Domtar Corporation reports preliminary second quarter 2010 financial results


    
    Strong operational results despite cost impact of higher level of
    maintenance downtime
    (All financial information is in U.S. dollars, and all earnings per share
    results are diluted, unless otherwise noted.)

    - Net earnings of $0.71 per share, earnings before items(1) of $2.67 per
      share
    - EBITDA before items(1) of $264 million
    - Closed sale of the Wood business
    - Company repurchased 340,130 shares of its common stock in the second
      quarter of 2010

    TICKER SYMBOL
    UFS (NYSE, TSX)
    
</pre>
<p/>
<p><span class="xn-location">MONTREAL</span>, <span class="xn-chron">July 30</span> /CNW Telbec/ - Domtar Corporation (NYSE/TSX: UFS) today reported net earnings of <span class="xn-money">$31 million</span> (<span class="xn-money">$0.71</span> per share) for the second quarter of 2010 compared to net earnings of <span class="xn-money">$58 million</span> (<span class="xn-money">$1.34</span> per share) for the first quarter of 2010 and net earnings of <span class="xn-money">$48 million</span> (<span class="xn-money">$1.12</span> per share) for the second quarter of 2009. Sales for the second quarter of 2010 amounted to <span class="xn-money">$1.5 billion</span>. Excluding items listed below, the Company had earnings before items(1) of <span class="xn-money">$116 million</span> (<span class="xn-money">$2.67</span> per share) for the second quarter of 2010 compared to earnings before items(1) of <span class="xn-money">$69 million</span> (<span class="xn-money">$1.59</span> per share) for the first quarter of 2010 and a loss before items(1) of <span class="xn-money">$33 million</span> (<span class="xn-money">$0.77</span> per share) for the second quarter of 2009.</p>
<p/>
<pre>
    
    Second quarter 2010 items:
    --------------------------

    - Loss on sale of the Wood business of $50 million ($50 million after
      tax);
    - Costs for debt repurchase, including premium paid, of $40 million
      ($24 million after tax);
    - Charge of $14 million ($9 million after tax) related to the impairment
      and write-down of property, plant and equipment;
    - Closure and restructuring costs of $5 million ($4 million after tax);
      and
    - Gain on sale of property, plant and equipment of $2 million ($2 million
      after tax).

    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).

    Second quarter 2009 items:
    --------------------------

    - 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).
    
</pre>
<p/>
<p>"We continue to execute remarkably well to deliver strong financial results. I am pleased that these efforts, coupled with our successful debt tender, have been recognized by rating agencies," said John D. Williams, President and Chief Executive Officer. Commenting on strategic initiatives, <span class="xn-person">Mr. Williams</span> added, "We continue our work to streamline our portfolio; we exited the coated groundwood paper business and successfully closed the sale of our Wood business. We also announced an exciting and innovative partnership in the development of fiber-based nanotechnologies. As we continue to look for opportunities to address our issues of cyclicality and the secular decline of paper demand, our strong balance sheet provides us with financial flexibility to consider various options to create sustainable, long term value for our stockholders."</p>
<p/>
<p>SEGMENT REVIEW</p>
<p/>
<p>Papers</p>
<p/>
<p>Operating income before items(1) was <span class="xn-money">$165 million</span> in the second quarter of 2010 compared to operating income before items(1) of <span class="xn-money">$137 million</span> in the first quarter of 2010. Depreciation and amortization totaled <span class="xn-money">$95 million</span> in the second quarter of 2010. When compared to the first quarter of 2010, paper shipments decreased by 7% while pulp shipments increased by 25%. The shipments-to-production ratio for paper was 101% in the second quarter of 2010, compared to 106% in the first quarter of 2010. Paper and pulp inventories decreased by 9,000 tons and 95,000 metric tons, respectively, at the end of June when compared to end of March levels.</p>
<p>The increase in operating income before items(1) in the second quarter of 2010 was the result of higher average selling prices in pulp and paper, and higher shipments for pulp. These factors were partially offset by higher costs related to scheduled maintenance downtime, lower shipments for paper, and an unfavorable exchange rate including hedging.</p>
<p/>
<pre>
    
    (In millions of dollars)                            2Q 2010      1Q 2010
    -----------------------------------------------  -----------  -----------

    Sales                                                $1,317       $1,245

    Operating income                                       $149         $120

    Operating income before items(1)                       $165         $137

    Depreciation and amortization                           $95          $96
    
</pre>
<p/>
<p/>
<p>Paper Merchants</p>
<p/>
<p>Operating loss was <span class="xn-money">$1 million</span> in the second quarter of 2010 compared to operating income of <span class="xn-money">$1 million</span> in the first quarter of 2010. Depreciation and amortization was <span class="xn-money">$1 million</span> in the second quarter of 2010. Deliveries remained flat when compared to the first quarter of 2010.</p>
<p>The decrease in operating income in the second quarter of 2010 was primarily the result of margins temporarily contracting due to supplier price increases. This factor was partially offset by higher selling prices.</p>
<p/>
<pre>
    
    (In millions of dollars)                            2Q 2010      1Q 2010
    -----------------------------------------------  -----------  -----------

    Sales                                                  $213         $212

    Operating income (loss)                                 ($1)          $1

    Depreciation and amortization                            $1           $1
    
</pre>
<p/>
<p/>
<p>Wood</p>
<p/>
<p>Operating income before items(1) was nil in the second quarter of 2010, compared to an operating loss before items(1) of <span class="xn-money">$6 million</span> in the first quarter of 2010. Depreciation and amortization totaled <span class="xn-money">$5 million</span> in the second quarter of 2010. When compared to the first quarter of 2010, lumber shipments increased 14%.</p>
<p>The decrease in operating loss before items(1) in the second quarter of 2010 was primarily the result of higher shipments and higher average selling prices. These factors were partially offset by an unfavorable exchange rate including hedging.</p>
<p/>
<pre>
    
    (In millions of dollars)                            2Q 2010      1Q 2010
    -----------------------------------------------  -----------  -----------

    Sales                                                   $83          $67

    Operating loss                                         ($49)         ($5)

    Operating income (loss) before items(1)                  $-          ($6)

    Depreciation and amortization                            $5           $5
    
</pre>
<p/>
<p/>
<p>LIQUIDITY AND CAPITAL</p>
<p/>
<p>Cash flow provided from operating activities amounted to <span class="xn-money">$610 million</span> and free cash flow(1) amounted to <span class="xn-money">$567 million</span> in the second quarter of 2010. Cash received with regards to the alternative fuel tax credits amounted to <span class="xn-money">$368 million</span> in the second quarter of 2010. Domtar's net debt-to-total capitalization ratio(1) stood at 22% at <span class="xn-chron">June 30, 2010</span> compared to 33% at <span class="xn-chron">March 31, 2010</span>.</p>
<p/>
<p>OUTLOOK</p>
<p/>
<p>The Company expects third quarter paper shipments to be flat compared to the second quarter, before gradually declining towards year-end due to seasonal factors. Selling prices for paper grade pulp are expected to come under pressure. As previously communicated, costs related to planned maintenance shutdowns will be materially reduced in the third quarter. Inflation on input costs is expected to be marginal for the second half of the year.</p>
<p/>
<p>EARNINGS CONFERENCE CALL</p>
<p/>
<p>The Company will hold a conference call today at <span class="xn-chron">11:00 a.m. (ET</span>) to discuss its second 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 - <span class="xn-location">North America</span>) 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 <a href="http://www.domtar.com">www.domtar.com</a>.</p>
<p>The Company will release its third quarter 2010 earnings on <span class="xn-chron">October 29, 2010</span> before markets open, followed by a conference call at <span class="xn-chron">10:00 a.m. (ET</span>) to discuss results. The date is tentative and will be confirmed approximately three weeks prior to the earnings release date.</p>
<p/>
<pre>
    
                         ---------------------------
    
</pre>
<p/>
<p>About Domtar</p>
<p/>
<p>Domtar Corporation (NYSE/TSX:UFS) is the largest integrated manufacturer and marketer of uncoated freesheet paper in <span class="xn-location">North America</span> 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. The Company employs over 9,000 people. To learn more, visit <a href="http://www.domtar.com">www.domtar.com</a>.</p>
<p/>
<p>Forward-Looking Statements</p>
<p/>
<p>All statements in this press 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 Annual Report on Form 10-K filed with the SEC as updated by the Company's latest Quarterly Report on Form 10-Q. Unless specifically required by law, we assume no obligation to update or revise these forward-looking statements to reflect new events or circumstances.</p>
<p/>
<pre>
    
    (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 30   June 30   June 30
    -------------------------------------------------------------------------
                                          2010      2009      2010      2009
                                      --------------(Unaudited)--------------

                                             $         $         $         $

    Selected Segment Information
    Sales
        Papers                           1,317     1,127     2,562     2,233
        Paper Merchants                    213       205       425       422
        Wood                                83        46       150        89
    -------------------------------------------------------------------------
    Total for reportable segments        1,613     1,378     3,137     2,744
        Intersegment sales - Papers        (60)      (55)     (122)     (115)
        Intersegment sales - Wood           (6)       (4)      (11)       (8)
    -------------------------------------------------------------------------
    Consolidated sales                   1,547     1,319     3,004     2,621
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Depreciation and amortization and
     impairment and write-down of
     property, plant and equipment
        Papers                              95        98       191       192
        Paper Merchants                      1         1         2         2
        Wood                                 5         5        10         9
    -------------------------------------------------------------------------
    Total for reportable segments          101       104       203       203
        Impairment and write-down of
         property, plant and equipment
         - Papers                           14         -        36        35
    -------------------------------------------------------------------------
    Consolidated depreciation and
     amortization  and impairment and
     write-down of property, plant and
     equipment                             115       104       239       238
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Operating income (loss)
        Papers                             149       150       269       144
        Paper Merchants                     (1)        1         -         3
        Wood                               (49)      (12)      (54)      (30)
        Corporate                           (3)        -        (3)        -
    -------------------------------------------------------------------------
    Consolidated operating income           96       139       212       117
    Interest expense                        70        23       102        54
    -------------------------------------------------------------------------
    Earnings before income taxes            26       116       110        63
    Income tax expense (benefit)            (5)       68        21        60
    -------------------------------------------------------------------------
    Net earnings                            31        48        89         3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Per common share (in dollars)
      Net earnings
        Basic                             0.72      1.12      2.07      0.07
        Diluted                           0.71      1.12      2.05      0.07
    Weighted average number of common
     and exchangeable shares
     outstanding (millions)
        Basic                             43.0      43.0      43.0      43.0
        Diluted                           43.4      43.0      43.4      43.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Cash flows provided from
     operating activities                  610       306       733       363
    Additions to property, plant and
     equipment                              43        18        74        42
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    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 30   June 30   June 30
    -------------------------------------------------------------------------
                                          2010      2009      2010      2009
                                      --------------(Unaudited)--------------

                                             $         $         $         $

    Sales                                1,547     1,319     3,004     2,621
    Operating expenses
        Cost of sales, excluding
         depreciation and amortization   1,207     1,116     2,349     2,239
        Depreciation and amortization      101       104       203       203
        Selling, general and
         administrative                     69        86       153       169
        Impairment and write-down of
         property, plant and equipment      14         -        36        35
        Closure and restructuring
         costs                               5         6        25        30
        Other operating loss (income),
         net                                55      (132)       26      (172)
    -------------------------------------------------------------------------
                                         1,451     1,180     2,792     2,504
    -------------------------------------------------------------------------

    Operating income                        96       139       212       117

    Interest expense                        70        23       102        54
    -------------------------------------------------------------------------

    Earnings before income taxes            26       116       110        63

    Income tax expense (benefit)            (5)       68        21        60
    -------------------------------------------------------------------------

    Net earnings                            31        48        89         3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Per common share (in dollars)

      Net earnings
        Basic                             0.72      1.12      2.07      0.07
        Diluted                           0.71      1.12      2.05      0.07
    Weighted average number of common
     and exchangeable shares
     outstanding (millions)
        Basic                             43.0      43.0      43.0      43.0
        Diluted                           43.4      43.0      43.4      43.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


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

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                        June 30  December 31
    -------------------------------------------------------------------------
                                                           2010         2009
    -------------------------------------------------------------------------
                                                     (Unaudited)

                                                              $            $

    Assets
    Current assets
        Cash and cash equivalents                           514          324
        Receivables, less allowances of $8 and $8           659          536
        Inventories                                         616          745
        Prepaid expenses                                     37           46
        Income and other taxes receivable                    38          414
        Deferred income taxes                               137          137
    -------------------------------------------------------------------------
          Total current assets                            2,001        2,202

      Property, plant and equipment, at cost              9,269        9,575
      Accumulated depreciation                           (5,401)      (5,446)
    -------------------------------------------------------------------------
          Net property, plant and equipment               3,868        4,129
    Intangible assets, net of amortization                   62           85
    Other assets                                            120          103
    -------------------------------------------------------------------------
            Total assets                                  6,051        6,519
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities and shareholders' equity
    Current liabilities
        Bank indebtedness                                    30           43
        Trade and other payables                            678          686
        Income and other taxes payable                       41           31
        Long-term debt due within one year                   30           11
    -------------------------------------------------------------------------
          Total current liabilities                         779          771

    Long-term debt                                        1,186        1,701
    Deferred income taxes and other                       1,033        1,019
    Other liabilities and deferred credits                  411          366

    Shareholders' equity
        Exchangeable shares                                  73           78
        Additional paid-in capital, includes
         treasury stock of $29                            2,792        2,816
        Accumulated deficit                                (138)        (216)
        Accumulated other comprehensive loss                (85)         (16)
    -------------------------------------------------------------------------
          Total shareholders' equity                      2,642        2,662
    -------------------------------------------------------------------------
            Total liabilities and shareholders'
             equity                                       6,051        6,519
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


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

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

                                                     Six months   Six months
                                                          ended        ended
                                                        June 30      June 30
    -------------------------------------------------------------------------
                                                           2010         2009
    -------------------------------------------------------------------------
                                                    --------(Unaudited)------

                                                              $            $

    Operating activities
    Net earnings                                             89            3
    Adjustments to reconcile net earnings to cash
     flows from operating activities
      Depreciation and amortization                         203          203
      Deferred income taxes                                   3           59
      Impairment and write-down of property, plant
       and equipment                                         36           35
      Loss (gain) on repurchase of long-term debt            40          (15)
      Net losses on disposals of property, plant and
       equipment and sale of business                        47            -
      Stock-based compensation expense                        2            5
      Other                                                  (6)           8
    Changes in assets and liabilities
      Receivables                                          (147)        (117)
      Inventories                                            79          171
      Prepaid expenses                                      (12)          (1)
      Trade and other payables                                5          (24)
      Income and other taxes                                392           18
      Difference between employer pension and other
       post-retirement contributions and pension and
       other post-retirement expense                          3           15
      Other assets and other liabilities                     (1)           3
    -------------------------------------------------------------------------
      Cash flows provided from operating activities         733          363
    -------------------------------------------------------------------------

    Investing activities
    Additions to property, plant and equipment              (74)         (42)
    Proceeds from disposals of property, plant and
     equipment                                               14            1
    Proceeds from sale of business                           97            -
    -------------------------------------------------------------------------
      Cash flows  provided from (used for) investing
       activities                                            37          (41)
    -------------------------------------------------------------------------

    Financing activities
    Net change in bank indebtedness                         (13)         (19)
    Change of revolving bank credit facility                  -           90
    Issuance of long-term debt                                -          385
    Repayment of long-term debt                            (530)        (409)
    Borrowings under accounts receivable
     securitization program                                  20            -
    Debt issue and tender offer costs                       (26)         (13)
    Stock repurchase                                        (19)           -
    Prepaid on structured stock repurchase                  (10)           -
    Other                                                    (3)           -
    -------------------------------------------------------------------------
      Cash flows provided from (used for) financing
       activities                                          (581)          34
    -------------------------------------------------------------------------

    Net increase in cash and cash equivalents               189          356
    Translation adjustments related to cash and cash
     equivalents                                              1            9
    Cash and cash equivalents at beginning of period        324           16
    -------------------------------------------------------------------------
    Cash and cash equivalents at end of period              514          381
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Domtar Corporation
    Quarterly Reconciliation of Non-GAAP Financial Measures
    (In millions of dollars, unless otherwise noted)
    
</pre>
<p/>
<p>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.</p>
<p>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 operating activities are the most directly comparable GAAP measures.</p>
<p/>
<pre>
    
                                          -----------------------------------
                                                                  2010
                                          -----------------------------------
                                                            Q1     Q2    YTD
                                          -----------------------------------
    Reconciliation of
     "Earnings (Loss) Before
     Items" to Net earnings
     (loss)
          Net earnings (loss)         ($)                   58     31     89
      (-) Alternative fuel tax
           credits                    ($)                  (18)     -    (18)
      (+) Write-down of PP&E /
           Impairment of PP&E
           and intangible
           assets                     ($)                   16      9     25
      (+) Closure and
           restructuring costs        ($)                   14      4     18
      (-) (Gains) Losses on
           sale of property,
           plant and equipment
           and business               ($)                   (1)    48     47
      (-) (Gain) Loss on debt
           repurchase                 ($)                    -     24     24
      (=) Earnings (Loss)
           Before Items               ($)                   69    116    185
      (/) Weighted avg. number
           of common shares
           outstanding
           (diluted)           (millions)                 43.3   43.4   43.4
      (=) Earnings (Loss)
           Before Items per
           diluted share              ($)                 1.59   2.67   4.26

    Reconciliation of "EBITDA"
     and "EBITDA Before Items"
     to Net earnings (loss)
          Net earnings (loss)         ($)                   58     31     89
      (+) Income tax expense
           (benefit)                  ($)                   26     (5)    21
      (+) Interest expense            ($)                   32     70    102
      (=) Operating income
           (loss)                     ($)                  116     96    212
      (+) Depreciation and
           amortization               ($)                  102    101    203
      (+) Write-down of PP&E /
           Impairment of
           goodwill, PP&E and
           intangible assets          ($)                   22     14     36
      (-) (Gains) Losses on
           sale of property,
           plant and equipment
           and business               ($)                   (1)    48     47
      (equal) EBITDA                  ($)                  239    259    498
      (/) Sales                       ($)                1,457  1,547  3,004
      (=) EBITDA
           Margin                     (%)                   16%    17%    17%
          EBITDA                      ($)                  239    259    498
      (-) Alternative fuel tax
           credits                    ($)                  (25)     -    (25)
      (+) Closure and
           restructuring costs        ($)                   20      5     25
      (=) EBITDA Before
           Items                      ($)                  234    264    498
      (/) Sales                       ($)                1,457  1,547  3,004
      (=) EBITDA Margin
           Before Items               (%)                   16%    17%    17%

    Reconciliation of "Free
     Cash Flow" to Cash flow
     provided from operating
     activities
          Cash flow provided
           from operating
           activities                 ($)                  123    610    733
      (-) Additions to
           property, plant and
           equipment                  ($)                  (31)   (43)   (74)
      (=) Free Cash
           Flow                       ($)                   92    567    659

    "Net Debt-to-Total
     Capitalization"
     Computation
          Bank indebtedness           ($)                   19     30
      (+) Current portion of
           long-term debt             ($)                   31     30
      (+) Long-term debt              ($)                1,600  1,186
      (equal) Debt                    ($)                1,650  1,246
      (-) Cash and cash
           equivalents                ($)                 (314)  (514)
      (=) Net
           Debt                       ($)                1,336    732
      (+) Shareholders' equity        ($)                2,748  2,642
      (=) Total
           capitalization             ($)                4,084  3,374
          Net debt                    ($)                1,336    732
      (/) Total capitalization        ($)                4,084  3,374
      (=) Net Debt-to-Total
           Capitalization             (%)                   33%    22%
                                          -----------------------------------

                                          -----------------------------------
                                                           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
           and intangible
           assets                     ($)     21      -      -     22     43
      (+) Closure and
           restructuring costs        ($)     14      4      2     24     44
      (-) (Gains) Losses on
           sale of property,
           plant and equipment
           and business               ($)      -      -    (12)     3     (9)
      (-) (Gain) Loss on debt
           repurchase                 ($)      -     (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               ($)     99    104    101    101    405
      (+) Write-down of PP&E /
           Impairment of
           goodwill, PP&E and
           intangible assets          ($)     35      -      -     27     62
      (-) (Gains) Losses on
           sale of property,
           plant and equipment
           and business               ($)      -      -    (12)     5     (7)
      (equal) EBITDA                  ($)    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 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                ($)   (145)  (381)  (433)  (324)
      (=) Net
           Debt                       ($)  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%
                                          -----------------------------------
    
</pre>
<p/>
<p>"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.</p>
<p/>
<p/>
<pre>
    
    Domtar Corporation
    Quarterly Reconciliation of Non-GAAP Financial Measures - By Segment 2010
    (In millions of dollars, unless otherwise noted)
    
</pre>
<p/>
<p>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.</p>
<p>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.</p>
<p/>
<pre>
    
                                   ------------------------------------------
                                           Papers          Paper Merchants
                                   ------------------------------------------
                                    Q1'10  Q2'10    YTD  Q1'10  Q2'10    YTD
                                   ------------------------------------------
    Reconciliation of
     Operating Income (Loss)
     to "Operating Income
     (Loss) Before Items"
          Operating income
           (loss)              ($)    120    149    269      1     (1)     -
      (+) Alternative fuel
           tax credits         ($)    (25)     -    (25)     -      -      -
      (+) Write-down of
           property, plant
           and equipment       ($)     22     14     36      -      -      -
      (+) Closure and
           restructuring
           costs               ($)     20      5     25      -      -      -
      (-) (Gains) Losses on
           sale of property,
           plant and
           equipment and
           business            ($)      -     (3)    (3)     -      -      -

      (=) Operating Income
           (Loss) Before
           Items               ($)    137    165    302      1     (1)     -

    Reconciliation of
     "Operating Income (Loss)
     Before Items" to "EBITDA
     Before Items"
          Operating Income
           (Loss) Before
           Items               ($)    137    165    302      1     (1)     -
      (+) Depreciation and
           amortization        ($)     96     95    191      1      1      2

      (=) EBITDA Before
           Items               ($)    233    260    493      2      -      2
      (/) Sales                ($)  1,245  1,317  2,562    212    213    425
      (=) EBITDA Margin
           Before Items        (%)     19%    20%    19%     1%     -      -
                                   ------------------------------------------

                                   ------------------------------------------
                                            Wood              Corporate
                                   ------------------------------------------
                                    Q1'10  Q2'10    YTD  Q1'10  Q2'10    YTD
                                   ------------------------------------------
    Reconciliation of
     Operating Income (Loss)
     to "Operating Income
     (Loss) Before Items"
          Operating income
           (loss)              ($)     (5)   (49)   (54)     -     (3)    (3)
      (+) Alternative fuel
           tax credits         ($)      -      -      -      -      -      -
      (+) Write-down of
           property, plant
           and equipment       ($)      -      -      -      -      -      -
      (+) Closure and
           restructuring
           costs               ($)      -      -      -      -      -      -
      (-) (Gains) Losses on
           sale of property,
           plant and
           equipment and
           business            ($)     (1)    49     48      -      2      2

      (=) Operating Income
           (Loss) Before
           Items               ($)     (6)     -     (6)     -     (1)    (1)

    Reconciliation of
     "Operating Income (Loss)
     Before Items" to "EBITDA
     Before Items"
          Operating Income
           (Loss) Before
           Items               ($)     (6)     -     (6)     -     (1)    (1)
      (+) Depreciation and
           amortization        ($)      5      5     10      -      -      -

      (=) EBITDA Before
           Items               ($)     (1)     5      4      -     (1)    (1)
      (/) Sales                ($)     67     83    150      -      -      -
      (=) EBITDA Margin
           Before Items        (%)      -      6%     3%     -      -      -
                                   ------------------------------------------
    
</pre>
<p/>
<p>"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.</p>
<p/>
<p/>
<pre>
    
    Domtar Corporation
    Quarterly Reconciliation of Non-GAAP Financial Measures - By Segment 2009
    (In millions of dollars, unless otherwise noted)
    
</pre>
<p/>
<p>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.</p>
<p>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.</p>
<p/>
<pre>
    
                                          -----------------------------------
                                                         Papers
                                          -----------------------------------
                                           Q1'09  Q2'09  Q3'09  Q4'09    YTD
                                          -----------------------------------
    Reconciliation of Operating
     Income (Loss) to "Operating
     Income (Loss) Before Items"
          Operating income (loss)     ($)     (6)   150    294    212    650
      (-) Alternative fuel tax
           credits                    ($)    (46)  (131)  (159)  (162)  (498)
      (+) 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 (Loss) 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 (Loss) to "Operating
     Income (Loss) Before Items"
          Operating income (loss)     ($)      2      1      2      2      7
      (-) Alternative fuel tax
           credits                    ($)      -      -      -      -      -
      (+) 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 (Loss) 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 (Loss) to "Operating
     Income (Loss) Before Items"
          Operating income (loss)     ($)    (18)   (12)    (1)   (11)   (42)
      (-) Alternative fuel tax
           credits                    ($)      -      -      -      -      -
      (+) 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 (Loss) 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 (Loss) to "Operating
     Income (Loss) Before Items"
          Operating income (loss)     ($)      -      -      -      -      -
      (-) Alternative fuel tax
           credits                    ($)      -      -      -      -      -
      (+) 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 (Loss) 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               (%)      -      -      -      -      -
                                          -----------------------------------
    
</pre>
<p/>
<p>"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.</p>
<p/>
<p/>
<pre>
    
    Domtar Corporation
    Supplemental Segmented Information
    (In millions of dollars, unless otherwise noted)

                                          -----------------------------------
                                                                  2010
                                          -----------------------------------
                                                            Q1     Q2    YTD
                                          -----------------------------------
    Papers Segment
      Sales                           ($)                1,245  1,317  2,562
        Intersegment
         sales - Papers               ($)                  (62)   (60)  (122)
      Operating income
       (loss)                         ($)                  120    149    269
      Depreciation &
       amortization                   ($)                   96     95    191
      Impairment and
       write-down of PP&E             ($)                   22     14     36

      Papers
      Papers Production         ('000 ST)                  906    882  1,788
      Papers Shipments          ('000 ST)                  960    891  1,851
          Uncoated
           freesheet            ('000 ST)                  925    889  1,814
          Coated
           groundwood           ('000 ST)                   35      2     37

      Pulp
      Pulp Shipments(a)       ('000 ADMT)                  388    486    874
          Hardwood Kraft
           Pulp                       (%)                   40%    38%    39%
          Softwood Kraft
           Pulp                       (%)                   49%    52%    51%
          Fluff Pulp                  (%)                   11%    10%    10%

    Paper Merchants
     Segment
      Sales                           ($)                  212    213    425
      Operating income
       (loss)                         ($)                    1     (1)     -
      Depreciation &
       amortization                   ($)                    1      1      2

    Wood Segment
      Sales                           ($)                   67     83    150
        Intersegment
         sales - Wood                 ($)                   (5)    (6)   (11)
      Operating loss                  ($)                   (5)   (49)   (54)
      Depreciation &
       amortization                   ($)                    5      5     10

      Lumber Production    (Millions FBM)                  172    165    337
      Lumber Shipments     (Millions FBM)                  164    187    351

    Average Exchange Rates           CAN                 1.041  1.028  1.034
                                      US                 0.961  0.973  0.967
                                          -----------------------------------

                                          -----------------------------------
                                                           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                           ($)    217    205    239    212    873
      Operating income
       (loss)                         ($)      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.
    

For further information: For further information: Media and Investor Relations: Pascal Bossé, Vice-President, Corporate Communications and Investor Relations, Tel.: 514-848-5938

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Domtar Corporation

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