Domtar Corporation reports preliminary third quarter 2009 financial results


    
    Stronger pulp and paper volumes and better pulp prices benefit results
    (All financial information is in U.S. dollars, and all earnings (loss)
    per share results are diluted, unless otherwise noted.)

    - Net earnings of $4.24 per share, earnings before items(1) of $1.32 per
      share
    - Free cash flow(1) of $220 million
    - Lack-of-order downtime and machine slowdowns totaling 101 thousand tons
      of paper

    TICKER SYMBOL
    UFS (NYSE, TSX)
    
</pre>
<p/>
<p><location>MONTREAL</location>, <chron>Oct. 30</chron> /CNW Telbec/ - Domtar Corporation (NYSE/TSX: UFS) today reported net earnings of <money>$183 million</money> (<money>$4.24</money> per share) for the third quarter of 2009 compared to net earnings of <money>$48 million</money> (<money>$1.12</money> per share) for the second quarter of 2009 and net earnings of <money>$43 million</money> (<money>$1.00</money> per share) for the third quarter of 2008. Sales for the third quarter of 2009 amounted to <money>$1.4 billion</money>. Excluding items(1) listed below, the Company earned <money>$57 million</money> (<money>$1.32</money> per share(1)) for the third quarter of 2009 compared to a loss of <money>$33 million</money> (<money>$0.76</money> per share(1)) for the second quarter of 2009 and earnings of <money>$51 million</money> (<money>$1.19</money> per share(1)) for the third quarter of 2008.</p>
<p/>
<pre>
    
    Third quarter 2009 items:
    -------------------------

    - Refundable excise tax credit for the production and use of alternative
      bio fuel mixtures of $159 million ($116 million after tax);
    - Gains on sale of property, plant and equipment of $12 million
      ($12 million after tax); and
    - Closure and restructuring costs of $4 million ($2 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).

    Third quarter 2008 items:
    -------------------------

    - Costs of $10 million ($6 million after tax) related to synergies and
      integration; and
    - Closure and restructuring costs of $3 million ($2 million after tax).
    
</pre>
<p/>
<p>"All of our businesses posted improved profitability, most notably in pulp which benefited from higher prices, better demand and lower downtime costs due to the restart of our Woodland and Dryden pulp mills. In our paper business, market conditions improved slightly quarter-over-quarter, as we had better shipments while taking the same level of lack-of-order downtime as in the second quarter," said John D. Williams, President and Chief Executive Officer.</p>
<p>"Our initiatives to reduce working capital and improve procurement spending and the sustained focus of our employees on customers, costs, and cash have contributed to generating a strong free cash flow during the quarter. Operational performance and debt repayment remain our priority. The recently announced closure of fine paper capacity and repurposing of the assets at the Plymouth mill is part of our strategy to balance our supply with customer demand and optimize the use of our assets," added <person>Mr. Williams</person>.</p>
<p/>
<p>SEGMENT REVIEW</p>
<p/>
<p>Papers</p>
<p/>
<p>Operating income before items(1) was <money>$138 million</money> in the third quarter of 2009 compared to operating income before items(1) of <money>$23 million</money> in the second quarter of 2009. Depreciation and amortization totaled <money>$95 million</money> in the third quarter of 2009. When compared to the second quarter of 2009, paper shipments increased 5% while pulp shipments increased 13%. The shipments-to-production ratio for papers was 106% in the third quarter of 2009, compared to 102% in the second quarter of 2009. Paper and pulp inventories were lowered by 57,000 tons and 29,000 metric tons, respectively, at the end of September when compared to end of June levels.</p>
<p>The increase in operating income before items(1) in the third quarter of 2009 was the result of higher paper and pulp shipments, higher average selling prices for pulp, and lower materials costs. These factors were partially offset by lower average selling prices for paper and the impact of an unfavorable exchange rates including hedging.</p>
<p/>
<pre>
    
    (In millions of dollars)                              3Q 2009   2Q 2009
    -----------------------------------------------     ---------------------
    Sales                                                  $1,211    $1,127

    Operating income                                         $294      $150

    Operating income before items(1)                         $138       $23

    Depreciation and amortization                             $95       $98
    
</pre>
<p/>
<p>Paper Merchants</p>
<p/>
<p>Operating income before items(1) was <money>$2 million</money> in the third quarter of 2009 compared to operating income before items(1) of <money>$2 million</money> in the second quarter of 2009. Depreciation and amortization was <money>$1 million</money> in the third quarter of 2009. Deliveries increased 20% when compared to the second quarter. Higher deliveries and lower costs were offset by lower prices.</p>
<p/>
<pre>
    
    (In millions of dollars)                              3Q 2009   2Q 2009
    -----------------------------------------------     ---------------------
    Sales                                                    $239      $205

    Operating income                                           $2        $1

    Operating income before items(1)                           $2        $2

    Depreciation and amortization                              $1        $1
    
</pre>
<p/>
<p>Wood</p>
<p/>
<p>Operating loss before items(1) was <money>$9 million</money> in the third quarter of 2009, compared to operating loss before items(1) of <money>$11 million</money> in the second quarter of 2009. Depreciation and amortization totaled <money>$5 million</money> in the third quarter of 2009. When compared to the second quarter of 2009, lumber shipments increased 13%.</p>
<p>The decrease in operating loss before items(1) in the third quarter of 2009 was primarily the result of higher selling prices and higher shipments. These factors were partially offset by the impact of an unfavorable exchange rate including hedging.</p>
<p/>
<pre>
    
    (In millions of dollars)                              3Q 2009   2Q 2009
    -----------------------------------------------     ---------------------
    Sales                                                     $59       $46

    Operating loss                                            ($1)     ($12)

    Operating loss before items(1)                            ($9)     ($11)

    Depreciation and amortization                              $5        $5
    
</pre>
<p/>
<p>LIQUIDITY AND CAPITAL</p>
<p/>
<p>Cash flow provided from operating activities amounted to <money>$244 million</money> and free cash flow(1) amounted to <money>$220 million</money> in the third quarter of 2009. Domtar's net debt-to-total capitalization ratio(1) stood at 38% at <chron>September 30, 2009</chron> compared to 50% at <chron>December 31, 2008</chron>. Amounts drawn on the off balance sheet receivables securitization program are unchanged since <chron>June 30</chron> and stood at <money>$20 million</money> at the end of September.</p>
<p>Domtar Corporation has been allocated CDN$143 million through the Pulp and Paper Green Transformation Program announced by the Government of <location>Canada</location>. The funds are to be spent on capital projects to improve energy efficiency and environmental performance in our Canadian pulp and paper mills. The investments must be made before the expiration of the program on <chron>March 31, 2012</chron>, and all projects are subject to the approval of the Government of <location>Canada</location>.</p>
<p/>
<p>OUTLOOK</p>
<p/>
<p>For the fourth quarter, we expect lower paper volumes due to the seasonality of our business as well as higher costs due to planned maintenance shutdowns when compared to the third quarter. The strengthening of the Canadian dollar will also negatively impact the profitability of our Canadian mills. However, we expect our Papers segment to benefit from recently announced price increases implemented in the fourth quarter. Inventory levels remain lean and Domtar will continue to balance its production with customer demand.</p>
<p/>
<p>EARNINGS CONFERENCE CALL</p>
<p/>
<p>The Company will hold a conference call today at <chron>11:00 a.m. (ET</chron>) to discuss its third 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 - <location>North America</location>) 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/>
<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 <location>North America</location> 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 <a href="http://www.domtar.com">www.domtar.com</a>.</p>
<p/>
<p>Forward-Looking Statements</p>
<p/>
<p>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.</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      Nine      Nine
                                       months    months    months    months
                                        ended     ended     ended     ended
                                    September September September September
                                           30        28        30        28
    -------------------------------------------------------------------------
                                         2009      2008      2009      2008
    -------------------------------------------------------------------------
                                    ---------------(Unaudited)---------------

                                            $         $         $         $
    Selected Segment Information

    Sales
      Papers                            1,211     1,364     3,444     4,200
      Paper Merchants                     239       257       661       762
      Wood                                 59        76       148       209
    -------------------------------------------------------------------------
    Total for reportable segments       1,509     1,697     4,253     5,171
      Intersegment sales - Papers         (63)      (64)     (178)     (220)
      Intersegment sales - Wood            (6)       (8)      (14)      (22)
    -------------------------------------------------------------------------
    Consolidated sales                  1,440     1,625     4,061     4,929
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Depreciation and amortization
      Papers                               95       111       287       331
      Paper Merchants                       1         1         3         2
      Wood                                  5         7        14        20
    -------------------------------------------------------------------------
    Total for reportable segments         101       119       304       353
      Write-down of property, plant
       and equipment - Papers               -         -        35         -
    -------------------------------------------------------------------------
    Consolidated depreciation and
     amortization and write-down of
     property, plant and equipment        101       119       339       353
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Operating income (loss)
      Papers                              294       118       438       324
      Paper Merchants                       2         1         5         6
      Wood                                 (1)      (11)      (31)      (45)
    -------------------------------------------------------------------------
    Total for reportable segments         295       108       412       285
      Corporate                             -         -         -        (3)
    -------------------------------------------------------------------------
    Consolidated operating income         295       108       412       282
    Interest expense                       34        35        88       111
    -------------------------------------------------------------------------
    Earnings before income taxes          261        73       324       171
    Income tax expense                     78        30       138        68
    -------------------------------------------------------------------------
    Net earnings                          183        43       186       103
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Per common share (in dollars)
      Net earnings
        Basic                            4.26      1.00      4.33      2.40
        Diluted                          4.24      1.00      4.32      2.40
    Weighted average number of
     common and exchangeable
     shares outstanding (millions)
        Basic                            43.0      43.0      43.0      43.0
        Diluted                          43.2      43.0      43.1      43.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Cash flows provided from
     operating activities                 244       131       607       271
    Additions to property, plant
     and equipment                         24        49        66       114
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


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

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                        Three     Three      Nine      Nine
                                       months    months    months    months
                                        ended     ended     ended     ended
                                    September September September September
                                           30        28        30        28
    -------------------------------------------------------------------------
                                         2009      2008      2009      2008
                                    ---------------(Unaudited)---------------
                                            $         $         $         $

                                     ---------            --------
    Sales                               1,440     1,625     4,061     4,929
    Operating expenses
      Cost of sales, excluding
       depreciation and amortization    1,124     1,293     3,363     3,971
      Depreciation and amortization       101       119       304       353
      Selling, general and
       administrative                      85        99       254       310
      Write-down of property, plant
       and equipment                        -         -        35         -
      Closure and restructuring
       costs                                4         3        34        15
      Other operating (income)
       expense                           (169)        3      (341)       (2)
    -------------------------------------------------------------------------
                                        1,145     1,517     3,649     4,647
    -------------------------------------------------------------------------
    Operating income                      295       108       412       282

    Interest expense                       34        35        88       111
    -------------------------------------------------------------------------
    Earnings before income taxes          261        73       324       171

    Income tax expense                     78        30       138        68
    -------------------------------------------------------------------------
    Net earnings                          183        43       186       103
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Per common share (in dollars)

      Net earnings
        Basic                            4.26      1.00      4.33      2.40
        Diluted                          4.24      1.00      4.32      2.40

    Weighted average number of
     common and exchangeable shares
     outstanding (millions)
        Basic                            43.0      43.0      43.0      43.0
        Diluted                          43.2      43.0      43.1      43.0
                                     ---------            --------


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

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                        September  December
                                                               30        31
    -------------------------------------------------------------------------
                                                             2009      2008
                                                      ------(Unaudited)------

                                                                $         $
                                                        ----------
    Assets
    Current assets
      Cash and cash equivalents                               433        16
      Receivables, less allowances of $8 and $11              620       477
      Inventories                                             765       963
      Prepaid expenses                                         49        27
      Income and other taxes receivable                       233        56
      Deferred income taxes                                   121       116
    -------------------------------------------------------------------------
        Total current assets                                2,221     1,655

    Property, plant and equipment, at cost                  9,459     8,963
    Accumulated depreciation                               (5,267)   (4,662)
    -------------------------------------------------------------------------
        Net property, plant and equipment                   4,192     4,301
    Intangible assets, net of amortization                     83        81
    Other assets                                               64        67
    -------------------------------------------------------------------------
          Total assets                                      6,560     6,104
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities and shareholders' equity
    Current liabilities
      Bank indebtedness                                        30        43
      Trade and other payables                                653       646
      Income and other taxes payable                           35        36
      Long-term debt due within one year                       13        18
    -------------------------------------------------------------------------
        Total current liabilities                             731       743

    Long-term debt                                          1,971     2,110
    Deferred income taxes and other                           941       824
    Other liabilities and deferred credits                    337       284

    Shareholders' equity
      Common stock                                              -         5
      Exchangeable shares                                      85       138
      Additional paid-in capital                            2,807     2,743
      Accumulated deficit                                    (340)     (526)
      Accumulated other comprehensive income (loss)            28      (217)
    -------------------------------------------------------------------------
        Total shareholders' equity                          2,580     2,143
    -------------------------------------------------------------------------
          Total liabilities and shareholders' equity        6,560     6,104
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


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

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                             Nine      Nine
                                                           months    months
                                                            ended     ended
                                                        September September
                                                               30        28
    -------------------------------------------------------------------------
                                                             2009      2008
    -------------------------------------------------------------------------
                                                      ------(Unaudited)------
                                                                $         $
    Operating activities
                                                        ----------
    Net earnings                                              186       103
    Adjustments to reconcile net earnings to
     cash flows from operating activities
      Depreciation and amortization                           304       353
      Deferred income taxes                                   122        46
      Write-down of property, plant and equipment              35         -
      Gain on repurchase of long-term debt                    (12)        -
      Net gains on disposals of property, plant
       and equipment                                          (12)       (3)
      Stock-based compensation expense                          6        13
      Gain on sale of trademarks                                -        (6)
      Other                                                     8         8

    Changes in assets and liabilities
      Receivables                                            (141)      (84)
      Inventories                                             234       (68)
      Prepaid expenses                                         (2)      (26)
      Trade and other payables                                 25         4
      Income and other taxes                                 (172)       (1)
      Difference between employer pension and other
       post-retirement expense and contributions               10       (52)
      Other assets and other liabilities                       16       (16)
    -------------------------------------------------------------------------
      Cash flows provided from operating activities           607       271
    -------------------------------------------------------------------------

    Investing activities
    Additions to property, plant and equipment                (66)     (114)
    Proceeds from disposals of property, plant
     and equipment                                             16        24
    Proceeds from sale of trademarks                            -         6
    Business acquisition                                        -       (12)
    -------------------------------------------------------------------------
      Cash flows used for investing activities                (50)      (96)
    -------------------------------------------------------------------------

    Financing activities
    Net change in bank indebtedness                           (13)      (27)
    Change of revolving bank credit facility                  (60)      (50)
    Issuance of long-term debt                                385         -
    Repayment of long-term debt                              (451)      (41)
    Debt issue and tender offer costs                         (14)        -
    -------------------------------------------------------------------------
      Cash flows used for financing activities               (153)     (118)
    -------------------------------------------------------------------------

    Net increase in cash and cash equivalents                 404        57
    Translation adjustments related to cash and
     cash equivalents                                          13        (1)
    Cash and cash equivalents at beginning of period           16        71
    -------------------------------------------------------------------------
    Cash and cash equivalents at end of period                433       127
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Supplemental cash flow information
      Net cash payments for:
        Interest                                               88        81
        Income taxes (refund) paid                            (18)       46
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Domtar Corporation
    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," "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.</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 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.</p>
<p/>
<pre>
    
                                      ---------------------------------------
                                                        2009
                                      ---------------------------------------
                                                                     --------
                                         Q1      Q2      Q3      Q4     YTD
                                      ---------------------------------------
    Reconciliation of
     "Earnings (Loss)
     Before Items" to
     Net earnings (loss)
          Net earnings (loss)    ($)    (45)     48     183             186
      (-) Alternative fuel tax
           credits               ($)    (28)    (79)   (116)           (223)
      (-) Gains on sale of
           property, plant and
           equipment             ($)                    (12)            (12)
      (+) Closure and
           restructuring costs   ($)     14       4       2              20
      (-) Gain on debt
           repurchase            ($)             (6)                     (6)
      (+) Write-down of PP&E /
           Impairment of PP&E
           and intangible
           assets                ($)     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)     57             (14)
      (/) Weighted avg. number
           of common shares
           outstanding
           (diluted)      (millions)   43.0    43.0    43.2            43.1
      (=) Earnings (Loss)
           Before Items per
           diluted share         ($)  (0.88)  (0.76)   1.32           (0.32)

    Reconciliation of
     "EBITDA" and "EBITDA
     Before Items" to
     Net earnings (loss)
          Net earnings (loss)    ($)    (45)     48     183             186
      (+) Income tax expense
           (benefit)             ($)     (8)     68      78             138
      (+) Interest expense       ($)     31      23      34              88
      (=) Operating income
           (loss)                ($)    (22)    139     295             412
      (+) Depreciation and
           amortization          ($)     99     104     101             304
      (+) Write-down of PP&E /
           Impairment of
           goodwill, PP&E and
           intangible assets     ($)     35                              35
      (equal) EBITDA             ($)    112     243     396             751
      (-) Alternative fuel
           tax credits           ($)    (46)   (131)   (159)           (336)
      (-) Gains on sale of
           property, plant
           and equipment         ($)                    (12)            (12)
      (+) Closure and
           restructuring
           costs                 ($)     24       6       4              34
      (-) 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     229             437

    Reconciliation of "Free
     Cash Flow" to Cash flow
     from operating activities
          Cash flow provided
           from operating
           activities            ($)     57     306     244             607
      (-) Additions to
           property, plant
           and equipment         ($)    (24)    (18)    (24)            (66)
      (=) Free Cash
           Flow                  ($)     33     288     220             541
          Cash received from
           alternative fuel
           tax credits           ($)            137       3             140

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


                                      ---------------------------------------
                                                        2008
                                      ---------------------------------------
                                                                     --------
                                         Q1      Q2      Q3      Q4     YTD
                                      ---------------------------------------
    Reconciliation of
     "Earnings (Loss)
     Before Items" to
     Net earnings (loss)                 36      24      43    (676)   (573)
          Net earnings (loss)    ($)
      (-) Alternative fuel tax
           credits               ($)
      (-) Gains on sale of
           property, plant and
           equipment             ($)
      (+) Closure and
           restructuring costs   ($)      1       7       2      18      28
      (-) Gain on debt
           repurchase            ($)                             (8)     (8)
      (+) Write-down of PP&E /
           Impairment of PP&E
           and intangible
           assets                ($)                            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             ($)    210     198     227      99     734
      (-) Alternative fuel
           tax credits           ($)
      (-) Gains on sale of
           property, plant
           and equipment         ($)
      (+) Closure and
           restructuring
           costs                 ($)      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)
      (=) Free Cash
           Flow                  ($)     (2)     77      82    (123)     34
          Cash received from
           alternative fuel
           tax credits           ($)

    "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)
      (=) 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%
                                                                     --------
                                      ---------------------------------------

    
</pre>
<p/>
<p>"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.</p>
<p/>
<pre>
    
    Domtar Corporation
    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 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.</p>
<p>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.</p>
<p/>
<pre>
    
                                      ---------------------------------------
                                                      Papers
                                      ---------------------------------------
                                                                     --------
                                      Q1'09   Q2'09   Q3'09   Q4'09     YTD
                                      ---------------------------------------
    Reconciliation of Operating
     income to "Operating Income
     Before Items"
          Operating income
           (loss)                ($)     (6)    150     294             438
      (-) Alternative fuel
           tax credits           ($)    (46)   (131)   (159)           (336)
      (+) Closure and
           restructuring costs   ($)     22       4       4              30
      (-) Gains on sale of
           property, plant and
           equipment             ($)                     (1)             (1)
      (+) Write-down of
           property, plant and
           equipment             ($)     35                              35
      (=) Operating Income
           Before Items          ($)      5      23     138             166

    Reconciliation of
     "Operating Income
     Before Items" to "EBITDA
     Before Items"
          Operating Income
           Before Items          ($)      5      23     138             166
      (+) Depreciation and
           amortization          ($)     94      98      95             287
      (=) EBITDA Before
           Items                 ($)     99     121     233             453
                                                                     --------
                                      ---------------------------------------


                                      ---------------------------------------
                                                 Paper Merchants
                                      ---------------------------------------
                                                                     --------
                                      Q1'09   Q2'09   Q3'09   Q4'09     YTD
                                      ---------------------------------------
    Reconciliation of Operating
     income to "Operating Income
     Before Items"
          Operating income
           (loss)                ($)      2       1       2               5
      (-) Alternative fuel
           tax credits           ($)
      (+) Closure and
           restructuring costs   ($)              1                       1
      (-) Gains on sale of
           property, plant and
           equipment             ($)
      (+) Write-down of
           property, plant and
           equipment             ($)
      (=) Operating Income
           Before Items          ($)      2       2       2               6

    Reconciliation of
     "Operating Income
     Before Items" to "EBITDA
     Before Items"
          Operating Income
           Before Items          ($)      2       2       2               6
      (+) Depreciation and
           amortization          ($)      1       1       1               3
      (=) EBITDA Before
           Items                 ($)      3       3       3               9
                                                                     --------
                                      ---------------------------------------


                                      ---------------------------------------
                                                      Wood
                                      ---------------------------------------
                                                                     --------
                                      Q1'09   Q2'09   Q3'09   Q4'09     YTD
                                      ---------------------------------------
    Reconciliation of Operating
     income to "Operating Income
     Before Items"
          Operating income
           (loss)                ($)    (18)    (12)     (1)            (31)
      (-) Alternative fuel
           tax credits           ($)
      (+) Closure and
           restructuring costs   ($)      2       1                       3
      (-) Gains on sale of
           property, plant and
           equipment             ($)                     (8)             (8)
      (+) Write-down of
           property, plant and
           equipment             ($)
      (=) Operating Income
           Before Items          ($)    (16)    (11)     (9)            (36)

    Reconciliation of
     "Operating Income
     Before Items" to "EBITDA
     Before Items"
          Operating Income
           Before Items          ($)    (16)    (11)     (9)            (36)
      (+) Depreciation and
           amortization          ($)      4       5       5              14
      (=) EBITDA Before
           Items                 ($)    (12)     (6)     (4)            (22)
                                                                     --------
                                      ---------------------------------------


                                      ---------------------------------------
                                                    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   ($)
      (-) Gains on sale of
           property, plant and
           equipment             ($)                     (3)             (3)
      (+) Write-down of
           property, plant and
           equipment             ($)
      (=) Operating Income
           Before Items          ($)                     (3)             (3)

    Reconciliation of
     "Operating Income
     Before Items" to "EBITDA
     Before Items"
          Operating Income
           Before Items          ($)                     (3)             (3)
      (+) Depreciation and
           amortization          ($)
      (=) EBITDA Before
            Items                ($)                     (3)             (3)
                                                                     --------
                                      ---------------------------------------
    
</pre>
<p/>
<p>"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.</p>
<p/>
<pre>
    
    Domtar Corporation
    Reconciliation of Non-GAAP Financial Measures - By Segment 2008
    (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 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.</p>
<p>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.</p>
<p/>
<pre>
    
                                      ---------------------------------------
                                                     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)
                                                                     --------
                                      ---------------------------------------


    Domtar Corporation
    Supplemental Segmented Information
    (In millions of dollars, unless otherwise noted)

                                      ---------------------------------------
                                                     2009
                                      ---------------------------------------
                                         Q1      Q2      Q3      Q4     YTD
                                      ---------------------------------------
    Papers Segment
      Sales                      ($)  1,106   1,127   1,211           3,444
        Intersegment sales
         - Papers                ($)    (60)    (55)    (63)           (178)
      Operating income (loss)    ($)    (6)     150     294             438
      Depreciation &
       amortization              ($)     94      98      95             287
      Impairment and write-down
       of goodwill and PP&E      ($)     35                              35

      Papers
      Papers Production    ('000 ST)    869     912     920           2,701
      Papers Shipments     ('000 ST)    913     929     972           2,814
        Uncoated freesheet ('000 ST)    887     901     939           2,727
        Coated groundwood  ('000 ST)     26      28      33              87

      Pulp
      Pulp Shipments(a)  ('000 ADMT)    314     393     446           1,153
        Hardwood Kraft Pulp      (%)     33%     33%     40%             36%
        Softwood Kraft Pulp      (%)     54%     54%     49%             52%
        Fluff Pulp               (%)     13%     13%     11%             12%

    Paper Merchants Segment
      Sales                      ($)    217     205     239             661
      Operating income           ($)      2       1       2               5
      Depreciation &
       amortization              ($)      1       1       1               3

    Wood Segment
      Sales                      ($)     43      46      59             148
        Intersegment sales
         - Wood                  ($)     (4)     (4)     (6)            (14)
      Operating loss             ($)    (18)    (12)     (1)            (31)
      Depreciation &
       amortization              ($)      4       5       5              14
      Impairment of goodwill,
       PP&E and intangible
       assets                    ($)

      Lumber
       Production     (Millions FBM)    121     131     147             399
      Lumber
       Shipments      (Millions FBM)    125     135     153             413

    Average Exchange Rates      CAN   1.245   1.167   1.097           1.170
                                 US   0.803   0.857   0.911           0.855
                                                                     --------
                                      ---------------------------------------


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