

    Depreciation and amortization                           $94         $104


    Paper Merchants

    Operating income was $2 million in the first quarter of 2009 unchanged
from the fourth quarter of 2008. Depreciation and amortization was $1 million
in the first quarter of 2009. Deliveries decreased 1% when compared to the
fourth quarter. Lower selling prices and a decrease in deliveries were offset
by lower costs.

    (In millions of dollars)                            1Q 2009      4Q 2008
    ------------------------------------------------  ----------- -----------

    Sales                                                  $217         $228

    Operating income                                         $2           $2

    Depreciation and amortization                            $1           $1


    Wood

    Operating loss before items(1) was $16 million in the first quarter of
2009, compared to operating loss before items(1) of $9 million in the fourth
quarter of 2008. Depreciation and amortization totaled $4 million in the first
quarter of 2009. When compared to the fourth quarter of 2008, lumber shipments
decreased 21%.
    The increase in operating loss before items(1) in the first quarter of
2009 was primarily the result of lower average selling prices, an increase in
bad debt expense, and higher energy costs. These were partially offset by a
favorable exchange rate including hedging.

    (In millions of dollars)                            1Q 2009      4Q 2008
    ------------------------------------------------  ----------- -----------

    Sales                                                   $43          $59

    Operating loss                                         ($18)        ($28)

    Operating loss before items(1)                         ($16)         ($9)

    Depreciation and amortization                            $4           $5


    LIQUIDITY AND CAPITAL

    Cash flow provided from operating activities amounted to $57 million and
free cash flow(1) amounted to $33 million in the first quarter of 2009.
Domtar's net debt-to-total capitalization ratio(1) stood at 51% at March 31,
2009 compared to 50% at December 31, 2008. Amounts drawn on the receivables
securitization program were reduced by $15 million when compared to year-end
levels to $95 million.

    ALTERNATIVE FUEL CREDITS

    The U.S. Internal Revenue Code permits a refundable excise tax credit for
the production and use of alternative bio fuel mixtures. Domtar submitted an
application with the U.S. Internal Revenue Service to be registered as an
alternative fuel mixer and received notification that its registration had
been accepted in late March 2009. The Company began producing and consuming
alternative fuel mixtures in February 2009 at its eligible mills. In the first
quarter of 2009, the Company has recorded $46 million in "Other operating
(income) expense" related to claims filed for the period ending March 31,
2009. The claims for the refundable credits are based on the volume of bio
fuel mixtures produced and burned during that period. The $46 million credit
represents approximately 40% of the estimated future eligible alternative fuel
tax credits available to the Company each quarter.
    According to the Code, the tax credit expires at the end of 2009. The U.S.
Congress is currently reviewing the Alternative Fuel Credit law and may enact
legislation to amend the Code. Although this does create some uncertainty
related to the future of this credit, the Company believes that amounts
reflected in income to date have met the revenue recognition criteria.

    OUTLOOK

    Market conditions in all Domtar businesses remain challenging, although
the rapid decline of paper volumes in recent months has been abating. In pulp,
transaction prices have been stabilizing in some overseas markets but
inventories are still high. Domtar will continue to manage its working capital
requirements through inventory control and the balancing of production to meet
customer demand. The indefinite closure of the Woodland pulp mill will help
lower inventories and, in combination with the permanent closure of a paper
machine at the Plymouth pulp and paper mill, will contribute to reducing fixed
costs in the Papers segment starting in the second quarter.

    EARNINGS CONFERENCE CALL

    The Company will hold a conference call today at 10:00 a.m. (ET) to
discuss its first quarter 2009 financial results. Financial analysts are
invited to participate in the call by dialing at least 10 minutes before start
time 1 (866) 321-8231 (toll free - North America) or 1 (416) 642-5213
(International), while media and other interested individuals are invited to
listen to the live webcast on the Domtar Corporation website at
www.domtar.com.

                            --------------------

    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
publication 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 responsible papers. Domtar owns and operates Domtar Distribution
Group, an extensive network of strategically located paper distribution
facilities. Domtar also produces lumber and other specialty and industrial
wood products. The Company employs nearly 11,000 people. To learn more, visit
www.domtar.com.

    Forward-Looking Statements

    All statements in this news release that are not based on historical fact
are "forward-looking statements." While management has based any
forward-looking statements contained herein on its current expectations, the
information on which such expectations were based may change. These
forward-looking statements rely on a number of assumptions concerning future
events and are subject to a number of risks, uncertainties, and other factors,
many of which are outside of our control that could cause actual results to
materially differ from such statements. Such risks, uncertainties, and other
factors include, but are not necessarily limited to, those set forth under the
captions "Forward-Looking Statements" and "Risk Factors" of the latest Form
10-K filed with the SEC as periodically updated by subsequently filed Form
10-Q's. Unless specifically required by law, we assume no obligation to update
or revise these forward-looking statements to reflect new events or
circumstances.

    ----------------------
    (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)

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                                                          Three        Three
                                                         months       months
                                                          ended        ended
                                                       March 31     March 30
    -------------------------------------------------------------------------
                                                           2009         2008
    -------------------------------------------------------------------------
                                                      ----- (Unaudited) -----

                                                              $            $
                                                      ----------
    Selected Segment Information

    Sales
      Papers                                              1,106        1,429
      Paper Merchants                                       217          262
      Wood                                                   43           63
    -------------------------------------------------------------------------
    Total for reportable segments                         1,366        1,754
      Intersegment sales - Papers                           (60)         (83)
      Intersegment sales - Wood                              (4)          (6)
    -------------------------------------------------------------------------
    Consolidated sales                                    1,302        1,665
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Depreciation and amortization
      Papers                                                 94          110
      Paper Merchants                                         1            -
      Wood                                                    4            6
    -------------------------------------------------------------------------
    Total for reportable segments                            99          116
      Write-down of property, plant and
       equipment - Papers                                    35            -
    -------------------------------------------------------------------------
    Consolidated depreciation and amortization
     and write-down of property, plant and equipment        134          116
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Operating income (loss)
      Papers                                                 (6)         114
      Paper Merchants                                         2            3
      Wood                                                  (18)         (22)
    -------------------------------------------------------------------------
    Total for reportable segments                           (22)          95
      Corporate                                               -           (1)
    -------------------------------------------------------------------------
    Consolidated operating income (loss)                    (22)          94
    Interest expense                                         31           39
    -------------------------------------------------------------------------
    Earnings (loss) before income taxes                     (53)          55
    Income tax (benefit) expense                             (8)          19
    -------------------------------------------------------------------------
    Net (loss) earnings                                     (45)          36
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Per common share (in dollars)
      Net (loss) earnings
        Basic                                             (0.09)        0.07
        Diluted                                           (0.09)        0.07
    Weighted average number of common
     and exchangeable shares outstanding (millions)
        Basic                                             515.5        515.5
        Diluted                                           515.5        515.9
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Cash flows provided from operating activities            57           27
    Additions to property, plant and equipment               24           29
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


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

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                                          Three        Three
                                                         months       months
                                                          ended        ended
                                                       March 31     March 30
    -------------------------------------------------------------------------
                                                           2009         2008
    -------------------------------------------------------------------------
                                                      ----- (Unaudited) -----

                                                              $            $
                                                      ----------
    Sales                                                 1,302        1,665
    Operating expenses
      Cost of sales, excluding depreciation and
       amortization                                       1,123        1,342
      Depreciation and amortization                          99          116
      Selling, general and administrative                    83          108
      Write-down of property, plant and equipment            35            -
      Closure and restructuring costs                        24            1
      Other operating (income) expense                      (40)           4
    -------------------------------------------------------------------------
                                                          1,324        1,571
    -------------------------------------------------------------------------
    Operating income (loss)                                 (22)          94
    Interest expense                                         31           39
    -------------------------------------------------------------------------
    Earnings (loss) before income taxes                     (53)          55
    Income tax (benefit) expense                             (8)          19
    -------------------------------------------------------------------------
    Net (loss) earnings                                     (45)          36
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Per common share (in dollars)
      Net (loss) earnings
        Basic                                             (0.09)        0.07
        Diluted                                           (0.09)        0.07
    Weighted average number of common
     and exchangeable shares outstanding (millions)
        Basic                                             515.5        515.5
        Diluted                                           515.5        515.9
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


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

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                                       March 31  December 31
    -------------------------------------------------------------------------
                                                           2009         2008
    -------------------------------------------------------------------------
                                                      ----- (Unaudited) -----

                                                              $            $
                                                      ----------
    Assets
    Current assets
      Cash and cash equivalents                             145           16
      Receivables, less allowances of $12 and $11           506          477
      Inventories                                           922          963
      Prepaid expenses                                       22           27
      Income and other taxes receivable                      50           56
      Deferred income taxes                                 115          116
    -------------------------------------------------------------------------
        Total current assets                              1,760        1,655

    Property, plant and equipment, at cost                8,888        8,963
    Accumulated depreciation                             (4,734)      (4,662)
    -------------------------------------------------------------------------
        Net property, plant and equipment                 4,154        4,301
    Intangible assets, net of amortization                   76           81
    Other assets                                             72           67
    -------------------------------------------------------------------------
          Total assets                                    6,062        6,104
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities and shareholders' equity
    Current liabilities
      Bank indebtedness                                      52           43
      Trade and other payables                              576          646
      Income and other taxes payable                         46           36
      Long-term debt due within one year                     18           18
    -------------------------------------------------------------------------
        Total current liabilities                           692          743

    Long-term debt                                        2,195        2,110
    Deferred income taxes                                   809          824
    Other liabilities and deferred credits                  293          284

    Shareholders' equity
      Common stock                                            5            5
      Exchangeable shares                                   134          138
      Additional paid-in capital                          2,751        2,743
      Accumulated deficit                                  (571)        (526)
      Accumulated other comprehensive loss                 (246)        (217)
    -------------------------------------------------------------------------
        Total shareholders' equity                        2,073        2,143
    -------------------------------------------------------------------------
          Total liabilities and shareholders' equity      6,062        6,104
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


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

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                                          Three        Three
                                                         months       months
                                                          ended        ended
                                                       March 31     March 30
    -------------------------------------------------------------------------
                                                           2009         2008
    -------------------------------------------------------------------------
                                                      ----- (Unaudited) -----

                                                              $            $
                                                      -----------
    Operating activities
    Net (loss) earnings                                     (45)          36
    Adjustments to reconcile net (loss) earnings to
     cash flows from operating activities
      Depreciation and amortization                          99          116
      Deferred income taxes                                 (15)          12
      Write-down of property, plant and equipment            35            -
      Stock-based compensation expense                        4            5
      Other                                                   3            2

    Changes in assets and liabilities
      Receivables                                           (36)         (81)
      Inventories                                            34          (11)
      Prepaid expenses                                        7          (17)
      Trade and other payables                              (55)         (18)
      Income and other taxes                                 14           12
      Difference between employer pension and other
       post-retirement expense and contribution              13           (5)
      Other assets and other liabilities                     (1)         (24)
    -------------------------------------------------------------------------
      Cash flows provided from operating activities          57           27
    -------------------------------------------------------------------------

    Investing activities
    Additions to property, plant and equipment              (24)         (29)
    Proceeds from disposals of property, plant and
     equipment                                                -           21
    -------------------------------------------------------------------------
      Cash flows used for investing activities              (24)          (8)
    -------------------------------------------------------------------------

    Financing activities
    Net change in bank indebtedness                           9           23
    Change of revolving bank credit facility                 90          (50)
    Repayment of long-term debt                              (3)          (6)
    -------------------------------------------------------------------------
      Cash flows provided from (used for) financing
       activities                                            96          (33)
    -------------------------------------------------------------------------

    Net increase (decrease) in cash and cash equivalents    129          (14)
    Cash and cash equivalents at beginning of period         16           71
    -------------------------------------------------------------------------
    Cash and cash equivalents at end of period              145           57
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Supplemental cash flow information
      Net cash payments for:
        Interest                                             24           19
        Income taxes                                          -            7
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Domtar Corporation
    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 (Loss) Before Items," "EBITDA," "EBITDA Before Items," "Free Cash
Flow," "Net Debt" and "Net Debt-to-Total Capitalization." Management believes
that the financial metrics presented are frequently used by investors and are
useful to evaluate our ability to service debt and the overall credit profile.
Management believes these metrics are also useful to measure the operating
performance and benchmark with peers within the industry. These metrics are
presented as a complement to enhance the understanding of operating results
but not in substitution for GAAP results.
    The Company calculates "Earnings (Loss) Before Items" and "EBITDA Before
Items" by excluding the after-tax (pre-tax) effect of items considered by
management as not typifying the Net earnings (loss) reported under U.S. GAAP.
Management uses these measures, as well as EBITDA and Free Cash Flow, to focus
on ongoing operations and believes that it is useful to investors because it
enables them to perform meaningful comparisons between periods. Domtar
believes that using this information along with Net earnings (loss) provides
for a more complete analysis of the results of operations. Net earnings (loss)
and Cash flow from operating activities are the most directly comparable GAAP
measures.

                                          -----------------------------------
                                                           2009
                                          -----------------------------------
                                              Q1     Q2     Q3     Q4    YTD
                                          -----------------------------------
    Reconciliation of
     "Earnings (Loss)
     Before Items" to
     Net earnings (loss)
          Net earnings (loss)         ($)    (45)
      (-) Alternative fuel tax
           credits                    ($)    (28)
      (+) Write-down of PP&E/
           Impairment of PP&E and
           intangible assets          ($)     21
      (+) Closure and
           restructuring costs        ($)     14
      (+) Impairment of goodwill      ($)
      (+) Valuation allowance on
           Canadian deferred
           income tax assets          ($)
      (+) Costs related to
           synergies,
           integration and
           optimization               ($)
      (-) Reversal of a
           provision for
           unfavorable contract       ($)
      (-) Gain on debt
           repurchase                 ($)
      (-) Gain related to the
           sale of trademarks         ($)
      (=) Earnings (Loss)
           Before Items               ($)    (38)
      (/) Weighted avg. number
           of common shares
           outstanding
           (diluted)           (millions)  515.5
      (=) Earnings (Loss)
           Before Items per
           diluted share              ($)  (0.07)

    Reconciliation of
     "EBITDA" and "EBITDA
     Before Items" to
     Net earnings (loss)
          Net earnings (loss)         ($)    (45)
      (+) Income tax expense
           (benefit)                  ($)     (8)
      (+) Interest expense            ($)     31
      (=) Operating income
           (loss)                     ($)    (22)
      (+) Depreciation and
           amortization               ($)     99
      (+) Write-down of PP&E/
           Impairment of
           goodwill, PP&E and
           intangible assets          ($)     35
      (equal) EBITDA                  ($)    112
      (-) Alternative fuel tax
           credits                    ($)    (46)
      (+) Closure and
           restructuring costs        ($)     24
      (-) Reversal of a
           provision for
           unfavorable contract       ($)
      (+) Costs related to
           synergies,
           integration and
           optimization               ($)
      (-) Gain related to the
           sale of trademarks         ($)
      (=) EBITDA Before
           Items                      ($)     90

    Reconciliation of
     "Free Cash Flow"
     to Cash flow from
     operating activities
          Cash flow provided
           from operating
           activities                 ($)     57
      (-) Additions to
           property, plant
           and equipment              ($)    (24)
      (equal) Free Cash Flow          ($)     33

    "Net Debt-to-Total
      Capitalization"
      Computation
          Bank indebtedness           ($)     52
      (+) Current portion of
           long-term debt             ($)     18
      (+) Long-term debt              ($)  2,195
      (-) Cash and cash
           equivalents                ($)   (145)
      (equal) Net Debt                ($)  2,120
      (+) Shareholders' equity        ($)  2,073
      (=) Total
           capitalization             ($)  4,193
          Net debt                    ($)  2,120
      (/) Total capitalization        ($)  4,193
      (=) Net Debt-to-Total
           Capitalization             (%)     51%
                                          -----------------------------------


                                          -----------------------------------
                                                           2008
                                          -----------------------------------
                                              Q1     Q2     Q3     Q4    YTD
                                          -----------------------------------
    Reconciliation of
     "Earnings (Loss)
     Before Items" to
     Net earnings (loss)
          Net earnings (loss)         ($)     36     24     43   (676)  (573)
      (-) Alternative Fuel tax
           credits                    ($)
      (+) Write-down of PP&E/
           Impairment of PP&E and
           intangible assets          ($)                         270    270
      (+) Closure and
           restructuring costs        ($)      1      7      2     18     28
      (+) Impairment of goodwill      ($)                         321    321
      (+) Valuation allowance on
           Canadian deferred
           income tax assets          ($)                          52     52
      (+) Costs related to
           synergies,
           integration and
           optimization               ($)      5      5      6      3     19
      (-) Reversal of a
           provision for
           unfavorable contract       ($)    (17)                        (17)
      (-) Gain on debt
           repurchase                 ($)                          (8)    (8)
      (-) Gain related to the
           sale of trademarks         ($)            (4)                  (4)
      (=) Earnings (Loss)
           Before Items               ($)     25     32     51    (20)    88
      (/) Weighted avg. number
           of common shares
           outstanding
           (diluted)           (millions)  515.9  515.8  515.7  515.5  515.5
      (=) Earnings (Loss)
           Before Items per
           diluted share              ($)   0.05   0.06   0.10  (0.04)  0.17

    Reconciliation of
     "EBITDA" and "EBITDA
     Before Items" to
     Net earnings (loss)
          Net earnings (loss)         ($)     36     24     43   (676)  (573)
      (+) Income tax expense
           (benefit)                  ($)     19     19     30    (65)     3
      (+) Interest expense            ($)     39     37     35     22    133
      (=) Operating income
           (loss)                     ($)     94     80    108   (719)  (437)
      (+) Depreciation and
           amortization               ($)    116    118    119    110    463
      (+) Write-down of PP&E/
           Impairment of
           goodwill, PP&E and
           intangible assets          ($)                         708    708
      (equal) EBITDA                  ($)    210    198    227     99    734

      (-) Alternative fuel tax
           credits                    ($)
      (+) Closure and
           restructuring costs        ($)      1     11      3     28     43
      (-) Reversal of a
           provision for
           unfavorable contract       ($)    (23)                        (23)
      (+) Costs related to
           synergies,
           integration and
           optimization               ($)      8      9     10      5     32
      (-) Gain related to the
           sale of trademarks         ($)            (6)                  (6)
      (=) EBITDA Before
           Items                      ($)    196    212    240    132    780

    Reconciliation of
     "Free Cash Flow"
     to Cash flow from
     operating activities
          Cash flow provided
           from operating
           activities                 ($)     27    113    131    (74)   197
      (-) Additions to
           property, plant
           and equipment              ($)    (29)   (36)   (49)   (49)  (163)
      (equal) Free Cash Flow          ($)     (2)    77     82   (123)    34

    "Net Debt-to-Total
      Capitalization"
      Computation
          Bank indebtedness           ($)     86     38     36     43
      (+) Current portion of
           long-term debt             ($)     17     19     19     38
      (+) Long-term debt              ($)  2,155  2,122  2,118  2,090
      (-) Cash and cash
           equivalents                ($)    (57)   (61)  (127)   (16)
      (equal) Net Debt                ($)  2,201  2,118  2,046  2,155
      (+) Shareholders' equity        ($)  3,172  3,217  3,194  2,143
      (=) Total
           capitalization             ($)  5,373  5,335  5,240  4,298
          Net debt                    ($)  2,201  2,118  2,046  2,155
      (/) Total capitalization        ($)  5,373  5,335  5,240  4,298
      (=) Net Debt-to-Total
           Capitalization             (%)     41%    40%    39%    50%
                                          -----------------------------------


    "Earnings (Loss) Before Items," "EBITDA," "EBITDA 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
    Reconciliation of Non-GAAP Financial Measures - By Segment 2009
    (In millions of dollars, unless otherwise noted)

    The following table sets forth certain non-U.S. generally accepted
accounting principles ("GAAP") financial metrics identified as "Operating
Income Before Items" and "EBITDA Before Items" by reportable segment.
Management believes that the financial metrics presented are frequently used
by investors and are useful to measure the operating performance and benchmark
with peers within the industry. These metrics are presented as a complement to
enhance the understanding of operating results but not in substitution for
GAAP results.
    The company calculates the segmented "Operating Income Before Items" by
excluding the pre-tax effect of items considered by management as not
typifying the segment Operating income (loss) reported under U.S. GAAP.
Management uses these measures to focus on ongoing operations and believes
that it is useful to investors because it enables them to perform meaningful
comparisons between periods. Domtar believes that using this information along
with Operating income (loss) provides for a more complete analysis of the
results of operations. Operating income (loss) by segment is the most directly
comparable GAAP measure.

                                          -----------------------------------
                                                          Papers
                                          -----------------------------------
                                           Q1'09  Q2'09  Q3'09  Q4'09    YTD
                                          -----------------------------------
    Reconciliation of
     Operating income to
     "Operating Income
     Before Items"
          Operating income (loss)     ($)     (6)
      (-) Alternative fuel tax
           credits                    ($)    (46)
      (+) Write-down of property,
           plant and equipment        ($)     35
      (+) Closure and restructuring
           costs                      ($)     22

      (=) Operating Income
           Before Items               ($)      5

    Reconciliation of
     "Operating Income
     Before Items" to
     "EBITDA Before Items"
          Operating Income
           Before Items               ($)      5
      (+) Depreciation and
           amortization               ($)     94

      (=) EBITDA Before
           Items                      ($)     99
                                          -----------------------------------


                                          -----------------------------------
                                                    Paper Merchants
                                          -----------------------------------
                                           Q1'09  Q2'09  Q3'09  Q4'09    YTD
                                          -----------------------------------
    Reconciliation of
     Operating income to
     "Operating Income
     Before Items"
          Operating income (loss)     ($)      2
      (-) Alternative fuel tax
           credits                    ($)
      (+) Write-down of property,
           plant and equipment        ($)
      (+) Closure and restructuring
           costs                      ($)

      (=) Operating Income
           Before Items               ($)      2

    Reconciliation of
     "Operating Income
     Before Items" to
     "EBITDA Before Items"
          Operating Income
           Before Items               ($)      2
      (+) Depreciation and
           amortization               ($)      1

      (=) EBITDA Before
           Items                      ($)      3
                                          -----------------------------------


                                          -----------------------------------
                                                         Wood
                                          -----------------------------------
                                           Q1'09  Q2'09  Q3'09  Q4'09    YTD
                                          -----------------------------------
    Reconciliation of
     Operating income to
     "Operating Income
     Before Items"
          Operating income (loss)     ($)    (18)
      (-) Alternative fuel tax
           credits                    ($)
      (+) Write-down of property,
           plant and equipment        ($)
      (+) Closure and restructuring
           costs                      ($)      2

      (=) Operating Income
           Before Items               ($)    (16)

    Reconciliation of
     "Operating Income
     Before Items" to
     "EBITDA Before Items"
          Operating Income
           Before Items               ($)    (16)
      (+) Depreciation and
           amortization               ($)      4

      (=) EBITDA Before
           Items                      ($)    (12)
                                          -----------------------------------


                                          -----------------------------------
                                                       Corporate
                                          -----------------------------------
                                           Q1'09  Q2'09  Q3'09  Q4'09    YTD
                                          -----------------------------------
    Reconciliation of
     Operating income to
     "Operating Income
     Before Items"
          Operating income (loss)     ($)
      (-) Alternative fuel tax
           credits                    ($)
      (+) Write-down of property,
           plant and equipment        ($)
      (+) Closure and restructuring
           costs                      ($)

      (=) Operating Income
           Before Items               ($)

    Reconciliation of
     "Operating Income
     Before Items" to
     "EBITDA Before Items"
          Operating Income
           Before Items               ($)
      (+) Depreciation and
           amortization               ($)

      (=) EBITDA Before
           Items                      ($)
                                          -----------------------------------


    "Operating Income Before Items" and "EBITDA 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
    Reconciliation of Non-GAAP Financial Measures - By Segment 2008
    (In millions of dollars, unless otherwise noted)

    The following table sets forth certain non-U.S. generally accepted
accounting principles ("GAAP") financial metrics identified as "Operating
Income Before Items" and "EBITDA Before Items" by reportable segment.
Management believes that the financial metrics presented are frequently used
by investors and are useful to measure the operating performance and benchmark
with peers within the industry. These metrics are presented as a complement to
enhance the understanding of operating results but not in substitution for
GAAP results.
    The company calculates the segmented "Operating Income Before Items" by
excluding the pre-tax effect of items considered by management as not
typifying the segment Operating income (loss) reported under U.S. GAAP.
Management uses these measures to focus on ongoing operations and believes
that it is useful to investors because it enables them to perform meaningful
comparisons between periods. Domtar believes that using this information along
with Operating income (loss) provides for a more complete analysis of the
results of operations. Operating income (loss) by segment is the most directly
comparable GAAP measure.

                                          -----------------------------------
                                                          Papers
                                          -----------------------------------
                                           Q1'08  Q2'08  Q3'08  Q4'08    YTD
                                          -----------------------------------

    Reconciliation of Operating
     income to "Operating Income
     Before Items"
        Operating income (loss)       ($)    114     92    118   (693)  (369)
    (+) Impairment and
         write-down of goodwill,
         PP&E and intangible
         assets                       ($)                         694    694
    (+) Closure and
         restructuring costs          ($)      1     11      3     23     38
    (+) Costs related to
         synergies, integration
         and optimization             ($)      8      9     10      5     32
    (-) Reversal of a provision
         for unfavorable contract     ($)    (23)                        (23)
    (-) Gain related to the sale
         of trademarks                ($)            (6)                  (6)

    (=) Operating Income
         Before Items                 ($)    100    106    131     29    366

    Reconciliation of "Operating
     Income Before Items" to
     "EBITDA Before Items"
        Operating Income Before
         Items                        ($)    100    106    131     29    366
    (+) Depreciation and
         amortization                 ($)    110    110    111    104    435

    (=) EBITDA Before
         Items                        ($)    210    216    242    133    801
                                          -----------------------------------


                                          -----------------------------------
                                                    Paper Merchants
                                          -----------------------------------
                                           Q1'08  Q2'08  Q3'08  Q4'08    YTD
                                          -----------------------------------

    Reconciliation of Operating
     income to "Operating Income
     Before Items"
        Operating income (loss)       ($)      3      2      1      2      8
    (+) Impairment and
         write-down of goodwill,
         PP&E and intangible
         assets                       ($)
    (+) Closure and
         restructuring costs          ($)
    (+) Costs related to
         synergies, integration
         and optimization             ($)
    (-) Reversal of a provision
         for unfavorable contract     ($)
    (-) Gain related to the sale
         of trademarks                ($)

    (=) Operating Income
         Before Items                 ($)      3      2      1      2      8

    Reconciliation of "Operating
     Income Before Items" to
     "EBITDA Before Items"
        Operating Income Before
         Items                        ($)      3      2      1      2      8
    (+) Depreciation and
         amortization                 ($)             1      1      1      3

    (=) EBITDA Before
         Items                        ($)      3      3      2      3     11
                                          -----------------------------------


                                          -----------------------------------
                                                         Wood
                                          -----------------------------------
                                           Q1'08  Q2'08  Q3'08  Q4'08    YTD
                                          -----------------------------------

    Reconciliation of Operating
     income to "Operating Income
     Before Items"
        Operating income (loss)       ($)    (22)   (12)   (11)   (28)   (73)
    (+) Impairment and
         write-down of goodwill,
         PP&E and intangible
         assets                       ($)                          14     14
    (+) Closure and
         restructuring costs          ($)                           5      5
    (+) Costs related to
         synergies, integration
         and optimization             ($)
    (-) Reversal of a provision
         for unfavorable contract     ($)
    (-) Gain related to the sale
         of trademarks                ($)

    (=) Operating Income
         Before Items                 ($)    (22)   (12)   (11)    (9)   (54)

    Reconciliation of "Operating
     Income Before Items" to
     "EBITDA Before Items"
        Operating Income Before
         Items                        ($)    (22)   (12)   (11)    (9)   (54)
    (+) Depreciation and
         amortization                 ($)      6      7      7      5     25

    (=) EBITDA Before
         Items                        ($)    (16)    (5)    (4)    (4)   (29)
                                          -----------------------------------


                                          -----------------------------------
                                                       Corporate
                                          -----------------------------------
                                           Q1'08  Q2'08  Q3'08  Q4'08    YTD
                                          -----------------------------------

    Reconciliation of Operating
     income to "Operating Income
     Before Items"
        Operating income (loss)       ($)     (1)    (2)                  (3)
    (+) Impairment and
         write-down of goodwill,
         PP&E and intangible
         assets                       ($)
    (+) Closure and
         restructuring costs          ($)
    (+) Costs related to
         synergies, integration
         and optimization             ($)
    (-) Reversal of a provision
         for unfavorable contract     ($)
    (-) Gain related to the sale
         of trademarks                ($)

    (=) Operating Income
         Before Items                 ($)     (1)    (2)                  (3)

    Reconciliation of "Operating
     Income Before Items" to
     "EBITDA Before Items"
        Operating Income Before
         Items                        ($)     (1)    (2)                  (3)
    (+) Depreciation and
         amortization                 ($)

    (=) EBITDA Before
         Items                        ($)     (1)    (2)                  (3)
                                          -----------------------------------


    "Operating Income Before Items" and "EBITDA 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)

                                          -----------------------------------
                                                           2009
                                          -----------------------------------
                                              Q1     Q2     Q3     Q4    YTD
                                          -----------------------------------
    Papers Segment
      Sales                           ($)  1,106
       Intersegment sales
        - Papers                      ($)    (60)
      Operating income (loss)         ($)    (6)
      Depreciation &
       amortization                   ($)     94
      Impairment and write-down
       of goodwill and PP&E           ($)     35

      Papers
      Papers Production         ('000 ST)    869
      Papers Shipments          ('000 ST)    913
        Uncoated freesheet      ('000 ST)    887
        Coated groundwood       ('000 ST)     26

      Pulp
      Pulp Shipments(a)       ('000 ADMT)    314
        Hardwood Kraft Pulp           (%)     33%
        Softwood Kraft Pulp           (%)     54%
        Fluff Pulp                    (%)     13%

    Paper Merchants Segment
      Sales                           ($)    217
        Intersegment sales
         - Paper Merchants            ($)
      Operating income                ($)      2
      Depreciation &
       amortization                   ($)      1

    Wood Segment
      Sales                           ($)     43
        Intersegment sales
         - Wood                       ($)     (4)
      Operating loss                  ($)    (18)
      Depreciation &
       amortization                   ($)      4
      Impairment of goodwill,
       PP&E and intangible
       assets                         ($)

      Lumber Production    (Millions FBM)    121
      Lumber Shipments     (Millions FBM)    125

    Average Exchange Rates           CAN   1.245
                                      US   0.803
                                          -----------------------------------


                                          -----------------------------------
                                                           2008
                                          -----------------------------------
                                              Q1     Q2     Q3     Q4    YTD
                                          -----------------------------------
    Papers Segment
      Sales                           ($)  1,429  1,407  1,364  1,240  5,440
       Intersegment sales
        - Papers                      ($)    (83)   (73)   (64)   (56)  (276)
      Operating income (loss)         ($)    114     92    118   (693)  (369)
      Depreciation &
       amortization                   ($)    110    110    111    104    435
      Impairment and write-down
       of goodwill and PP&E           ($)                         694    694

      Papers
      Papers Production         ('000 ST)  1,173  1,146  1,115    951  4,385
      Papers Shipments          ('000 ST)  1,205  1,137  1,079    985  4,406
        Uncoated freesheet      ('000 ST)  1,149  1,096  1,044    952  4,241
        Coated groundwood       ('000 ST)     56     41     35     33    165

      Pulp
      Pulp Shipments(a)       ('000 ADMT)    347    347    325    353  1,372
        Hardwood Kraft Pulp           (%)     44%    43%    41%    37%    41%
        Softwood Kraft Pulp           (%)     47%    46%    47%    50%    48%
        Fluff Pulp                    (%)      9%    11%    12%    13%    11%

    Paper Merchants Segment
      Sales                           ($)    262    243    257    228    990
        Intersegment sales
         - Paper Merchants            ($)
      Operating income                ($)      3      2      1      2      8
      Depreciation &
       amortization                   ($)             1      1      1      3

    Wood Segment
      Sales                           ($)     63     70     76     59    268
        Intersegment sales
         - Wood                       ($)     (6)    (8)    (8)    (6)   (28)
      Operating loss                  ($)    (22)   (12)   (11)   (28)   (73)
      Depreciation &
       amortization                   ($)      6      7      7      5     25
      Impairment of goodwill,
       PP&E and intangible
       assets                         ($)                          14     14

      Lumber Production    (Millions FBM)    168    155    163    181    667
      Lumber Shipments     (Millions FBM)    160    181    178    158    677

    Average Exchange Rates           CAN   1.004  1.010  1.042  1.212  1.067
                                      US   0.996  0.990  0.960  0.825  0.937
                                          -----------------------------------

    (a) Figures are gross of market pulp purchased from other producers on
        the open market for some of our paper making operations. Pulp
        shipments represents the amount of pulp produced in excess of our
        internal requirement.

        Note: the term "ST" refers to a short ton, the term "ADMT" refers to
        an air dry metric ton, and the term "FBM" refers to foot board
        measure.
    




For further information:

For further information: Media relations: Michel Marcouiller, (514)
848-5555 ext: 85515, communications@domtar.com; Investor Relations: Pascal
Bossé, (514) 848-5938, ir@domtar.com

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Domtar Corporation

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