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Domtar Posts Increase in 2Q Earnings

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

Second quarter 2009:

  • Refundable excise tax credit for the production and use of alternative bio fuel mixtures of $131 million ($79 million after tax);
  • Gain on debt repurchase of $9 million ($6 million after tax); and
  • Closure and restructuring costs of $6 million ($4 million after tax).

First quarter 2009:

  • Refundable excise tax credit for the production and use of alternative bio fuel mixtures of $46 million ($28 million after tax);
  • Charge of $35 million ($21 million after tax) related to the write-down of property, plant and equipment at the Plymouth, North Carolina, mill; and
  • Closure and restructuring costs of $24 million ($14 million after tax).

Second quarter 2008:

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

"From the first quarter, shipments edged higher in paper, pulp and wood businesses with demand for our paper products stabilizing and costs for materials declining. Efforts to reduce working capital are paying off; margin improvements and cash flow remain priorities," said John D. Williams, President and Chief Executive Officer.

"Our pulp business had a significant impact on our Papers segment profitability in the past quarters, obscuring a good operating performance in our paper business. Improved business environment in pulp, lean inventories, initiatives on the procurement side and continued cost control are key drivers for margin expansion in the near term," added Mr. Williams.

SEGMENT REVIEW

Papers

Operating income before items(1) was $23 million in the second quarter of 2009 compared to operating income before items(1) of $5 million in the first quarter of 2009. Depreciation and amortization totaled $98 million in the second quarter of 2009. When compared to the first quarter of 2009, paper shipments increased 2% while pulp shipments increased 25%. The shipments-to-production ratio for papers was 102% in the second quarter of 2009, compared to 105% in the first quarter of 2009. Paper and pulp inventories were lowered by 18,000 tons and 151,000 metric tons, respectively, at the end of June when compared to end of March levels.

The increase in operating income before items(1) in the second quarter of 2009 was the result of lower materials and freight costs, and higher paper shipments. These factors were partially offset by lower average selling prices for paper and pulp and the impact of an unfavorable exchange rate including hedging.

Wood

Operating loss before items(1) was $11 million in the second quarter of 2009, compared to operating loss before items(1) of $16 million in the first quarter of 2009. Depreciation and amortization totaled $5 million in the second quarter of 2009. When compared to the first quarter of 2009, lumber shipments increased 8%.

The decrease in operating loss before items(1) in the second quarter of 2009 was primarily the result of a bad debt expense incurred in the first quarter of 2009, a gain on the dissolution of a subsidiary in the second quarter of 2009 and lower costs. These were partially offset by an export tax refund received in the first quarter of 2009 for prior periods and the impact of an unfavorable exchange rate including hedging.

LIQUIDITY AND CAPITAL

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

OUTLOOK

Domtar is prudently optimistic about an economic recovery with market conditions in its paper business beginning to stabilize. While demand is still weak overall, the Company expects paper volumes to stay flat to positive by year-end. The pulp business continues to rebound with demand expected to remain strong and pulp prices improving. Input costs are also expected to remain relatively flat to lower over the next quarters.

Domtar will continue to closely monitor its inventory levels and balance production with demand. The Company's near term focus continues to be on improving customer relationships, controlling costs and maintaining a strong cash flow.

About Domtar

Domtar Corporation is the largest integrated manufacturer and marketer of uncoated freesheet paper in North America and the second largest in the world based on production capacity, and is also a manufacturer of papergrade, fluff and specialty pulp. Domtar also produces lumber and other specialty and industrial wood products. The company employs nearly 10,500 people.

SOURCE: Domtar Corp.




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