/C O R R E C T I O N from source -- Domtar Corporation/

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DOMTAR CORPORATION

Feb 04, 2011, 09:28 ET

In c7329 sent at 7:30e today, an error occurred in the Earnings conference call section. Financial analysts are invited to dial 1 (866) 321-8231 (toll free - North America) or 1 (416) 642-5213 (International). Corrected copy follows:

DOMTAR CORPORATION REPORTS PRELIMINARY FOURTH QUARTER AND FISCAL YEAR 2010 FINANCIAL RESULTS

TICKER SYMBOL 
UFS (NYSE, TSX)

Record profitability and cash flow for fiscal 2010
(All financial information is in U.S. dollars, and all earnings (loss) per share results are diluted, unless otherwise noted.)

  • Fiscal 2010 net earnings of $605 million, earnings before items1 of $471 million
  • Fourth quarter net earnings of $7.59 per share, earnings before items1 of $2.41 per share
  • Production related issues led to additional maintenance costs of $17 million

MONTREAL, Feb. 4 /PRNewswire/ - Domtar Corporation (NYSE/TSX: UFS) today reported net earnings of $325 million ($7.59 per share) for the fourth quarter of 2010 compared to net earnings of $191 million ($4.44 per share) for the third quarter of 2010 and net earnings of $124 million ($2.86 per share) for the fourth quarter of 2009. Sales for the fourth quarter of 2010 amounted to $1.4 billion. Excluding items listed below, the Company had earnings before items1 of $103 million ($2.41 per share) for the fourth quarter of 2010 compared to earnings before items1 of $183 million ($4.26 per share) for the third quarter of 2010 and earnings before items1 of $60 million ($1.39 per share) for the fourth quarter of 2009.

Fourth quarter 2010 items:

  • Benefit from cellulosic biofuel producer income tax credit of $127 million;
  • Benefit from reversal of a valuation allowance on Canadian deferred income tax assets of $100 million;
  • Costs for debt repurchase of $7 million ($4 million after tax); and
  • Closure and restructuring costs of $1 million ($1 million after tax).

Third quarter 2010 items:

  • Charge of $14 million ($9 million after tax) related to the impairment and write-down of property, plant and equipment;
  • Closure and restructuring costs of $1 million ($1 million after tax); and
  • Gain on sale of property, plant and equipment, and business of $14 million ($18 million after tax).

Fourth quarter 2009 items:

  • Refundable excise tax credit for the production and use of alternative bio fuel mixtures of $162 million ($113 million after tax);
  • Closure and restructuring costs of $29 million ($24 million after tax);
  • Charge of $27 million ($22 million after tax) related to the impairment and write-down of property, plant and equipment; and
  • Loss on sale of property, plant and equipment of $5 million ($3 million after tax).

"Fourth quarter paper shipments were weaker partly due to seasonal factors, but our average pricing held up well. We were able to post best ever fourth quarter profit before items even though production related issues resulted in higher than expected maintenance costs. Higher pulp shipments, net of the impact of the sale of the Woodland hardwood pulp facility, helped offset seasonal weakness. In addition, we redeemed all of our 2011 notes, effectively completing our systematic debt reduction program," said John D. Williams, President and Chief Executive Officer. 

FISCAL YEAR 2010 HIGHLIGHTS

For fiscal year 2010, net earnings amounted to $605 million ($14.00 per share) compared to net earnings of $310 million ($7.18 per share) for fiscal year 2009. The Company had earnings before items1 of $471 million ($10.90 per share) for fiscal 2010 compared to earnings before items1 of $46 million ($1.06 per share) for fiscal 2009. Sales amounted to $5.9 billion for fiscal year 2010.

Commenting on the 2010 performance, Mr. Williams said, "We continued to aggressively execute on our "Perform, Grow, Break out" strategic journey, thanks to excellent cost management and decisive actions that realigned our asset portfolio and reduced our exposure to challenging businesses. We have also made strategic investments in growth markets that bode well for the future, notably in fluff pulp and nanocrystalline cellulose, and built a flexible balance sheet that provides us with the ability to seize opportunities. We are well positioned for the year to come."

SEGMENT REVIEW

Papers

Operating income before items1 was $161 million in the fourth quarter of 2010 compared to operating income before items1 of $238 million in the third quarter of 2010. Depreciation and amortization totaled $94 million in the fourth quarter of 2010. When compared to the third quarter of 2010, paper and pulp shipments decreased 5% and 9%, respectively. The shipments-to-production ratio for paper was 97% in the fourth quarter of 2010, compared to 99% in the third quarter of 2010. Paper inventories increased by 23,000 tons while pulp inventories declined by 7,000 metric tons as at the end of December versus end of September levels.

The decrease in operating income before items1 in the fourth quarter of 2010 was the result of lower paper and pulp shipments, lower average selling prices for pulp, unfavorable exchange rate including hedging, higher usage and unit costs for energy and chemicals, higher maintenance costs, and higher freight costs. These factors were partially offset by lower wood fiber costs.

(In millions of dollars)   4Q 2010   3Q 2010
Sales   1,212   1,296
Operating income   161   237
Operating income before items1   161   238
Depreciation and amortization   94   96

Paper Merchants

Operating loss before items1 was $2 million in the fourth quarter of 2010 compared to operating income before items1 of nil in the third quarter of 2010. Depreciation and amortization was $1 million in the fourth quarter of 2010. Deliveries decreased 11% when compared to the third quarter of 2010. The decrease in operating income in the fourth quarter of 2010 was primarily due to lower deliveries.

(In millions of dollars)   4Q 2010   3Q 2010
Sales   212   233
Operating income (loss)   (3)   -
Operating income (loss) before items1   (2)   -
Depreciation and amortization   1   1

LIQUIDITY AND CAPITAL

Cash flow provided from operating activities amounted to $166 million and capital expenditures amounted to $41 million, resulting in free cash flow1 of $125 million in the fourth quarter of 2010. Domtar's net debt-to-total capitalization ratio1 stood at 9% at December 31, 2010 compared to 35% at December 31, 2009.

OUTLOOK

We expect North American paper demand to continue declining long-term, partially offset by a gradual return of employment in the U.S. closer to pre-recession levels. Our Papers segment is benefiting from a more favorable pulp product mix that should result in reduced pricing volatility. Rising commodity pricing should also put pressure on some of our input costs in 2011.

While the economy appears to be stabilizing, employment remains slow to recover.  Though we are entering 2011 with a strong position, we will continue to manage our business conservatively, looking to grow profitably and to create shareholder value.

EARNINGS CONFERENCE CALL

The Company will hold a conference call today at 11:00 a.m. (ET) to discuss its fourth quarter 2010 financial results. Financial analysts are invited to participate in the call by dialing at least 10 minutes before start time 1 (866) 321-8231 (toll free - 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.

The Company will release its first quarter 2011 earnings on April 28, 2011 before markets open, followed by a conference call at 10:00 a.m. (ET) to discuss results. The date is tentative and will be confirmed approximately three weeks prior to the official earnings release date.

About Domtar

Domtar Corporation (NYSE/TSX:UFS) is the largest integrated manufacturer and marketer of uncoated freesheet paper in North America and the second largest in the world based on production capacity, and is also a manufacturer of papergrade, fluff and specialty pulp. The Company designs, manufactures, markets and distributes a wide range of business, commercial printing and publishing as well as converting and specialty papers including recognized brands such as Cougar®, Lynx® Opaque, Husky® Offset, First Choice® and Domtar EarthChoice® Office Paper, part of a family of environmentally and socially responsible papers. Domtar owns and operates Domtar Distribution Group, an extensive network of strategically located paper distribution facilities. The Company employs approximately 8,500 people. To learn more, visit www.domtar.com.

Forward-Looking Statements

All statements in this news release that are not based on historical fact are "forward-looking statements." While management has based any forward-looking statements contained herein on its current expectations, the information on which such expectations were based may change. These forward-looking statements rely on a number of assumptions concerning future events and are subject to a number of risks, uncertainties, and other factors, many of which are outside of our control that could cause actual results to materially differ from such statements. Such risks, uncertainties, and other factors include, but are not necessarily limited to, those set forth under the captions "Forward-Looking Statements" and "Risk Factors" of the latest Form 10-K filed with the SEC as periodically updated by subsequently filed Form 10-Q's. Unless specifically required by law, we assume no obligation to update or revise these forward-looking statements to reflect new events or circumstances.

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

Domtar Corporation        
Highlights          
(In millions of dollars, unless otherwise noted)        
               
 
        Three months
ended December 31 		Three months
ended December 31 		Twelve months
ended December 31 		Twelve months
ended December 31
        2010 2009 2010 2009
        ---------------------------------------------------(Unaudited)----------------------------------------------------
         $  $  $  $
                 
Selected Segment Information        
Sales             
    Papers   1,212 1,188 5,070 4,632
    Paper Merchants 212 212       870
 873
    Wood        - 63 150
    211
Total for reportable segments       1,424 1,463 6,090 5,716
    Intersegment sales - Papers (51) (53) (229) (231)
    Intersegment sales - Wood - (6) (11) (20)
Consolidated sales 1,373 1,404 5,850 5,465
Depreciation and amortization
and impairment and write-down of property, plant and equipment 		       
    Papers   94 95 381 382
    Paper Merchants 1                                  -   4 3
    Wood   -  6 10 20
Total for reportable segments 95 101 395 405
    Impairment and write-down of property, plant and equipment - Papers - 27 50 62
Consolidated depreciation and amortization
and impairment and write-down of property, plant and equipment 		  95 128 445 467
               
Operating income (loss)         
    Papers    161 212 667 650
    Paper Merchants (3) 2 (3) 7
    Wood    - (11) (54) (42)
    Corporate (3) - (7) -
Consolidated operating income  155 203 603 615
Interest expense 29 37 155 125
Earnings before income taxes 126 166 448 490
Income tax expense (benefit)       (199) 42 (157) 180
Net earnings  325 124 605 310
 
Per common share (in dollars)        
  Net earnings        
    Basic   7.67 2.88 14.14 7.21
    Diluted   7.59 2.86 14.00 7.18
Weighted average number of common
and exchangeable shares outstanding (millions) 		       
    Basic   42.4 43.0 42.8 43.0
    Diluted   42.8 43.3 43.2 43.2
 
Cash flows provided from operating activities  166 185 1,166 792
Additions to property, plant and equipment 41 40 153 106
Domtar Corporation        
Consolidated Statements of Earnings         
(In millions of dollars, unless otherwise noted)        
             
 
      Three months
ended December 31 		Three months
ended December 31 		Twelve months
ended December 31 		Twelve months
ended December 31
      2010 2009 2010 2009
      -----------------------------------------------(Unaudited)-----------------------------------------------
       $  $  $  $
             
Sales   1,373 1,404 5,850 5,465
Operating expenses        
    Cost of sales, excluding depreciation and amortization 1,020 1,109 4,417 4,472
    Depreciation and amortization 95 101 395 405
    Selling, general and administrative 94 91 338 345
    Impairment and write-down of property, plant and equipment - 27 50 62
    Closure and restructuring costs 1 29 27 63
    Other operating loss (income), net 8 (156) 20 (497)
       1,218 1,201 5,247 4,850
Operating income  155 203 603 615
Interest expense     29 37 155 125
Earnings before income taxes      126 166 448 490
Income tax expense (benefit)            (199) 42 (157)  180
Net earnings  325 124 605 310
                     
Per common share (in dollars)  


 


  Net earnings          
    Basic      7.67 2.88 14.14 7.21
    Diluted   7.59 2.86 14.00 7.18
Weighted average number of common
and exchangeable shares outstanding (millions) 		       
    Basic   42.4 43.0 42.8 43.0
    Diluted                              42.8            43.3                           43.2                          43.2
Domtar Corporation    
Consolidated Balance Sheets at      
(In millions of dollars)      
           
 
  December 31 December 31
  2010 2009
   $  $
  ---------(Unaudited)---------
Assets           
Current assets       
    Cash and cash equivalents   530  324
    Receivables, less allowances of $7 and $8   601 536
    Inventories   648 745
    Prepaid expenses   28 46
    Income and other taxes receivable   78  414
    Deferred income taxes     115  137
      Total current assets     2,000 2,202
     
  Property, plant and equipment, at cost   9,255 9,575
  Accumulated depreciation   (5,488) (5,446)
      Net property, plant and equipment   3,767  4,129
Intangible assets, net of amortization   56 85
Other assets   203 103
        Total assets   6,026  6,519
 
Liabilities and shareholders' equity    
Current liabilities     
    Bank indebtedness   23 43
    Trade and other payables   678 686
    Income and other taxes payable   22 31
    Long-term debt due within one year   2  11
      Total current liabilities     725 771
 
Long-term debt   825 1,701
Deferred income taxes and other   924 1,019
Other liabilities and deferred credits   350  366
 
Shareholders' equity    
    Exchangeable shares   64 78
    Additional paid-in capital   2,791 2,816
    Retained earnings (accumulated deficit)   357 (216)
    Accumulated other comprehensive loss   (10)  (16)
      Total shareholders' equity     3,202 2,662
        Total liabilities and shareholders' equity 6,026 6,519
     
Domtar Corporation    
Consolidated Statements of Cash Flows    
(In millions of dollars)    
         
 
      Twelve months
ended December 31 		Twelve months
ended December 31
      2010 2009
      ------------------ (Unaudited) ------------------
  $ $
Operating activities    
Net earnings 605    310
Adjustments to reconcile net earnings to cash flows from operating activities    
  Depreciation and amortization   395  405
  Deferred income taxes  (174) 157
  Impairment and write-down of property, plant and equipment 50 62
  Loss (gain) on repurchase of long-term debt 47 (12)
  Net losses (gains) on disposals of property, plant and equipment and sale of businesses 33 (7)
  Stock-based compensation expense 5 8
  Other   (2) 16
Changes in assets and liabilities, excluding the effects of sale of businesses    
  Receivables (73) (55)
  Inventories 39 261
  Prepaid expenses 6 (3)
  Trade and other payables (11)  38
  Income and other taxes   344 (357)
  Difference between employer pension and other post-retirement contributions
and pension and other post-retirement expense 		(120) (61)
  Other assets and other liabilities 22 30
  Cash flows provided from operating activities  1,166 792
 
Investing activities    
Additions to property, plant and equipment (153)  (106)
Proceeds from disposals of property, plant and equipment  26 21
Proceeds from sale of businesses and investments 185 -
  Cash flows provided from (used for) investing activities 58 (85)
 
Financing activities    
Dividend payments (21) -
Net change in bank indebtedness (19) -
Change of revolving bank credit facility -  (60)
Issuance of long-term debt  -   385
Repayment of long-term debt (898) (725)
Debt issue and tender offer costs (35) (14)
Stock repurchase (44)  -
Prepaid and Premium on structured stock repurchase, net 2  -
Other (3)  -
  Cash flows used for financing activities (1,018) (414)
 
Net increase in cash and cash equivalents 206 293
Translation adjustments related to cash and cash equivalents -  15
Cash and cash equivalents at beginning of period 324 16
Cash and cash equivalents at end of period 530 324
     
Supplemental cash flow information    
  Net cash payments for:    
    Interest 107 125
    Income taxes paid (refund) 28 (20)
Domtar Corporation                      
Quarterly Reconciliation of Non-GAAP Financial Measures                      
(In millions of dollars, unless otherwise noted)                      
                           
The following table sets forth certain non-U.S. generally accepted accounting principles ("GAAP") financial metrics identified in bold as "Earnings (loss) before items", "Earnings (loss) before items per diluted share", "EBITDA", "EBITDA margin", "EBITDA before items", "EBITDA margin before items", "Free cash flow", "Net debt" and "Net debt-to-total capitalization." Management believes that the financial metrics presented are frequently used by investors and are useful to evaluate our ability to service debt and the overall credit profile. Management believes these metrics are also useful to measure the operating performance and benchmark with peers within the industry. These metrics are presented as a complement to enhance the understanding of operating results but not in substitution for GAAP results.
The Company calculates "Earnings (loss) before items" and "EBITDA before items" by excluding the after-tax (pre-tax) effect of items considered by management as not reflecting our ongoing operations. Management uses these measures, as well as EBITDA and Free cash flow, to focus on ongoing operations and believes that it is useful to investors because it enables them to perform meaningful comparisons between periods. Domtar believes that using this information along with Net earnings (loss) provides for a more complete analysis of the results of operations. Net earnings (loss) and Cash flow provided from operating activities are the most directly comparable GAAP measures.
                           
        2010 2009
      Q1 Q2 Q3 Q4 YTD Q1 Q2 Q3 Q4 YTD
Reconciliation of "Earnings (loss) before items" to Net earnings (loss)                      
    Net earnings (loss) ($) 58 31 191 325 605 (45) 48 183 124 310
  (-) Alternative fuel tax credits ($) (18) - - -  (18) (28) (79) (116) (113) (336)
  (-) Cellulose biofuel producer credits ($) - - - (127) (127) - - - - -
  (-) Reversal of valuation allowance on Canadian deferred income tax balances ($)   - - - (100) (100) - - - - -
  (+) Impairment and write-down of property, plant and equipment ($) 16 9 9 -  34 21 - - 22 43
  (+) Closure and restructuring costs ($) 14  4 1 1 20 14 4 2 24 44
  (-) Net losses (gains) on disposals of property, plant and equipment and sale of businesses ($) (1) 48 (18) - 29 - - (12) 3 (9)
  (-) Loss (gain) on repurchase of long-term debt ($) - 24 - 4 28 - (6) - - (6)
  (=) Earnings (loss) before items ($) 69 116 183 103 471 (38) (33) 57 60 46
  (/) Weighted avg. number of common and exchangeable shares outstanding (diluted) (millions) 43.3 43.4 43.0 42.8 43.2 43.0 43.0 43.2 43.3 43.2
  (=) Earnings (loss) before items per diluted share ($) 1.59 2.67 4.26 2.41 10.90 (0.88) (0.77) 1.32 1.39 1.06
                           
Reconciliation of "EBITDA" and "EBITDA before items" to Net earnings (loss)                      
    Net earnings (loss) ($) 58 31 191 325 605 (45) 48 183 124 310
  (+) Income tax expense (benefit) ($) 26 (5) 21 (199) (157) (8) 68 78 42 180
  (+) Interest expense ($) 32 70 24 29 155 31 23 34 37 125
  (=) Operating income (loss) ($) 116 96 236 155 603 (22) 139 295 203 615
  (+) Depreciation and amortization ($) 102 101 97 95 395 99 104 101 101 405
  (+) Impairment and write-down of property, plant and equipment ($) 22 14 14 - 50 35 -  - 27 62
  (-) Net losses (gains) on disposals of property, plant and equipment and sale of businesses ($) (1) 48 (14) - 33 - - (12) 5 (7)
  (=) EBITDA ($) 239 259 333 250 1,081 112 243 384 336 1,075
  (/) Sales ($) 1,457 1,547 1,473 1,373 5,850 1,302 1,319 1,440 1,404 5,465
  (=) EBITDA margin (%) 16% 17% 23% 18% 18% 9% 18% 27% 24% 20%
    EBITDA ($) 239 259 333 250 1,081 112 243 384 336 1,075
  (-) Alternative fuel tax credits ($) (25) - - -  (25) (46) (131) (159) (162) (498)
  (+) Closure and restructuring costs ($) 20 5 1 1 27 24 6 4 29 63
  (=) EBITDA before items ($) 234 264 334 251 1,083 90 118 229 203 640
  (/) Sales ($) 1,457 1,547 1,473 1,373 5,850 1,302 1,319 1,440 1,404 5,465
  (=) EBITDA margin before items (%) 16% 17% 23% 18% 19% 7% 9% 16% 14% 12%
                           
Reconciliation of "Free cash flow" to Cash flow provided from operating activities                      
    Cash flow provided from operating activities ($) 123 610 267 166 1,166 57 306 244 185 792
  (-) Additions to property, plant and equipment ($) (31) (43) (38) (41) (153) (24) (18) (24) (40) (106)
  (=) Free cash flow ($) 92 567 229 125 1,013 33 288 220 145 686
                           
"Net debt-to-total capitalization" computation                      
    Bank indebtedness ($) 19 30 26 23   52 24 30 43  
  (+) Long-term debt due within one year ($) 31 30 22 2   18 13 13 11  
  (+) Long-term debt ($) 1,600 1,186 961 825   2,195 2,162 1,971 1,701  
  (=) Debt ($) 1,650 1,246 1,009 850   2,265 2,199 2,014 1,755  
  (-) Cash and cash equivalents ($) (314) (514) (537) (530)   (145) (381) (433) (324)  
  (=) Net debt ($) 1,336 732 472 320   2,120 1,818 1,581 1,431  
  (+) Shareholders' equity ($) 2,748 2,642 2,811 3,202   2,073 2,264 2,580 2,662  
  (=) Total capitalization ($) 4,084 3,374 3,283 3,522   4,193 4,082 4,161 4,093  
    Net debt ($) 1,336 732 472 320   2,120 1,818 1,581 1,431  
  (/) Total capitalization ($) 4,084 3,374 3,283 3,522   4,193 4,082 4,161 4,093  
  (=) Net debt-to-total capitalization (%) 33% 22% 14% 9%   51% 45% 38% 35%  
                           
                           
"Earnings (loss) before items", "Earnings (loss) before items per diluted share", "EBITDA", "EBITDA margin", "EBITDA before items", "EBITDA margin before items", "Free cash flow", "Net debt" and "Net debt-to-total capitalization" have no standardized meaning prescribed by GAAP and are not necessarily comparable to similar measures presented by other companies and therefore should not be considered in isolation or as a substitute for Net earnings (loss), Operating income (loss) or any other earnings statement, cash flow statement or balance sheet financial information prepared in accordance with GAAP. It is important for readers to understand that certain items may be presented in different lines by different companies on their financial statements thereby leading to different measures for different companies
Domtar Corporation                                          
Quarterly Reconciliation of Non-GAAP Financial Measures - By Segment 2010                                          
(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 "Operating income (loss) before items", "EBITDA before items" and "EBITDA margin before items" by reportable segment. Management believes that the financial metrics presented are frequently used by investors and are useful to measure the operating performance and benchmark with peers within the industry. These metrics are presented as a complement to enhance the understanding of operating results but not in substitution for GAAP results.
The company calculates the segmented "Operating income (loss) before items" by excluding the pre-tax effect of items considered by management as not reflecting our ongoing operations. Management uses these measures to focus on ongoing operations and believes that it is useful to investors because it enables them to perform meaningful comparisons between periods. Domtar believes that using this information along with Operating income (loss) provides for a more complete analysis of the results of operations. Operating income (loss) by segment is the most directly comparable GAAP measure.
                                               
        Papers
Paper Merchants 		Wood(1)
Corporate
        Q1'10 Q2'10 Q3'10 Q4'10 YTD Q1'10 Q2'10 Q3'10 Q4'10 YTD Q1'10 Q2'10 Q3'10 Q4'10 YTD Q1'10 Q2'10 Q3'10 Q4'10 YTD
Reconciliation of Operating income (loss) to "Operating income (loss) before items"                                          
    Operating income (loss) ($) 120 149 237 161 667 1 (1) - (3) (3) (5) (49) - - (54) - (3) (1) (3) (7)
  (-) Alternative fuel tax credits ($) (25)        - - -  (25) - - - - - - - - - - - - - - -
  (+) Impairment and write-down of property, plant and equipment ($) 22 14 14 - 50 - - - - - - - - - - - - - - -
  (+) Closure and restructuring costs ($) 20 5 1 - 26 - - - 1 1 - - - -  - -  - - - -
  (-) Net losses (gains) on disposals of property, plant and equipment and sale of businesses ($) - (3) (14) - (17) - - - - - (1) 49 - - 48 - 2 - - 2
                                               
  (=) Operating income (loss) before items ($) 137 165 238 161 701 1 (1) - (2) (2) (6)  - - - (6) - (1) (1) (3) (5)
                                               
Reconciliation of "Operating income (loss) before items" to "EBITDA before items"                                          
    Operating income (loss) before items ($) 137 165 238 161 701 1 (1) - (2) (2) (6)  - - - (6) - (1) (1) (3) (5)
  (+) Depreciation and amortization ($) 96 95 96 94 381 1 1 1 1 4 5 5 - - 10  - - - -  -
                                               
  (=) EBITDA before items ($) 233 260 334 255 1,082 2 - 1 (1) 2 (1)  5 - - 4 - (1) (1) (3) (5)
  (/) Sales ($) 1,245 1,317 1,296 1,212 5,070 212 213 233 212 870 67 83 - - 150  - - - - - 
  (=) EBITDA margin before items (%) 19% 20% 26% 21% 21% 1% - - -  -  - 6% - - 3% - - - - -
                                               
                                               

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

(1) As previously reported, we sold 88% of the Wood segment on June 30, 2010 to EACOM Timber Corporation ("EACOM"). During the fourth quarter 2010, in an unrelated transaction, we sold the remaining 12% of common stock held in EACOM.

Domtar Corporation
Quarterly Reconciliation of Non-GAAP Financial Measures - By Segment 2009
(In millions of dollars, unless otherwise noted)
 
The following table sets forth certain non-U.S. generally accepted accounting principles ("GAAP") financial metrics identified in bold as "Operating income (loss) before items", "EBITDA before items" and "EBITDA margin before items" by reportable segment. Management believes that the financial metrics presented are frequently used by investors and are useful to measure the operating performance and benchmark with peers within the industry. These metrics are presented as a complement to enhance the understanding of operating results but not in substitution for GAAP results.
 
The company calculates the segmented "Operating income (loss) before items" by excluding the pre-tax effect of items considered by management as not reflecting our ongoing operations. Management uses these measures to focus on ongoing operations and believes that it is useful to investors because it enables them to perform meaningful comparisons between periods. Domtar believes that using this information along with Operating income (loss) provides for a more complete analysis of the results of operations. Operating income (loss) by segment is the most directly comparable GAAP measure.
   
  Papers Paper Merchants Wood Corporate
  Q1'09 Q2'09 Q3'09 Q4'09 YTD Q1'09 Q2'09 Q3'09
 Q4'09 YTD Q1'09 Q2'09 Q3'09
 Q4'09 YTD Q1'09 Q2'09 Q3'09
 Q4'09 YTD
Reconciliation of Operating income (loss) to "Operating income (loss) before items"                                            
    Operating income (loss) ($) (6) 150 294 212 650 2 1 2 2 7 (18) (12) (1) (11) (42)       -         -         -         -         -  
  (-) Alternative fuel tax credits ($) (46) (131) (159) (162) (498)       -         -         -         -   -   -   -   -   -   -   -   -   -   -   -  
  (+) Impairment and write-down of property, plant and equipment ($) 35 -   -   27 62 -   -   -   -   -   -   -   -   -   -   -   -   -   -   -  
  (+) Closure and restructuring costs ($) 22 4 4 22 52 -   1 -   1 2 2 1 -   6 9 -   -   -   -   -  
  (-) Net losses (gains) on disposals of property, plant and equipment  ($) -   -   (1) 5 4 -   -   -   -   -   -   -   (8) -   (8) -   -   (3) -   (3)
                                               
  (=) Operating income (loss) before items ($) 5 23 138 104 270 2 2 2 3 9 (16) (11) (9) (5) (41) -   -   (3) -   (3)
                                               
Reconciliation of "Operating income (loss) before items" to "EBITDA before items"                                          
    Operating income (loss) before items ($) 5 23 138 104 270 2 2 2 3 9 (16) (11) (9) (5) (41) -   -   (3) -   (3)
  (+) Depreciation and amortization ($) 94 98 95 95 382 1 1 1 -   3 4 5 5 6 20 -   -   -   -   -  
                                               
  (=) EBITDA before items ($) 99 121 233 199 652 3 3 3 3 12 (12) (6) (4) 1 (21) -   -   (3) -   (3)
  (/) Sales ($) 1,106 1,127 1,211 1,188 4,632 217 205 239 212 873 43 46 59 63 211 -   -   -   -   -  
  (=) EBITDA margin before items (%) 9% 11% 19% 17% 14% 1% 1% 1% 1% 1% -   -   -   2% -   -   -   -   -   -  
                                               
                                               
"Operating income (loss) before items", "EBITDA before items" and "EBITDA margin before items" have no standardized meaning prescribed by GAAP and are not necessarily comparable to similar measures presented by other companies and therefore should not be considered in isolation or as a substitute for Operating income (loss) or any other earnings statement, cash flow statement or balance sheet financial information prepared in accordance with GAAP. It is important for readers to understand that certain items may be presented in different lines by different companies on their financial statements thereby leading to different measures for different companies.
Domtar Corporation
Supplemental Segmented Information
(In millions of dollars, unless otherwise noted)
   
  2010 2009
    Q1 Q2 Q3 Q4 YTD Q1 Q2 Q3
 Q4 YTD
Papers Segment                      
  Sales ($) 1,245 1,317 1,296 1,212 5,070 1,106 1,127 1,211 1,188 4,632
    Intersegment sales - Papers ($) (62) (60) (56) (51) (229) (60) (55) (63) (53) (231)
  Operating income (loss) ($) 120 149 237 161 667 (6) 150 294 212 650
  Depreciation and amortization ($) 96 95 96 94 381 94 98 95 95 382
  Impairment and write-down of property, plant and equipment ($) 22 14 14           -   50 35           -             -   27 62
                           
  Papers                      
  Papers Production ('000 ST) 906 882 906 873 3,567 869 912 920 903 3,604
  Papers Shipments ('000 ST) 960 891 896 850 3,597 913 929 972 943 3,757
    Uncoated Freesheet ('000 ST) 925 889 896 850 3,560 887 901 939 890 3,617
    Coated Groundwood ('000 ST) 35 2           -             -   37 26 28 33 53 140
                           
  Pulp                      
  Pulp Shipments(a) ('000 ADMT) 388 486 412 376 1,662 314 393 446 386 1,539
    Hardwood Kraft Pulp (%) 40% 38% 37% 24% 35% 33% 33% 40% 35% 36%
    Softwood Kraft Pulp (%) 49% 52% 53% 62% 54% 54% 54% 49% 54% 52%
    Fluff Pulp (%) 11% 10% 10% 14% 11% 13% 13% 11% 11% 12%
                           
Paper Merchants Segment                      
  Sales ($) 212 213 233 212 870 217 205 239 212 873
  Operating income (loss) ($) 1 (1)           -   (3)           (3) 2 1 2 2 7
  Depreciation and amortization ($) 1 1 1 1 4 1 1 1           -   3
                           
Wood Segment                      
  Sales ($) 67 83           -             -   150 43 46 59 63 211
  Intersegment sales - Wood ($) (5) (6)           -             -   (11) (4) (4) (6) (6) (20)
  Operating loss  ($) (5) (49)           -             -   (54) (18) (12) (1) (11) (42)
  Depreciation and amortization ($) 5 5           -             -   10 4 5 5 6 20
                           
  Lumber Production (Millions FBM) 172 165           -             -   337 121 131 147 161 560
  Lumber Shipments (Millions FBM) 164 187           -             -   351 125 135 153 161 574
                           
Average Exchange Rates CAN 1.041 1.028 1.039 1.013 1.030 1.245 1,167 1,097 1,056 1,142
      US 0.961 0.973 0.962 0.987 0.971 0.803 0.857 0.911 0.947 0.876
                           
  (a) Figures are gross of market pulp purchased from other producers on the open market for some of our paper making operations. Pulp Shipments represent 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.

SOURCE DOMTAR CORPORATION

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