Domtar Corporation reports preliminary first quarter 2010 financial results

Solid first quarter financial performance

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

    
    - Net earnings of $1.34 per share, earnings before items(1) of $1.59 per
      share
    - Higher pulp, paper and wood selling prices
    - Paper shipments increased 5.1% compared to the first quarter of 2009

    TICKER SYMBOL
    UFS (NYSE, TSX)
    

MONTREAL, April 30 /CNW Telbec/ - Domtar Corporation (NYSE/TSX: UFS) today reported net earnings of $58 million ($1.34 per share) for the first quarter of 2010 compared to net earnings of $124 million ($2.86 per share) for the fourth quarter of 2009 and a net loss of $45 million ($1.05 per share) for the first quarter of 2009. Sales for the first quarter of 2010 amounted to $1.5 billion. Excluding items listed below, the Company had earnings before items(1) of $69 million ($1.59 per share) for the first quarter of 2010 compared to earnings before items(1) of $60 million ($1.39 per share) for the fourth quarter of 2009 and a loss before items(1) of $38 million ($0.88 per share) for the first quarter of 2009.

    
    First quarter 2010 items:
    ------------------------

    - Refundable excise tax credit for the production and use of alternative
      bio fuel mixtures of $25 million ($18 million after tax);
    - Charge of $22 million ($16 million after tax) related to the impairment
      and write-down of property, plant and equipment;
    - Closure and restructuring costs of $20 million ($14 million after tax);
      and
    - Gain on sale of property, plant and equipment of $1 million ($1 million
      after tax).

    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);
    - Charge of $27 million ($22 million after tax) related to the impairment
      and write-down of property, plant and equipment;
    - Closure and restructuring costs of $29 million ($24 million after tax);
      and
    - Loss on sale of property, plant and equipment of $5 million ($3 million
      after tax).

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

    - 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).
    

"Despite a still modest economic recovery we recorded strong financial results due to price increases and higher pulp, paper and wood shipments," said John D. Williams, President and Chief Executive Officer. Discussing the Company's operations, Mr. Williams added, "Towards the end of the first quarter, our paper manufacturing system was balanced with our customer demand. We are now operating at full capacity with a lengthening backlog as a result of increased paper demand. We also have built inventories of pulp ahead of the second quarter, as we expect a higher level of maintenance work at our mills and in preparation for the first phase of the recently announced investments at our Kamloops pulp mill that will result in a 41-day shutdown."

SEGMENT REVIEW

Papers

Operating income before items(1) was $137 million in the first quarter of 2010 compared to operating income before items(1) of $104 million in the fourth quarter of 2009. Depreciation and amortization totaled $96 million in the first quarter of 2010. When compared to the fourth quarter of 2009, paper shipments increased by 1.8%. The shipments-to-production ratio for paper was 106% in the first quarter of 2010, compared to 104% in the fourth quarter of 2009. Paper inventories were lowered by 53,000 tons while pulp inventories increased by 47,000 metric tons at the end of March when compared to end of December levels.

The increase in operating income before items(1) in the first quarter of 2010 was the result of higher average selling prices, higher shipments and lower costs related to lack-of-order downtime and machine slowdowns. These factors were partially offset by higher costs for fiber, energy and freight and the impact of an unfavorable exchange rate including hedging.

    
    (In millions of dollars)                           1Q 2010       4Q 2009
    --------------------------------------------  ------------- -------------

    Sales                                               $1,245        $1,188

    Operating income                                      $120          $212

    Operating income before items(1)                      $137          $104

    Depreciation and amortization                          $96           $95
    

On October 20, 2009, the Company announced that it would convert its Plymouth NC facility to 100% fluff pulp production by the fourth quarter of 2010. The paper machine has ceased producing uncoated freesheet paper in March and the mill's production will be focused on fluff pulp and roll pulp until the conversion is completed. In connection with this announcement, the Company recognized $13 million of accelerated depreciation in the first quarter of 2010 and is expected to record a further $26 million of accelerated depreciation over the next six months of 2010 in relation to the assets that will cease productive use in October 2010.

Paper Merchants

Operating income before items(1) was $1 million in the first quarter of 2010 compared to operating income before items(1) of $3 million in the fourth quarter of 2009. Depreciation and amortization was $1 million in the first quarter of 2010. Deliveries remained flat when compared to the fourth quarter of 2009.

    
    (In millions of dollars)                           1Q 2010       4Q 2009
    --------------------------------------------  ------------- -------------

    Sales                                                 $212          $212

    Operating income                                        $1            $2

    Operating income before items(1)                        $1            $3

    Depreciation and amortization                           $1             -
    

Wood

Operating loss before items(1) was $6 million in the first quarter of 2010, compared to operating loss before items(1) of $5 million in the fourth quarter of 2009. Depreciation and amortization totaled $5 million in the first quarter of 2010. When compared to the fourth quarter of 2009, lumber shipments increased 2%.

The increase in operating loss before items(1) in the first quarter of 2010 was primarily the result of the impact of higher costs and an unfavorable exchange rate including hedging. These factors were offset by higher average selling prices and higher shipments.

    
    (In millions of dollars)                           1Q 2010       4Q 2009
    --------------------------------------------  ------------- -------------

    Sales                                                  $67           $63

    Operating loss                                         ($5)         ($11)

    Operating loss before items(1)                         ($6)          ($5)

    Depreciation and amortization                           $5            $6
    

LIQUIDITY AND CAPITAL

Cash flow provided from operating activities amounted to $123 million and free cash flow(1) amounted to $92 million in the first quarter of 2010. Domtar's net debt-to-total capitalization ratio(1) stood at 33% at March 31, 2010 compared to 35% at December 31, 2009.

OUTLOOK

Demand for our uncoated freesheet paper remains stable from month to month and we expect the increasing level of economic activity to be supportive of the recent trend. Input costs are expected to rise moderately while we may also be negatively affected by unfavorable exchange rates. Domtar will benefit from price increases in pulp and paper, which are in the process of being implemented. The second quarter will be affected by higher-than-average maintenance costs.

EARNINGS CONFERENCE CALL

The Company will hold a conference call today at 10:00 a.m. (ET) to discuss its first quarter 2010 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.

The Company will release its second quarter 2010 earnings on July 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 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 Ultra, Husky(R) Opaque 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 over 10,000 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)

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                  Three months  Three months
                                                         ended         ended
                                                      March 31      March 31
    -------------------------------------------------------------------------
                                                          2010          2009
    -------------------------------------------------------------------------
                                                  --------(Unaudited)--------

                                                             $             $
    Selected Segment Information

    Sales
      Papers                                             1,245         1,106
      Paper Merchants                                      212           217
      Wood                                                  67            43
    -------------------------------------------------------------------------
    Total for reportable segments                        1,524         1,366
      Intersegment sales - Papers                          (62)          (60)
      Intersegment sales - Wood                             (5)           (4)
    -------------------------------------------------------------------------
    Consolidated sales                                   1,457         1,302
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Depreciation and amortization
      Papers                                                96            94
      Paper Merchants                                        1             1
      Wood                                                   5             4
    -------------------------------------------------------------------------
    Total for reportable segments                          102            99
      Impairment and write-down of property,
       plant and equipment                                  22            35
    -------------------------------------------------------------------------
    Consolidated depreciation and amortization
     and impairment and write-down of property,
      plant and equipment                                  124           134
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Operating income (loss)
      Papers                                               120            (6)
      Paper Merchants                                        1             2
      Wood                                                  (5)          (18)
    -------------------------------------------------------------------------
    Consolidated operating income (loss)                   116           (22)
    Interest expense                                        32            31
    -------------------------------------------------------------------------
    Earnings (loss) before income taxes                     84           (53)
    Income tax expense (benefit)                            26            (8)
    -------------------------------------------------------------------------
    Net earnings (loss)                                     58           (45)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Per common share (in dollars)
      Net earnings (loss)
        Basic                                             1.35         (1.05)
        Diluted                                           1.34         (1.05)
    Weighted average number of common and
     exchangeable shares outstanding (millions)
        Basic                                             43.0          43.0
        Diluted                                           43.3          43.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Cash flows provided from operating activities          123            57
    Additions to property, plant and equipment              31            24
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


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

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

                                                  Three months  Three months
                                                         ended         ended
                                                      March 31      March 31
    -------------------------------------------------------------------------
                                                          2010          2009
    -------------------------------------------------------------------------
                                                  --------(Unaudited)--------
                                                             $             $

    Sales                                                1,457         1,302
    Operating expenses
      Cost of sales, excluding depreciation and
       amortization                                      1,142         1,123
      Depreciation and amortization                        102            99
      Selling, general and administrative                   84            83
      Impairment and write-down of property,
       plant and equipment                                  22            35
      Closure and restructuring costs                       20            24
      Other operating income, net                          (29)          (40)
    -------------------------------------------------------------------------
                                                         1,341         1,324
    -------------------------------------------------------------------------
    Operating income (loss)                                116           (22)

    Interest expense                                        32            31
    -------------------------------------------------------------------------

    Earnings (loss) before income taxes                     84           (53)

    Income tax expense (benefit)                            26            (8)
    -------------------------------------------------------------------------

    Net earnings (loss)                                     58           (45)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Per common share (in dollars)

      Net earnings (loss)
        Basic                                             1.35         (1.05)
        Diluted                                           1.34         (1.05)
    Weighted average number of common and
     exchangeable shares outstanding (millions)
        Basic                                             43.0          43.0
        Diluted                                           43.3          43.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


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

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

                                                      March 31   December 31
    -------------------------------------------------------------------------
                                                          2010          2009
    -------------------------------------------------------------------------
                                                    (Unaudited)

                                                             $             $
    Assets
    Current assets
      Cash and cash equivalents                            314           324
      Receivables, less allowances of $8 and $8            628           536
      Inventories                                          743           745
      Prepaid expenses                                      42            46
      Income and other taxes receivable                    404           414
      Deferred income taxes                                139           137
    -------------------------------------------------------------------------
        Total current assets                             2,270         2,202

      Property, plant and equipment, at cost             9,618         9,575
      Accumulated depreciation                          (5,548)       (5,446)
    -------------------------------------------------------------------------
        Net property, plant and equipment                4,070         4,129

    Intangible assets, net of amortization                  86            85
    Other assets                                           102           103
    -------------------------------------------------------------------------
          Total assets                                   6,528         6,519
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities and shareholders' equity
    Current liabilities
      Bank indebtedness                                     19            43
      Trade and other payables                             668           686
      Income and other taxes payable                        36            31
      Long-term debt due within one year                    31            11
    -------------------------------------------------------------------------
        Total current liabilities                          754           771

    Long-term debt                                       1,600         1,701
    Deferred income taxes and other                      1,038         1,019
    Other liabilities and deferred credits                 388           366

    Shareholders' equity
      Exchangeable shares                                   78            78
      Additional paid-in capital                         2,815         2,816
      Accumulated deficit                                 (158)         (216)
      Accumulated other comprehensive income (loss)         13           (16)
    -------------------------------------------------------------------------
        Total shareholders' equity                       2,748         2,662
    -------------------------------------------------------------------------
          Total liabilities and shareholders' equity     6,528         6,519
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


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

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

                                                  Three months  Three months
                                                         ended         ended
                                                      March 31      March 31
    -------------------------------------------------------------------------
                                                          2010          2009
    -------------------------------------------------------------------------
                                                  --------(Unaudited)--------
                                                             $             $
    Operating activities
    Net earnings (loss)                                     58           (45)
    Adjustments to reconcile net earnings
     (loss) to cash flows from operating activities
      Depreciation and amortization                        102            99
      Deferred income taxes and tax uncertainties           15           (15)
      Impairment and write-down of property,
       plant and equipment                                  22            35
      Net gains on disposals of property, plant
       and equipment                                        (1)            -
      Stock-based compensation expense                       1             4
      Other                                                 (1)            3
    Changes in assets and liabilities
      Receivables                                          (90)          (36)
      Inventories                                           10            34
      Prepaid expenses                                      (5)           (2)
      Trade and other payables                             (25)          (46)
      Income and other taxes                                23            14
      Difference between employer pension and other
       post-retirement contributions and pension
       and other post-retirement expense                    10            13
      Other assets and other liabilities                     4            (1)
    -------------------------------------------------------------------------
      Cash flows provided from operating activities        123            57
    -------------------------------------------------------------------------

    Investing activities
    Additions to property, plant and equipment             (31)          (24)
    Proceeds from disposals of property, plant
     and equipment                                           7             -
    -------------------------------------------------------------------------
      Cash flows used for investing activities             (24)          (24)
    -------------------------------------------------------------------------

    Financing activities
    Net change in bank indebtedness                        (23)            9
    Change of revolving bank credit facility                 -            90
    Repayment of long-term debt                           (103)           (3)
    Borrowings under accounts receivable
     securitization program                                 20             -
    Other                                                   (3)            -
    -------------------------------------------------------------------------
      Cash flows provided from (used for) financing
       activities                                         (109)           96
    -------------------------------------------------------------------------

    Net increase (decrease) in cash and cash
     equivalents                                           (10)          129
    Cash and cash equivalents at beginning of period       324            16
    -------------------------------------------------------------------------
    Cash and cash equivalents at end of period             314           145
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Supplemental cash flow information
      Net cash payments for:
        Interest                                            21            24
        Income taxes refund                                 (1)            -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Domtar Corporation
    Quarterly 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", "Earnings (Loss) 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 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 reflecting our ongoing operations. 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 provided from (used for) operating activities are the most directly comparable GAAP measures.

    
                                                           2010
                                          -----------------------------------
                                              Q1     Q2     Q3     Q4    YTD
                                          -----------------------------------
    Reconciliation of
     "Earnings (Loss)
     Before Items" to
     Net earnings (loss)
          Net earnings (loss)         ($)     58
      (-) Alternative fuel tax
          credits                     ($)    (18)
      (+) Write-down of PP&E /
           Impairment of PP&E         ($)     16
      (+) Closure and
           restructuring costs        ($)     14
      (-) (Gains) Losses on sale
           of property, plant
           and equipment              ($)     (1)
      (-) Gain on debt
           repurchase                 ($)
      (=) Earnings (Loss)
           Before Items               ($)     69
      (/) Weighted avg. number
           of common shares
           outstanding
           (diluted)           (millions)   43.3
      (=) Earnings (Loss)
           Before Items per
           diluted share              ($)   1.59

    Reconciliation of
     "EBITDA" and "EBITDA
     Before Items" to
     Net earnings (loss)
      Net earnings (loss)             ($)     58
      (+) Income tax expense
           (benefit)                  ($)     26
      (+) Interest expense            ($)     32
      (=) Operating income
           (loss)                     ($)    116
      (+) Depreciation and
           amortization               ($)    102
      (+) Write-down of PP&E /
           Impairment of PP&E         ($)     22
      (-) (Gains) Losses on sale
           of property, plant
           and equipment              ($)     (1)
      (equal) EBITDA                  ($)    239
      (/) Sales                       ($)  1,457
      = EBITDA
           Margin                     (%)     16%
          EBITDA                      ($)    239
      (-) Alternative fuel
           tax credits                ($)    (25)
      (+) Closure and
           restructuring costs        ($)     20
      (=) EBITDA
           Before Items               ($)    234
      (/) Sales                       ($)  1,457
      = EBITDA Margin
           Before Items               (%)     16%

    Reconciliation of
     "Free Cash Flow"
     to Cash flow provided
     from operating activities
          Cash flow provided from
          (used for) operating
          activities                  ($)    123
      (-) Additions to property,
           plant and equipment        ($)    (31)
      (=) Free Cash
           Flow                       ($)     92

    "Net Debt-to-Total
     Capitalization" Computation
          Bank indebtedness           ($)     19
      (+) Current portion of
           long-term debt             ($)     31
      (+) Long-term debt              ($)  1,600
      (equal)Debt                     ($)  1,650
      (-) Cash and cash
           equivalents                ($)   (314)
      (equal) Net Debt                ($)  1,336
      (+) Shareholders' equity        ($)  2,748
      (=) Total
           capitalization             ($)  4,084
          Net debt                    ($)  1,336
      (/) Total capitalization        ($)  4,084
      (=) Net Debt-to-Total
           Capitalization             (%)     33%
                                          -----------------------------------


                                          -----------------------------------
                                                           2009
                                          -----------------------------------
                                              Q1     Q2     Q3     Q4    YTD
                                          -----------------------------------
    Reconciliation of
     "Earnings (Loss)
     Before Items" to
     Net earnings (loss)
          Net earnings (loss)         ($)    (45)    48    183    124    310
      (-) Alternative fuel tax
          credits                     ($)    (28)   (79)  (116)  (113)  (336)
      (+) Write-down of PP&E /
           Impairment of PP&E         ($)     21                   22     43
      (+) Closure and
           restructuring costs        ($)     14      4      2     24     44
      (-) (Gains) Losses on sale
           of property, plant
           and equipment              ($)                  (12)     3     (9)
      (-) Gain on debt
           repurchase                 ($)            (6)                  (6)
      (=) Earnings (Loss)
           Before Items               ($)    (38)   (33)    57     60     46
      (/) Weighted avg. number
           of common shares
           outstanding
           (diluted)           (millions)   43.0   43.0   43.2   43.3   43.2
      (=) Earnings (Loss)
           Before Items per
           diluted share              ($)  (0.88) (0.77)  1.32   1.39   1.06

    Reconciliation of
     "EBITDA" and "EBITDA
     Before Items" to
     Net earnings (loss)
      Net earnings (loss)             ($)    (45)    48    183    124    310
      (+) Income tax expense
           (benefit)                  ($)     (8)    68     78     42    180
      (+) Interest expense            ($)     31     23     34     37    125
      (=) Operating income
           (loss)                     ($)    (22)   139    295    203    615
      (+) Depreciation and
           amortization               ($)     99    104    101    101    405
      (+) Write-down of PP&E /
           Impairment of PP&E         ($)     35                   27     62
      (-) (Gains) Losses on sale
           of property, plant
           and equipment              ($)                  (12)     5     (7)
      (equal) EBITDA                  ($)    112    243    384    336  1,075
      (/) Sales                       ($)  1,302  1,319  1,440  1,404  5,465
      (=) EBITDA
           Margin                     (%)      9%    18%    27%    24%    20%
          EBITDA                      ($)    112    243    384    336  1,075
      (-) Alternative fuel
           tax credits                ($)    (46)  (131)  (159)  (162)  (498)
      (+) Closure and
           restructuring costs        ($)     24      6      4     29     63
      (=) EBITDA
           Before Items               ($)     90    118    229    203    640
      (/) Sales                       ($)  1,302  1,319  1,440  1,404  5,465
      (=) EBITDA Margin
           Before Items               (%)      7%     9%    16%    14%    12%

    Reconciliation of
     "Free Cash Flow"
     to Cash flow provided
     from operating activities
          Cash flow provided from
          (used for) operating
          activities                  ($)     57    306    244    185    792
      (-) Additions to property,
           plant and equipment        ($)    (24)   (18)   (24)   (40)  (106)
      (=) Free Cash
           Flow                       ($)     33    288    220    145    686

    "Net Debt-to-Total
     Capitalization" Computation
          Bank indebtedness           ($)     52     24     30     43
      (+) Current portion of
           long-term debt             ($)     18     13     13     11
      (+) Long-term debt              ($)  2,195  2,162  1,971  1,701
      (equal) Debt                    ($)  2,265  2,199  2,014  1,755
      (-) Cash and cash
           equivalents                ($)   (145)  (381)  (433)  (324)
      (equal) Net Debt                ($)  2,120  1,818  1,581  1,431
      (+) Shareholders' equity        ($)  2,073  2,264  2,580  2,662
      = Total
           capitalization             ($)  4,193  4,082  4,161  4,093
          Net debt                    ($)  2,120  1,818  1,581  1,431
      (/) Total capitalization        ($)  4,193  4,082  4,161  4,093
      (=) Net Debt-to-Total
           Capitalization             (%)     51%    45%    38%    35%
                                          -----------------------------------

    "Earnings (Loss) Before Items", "Earnings (Loss) 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" 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
    Quarterly Reconciliation of Non-GAAP Financial Measures - By Segment 2010
    (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 (Loss) Before Items", "EBITDA Before Items" and "EBITDA Margin 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 (Loss) Before Items" by excluding the pre-tax effect of items considered by management as not reflecting our ongoing operations. 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
                                          -----------------------------------
                                           Q1'10  Q2'10  Q3'10  Q4'10    YTD
                                          -----------------------------------
    Reconciliation of
     Operating income to
     "Operating Income
     Before Items"
          Operating income (loss)     ($)    120                         120
      (-) Alternative fuel tax
           credits                    ($)    (25)                        (25)
      (+) Impairment and write-down
           of property, plant and
           equipment                  ($)     22                          22
      (+) Closure and restructuring
           costs                      ($)     20                          20
      (-) (Gains) Losses on sale
           of property, plant
           and equipment              ($)

      (=) Operating Income
           (Loss) Before Items        ($)    137                         137

    Reconciliation of
     "Operating Income
     Before Items" to
     "EBITDA Before Items"
          Operating Income (Loss)
           Before Items               ($)    137                         137
      (+) Depreciation and
           amortization               ($)     96                          96

      (=) EBITDA Before
           Items                      ($)    233                         233
      (/) Sales                       ($)  1,245                       1,245
      (=) EBITDA Margin
           Before Items               (%)     19%                         19%
                                          -----------------------------------


                                          -----------------------------------
                                                    Paper Merchants
                                          -----------------------------------
                                           Q1'10  Q2'10  Q3'10  Q4'10    YTD
                                          -----------------------------------
    Reconciliation of
     Operating income to
     "Operating Income
     Before Items"
          Operating income (loss)     ($)      1                           1
      (-) Alternative fuel tax
           credits                    ($)
      (+) Impairment and write-down
           of property, plant and
           equipment                  ($)
      (+) Closure and restructuring
           costs                      ($)
      (-) (Gains) Losses on sale
           of property, plant
           and equipment              ($)

      (=) Operating Income
           (Loss) Before Items        ($)      1                           1

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

      (=) EBITDA Before
           Items                      ($)      2                           2
      (/) Sales                       ($)    212                         212
      (=) EBITDA Margin
           Before Items               (%)      1%                          1%
                                          -----------------------------------


                                          -----------------------------------
                                                         Wood
                                          -----------------------------------
                                           Q1'10  Q2'10  Q3'10  Q4'10    YTD
                                          -----------------------------------
    Reconciliation of
     Operating income to
     "Operating Income
     Before Items"
          Operating income (loss)     ($)     (5)                         (5)
      (-) Alternative fuel tax
           credits                    ($)
      (+) Impairment and write-down
           of property, plant and
           equipment                  ($)
      (+) Closure and restructuring
           costs                      ($)
      (-) (Gains) Losses on sale
           of property, plant
           and equipment              ($)     (1)                         (1)

      (=) Operating Income
           (Loss) Before Items        ($)     (6)                         (6)

    Reconciliation of
     "Operating Income
     Before Items" to
     "EBITDA Before Items"
          Operating Income (Loss)
           Before Items               ($)     (6)                         (6)
      (+) Depreciation and
           amortization               ($)      5                           5

      (=) EBITDA Before
           Items                      ($)     (1)                         (1)
      (/) Sales                       ($)     67                          67
      (=) EBITDA Margin
           Before Items               (%)
                                          -----------------------------------


                                          -----------------------------------
                                                       Corporate
                                          -----------------------------------
                                           Q1'10  Q2'10  Q3'10  Q4'10    YTD
                                          -----------------------------------
    Reconciliation of
     Operating income to
     "Operating Income
     Before Items"
          Operating income (loss)     ($)
      (-) Alternative fuel tax
           credits                    ($)
      (+) Impairment and write-down
           of property, plant and
           equipment                  ($)
      (+) Closure and restructuring
           costs                      ($)
      (-) (Gains) Losses on sale
           of property, plant
           and equipment              ($)

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

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

      (=) EBITDA Before
           Items                      ($)
      (/) Sales                       ($)
      (=) EBITDA Margin
           Before Items               (%)
                                          -----------------------------------

    "Operating Income (Loss) Before Items", "EBITDA Before Items" and "EBITDA
    Margin 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
    Quarterly 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 (Loss) Before Items", "EBITDA Before Items" and "EBITDA Margin 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 (Loss) Before Items" by excluding the pre-tax effect of items considered by management as not reflecting our ongoing operations. 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)     ($)     (6)   150    294    212    650
      (-) Alternative fuel tax
           credits                    ($)    (46)  (131)  (159)  (162)  (498)
      (+) Impairment and write-down
           of property, plant and
           equipment                  ($)     35                   27     62
      (+) Closure and restructuring
           costs                      ($)     22      4      4     22     52
      (-) (Gains) Losses on sale
           of property, plant
           and equipment              ($)                   (1)     5      4

      (=) Operating Income
           (Loss) Before Items        ($)      5     23    138    104    270

    Reconciliation of "Operating
     Income Before Items" to
     "EBITDA Before Items"
          Operating Income (Loss)
           Before Items               ($)      5     23    138    104    270
      (+) Depreciation and
           amortization               ($)     94     98     95     95    382

      (=) EBITDA Before
           Items                      ($)     99    121    233    199    652
      (/) Sales                       ($)  1,106  1,127  1,211  1,188  4,632
      (=) EBITDA Margin
           Before Items               (%)      9%    11%    19%    17%    14%
                                          -----------------------------------


                                          -----------------------------------
                                                    Paper Merchants
                                          -----------------------------------
                                           Q1'09  Q2'09  Q3'09  Q4'09    YTD
                                          -----------------------------------

    Reconciliation of Operating
     income to "Operating Income
     Before Items"
          Operating income (loss)     ($)      2      1      2      2      7
      (-) Alternative fuel tax
           credits                    ($)
      (+) Impairment and write-down
           of property, plant and
           equipment                  ($)
      (+) Closure and restructuring
           costs                      ($)             1             1      2
      (-) (Gains) Losses on sale
           of property, plant
           and equipment              ($)

      (=) Operating Income
           (Loss) Before Items        ($)      2      2      2      3      9

    Reconciliation of "Operating
     Income Before Items" to
     "EBITDA Before Items"
          Operating Income (Loss)
           Before Items               ($)      2      2      2      3      9
      (+) Depreciation and
           amortization               ($)      1      1      1             3

      (=) EBITDA Before
           Items                      ($)      3      3      3      3     12
      (/) Sales                       ($)    217    205    239    212    873
      (=) EBITDA Margin
           Before Items               (%)      1%     1%     1%     1%     1%
                                          -----------------------------------


                                          -----------------------------------
                                                         Wood
                                          -----------------------------------
                                           Q1'09  Q2'09  Q3'09  Q4'09    YTD
                                          -----------------------------------

    Reconciliation of Operating
     income to "Operating Income
     Before Items"
          Operating income (loss)     ($)    (18)   (12)    (1)   (11)   (42)
      (-) Alternative fuel tax
           credits                    ($)
      (+) Impairment and write-down
           of property, plant and
           equipment                  ($)
      (+) Closure and restructuring
           costs                      ($)      2      1             6      9
      (-) (Gains) Losses on sale
           of property, plant
           and equipment              ($)                   (8)           (8)

      = Operating Income
           (Loss) Before Items        ($)    (16)   (11)    (9)    (5)   (41)

    Reconciliation of "Operating
     Income Before Items" to
     "EBITDA Before Items"
          Operating Income (Loss)
           Before Items               ($)    (16)   (11)    (9)    (5)   (41)
      (+) Depreciation and
           amortization               ($)      4      5      5      6     20

      = EBITDA Before
           Items                      ($)    (12)    (6)    (4)     1    (21)
      (/) Sales                       ($)     43     46     59     63    211
      = EBITDA Margin
           Before Items               (%)                           2%
                                          -----------------------------------


                                          -----------------------------------
                                                       Corporate
                                          -----------------------------------
                                           Q1'09  Q2'09  Q3'09  Q4'09    YTD
                                          -----------------------------------

    Reconciliation of Operating
     income to "Operating Income
     Before Items"
          Operating income (loss)     ($)
      (-) Alternative fuel tax
           credits                    ($)
      (+) Impairment and write-down
           of property, plant and
           equipment                  ($)
      (+) Closure and restructuring
           costs                      ($)
      (-) (Gains) Losses on sale
           of property, plant
           and equipment              ($)                   (3)           (3)

      = Operating Income
           (Loss) Before Items        ($)                   (3)           (3)

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

      = EBITDA Before
           Items                      ($)                   (3)           (3)
      (/) Sales                       ($)
      = EBITDA Margin
           Before Items               (%)
                                          -----------------------------------

    "Operating Income (Loss) Before Items", "EBITDA Before Items" and "EBITDA
    Margin 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)

                                          -----------------------------------
                                                           2010
                                          -----------------------------------
                                              Q1     Q2     Q3     Q4    YTD
                                          -----------------------------------
    Papers Segment
      Sales                           ($)  1,245
       Intersegment sales
        - Papers                      ($)    (62)
      Operating income (loss)         ($)    120
      Depreciation &
       amortization                   ($)     96
      Impairment and write-down
       of PP&E                        ($)     22

      Papers
      Papers Production         ('000 ST)    906
      Papers Shipments          ('000 ST)    960
        Uncoated freesheet      ('000 ST)    925
        Coated groundwood       ('000 ST)     35

    Pulp
    Pulp Shipments(a)         ('000 ADMT)    388
      Hardwood Kraft Pulp             (%)     40%
      Softwood Kraft Pulp             (%)     49%
      Fluff Pulp                      (%)     11%

    Paper Merchants Segment
      Sales                           ($)    212
      Operating income                ($)      1
      Depreciation &
       amortization                   ($)      1

    Wood Segment
      Sales                           ($)     67
      Intersegment sales
       - Wood                         ($)     (5)
      Operating loss                  ($)     (5)
      Depreciation &
       amortization                   ($)      5

      Lumber Production    (Millions FBM)    172
      Lumber Shipments     (Millions FBM)    164

    Average Exchange Rates           CAN   1.041
                                      US   0.961
                                          -----------------------------------


                                          -----------------------------------
                                                           2009
                                          -----------------------------------
                                              Q1     Q2     Q3     Q4    YTD
                                          -----------------------------------
    Papers Segment
      Sales                           ($)  1,106  1,127  1,211  1,188  4,632
       Intersegment sales
        - Papers                      ($)    (60)   (55)   (63)   (53)  (231)
      Operating income (loss)         ($)     (6)   150    294    212    650
      Depreciation &
       amortization                   ($)     94     98     95     95    382
      Impairment and write-down
       of PP&E                        ($)     35                   27     62

      Papers
      Papers Production         ('000 ST)    869    912    920    903  3,604
      Papers Shipments          ('000 ST)    913    929    972    943  3,757
        Uncoated freesheet      ('000 ST)    887    901    939    890  3,617
        Coated groundwood       ('000 ST)     26     28     33     53    140

    Pulp
    Pulp Shipments(a)         ('000 ADMT)    314    393    446    386  1,539
      Hardwood Kraft Pulp             (%)     33%    33%    40%    35%    36%
      Softwood Kraft Pulp             (%)     54%    54%    49%    54%    52%
      Fluff Pulp                      (%)     13%    13%    11%    11%    12%

    Paper Merchants Segment
      Sales                           ($)    217    205    239    212    873
      Operating income                ($)      2      1      2      2      7
      Depreciation &
       amortization                   ($)      1      1      1             3

    Wood Segment
      Sales                           ($)     43     46     59     63    211
      Intersegment sales
       - Wood                         ($)     (4)    (4)    (6)    (6)   (20)
      Operating loss                  ($)    (18)   (12)    (1)   (11)   (42)
      Depreciation &
       amortization                   ($)      4      5      5      6     20

      Lumber Production    (Millions FBM)    121    131    147    161    560
      Lumber Shipments     (Millions FBM)    125    135    153    161    574

    Average Exchange Rates           CAN   1.245  1.167  1.097  1.056  1.142
                                      US   0.803  0.857  0.911  0.947  0.876
                                          -----------------------------------

    (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.
    

SOURCE Domtar Corporation

For further information: For further information: Media and investor relations: Pascal Bossé, Vice-President, Corporate Communications and Investor Relations, (514) 848-5938

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Domtar Corporation

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