Domtar Corporation reports preliminary second quarter 2009 financial results



    
    Lower input costs and continued cost control benefit margins
    (All financial information is in U.S. dollars, and all earnings (loss)
    per share results are diluted, unless otherwise noted.)

    - Net earnings of $1.12 per share and loss before items(1) of $0.76 per
      share
    - Higher shipments and lower inventories in paper and pulp businesses
      compared to 1Q'09
    - Lack-of-order downtime and machine slowdowns totaling 99 thousand tons
      of paper and 143 thousand metric tons of pulp
    - Free cash flow(1) of $288 million, including $137 million received for
      alternative fuel tax credits

    Ticker symbol
    UFS (NYSE, TSX)
    

    MONTREAL, Aug. 4 /CNW Telbec/ - Domtar Corporation (NYSE/TSX: UFS) today
reported net earnings of $48 million ($1.12 per share) for the second quarter
of 2009 compared to a net loss of $45 million ($1.05 per share) for the first
quarter of 2009 and net earnings of $24 million ($0.56 per share) for the
second quarter of 2008. Sales for the second quarter of 2009 amounted to $1.3
billion. Excluding items(1) listed below, the Company lost $33 million ($0.76
per share(1)) for the second quarter of 2009 compared to a loss of $38 million
($0.88 per share(1)) for the first quarter of 2009 and earnings of $32 million
($0.74 per share(1)) for the second quarter of 2008.

    
    Second quarter 2009:
    --------------------
    - Refundable excise tax credit for the production and use of alternative
      bio fuel mixtures of $131 million ($79 million after tax);

    - Gain on debt repurchase of $9 million ($6 million after tax); and

    - Closure and restructuring costs of $6 million ($4 million after tax).

    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).

    Second quarter 2008:
    --------------------

    - Closure and restructuring costs of $11 million ($7 million after tax);

    - Costs of $9 million ($5 million after tax) related to synergies and
      integration; and

    - Gain of $6 million ($4 million after tax) related to the sale of
      trademarks.
    

    "From the first quarter, shipments edged higher in paper, pulp and wood
businesses with demand for our paper products stabilizing and costs for
materials declining. Efforts to reduce working capital are paying off; margin
improvements and cash flow remain priorities," said John D. Williams,
President and Chief Executive Officer. "Our pulp business had a significant
impact on our Papers segment profitability in the past quarters, obscuring a
good operating performance in our paper business. Improved business
environment in pulp, lean inventories, initiatives on the procurement side and
continued cost control are key drivers for margin expansion in the near term,"
added Mr. Williams.

    SEGMENT REVIEW

    Papers

    Operating income before items(1) was $23 million in the second quarter of
2009 compared to operating income before items(1) of $5 million in the first
quarter of 2009. Depreciation and amortization totaled $98 million in the
second quarter of 2009. When compared to the first quarter of 2009, paper
shipments increased 2% while pulp shipments increased 25%. The
shipments-to-production ratio for papers was 102% in the second quarter of
2009, compared to 105% in the first quarter of 2009. Paper and pulp
inventories were lowered by 18,000 tons and 151,000 metric tons, respectively,
at the end of June when compared to end of March levels.
    The increase in operating income before items(1) in the second quarter of
2009 was the result of lower materials and freight costs, and higher paper
shipments. These factors were partially offset by lower average selling prices
for paper and pulp and the impact of an unfavorable exchange rate including
hedging.

    
    (In millions of dollars)                             2Q 2009   1Q 2009
    -------------------------------------------------   --------- ----------
    Sales                                                 $1,127    $1,106

    Operating income (loss)                                 $150       ($6)

    Operating income before items(1)                         $23        $5

    Depreciation and amortization                            $98       $94


    Paper Merchants

    Operating income before items(1) was $2 million in the second quarter of
2009, unchanged from the first quarter of 2009. Depreciation and amortization
was $1 million in the second quarter of 2009. Deliveries decreased 7% when
compared to the first quarter of 2009. Lower costs were offset by a decrease
in deliveries.

    (In millions of dollars)                             2Q 2009   1Q 2009
    -------------------------------------------------   --------- ----------
    Sales                                                   $205      $217

    Operating income                                          $1        $2

    Operating income before items(1)                          $2        $2

    Depreciation and amortization                             $1        $1
    

    Wood

    Operating loss before items(1) was $11 million in the second quarter of
2009, compared to operating loss before items(1) of $16 million in the first
quarter of 2009. Depreciation and amortization totaled $5 million in the
second quarter of 2009. When compared to the first quarter of 2009, lumber
shipments increased 8%.
    The decrease in operating loss before items(1) in the second quarter of
2009 was primarily the result of a bad debt expense incurred in the first
quarter of 2009, a gain on the dissolution of a subsidiary in the second
quarter of 2009 and lower costs. These were partially offset by an export tax
refund received in the first quarter of 2009 for prior periods and the impact
of an unfavorable exchange rate including hedging.

    
    (In millions of dollars)                             2Q 2009   1Q 2009
    -------------------------------------------------   --------- ----------
    Sales                                                    $46       $43

    Operating loss                                          ($12)     ($18)

    Operating loss before items(1)                          ($11)     ($16)

    Depreciation and amortization                             $5        $4
    


    LIQUIDITY AND CAPITAL

    Cash flow provided from operating activities amounted to $306 million and
free cash flow(1) amounted to $288 million in the second quarter of 2009.
Changes in assets and liabilities were a source of $89 million in the quarter.
Domtar's net debt-to-total capitalization ratio(1) stood at 45% at June 30,
2009 compared to 50% at December 31, 2008. Amounts drawn on the receivables
securitization program were reduced by $75 million, when compared to end of
March levels, to $20 million.

    OUTLOOK

    Domtar is prudently optimistic about an economic recovery with market
conditions in its paper business beginning to stabilize. While demand is still
weak overall, the Company expects paper volumes to stay flat to positive by
year-end. The pulp business continues to rebound with demand expected to
remain strong and pulp prices improving. Input costs are also expected to
remain relatively flat to lower over the next quarters.
    Domtar will continue to closely monitor its inventory levels and balance
production with demand. The Company's near term focus continues to be on
improving customer relationships, controlling costs and maintaining a strong
cash flow.

    EARNINGS CONFERENCE CALL

    The Company will hold a conference call today at 10:00 a.m. (ET) to
discuss its second 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
publishing 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 10,500 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     Three       Six       Six
                                      months    months    months    months
                                       ended     ended     ended     ended
                                     June 30   June 29   June 30   June 29
    -------------------------------------------------------------------------
                                        2009      2008      2009      2008
    -------------------------------------------------------------------------
                                     ---------------(Unaudited)--------------

                                           $         $         $         $

    Selected Segment Information

    Sales
      Papers                           1,127     1,407     2,233     2,836
      Paper Merchants                    205       243       422       505
      Wood                                46        70        89       133
    -------------------------------------------------------------------------
    Total for reportable segments      1,378     1,720     2,744     3,474
      Intersegment sales - Papers        (55)      (73)     (115)     (156)
      Intersegment sales - Wood           (4)       (8)       (8)      (14)
    -------------------------------------------------------------------------
    Consolidated sales                 1,319     1,639     2,621     3,304
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Depreciation and amortization
      Papers                              98       110       192       220
      Paper Merchants                      1         1         2         1
      Wood                                 5         7         9        13
    -------------------------------------------------------------------------
    Total for reportable segments        104       118       203       234
      Write-down of property, plant
       and equipment - Papers              -         -        35         -
    -------------------------------------------------------------------------
    Consolidated depreciation and
     amortization and write-down of
     property, plant and equipment       104       118       238       234
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Operating income (loss)
      Papers                             150        92       144       206
      Paper Merchants                      1         2         3         5
      Wood                               (12)      (12)      (30)      (34)
    -------------------------------------------------------------------------
    Total for reportable segments        139        82       117       177
      Corporate                            -        (2)        -        (3)
    -------------------------------------------------------------------------
    Consolidated operating income        139        80       117       174
    Interest expense                      23        37        54        76
    -------------------------------------------------------------------------
    Earnings before income taxes         116        43        63        98
    Income tax expense                    68        19        60        38
    -------------------------------------------------------------------------
    Net earnings                          48        24         3        60
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Per common share (in dollars)
      Net earnings
        Basic                           1.12      0.56      0.07      1.40
        Diluted                         1.12      0.56      0.07      1.40
    Weighted average number of
     common and exchangeable
     shares outstanding (millions)
        Basic                           43.0      43.0      43.0      43.0
        Diluted                         43.0      43.0      43.0      43.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Cash flows provided from
     operating activities                306       113       363       140
    Additions to property, plant
     and equipment                        18        36        42        65
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


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

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

                                       Three     Three       Six       Six
                                      months    months    months    months
                                       ended     ended     ended     ended
                                     June 30   June 29   June 30   June 29
    -------------------------------------------------------------------------
                                        2009      2008      2009      2008
    -------------------------------------------------------------------------
                                     ---------------(Unaudited)--------------

                                           $         $         $         $

                                     ---------           ---------
    Sales                              1,319     1,639     2,621     3,304
    Operating expenses
      Cost of sales, excluding
       depreciation and amortization   1,116     1,336     2,239     2,678
      Depreciation and amortization      104       118       203       234
      Selling, general and
       administrative                     86       103       169       211
      Write-down of property, plant
       and equipment                       -         -        35         -
      Closure and restructuring
       costs                               6        11        30        12
      Other operating income            (132)       (9)     (172)       (5)
    -------------------------------------------------------------------------
                                       1,180     1,559     2,504     3,130
    -------------------------------------------------------------------------
    Operating income                     139        80       117       174

    Interest expense                      23        37        54        76
    -------------------------------------------------------------------------
    Earnings before income taxes         116        43        63        98

    Income tax expense                    68        19        60        38
    -------------------------------------------------------------------------
    Net earnings                          48        24         3        60
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Per common share (in dollars)

      Net earnings
        Basic                           1.12      0.56      0.07      1.40
        Diluted                         1.12      0.56      0.07      1.40

    Weighted average number of
     common and exchangeable shares
     outstanding (millions)
        Basic                           43.0      43.0      43.0      43.0
        Diluted                         43.0      43.0      43.0      43.0
                                     ---------           ---------


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

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                            June  December
                                                              30        31
    -------------------------------------------------------------------------
                                                            2009      2008

                                                          ----(Unaudited)----
                                                               $         $
                                                          --------
    Assets
    Current assets
      Cash and cash equivalents                              381        16
      Receivables, less allowances of $8 and $11             591       477
      Inventories                                            805       963
      Prepaid expenses                                        31        27
      Income and other taxes receivable                       45        56
      Deferred income taxes                                  118       116
    -------------------------------------------------------------------------
        Total current assets                               1,971     1,655

    Property, plant and equipment, at cost                 9,143     8,963
    Accumulated depreciation                              (4,981)   (4,662)
    -------------------------------------------------------------------------
        Net property, plant and equipment                  4,162     4,301
    Intangible assets, net of amortization                    80        81
    Other assets                                              73        67
    -------------------------------------------------------------------------
          Total assets                                     6,286     6,104
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities and shareholders' equity
    Current liabilities
      Bank indebtedness                                       24        43
      Trade and other payables                               591       646
      Income and other taxes payable                          42        36
      Long-term debt due within one year                      13        18
    -------------------------------------------------------------------------
        Total current liabilities                            670       743

    Long-term debt                                         2,162     2,110
    Deferred income taxes and other                          881       824
    Other liabilities and deferred credits                   309       284

    Shareholders' equity
      Common stock                                             -         5
      Exchangeable shares                                    116       138
      Additional paid-in capital                           2,775     2,743
      Accumulated deficit                                   (523)     (526)
      Accumulated other comprehensive loss                  (104)     (217)
    -------------------------------------------------------------------------
        Total shareholders' equity                         2,264     2,143
    -------------------------------------------------------------------------
          Total liabilities and shareholders' equity       6,286     6,104
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


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

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

                                                             Six       Six
                                                          months    months
                                                           ended     ended
                                                         June 30   June 29
    -------------------------------------------------------------------------
                                                            2009      2008
    -------------------------------------------------------------------------
                                                         -----(Unaudited)----

                                                               $         $
                                                          --------
    Operating activities
    Net earnings                                               3        60
    Adjustments to reconcile net earnings to cash flows
     from operating activities
      Depreciation and amortization                          203       234
      Deferred income taxes                                   59        13
      Write-down of property, plant and equipment             35         -
      Gain on repurchase of long-term debt                   (15)        -
      Net gains on disposals of property, plant
       and equipment                                           -        (1)
      Stock-based compensation expense                         5         9
      Gain on sale of trademarks                               -        (6)
      Other                                                    8         4

    Changes in assets and liabilities
      Receivables                                           (117)      (58)
      Inventories                                            171         -
      Prepaid expenses                                        (1)      (22)
      Trade and other payables                               (24)      (31)
      Income and other taxes                                  18         1
      Difference between employer pension and other
       post-retirement expense and contributions              15       (47)
      Other assets and other liabilities                       3       (16)
    -------------------------------------------------------------------------
      Cash flows provided from operating activities          363       140
    -------------------------------------------------------------------------

    Investing activities
    Additions to property, plant and equipment               (42)      (65)
    Proceeds from disposals of property, plant and
     equipment                                                 1        22
    Proceeds from sale of trademarks                           -         6
    -------------------------------------------------------------------------
      Cash flows used for investing activities               (41)      (37)
    -------------------------------------------------------------------------

    Financing activities
    Net change in bank indebtedness                          (19)      (26)
    Change of revolving bank credit facility                  90       (50)
    Issuance of long-term debt                               385         -
    Repayment of long-term debt                             (409)      (37)
    Debt issue and tender offer costs                        (13)        -
    -------------------------------------------------------------------------
      Cash flows provided from (used for) financing
       activities                                             34      (113)
    -------------------------------------------------------------------------

    Net increase (decrease) in cash and cash equivalents     356       (10)
    Translation adjustments related to cash and cash
     equivalents                                               9         -
    Cash and cash equivalents at beginning of period          16        71
    -------------------------------------------------------------------------
    Cash and cash equivalents at end of period               381        61
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Supplemental cash flow information
      Net cash payments for:
        Interest                                              64        55
        Income taxes                                           2        46
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    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)         ($)    (45)    48                    3
      (-) Alternative fuel tax
           credits                    ($)    (28)   (79)                (107)
      (-) Gain on debt repurchase     ($)            (6)                  (6)
      (+) Closure and
           restructuring costs        ($)     14      4                   18
      (+) Write-down of PP&E /
           Impairment of PP&E and
           intangible assets          ($)     21                          21
      (+) Impairment of goodwill      ($)
      (+) Valuation allowance on
           Canadian deferred
           income tax assets          ($)
      (+) Costs related to
           synergies, integration
           and optimization           ($)
      (-) Reversal of a
           provision for
           unfavorable contract       ($)
      (-) Gain related to the
           sale of trademarks         ($)
      (=) Earnings (Loss)
           Before Items               ($)    (38)   (33)                 (71)
      (/) Weighted avg. number
           of common shares
           outstanding
           (diluted)           (millions)   43.0   43.0                 43.0
      (=) Earnings (Loss)
           Before Items per
           diluted share              ($)  (0.88) (0.76)               (1.64)

    Reconciliation of
     "EBITDA" and "EBITDA
     Before Items" to
     Net earnings (loss)
          Net earnings (loss)         ($)    (45)    48                    3
      (+) Income tax expense
          (benefit)                   ($)     (8)    68                   60
      (+) Interest expense            ($)     31     23                   54
      (=) Operating income
           (loss)                     ($)    (22)   139                  117
      (+) Depreciation and
           amortization               ($)     99    104                  203
      (+) Write-down of PP&E /
           Impairment of
           goodwill, PP&E and
           intangible assets          ($)     35                          35
      (equal) EBITDA                  ($)    112    243                  355

      (-) Alternative fuel tax
           credits                    ($)    (46)  (131)                (177)
      (+) Closure and
           restructuring costs        ($)     24      6                   30
      (-) 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    118                  208

    Reconciliation of
     "Free Cash Flow"
     to Cash flow from
     operating activities
          Cash flow provided
           from operating
           activities                 ($)     57    306                  363
      (-) Additions to
           property, plant
           and equipment              ($)    (24)   (18)                 (42)
      (equal) Free Cash Flow          ($)     33    288                  321

    "Net Debt-to-Total
      Capitalization"
      Computation
          Bank indebtedness           ($)     52     24
      (+) Current portion of
           long-term debt             ($)     18     13
      (+) Long-term debt              ($)  2,195  2,162
      (-) Cash and cash equivalents   ($)   (145)  (381)
      (equal) Net Debt                ($)  2,120  1,818
      (+) Shareholders' equity        ($)  2,073  2,264
      (=) Total
           capitalization             ($)  4,193  4,082
          Net debt                    ($)  2,120  1,818
      (/) Total capitalization        ($)  4,193  4,082
      (=) Net Debt-to-
           Total Capitalization       (%)     51%    45%
                                          -----------------------------------


                                          -----------------------------------
                                                           2008
                                          -----------------------------------
                                              Q1     Q2     Q3     Q4    YTD
                                          -----------------------------------

    Reconciliation of
     "Earnings (Loss)
     Before Items" to
     Net earnings (loss)
          Net earnings (loss)         ($)     36     24     43   (676)  (573)
      (-) Alternative fuel tax
           credits                    ($)
      (-) Gain on debt repurchase     ($)                          (8)    (8)
      (+) Closure and
           restructuring costs        ($)      1      7      2     18     28
      (+) Write-down of PP&E /
           Impairment of PP&E and
           intangible assets          ($)                         270    270
      (+) Impairment of goodwill      ($)                         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       ($)    (17)                        (17)
      (-) Gain related to the sale
           of trademarks              ($)            (4)                  (4)
      (=) Earnings (Loss)
           Before Items               ($)     25     32     51    (20)    88
      (/) Weighted avg. number
           of common shares
           outstanding
           (diluted)           (millions)   43.0   43.0   43.0   43.0   43.0
      (=) Earnings (Loss)
           Before Items per
           diluted share              ($)   0.58   0.74   1.19  (0.46)  2.05

    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     18
      (+) Long-term debt              ($)  2,155  2,122  2,118  2,110
      (-) Cash and cash equivalents   ($)    (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)     ($)     (6)   150                  144
      (-) Alternative fuel tax
           credits                    ($)    (46)  (131)                (177)
      (+) Closure and restructuring
           costs                      ($)     22      4                   26
      (+) Write-down of property,
           plant and equipment        ($)     35                          35

      (=) Operating Income
           Before Items               ($)      5     23                   28

    Reconciliation of
     "Operating Income
     Before Items" to
     "EBITDA Before Items"
          Operating Income
           Before Items               ($)      5     23                   28
      (+) Depreciation and
           amortization               ($)     94     98                  192

      (=) EBITDA Before
           Items                      ($)     99    121                  220

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


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

    Reconciliation of
     Operating income to
     "Operating Income
     Before Items"
          Operating income (loss)     ($)      2      1                    3
      (-) Alternative fuel tax
           credits                    ($)
      (+) Closure and restructuring
           costs                      ($)             1                    1
      (+) Write-down of property,
           plant and equipment        ($)

      (=) Operating Income
           Before Items               ($)      2      2                    4

    Reconciliation of
     "Operating Income
     Before Items" to
     "EBITDA Before Items"
          Operating Income
           Before Items               ($)      2      2                    4
      (+) Depreciation and
           amortization               ($)      1      1                    2

      (=) EBITDA Before
           Items                      ($)      3      3                    6

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


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

    Reconciliation of
     Operating income to
     "Operating Income
     Before Items"
          Operating income (loss)     ($)    (18)   (12)                 (30)
      (-) Alternative fuel tax
           credits                    ($)
      (+) Closure and restructuring
           costs                      ($)      2      1                    3
      (+) Write-down of property,
           plant and equipment        ($)

      (=) Operating Income
           Before Items               ($)    (16)   (11)                 (27)

    Reconciliation of
     "Operating Income
     Before Items" to
     "EBITDA Before Items"
          Operating Income
           Before Items               ($)    (16)   (11)                 (27)
      (+) Depreciation and
           amortization               ($)      4      5                    9

      (=) EBITDA Before
           Items                      ($)    (12)    (6)                 (18)

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


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

    Reconciliation of
     Operating income to
     "Operating Income
     Before Items"
          Operating income (loss)     ($)
      (-) Alternative fuel tax
           credits                    ($)
      (+) Closure and restructuring
           costs                      ($)
      (+) Write-down of property,
           plant and equipment        ($)

      (=) 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                           ($)  1,106  1,127                2,233
        Intersegment sales
         - Papers                     ($)    (60)   (55)                (115)
      Operating income (loss)         ($)     (6)   150                  144
      Depreciation &
       amortization                   ($)     94     98                  192
      Impairment and write-down
       of goodwill and PP&E           ($)     35                          35

      Papers
      Papers Production         ('000 ST)    869    912                1,781
      Papers Shipments          ('000 ST)    913    929                1,842
        Uncoated freesheet      ('000 ST)    887    901                1,788
        Coated groundwood       ('000 ST)     26     28                   54

      Pulp
      Pulp Shipments(a)       ('000 ADMT)    314    393                  707
        Hardwood Kraft Pulp           (%)     33%    33%                  33%
        Softwood Kraft Pulp           (%)     54%    54%                  54%
        Fluff Pulp                    (%)     13%    13%                  13%

    Paper Merchants Segment
      Sales                           ($)    217    205                  422
      Operating income                ($)      2      1                    3
      Depreciation &
       amortization                   ($)      1      1                    2

    Wood Segment
      Sales                           ($)     43     46                   89
        Intersegment sales
         - Wood                       ($)     (4)    (4)                  (8)
      Operating loss                  ($)    (18)   (12)                 (30)
      Depreciation &
       amortization                   ($)      4      5                    9
      Impairment of goodwill,
       PP&E and intangible
       assets                         ($)

      Lumber Production    (Millions FBM)    121    131                  252
      Lumber Shipments     (Millions FBM)    125    135                  260

    Average Exchange Rates           CAN   1.245  1.167                1.206
                                      US   0.803  0.857                0.829
                                          -----------------------------------


                                          -----------------------------------
                                                           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                           ($)    262    243    257    228    990
      Operating income                ($)      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 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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