Domtar Corporation reports second quarter 2008 financial results



    
    TICKER SYMBOL
    UFS (NYSE, TSX)

    Synergy program well underway - target increased to $250 million

    - Net earnings of $0.05 per diluted share, earnings before items(1) of
      $0.06 per diluted share
    - Free cash flow(1) of $77 million in the second quarter
    - Net debt(1) reduced by $104 million year-to-date
    

    MONTREAL, Aug. 8 /CNW Telbec/ - Domtar Corporation (NYSE/TSX: UFS) today
reported net earnings of $24 million ($0.05 per diluted share) for the second
quarter of 2008 compared to net earnings of $36 million ($0.07 per diluted
share) for the first quarter of 2008 and $11 million ($0.02 per diluted share)
for the second quarter of 2007. Sales for the second quarter amounted to
$1.6 billion.
    Excluding the items listed below, the Company earned $32 million ($0.06
per diluted share) for the second quarter of 2008 compared to $25 million
($0.05 per diluted share) for the first quarter of 2008 and $9 million ($0.02
per diluted share) for the second quarter of 2007.

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

    - Gain of $6 million ($4 million after tax) related to the sale of
      trademarks;
    - Closure and restructuring costs of $11 million ($7 million after tax);
      and
    - Costs of $9 million ($5 million after tax) related to synergies and
      integration.

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

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

    Second quarter 2007:
    --------------------

    - Gains of $10 million ($6 million after tax) related to financial
      instruments;
    - Gain of $1 million related to a change in statutory income tax rates;
    - Costs of $6 million ($4 million after tax) related to synergies and
      integration; and
    - Closure and restructuring costs of $2 million ($1 million after tax).

    "We had a better quarter when compared to the same period last year with
sales up 3.5% and earnings before items increasing $23 million despite a 5.9%
drop in paper shipments. Clearly, the synergies are starting to show in our
results and the projected benefits from new initiatives have led us to
increase our synergy target to $250 million," said Mr. Raymond Royer,
President and Chief Executive Officer. "Having said that, the announced price
increases for papers in June are necessary to adjust to this new business
environment of structurally higher input costs," added Mr. Royer.

    SEGMENT REVIEW

    Papers

    Operating income before items(1) was $106 million in the second quarter of
2008 compared to operating income before items(1) of $100 million in the first
quarter of 2008. Depreciation and amortization totaled $110 million in the
second quarter. When compared to the first quarter, paper shipments decreased
5.6% while pulp shipments remained flat. The shipments-to-production ratio for
papers was 99% in the second quarter compared to 103% in the first quarter.
When compared to March 30, 2008 levels, paper inventories were 6,000 tons
higher at the end of June.
    The increase in operating income before items(1) in the second quarter was
the result of higher average selling prices for paper and pulp, lower overall
costs including the negative impact of higher costs related to fiber, energy,
freight and chemicals, lower usage for energy and a favorable exchange rate.
These factors were partially mitigated by higher costs related to planned
maintenance shutdowns and lower paper shipments.

    (In millions of dollars)                           2Q 2008       1Q 2008
    ---------------------------------------------   -----------   -----------

    Sales                                               $1,407        $1,429

    Operating income                                       $92          $114

    Operating income before items(1)                      $106          $100

    Depreciation and amortization                         $110          $110

    Commenting on the current business environment and recent demand
statistics for uncoated freesheet, Mr. Royer said, "While trade publications
have painted a fairly negative demand picture for the paper industry so far in
2008, Domtar's core business has weathered the storm quite well with no
lack-of-order downtime, shipments-to-production close to 100% and paper
inventories virtually flat from March-end levels. The closure of the Port
Edwards mill in June further tightened our manufacturing system. The U.S.
economy remains challenging and we will be closely tracking our order books
and will make adjustments to production where needed to respond to customer
demand."


    Paper Merchants

    Operating income was $2 million in the second quarter of 2008 compared to
operating income of $3 million in the first quarter of 2008. Depreciation and
amortization was $1 million in the second quarter. Deliveries decreased 11%
when compared to the first quarter.
    The decrease in operating income in the second quarter was the result of
the depreciation and amortization expense and lower deliveries, partially
offset by higher average selling prices.

    (In millions of dollars)                           2Q 2008       1Q 2008
    ---------------------------------------------   -----------   -----------

    Sales                                                 $243          $262

    Operating income                                        $2            $3

    Depreciation and amortization                           $1             -


    Wood

    Operating loss was $12 million in the second quarter of 2008, compared to
an operating loss of $22 million in the first quarter of 2008. Depreciation
and amortization totaled $7 million in the second quarter. When compared to
the first quarter, lumber shipments increased 13% in the second quarter.
    The decrease in operating loss in the second quarter was the result of
higher average selling prices, higher shipments, lower costs and better
productivity at several operations. The results were partially offset by a
higher depreciation and amortization expense.

    (In millions of dollars)                           2Q 2008       1Q 2008
    ---------------------------------------------   -----------   -----------

    Sales                                                  $70           $63

    Operating loss                                        ($12)         ($22)

    Depreciation and amortization                           $7            $6

    "The financial results in our Wood business improved significantly in the
second quarter, better than what we had expected, and this is due to higher
prices but also to the concerted efforts made by our employees to reduce costs
and improve the efficiency of our operations," said Mr. Royer. "I am pleased
with this progress and look forward to making additional improvements going
forward."


    OUTLOOK

    For the second half of the year, we anticipate the demand for uncoated
freesheet paper in North America to remain under pressure due to the
challenging economic environment although low inventory levels and capacity
rationalization within the industry help maintain a supply-demand balance.
Domtar's synergy program is well-advanced; profit margin expansion in the
Papers segment is expected both from the continued benefits from synergies and
from price increases implemented in uncoated freesheet early in the third
quarter.

    EARNINGS CONFERENCE CALL

    The Company will hold a conference call today at 10:00 a.m. (ET) to
discuss its second quarter 2008 financial results. Financial analysts are
invited to participate in the call by dialing in at least 10 minutes before
start time at 1-866-321-8231 (toll free - North America) or 1-416-642-5213
(International), while media and other interested individuals are invited to
listen to the live webcast on the Domtar Corporation website at
www.domtar.com.

    About Domtar

    Domtar Corporation (NYSE/TSX:UFS) is the largest integrated manufacturer
and a leading marketer of uncoated freesheet paper in North America and the
second largest in the world based on production capacity, and is also a
manufacturer of papergrade, fluff and specialty pulp. The Company designs,
manufactures, markets and distributes a wide range of business, commercial
printing and publication as well as converting and specialty papers including
recognized brands such as Cougar(R), Lynx(R) Opaque, Husky(R) Offset, First
Choice(R) and Domtar EarthChoice(R) Office Paper, part of a family of
environmentally and socially responsible papers. Domtar owns and operates
Domtar Distribution Group, an extensive network of strategically located paper
distribution facilities. Domtar also produces lumber and other specialty and
industrial wood products. The Company employs nearly 13,000 people. To learn
more, visit www.domtar.com.

    Forward-Looking Statements

    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 Form 10-K
filed with the SEC. Unless specifically required by law, we assume no
obligation to update or revise these forward-looking statements to reflect new
events or circumstances.

    --------------------
    (1) Non-GAAP financial measure. Refer to the Reconciliation of Non-GAAP
        Financial Measures in the appendix.


    Domtar Corporation
    Highlights
    (In millions of dollars, unless otherwise noted)

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

                                Thirteen    Thirteen  Twenty-six  Twenty-six
                                   weeks       weeks       weeks       weeks
                                   ended       ended       ended       ended
    -------------------------------------------------------------------------
                                 June 29      July 1     June 29      July 1
                                    2008        2007        2008        2007
                               -----(Unaudited)------  -----(Unaudited)------

                                       $           $           $           $
                               ----------              ----------

    Selected Segment
     Information

    Sales
      Papers                       1,407       1,349       2,836       2,304
      Paper Merchants                243         226         505         302
      Wood                            70          90         133         137
    -------------------------------------------------------------------------
    Total for reportable
     segments                      1,720       1,665       3,474       2,743
      Intersegment sales -
       Papers                        (73)        (66)       (156)        (90)
      Intersegment sales -
       Paper Merchants                 -          (1)          -          (1)
      Intersegment sales - Wood       (8)        (15)        (14)        (18)
    -------------------------------------------------------------------------
    Consolidated sales             1,639       1,583       3,304       2,634
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Depreciation and
     amortization
      Papers                         110         126         220         198
      Paper Merchants                  1           -           1           1
      Wood                             7           6          13          11
    -------------------------------------------------------------------------
    Consolidated depreciation
     and amortization                118         132         234         210
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Operating income (loss)
      Papers                          92          92         206         163
      Paper Merchants                  2           2           5           6
      Wood                           (12)        (20)        (34)        (24)
    -------------------------------------------------------------------------
    Total for reportable
     segments                         82          74         177         145
      Corporate                       (2)         (5)         (3)         (5)
    -------------------------------------------------------------------------
    Consolidated operating
     income                           80          69         174         140
    Interest expense                  37          47          76          58
    -------------------------------------------------------------------------
    Earnings before income taxes      43          22          98          82
    Income tax expense                19          11          38          22
    -------------------------------------------------------------------------
    Net earnings                      24          11          60          60
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Per common share (in dollars)
    Net earnings
      Basic                         0.05        0.02        0.12        0.14
      Diluted                       0.05        0.02        0.12        0.14
    Weighted average number of
     common and exchangeable
     shares outstanding
     (millions)
      Basic                        515.5       515.2       515.5       431.7
      Diluted                      515.8       516.3       515.9       432.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Cash flows provided from
     operating activities            113         189         140         280
    Additions to property,
     plant and equipment              36          32          65          46
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                               ----------              ----------


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

                                Thirteen    Thirteen  Twenty-six  Twenty-six
                                   weeks       weeks       weeks       weeks
                                   ended       ended       ended       ended
                                 June 29      July 1     June 29      July 1
                                    2008        2007        2008        2007
    -------------------------------------------------------------------------
                               -----(Unaudited)------  -----(Unaudited)------

                                       $           $           $           $

    Sales                          1,639       1,583       3,304       2,634
    Operating expenses
        Cost of sales,
         excluding depreciation
         and amortization          1,336       1,288       2,678       2,146
        Depreciation and
         amortization                118         132         234         210
        Selling, general and
         administrative               94          92         206         133
        Closure and
         restructuring costs          11           2          12           5
    -------------------------------------------------------------------------
                                   1,559       1,514       3,130       2,494
    -------------------------------------------------------------------------

    Operating income                  80          69         174         140

    Interest expense                  37          47          76          58
    -------------------------------------------------------------------------

    Earnings before income
     taxes                            43          22          98          82

    Income tax expense                19          11          38          22
    -------------------------------------------------------------------------
    Net earnings                      24          11          60          60
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Per common share (in dollars)
      Net earnings
        Basic                       0.05        0.02        0.12        0.14
        Diluted                     0.05        0.02        0.12        0.14
    Weighted average number of
     common and exchangeable
     shares outstanding
     (millions)
        Basic                      515.5       515.2       515.5       431.7
        Diluted                    515.8       516.3       515.9       432.3
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


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

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

                                                       June 29   December 30
    -------------------------------------------------------------------------
                                                          2008          2007
                                                    ------(Unaudited)--------

                                                             $             $
                                                    -----------

    Assets
    Current assets
        Cash and cash equivalents                           61            71
        Receivables, less allowances of $10 and $9         560           504
        Inventories                                        926           936
        Prepaid expenses                                    37            14
        Income and other taxes receivable                   77            69
        Deferred income taxes                              181           182
    -------------------------------------------------------------------------
          Total current assets                           1,842         1,776

      Property, plant and equipment, at cost             9,680         9,685
      Accumulated depreciation                          (4,562)       (4,323)
    -------------------------------------------------------------------------
          Net property, plant and equipment              5,118         5,362
    Goodwill                                               363           372
    Intangible assets, net of amortization                 104           111
    Other assets                                           109           105
    -------------------------------------------------------------------------
            Total assets                                 7,536         7,726
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities and shareholders' equity
    Current liabilities
        Bank indebtedness                                   38            63
        Trade and other payables                           743           765
        Income and other taxes payable                      37            28
        Long-term debt due within one year                  19            17
    -------------------------------------------------------------------------
          Total current liabilities                        837           873

    Long-term debt                                       2,122         2,213
    Deferred income taxes                                  999         1,003
    Other liabilities and deferred credits                 361           440

    Shareholders' equity
        Common stock                                         5             5
        Exchangeable shares                                159           293
        Additional paid-in capital                       2,715         2,573
        Retained earnings                                  107            47
        Accumulated other comprehensive income             231           279
    -------------------------------------------------------------------------
          Total shareholders' equity                     3,217         3,197
    -------------------------------------------------------------------------
            Total liabilities and shareholders'
             equity                                      7,536         7,726
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                    -----------


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

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

                                Thirteen    Thirteen  Twenty-six  Twenty-six
                                   weeks       weeks       weeks       weeks
                                   ended       ended       ended       ended
    -------------------------------------------------------------------------
                                 June 29      July 1     June 29      July 1
                                    2008        2007        2008        2007
                               -----(Unaudited)------  -----(Unaudited)------

                                       $           $           $           $
                               ----------              ----------
    Operating activities
    Net earnings                      24          11          60          60
    Adjustments to reconcile
     net earnings to cash flows
     from operating activities
      Depreciation and
       amortization                  118         132         234         210
      Deferred income taxes            1          (4)         13         (15)
      Net gains on disposals
       of property, plant and
       equipment                      (1)          -          (1)          -
      Stock-based compensation
       expense                         4           1           9           1
      Gain on sale of trademark       (6)          -          (6)          -
      Other                            2           -           4           1
    Changes in assets and
     liabilities, net of
     effects of acquisition
      Receivables                     23          68         (58)        (19)
      Inventories                     11          19           -          27
      Prepaid expenses                (5)         (2)        (22)         (7)
      Trade and other payables       (13)         (8)        (31)         38
      Income and other taxes         (11)          2           1          16
      Difference between
       employer pension and
       other post-retirement
       contributions and
       pension and other post-
       retirement expense            (42)        (25)        (47)        (29)
      Other assets and other
       liabilities                     8          (5)        (16)         (3)
    -------------------------------------------------------------------------
      Cash flows provided from
       operating activities          113         189         140         280
    -------------------------------------------------------------------------

    Investing activities
    Additions to property,
     plant and equipment             (36)        (32)        (65)        (46)
    Proceeds from disposals
     of property, plant and
     equipment                         1          22          22          22
    Proceeds from sale of
     trademark                         6           -           6           -
    Business acquisitions -
     cash acquired                     -           -           -         573
    Other                              -          (4)          -          (4)
    -------------------------------------------------------------------------
      Cash flows provided from
       (used for) investing
       activities                    (29)        (14)        (37)        545
    -------------------------------------------------------------------------

    Financing activities
    Net change in bank
     indebtedness                    (49)        (23)        (26)         (3)
    Repayment of revolving bank
     credit                            -         (90)        (50)          -
    Issuance of short-term debt        -           -           -       1,350
    Issuance of long-term debt         -           -           -         800
    Repayment of short-term debt       -           -           -      (1,350)
    Repayment of long-term debt      (31)        (81)        (37)        (81)
    Debt issue costs                   -           -           -         (24)
    Distribution to Weyerhaeuser
     prior to March 7, 2007            -           -           -      (1,431)
    Other                              -          (4)          -          (5)
    -------------------------------------------------------------------------
      Cash flows used for
       financing activities          (80)       (198)       (113)       (744)
    -------------------------------------------------------------------------

    Net increase (decrease) in
     cash and cash equivalents         4         (23)        (10)         81
    Translation adjustments
     related to cash and cash
     equivalents                       -          (7)          -          (2)
    Cash and cash equivalents
     at beginning of period           57         110          71           1
    -------------------------------------------------------------------------
    Cash and cash equivalents
     at end of period                 61          80          61          80
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Supplemental cash flow
     information
      Net cash payments for:
        Interest                      36          43          55          43
        Income taxes                  39          18          46          21
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                               ----------              ----------


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

                                      ---------------------------------------
                                      ---------------------------------------
                                                         2008
                                                                      -------
                                      ---------------------------------------
                                      ---------------------------------------
                                          Q1      Q2      Q3      Q4     YTD
                                      ---------------------------------------
                                      ---------------------------------------
    Papers Segment
      Sales                       ($)  1,429   1,407                   2,836
        Intersegment sales -
         Papers                   ($)    (83)    (73)                   (156)
      Operating income            ($)    114      92                     206
      Depreciation &
       amortization               ($)    110     110                     220
      Impairment of PP&E          ($)

      Papers
      Papers Production     ('000 ST)  1,173   1,146                   2,319
      Papers Shipments      ('000 ST)  1,205   1,137                   2,342
          Uncoated
           freesheet        ('000 ST)  1,149   1,096                   2,245
          Coated
           groundwood       ('000 ST)     56      41                      97
      20-lb repro bond,
       92 bright (copy)(a)
       list price             ($/ton)  1,007   1,050                   1,029
      50-lb offset, rolls(a)
       list price             ($/ton)    860     907                     884
      Coated publication
       No. 5, 40-lb offset,
       rolls(a) list price    ($/ton)    900     975                     938

      Pulp
      Pulp Shipments(b)   ('000 ADMT)    347     347                     694
          Hardwood Kraft
           Pulp                   (%)     44%     43%                     44%
          Softwood Kraft
           Pulp                   (%)     47%     46%                     46%
          Fluff Pulp              (%)      9%     11%                     10%
      Pulp NBSK - U.S.
       market(a) list price  ($/ADMT)    880     880                     880
      Pulp NBHK - Japan
       market(a)(c) list
       price                 ($/ADMT)    715     755                     735

    Paper Merchants Segment
      Sales                       ($)    262     243                     505
        Intersegment sales -
         Paper Merchants          ($)
      Operating income            ($)      3       2                       5
      Depreciation &
       amortization               ($)              1                       1

    Wood Segment
      Sales                       ($)     63      70                     133
        Intersegment sales -
         Wood                     ($)     (6)     (8)                    (14)
      Operating loss              ($)    (22)    (12)                    (34)
      Depreciation &
       amortization               ($)      6       7                      13
      Impairment of goodwill      ($)

      Lumber
       Production      (Millions FBM)    168     155                     323
      Lumber
       Shipments       (Millions FBM)    160     181                     341
      Lumber G.L.
       2x4x8 studs(a)
       prices                ($/MFBM)    277     306                     292
      Lumber G.L.
       2x4 R/L, no. 1 &
       no. 2(a) prices       ($/MFBM)    291     309                     300

    Average Exchange Rates       CAN   1.004   1.010                   1.007
                                  US   0.996   0.990                   0.993
                                      ---------------------------------------
                                      ---------------------------------------
                                                                      -------

                                      ---------------------------------------
                                      ---------------------------------------
                                                         2007
                                                                      -------
                                      ---------------------------------------
                                      ---------------------------------------
                                          Q1      Q2      Q3      Q4     YTD
                                      ---------------------------------------
                                      ---------------------------------------
    Papers Segment
      Sales                       ($)    955   1,349   1,411   1,401   5,116
        Intersegment sales -
         Papers                   ($)    (24)    (66)    (72)    (73)   (235)
      Operating income            ($)     71      92     133      25     321
      Depreciation &
       amortization               ($)     72     126     122     124     444
      Impairment of PP&E          ($)                             92      92

      Papers
      Papers Production     ('000 ST)    826   1,216   1,187   1,182   4,411
      Papers Shipments      ('000 ST)    871   1,209   1,261   1,160   4,501
          Uncoated
           freesheet        ('000 ST)    814   1,163   1,194   1,104   4,275
          Coated
           groundwood       ('000 ST)     57      46      67      56     226
      20-lb repro bond,
       92 bright (copy)(a)
       list price             ($/ton)    930     963     990     990     968
      50-lb offset, rolls(a)
       list price             ($/ton)    810     810     803     847     818
      Coated publication
       No. 5, 40-lb offset,
       rolls(a) list price    ($/ton)    778     748     782     840     787

      Pulp
      Pulp Shipments(b)   ('000 ADMT)    249     335     334     411   1,329
          Hardwood Kraft
           Pulp                   (%)     21%     46%     48%     45%     42%
          Softwood Kraft
           Pulp                   (%)     61%     41%     40%     46%     46%
          Fluff Pulp              (%)     18%     13%     12%      9%     12%
      Pulp NBSK - U.S.
       market(a) list price  ($/ADMT)    790     810     837     858     824
      Pulp NBHK - Japan
       market(a)(c) list
       price                 ($/ADMT)    640     640     658     683     655

    Paper Merchants Segment
      Sales                       ($)     76     226     249     262     813
        Intersegment sales -
         Paper Merchants          ($)             (1)                     (1)
      Operating income            ($)      4       2       6       1      13
      Depreciation &
       amortization               ($)      1                       1       2

    Wood Segment
      Sales                       ($)     47      90      88      79     304
        Intersegment sales -
         Wood                     ($)     (3)    (15)    (16)    (16)    (50)
      Operating loss              ($)     (4)    (20)    (13)    (26)    (63)
      Depreciation &
       amortization               ($)      5       6       6       8      25
      Impairment of goodwill      ($)                              4       4

      Lumber
       Production      (Millions FBM)     68     152     164     158     542
      Lumber
       Shipments       (Millions FBM)     88     227     197     172     684
      Lumber G.L.
       2x4x8 studs(a)
       prices                ($/MFBM)    317     335     336     294     321
      Lumber G.L.
       2x4 R/L, no. 1 &
       no. 2(a) prices       ($/MFBM)    332     332     343     308     329

    Average Exchange Rates       CAN   1.172   1.098   1.044   0.981   1.074
                                  US   0.854   0.911   0.958   1.019   0.931
                                      ---------------------------------------
                                      ---------------------------------------
                                                                      -------

    (a) Source: Pulp & Paper Week and Random Lengths.
    (b) 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.
    (c) Based on Pulp & Paper Week's Southern Bleached Hardwood Kraft pulp
        prices for Japan, increased by an average differential of $15/ADMT
        between Northern and Southern Bleached Hardwood Kraft pulp prices.


    Domtar Corporation
    Reconciliation of Non-GAAP Financial Measures
    (In millions of dollars, unless otherwise noted)

    The following table sets forth certain non-U.S. generally accepted
accounting principles ("GAAP") financial metrics identified in bold as
"Earnings 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 the ability to service debt and the overall credit profile
of the company. Management believes these metrics are also useful to measure
the operating performance and benchmark with peers within the industry. These
metrics are presented as a complement to enhance the understanding of
operating results but not in substitution for GAAP results.
    The company calculates "Earnings 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 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) is the most directly comparable GAAP measure.

                                      ---------------------------------------
                                      ---------------------------------------
                                                         2008
                                                                      -------
                                      ---------------------------------------
                                      ---------------------------------------
                                          Q1      Q2      Q3      Q4     YTD
                                      ---------------------------------------
                                      ---------------------------------------
    Reconciliation of "Earnings
     Before Items" to Net
     Earnings (Loss)
          Net earnings (loss)     ($)     36      24                      60
      (-) Reversal of a
           provision for
           unfavorable contract   ($)    (17)                            (17)
      (+) Costs related to
           synergies, integration
           and optimization       ($)      5       5                      10
      (+) Closure and
           restructuring costs    ($)      1       7                       8
      (-) Gain related to
           the sale of
           trademarks             ($)             (4)                     (4)
      (+) Impairment of goodwill
           and property, plant
           and equipment          ($)
      (-) Gains for lawsuit and
           insurance claim
           settlements            ($)
      (+) Expenses related to the
           debt restructuring     ($)
      (-) Gain related to change
           in statutory income
           tax rate               ($)
      (-) Gains related to
           financial instruments  ($)
      (=) Earnings Before
           Items                  ($)     25      32                      57

    Reconciliation of "EBITDA"
     and "EBITDA Before Items" to
     Net Earnings (Loss)
          Net earnings (loss)     ($)     36      24                      60
      (+) Income tax expense
           (benefit)              ($)     19      19                      38
      (+) Interest expense        ($)     39      37                      76
      (=) Operating
           income                 ($)     94      80                     174
      (+) Depreciation and
           amortization           ($)    116     118                     234
      (+) Impairment of goodwill
           and property, plant
           and equipment          ($)
      = EBITDA         ($)    210     198                     408

      (-) Reversal of a
           provision for
           unfavorable contract   ($)    (23)                            (23)
      (+) Costs related to
           synergies, integration
           and optimization       ($)      8       9                      17
      (+) Closure and
           restructuring costs    ($)      1      11                      12
      (-) Gain related to
           the sale of
           trademarks             ($)             (6)                     (6)
      (-) Gains for lawsuit and
           insurance claim
           settlements            ($)
      (-) Gains related to
           financial instruments  ($)
      (=) EBITDA Before
           Items                  ($)    196     212                     408

    Reconciliation of "Free Cash
     Flow" to Cash Flow from
     Operating Activities
          Cash flow provided from
           operating activities   ($)     27     113                     140
      (-) Additions to property,
           plant and equipment    ($)    (29)    (36)                    (65)
      (=) Free Cash
           Flow                   ($)     (2)     77                      75

    "Net Debt-to-Total
     Capitalization" Computation
          Bank indebtedness       ($)     86      38
      (+) Current portion of
           long-term debt         ($)     17      19
      (+) Long-term debt          ($)  2,155   2,122
      (-) Cash and cash
           equivalents            ($)    (57)    (61)
      (=) Net
           debt                   ($)  2,201   2,118
      (+) Shareholders' equity    ($)  3,172   3,217
      (=) Total
           capitalization         ($)  5,373   5,335
          Net debt                ($)  2,201   2,118
      (/) Total capitalization    ($)  5,373   5,335
      (=) Net Debt-to-Total
           Capitalization         (%)     41%     40%
                                      ---------------------------------------
                                      ---------------------------------------
                                                                      -------

                                      ---------------------------------------
                                      ---------------------------------------
                                                         2007
                                                                      -------
                                      ---------------------------------------
                                      ---------------------------------------
                                          Q1      Q2      Q3      Q4     YTD
                                      ---------------------------------------
                                      ---------------------------------------
    Reconciliation of "Earnings
     Before Items" to Net
     Earnings (Loss)
          Net earnings (loss)     ($)     49      11      36     (26)     70
      (-) Reversal of a
           provision for
           unfavorable contract   ($)
      (+) Costs related to
           synergies, integration
           and optimization       ($)      4       4       8      14      30
      (+) Closure and
           restructuring costs    ($)      2       1       1       5       9
      (-) Gain related to
           the sale of
           trademarks             ($)
      (+) Impairment of goodwill
           and property, plant
           and equipment          ($)                             66      66
      (-) Gains for lawsuit and
           insurance claim
           settlements            ($)                            (35)    (35)
      (+) Expenses related to the
           debt restructuring     ($)                             17      17
      (-) Gain related to change
           in statutory income
           tax rate               ($)     (6)     (1)      3     (11)    (15)
      (-) Gains related to
           financial instruments  ($)             (6)     (4)     (1)    (11)
      (=) Earnings Before
           Items                  ($)     49       9      44      29     131

    Reconciliation of "EBITDA"
     and "EBITDA Before Items" to
     Net Earnings (Loss)
          Net earnings (loss)     ($)     49      11      36     (26)     70
      (+) Income tax expense
           (benefit)              ($)     11      11      39     (32)     29
      (+) Interest expense        ($)     11      47      48      65     171
      (=) Operating
           income                 ($)     71      69     123       7     270
      (+) Depreciation and
           amortization           ($)     78     132     128     133     471
      (+) Impairment of goodwill
           and property, plant
           and equipment          ($)                             96      96
      = EBITDA         ($)    149     201     251     236     837

      (-) Reversal of a
           provision for
           unfavorable contract   ($)
      (+) Costs related to
           synergies, integration
           and optimization       ($)      7       6      14      21      48
      (+) Closure and
           restructuring costs    ($)      3       2       2       7      14
      (-) Gain related to
           the sale of
           trademarks             ($)
      (-) Gains for lawsuit and
           insurance claim
           settlements            ($)                            (51)    (51)
      (-) Gains related to
           financial instruments  ($)            (10)     (6)     (2)    (18)
      (=) EBITDA Before
           Items                  ($)    159     199     261     211     830

    Reconciliation of "Free Cash
     Flow" to Cash Flow from
     Operating Activities
          Cash flow provided from
           operating activities   ($)     91     189     144     182     606
      (-) Additions to property,
           plant and equipment    ($)    (14)    (32)    (19)    (51)   (116)
      (=) Free Cash
           Flow                   ($)     77     157     125     131     490

    "Net Debt-to-Total
     Capitalization" Computation
          Bank indebtedness       ($)     89      74      75      63
      (+) Current portion of
           long-term debt         ($)     21      19      19      17
      (+) Long-term debt          ($)  2,577   2,425   2,356   2,213
      (-) Cash and cash
           equivalents            ($)   (110)    (80)   (136)    (71)
      (=) Net
           debt                   ($)  2,577   2,438   2,314   2,222
      (+) Shareholders' equity    ($)  2,941   3,094   3,212   3,197
      (=) Total
           capitalization         ($)  5,518   5,532   5,526   5,419
          Net debt                ($)  2,577   2,438   2,314   2,222
      (/) Total capitalization    ($)  5,518   5,532   5,526   5,419
      (=) Net Debt-to-Total
           Capitalization         (%)     47%     44%     42%     41%
                                      ---------------------------------------
                                      ---------------------------------------
                                                                      -------

    "Earnings Before Items," "EBITDA," "EBITDA Before Items," "Free Cash Flow"
and "Net Debt-to-Total Capitalization" have no standardized meaning prescribed
by GAAP and are not necessarily comparable to similar measures presented by
other companies and therefore should not be considered in isolation or as a
substitute for Net earnings (loss), Operating income (loss) or any other
earnings statement, cash flow statement or balance sheet financial information
prepared in accordance with GAAP. It is important for readers to understand
that certain items may be presented in different lines by different companies
on their financial statements thereby leading to different measures for
different companies.


    Domtar Corporation
    Reconciliation of Non-GAAP Financial Measures - By Segment 2008
    (In millions of dollars, unless otherwise noted)

    The following table sets forth certain non-U.S. generally accepted
accounting principles ("GAAP") financial metrics identified as "Operating
Income Before Items" and "EBITDA Before Items" by reportable segment.
Management believes that the financial metrics presented are frequently used
by investors and are useful to measure the operating performance and benchmark
with peers within the industry. These metrics are presented as a complement to
enhance the understanding of operating results but not in substitution for
GAAP results.
    The company calculates segment "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 Net earnings (loss) provides for a more complete analysis of the results
of operations. Operating Income (loss) by segment is the most directly
comparable GAAP measure.

                                      ---------------------------------------
                                      ---------------------------------------
                                                      Papers
                                                                      -------
                                      ---------------------------------------
                                      ---------------------------------------
                                       Q1'08   Q2'08   Q3'08   Q4'08     YTD
                                      ---------------------------------------
                                      ---------------------------------------
    Reconciliation of Operating
     Income to "Operating Income
     Before Items"
          Operating Income (loss) ($)    114      92                     206
      (-) Reversal of a provision
           for unfavorable
           contract               ($)    (23)                            (23)
      (+) Costs related to
           synergies, integration
           and optimization       ($)      8       9                      17
      (+) Closure and
           restructuring costs    ($)      1      11                      12
      (-) Gain related to
           the sale of
           trademarks             ($)             (6)                     (6)

      (=) Operating Income Before
           Items                  ($)    100     106                     206

    Reconciliation of "Operating
     Income Before Items" to
     "EBITDA Before Items"
          Operating Income Before
           Items                  ($)    100     106                     206
      (+) Depreciation and
           amortization           ($)    110     110                     220

      (=) EBITDA Before
           Items                  ($)    210     216                     426
                                      ---------------------------------------
                                      ---------------------------------------
                                                                      -------

                                      ---------------------------------------
                                      ---------------------------------------
                                                  Paper Merchants
                                                                      -------
                                      ---------------------------------------
                                      ---------------------------------------
                                       Q1'08   Q2'08   Q3'08   Q4'08     YTD
                                      ---------------------------------------
                                      ---------------------------------------
    Reconciliation of Operating
     Income to "Operating Income
     Before Items"
          Operating Income (loss) ($)      3       2                       5
      (-) Reversal of a provision
           for unfavorable
           contract               ($)
      (+) Costs related to
           synergies, integration
           and optimization       ($)
      (+) Closure and
           restructuring costs    ($)
      (-) Gain related to
           the sale of
           trademarks             ($)

      (=) Operating Income Before
           Items                  ($)      3       2                       5

    Reconciliation of "Operating
     Income Before Items" to
     "EBITDA Before Items"
          Operating Income Before
           Items                  ($)      3       2                       5
      (+) Depreciation and
           amortization           ($)              1                       1

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

                                      ---------------------------------------
                                      ---------------------------------------
                                                        Wood
                                                                      -------
                                      ---------------------------------------
                                      ---------------------------------------
                                       Q1'08   Q2'08   Q3'08   Q4'08     YTD
                                      ---------------------------------------
                                      ---------------------------------------
    Reconciliation of Operating
     Income to "Operating Income
     Before Items"
          Operating Income (loss) ($)    (22)    (12)                    (34)
      (-) Reversal of a provision
           for unfavorable
           contract               ($)
      (+) Costs related to
           synergies, integration
           and optimization       ($)
      (+) Closure and
           restructuring costs    ($)
      (-) Gain related to
           the sale of
           trademarks             ($)

      (=) Operating Income Before
           Items                  ($)    (22)    (12)                    (34)

    Reconciliation of "Operating
     Income Before Items" to
     "EBITDA Before Items"
          Operating Income Before
           Items                  ($)    (22)    (12)                    (34)
      (+) Depreciation and
           amortization           ($)      6       7                      13

      (=) EBITDA Before
           Items                  ($)    (16)     (5)                    (21)
                                      ---------------------------------------
                                      ---------------------------------------
                                                                      -------

                                      ---------------------------------------
                                      ---------------------------------------
                                                     Corporate
                                                                      -------
                                      ---------------------------------------
                                      ---------------------------------------
                                       Q1'08   Q2'08   Q3'08   Q4'08     YTD
                                      ---------------------------------------
                                      ---------------------------------------
    Reconciliation of Operating
     Income to "Operating Income
     Before Items"
          Operating Income (loss) ($)     (1)     (2)                     (3)
      (-) Reversal of a provision
           for unfavorable
           contract               ($)
      (+) Costs related to
           synergies, integration
           and optimization       ($)
      (+) Closure and
           restructuring costs    ($)
      (-) Gain related to
           the sale of
           trademarks             ($)

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

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

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

    "Operating Income Before Items" and "EBITDA Before Items" have no
standardized meaning prescribed by GAAP and are not necessarily comparable to
similar measures presented by other companies and therefore should not be
considered in isolation or as a substitute for Operating income (loss), or any
other earnings statement, cash flow statement or balance sheet financial
information prepared in accordance with GAAP. It is important for readers to
understand that certain items may be presented in different lines by different
companies on their financial statements thereby leading to different measures
for different companies.


    Domtar Corporation
    Reconciliation of Non-GAAP Financial Measures - By Segment 2007
    (In millions of dollars, unless otherwise noted)

    The following table sets forth certain non-U.S. generally accepted
accounting principles ("GAAP") financial metrics identified as "Operating
Income Before Items" and "EBITDA Before Items" by reportable segment.
Management believes that the financial metrics presented are frequently used
by investors and are useful to measure the operating performance and benchmark
with peers within the industry. These metrics are presented as a complement to
enhance the understanding of operating results but not in substitution for
GAAP results.
    The company calculates segment "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 Net earnings (loss) provides for a more complete analysis of the results
of operations. Operating Income (loss) by segment is the most directly
comparable GAAP measure.

                                      ---------------------------------------
                                      ---------------------------------------
                                                      Papers
                                                                      -------
                                      ---------------------------------------
                                      ---------------------------------------
                                       Q1'07   Q2'07   Q3'07   Q4'07     YTD
                                      ---------------------------------------
                                      ---------------------------------------
    Reconciliation of Operating
     Income to "Operating Income
     Before Items"
          Operating Income (loss) ($)     71      92     133      25     321
      (+) Costs related to
           synergies, integration
           and optimization       ($)      7       6      14      21      48
      (-) Gains for lawsuit and
           insurance claim
           settlements            ($)                            (39)    (39)
      (-) Gains related to
           financial instruments  ($)            (10)     (6)     (2)    (18)
      (+) Closure and
           restructuring costs    ($)      2       2       2       7      13
      (+) Impairment of goodwill
           and property, plant
           and equipment          ($)                             92      92

      (=) Operating Income Before
           Items                  ($)     80      90     143     104     417

    Reconciliation of "Operating
     Income Before Items" to
     "EBITDA Before Items"
          Operating Income Before
           Items                  ($)     80      90     143     104     417
      (+) Depreciation and
           amortization           ($)     72     126     122     124     444

      (=) EBITDA Before
           Items                  ($)    152     216     265     228     861
                                      ---------------------------------------
                                      ---------------------------------------
                                                                      -------

                                      ---------------------------------------
                                      ---------------------------------------
                                                  Paper Merchants
                                                                      -------
                                      ---------------------------------------
                                      ---------------------------------------
                                       Q1'07   Q2'07   Q3'07   Q4'07     YTD
                                      ---------------------------------------
                                      ---------------------------------------
    Reconciliation of Operating
     Income to "Operating Income
     Before Items"
          Operating Income (loss) ($)      4       2       6       1      13
      (+) Costs related to
           synergies, integration
           and optimization       ($)
      (-) Gains for lawsuit and
           insurance claim
           settlements            ($)
      (-) Gains related to
           financial instruments  ($)
      (+) Closure and
           restructuring costs    ($)
      (+) Impairment of goodwill
           and property, plant
           and equipment          ($)

      (=) Operating Income Before
           Items                  ($)      4       2       6       1      13

    Reconciliation of "Operating
     Income Before Items" to
     "EBITDA Before Items"
          Operating Income Before
           Items                  ($)      4       2       6       1      13
      (+) Depreciation and
           amortization           ($)      1                       1       2

      (=) EBITDA Before
           Items                  ($)      5       2       6       2      15
                                      ---------------------------------------
                                      ---------------------------------------
                                                                      -------

                                      ---------------------------------------
                                      ---------------------------------------
                                                        Wood
                                                                      -------
                                      ---------------------------------------
                                      ---------------------------------------
                                       Q1'07   Q2'07   Q3'07   Q4'07     YTD
                                      ---------------------------------------
                                      ---------------------------------------
    Reconciliation of Operating
     Income to "Operating Income
     Before Items"
          Operating Income (loss) ($)     (4)    (20)    (13)    (26)    (63)
      (+) Costs related to
           synergies, integration
           and optimization       ($)
      (-) Gains for lawsuit and
           insurance claim
           settlements            ($)
      (-) Gains related to
           financial instruments  ($)
      (+) Closure and
           restructuring costs    ($)      1                               1
      (+) Impairment of goodwill
           and property, plant
           and equipment          ($)                              4       4

      (=) Operating Income Before
           Items                  ($)     (3)    (20)    (13)    (22)    (58)

    Reconciliation of "Operating
     Income Before Items" to
     "EBITDA Before Items"
          Operating Income Before
           Items                  ($)     (3)    (20)    (13)    (22)    (58)
      (+) Depreciation and
           amortization           ($)      5       6       6       8      25

      (=) EBITDA Before
           Items                  ($)      2     (14)     (7)    (14)    (33)
                                      ---------------------------------------
                                      ---------------------------------------
                                                                      -------

                                      ---------------------------------------
                                      ---------------------------------------
                                                     Corporate
                                                                      -------
                                      ---------------------------------------
                                      ---------------------------------------
                                       Q1'07   Q2'07   Q3'07   Q4'07     YTD
                                      ---------------------------------------
                                      ---------------------------------------
    Reconciliation of Operating
     Income to "Operating Income
     Before Items"
          Operating Income (loss) ($)             (5)     (3)      7      (1)
      (+) Costs related to
           synergies, integration
           and optimization       ($)
      (-) Gains for lawsuit and
           insurance claim
           settlements            ($)                            (12)    (12)
      (-) Gains related to
           financial instruments  ($)
      (+) Closure and
           restructuring costs    ($)
      (+) Impairment of goodwill
           and property, plant
           and equipment          ($)

      (=) Operating Income Before
           Items                  ($)             (5)     (3)     (5)    (13)

    Reconciliation of "Operating
     Income Before Items" to
     "EBITDA Before Items"
          Operating Income Before
           Items                  ($)             (5)     (3)     (5)    (13)
      (+) Depreciation and
           amortization           ($)

      (=) EBITDA Before
           Items                  ($)             (5)     (3)     (5)    (13)
                                      ---------------------------------------
                                      ---------------------------------------
                                                                      -------

    "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.
    




For further information:

For further information: Media Relations: Michel A. Rathier, (514)
848-5103, communications@domtar.com; Investor Relations: Pascal Bossé, (514)
848-5938, ir@domtar.com

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Domtar Corporation

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