Domtar Inc.

Domtar Posts Net Earnings of CDN$2 Million in Second Quarter of 2005

Montreal (ots/PRNewswire) - TICKER SYMBOL: (TSX:DTC, NYSE:DTC) Domtar Inc. announced today net earnings of $2 million ($0.01 per common share) in the second quarter of 2005 compared to a net loss of $1 million ($0.01 per common share) in the second quarter of 2004 and net earnings of $10 million ($0.04 per common share) in the first quarter of 2005. SUMMARY OF RESULTS Q2 2005 Q2 2004 Q1 2005(2) ------------------------------------------------------------------------- (In millions of Canadian dollars, unless otherwise noted) Sales 1,287 1,346 1,259 Operating profit(1) 31 28 34 Net earnings (loss) 2 (1) 10 Net earnings (loss) per common share (in dollars) 0.01 (0.01) 0.04 Excluding specified items(1) Operating profit 33 33 35 Net earnings (loss) 3 4 9 Net earnings (loss) per common share (in dollars) 0.01 0.02 0.04 ------------------------------------------------------------------------- (1) For a discussion on specified items and the use of non-GAAP measures, see "Notes to the summary of results" in the appendix. (2) Domtar's results for the first quarter of 2005 include a tax recovery adjustment of $6 million (or $0.03 per common share) following the reassessment of a prior year's income taxes by tax authorities. "Domtar achieved an operating profit in all business segments as a result of efficiency and cost reduction efforts by employees, an increase in average selling prices for pulp and paper, as well as higher pulp and lumber shipments, despite lower demand in the Papers segment, a weak US dollar and elevated levels of costs for freight, fiber, chemicals and energy," said Raymond Royer, President and Chief Executive Officer of Domtar. "Pressure stemming from these high costs continues to negatively impact our profitability. While Domtar progresses internally on its cost reduction initiatives, we have no indications that the increase in costs will ease in the near term. As such, these higher costs should be reflected over time in the selling prices of our products through inflation adjustments. We will continue to work with our customers to provide tailor-made solutions, notably through our supply chain management system and our expanding Domtar EarthChoice(R) line of socially and environmentally responsible papers," added Mr. Royer. OPERATIONAL REVIEW SECOND QUARTER 2005 COMPARED TO FIRST QUARTER 2005 ----- PAPERS Q2 2005 Q1 2005 Variance ------------------------------------------------------------------------- (In millions of Canadian dollars) Operating profit 2 6 (4) Operating profit, excluding specified items 4 9 (5) ------------------------------------------------------------------------- The $5 million decline in operating profit excluding specified items in the Papers segment was mainly attributable to lower paper shipments and higher overall costs, namely higher purchased energy, chemicals and fiber costs. In addition, during the second quarter, certain mills undertook capital and maintenance downtime also contributing to higher overall costs. These factors were partially offset by higher average selling prices for paper and pulp and higher pulp shipments as well as the realization of savings stemming from restructuring activities. PAPER MERCHANTS Q2 2005 Q1 2005 Variance ------------------------------------------------------------------------- (In millions of Canadian dollars) Operating profit 4 5 (1) ------------------------------------------------------------------------- The $1 million decline in operating profit in the Paper Merchants segment was mainly attributable to lower margins achieved as a result of higher purchased paper costs not being fully reflected in average paper selling prices. WOOD Q2 2005 Q1 2005 Variance ------------------------------------------------------------------------- (In millions of Canadian dollars) Operating profit 11 6 5 ------------------------------------------------------------------------- The $5 million improvement in operating profit in the Wood segment was mainly attributable to higher lumber shipments, partially offset by higher duties on softwood lumber exports due to a higher level of shipments being exported to the U.S. As of January 1, 2005, the countervailing and antidumping duties rate has decreased from 27.22% to 20.95%. Since May 22, 2002, Domtar has made and expensed cash deposits of $175 million for export duties. PACKAGING Q2 2005 Q1 2005 Variance ------------------------------------------------------------------------- (In millions of Canadian dollars) Operating profit 11 13 (2) Operating profit, excluding specified items 14 11 3 ------------------------------------------------------------------------- The $3 million improvement in operating profit excluding specified items in the Packaging segment (our 50% share of Norampac Inc.) was mainly attributable to higher shipments for corrugated containers, partially offset by lower shipments of containerboard and higher overall costs. LIQUIDITY AND CAPITAL SECOND QUARTER 2005 COMPARED TO FIRST QUARTER 2005 ----- FREE CASH FLOW(1) Q2 2005 Q1 2005 ------------------------------------------------------------------------- (in millions of Canadian dollars, unless otherwise noted) Cash flows provided from operating activities before changes in working capital and other items 90 88 Changes in working capital and other items (52) (122) ------------------- Cash flows provided by (used for) operating activities 38 (34) Net additions to property, plant and equipment (38) (28) ------------------- Free cash flow - (62) ------------------------------------------------------------------------- Free cash flow improved by $62 million in the second quarter of 2005 compared to the first quarter of 2005. This improvement mainly reflects reduced working capital requirements, primarily attributable to inventory, trade and other payables and receivables fluctuations. The first quarter of the year is typically impacted by seasonally high requirements for working capital. These factors were partially offset by increased capital expenditures. Domtar's net debt-to-total capitalization ratio(1) as at June 30, 2005 stood at 51.1% compared to 49.5% as at December 31, 2004. Domtar's total long-term debt increased by $135 million, largely due to additional net borrowings of $102 million and the negative impact of $33 million attributable to a stronger US dollar (based on month-end foreign exchange rates) on its US dollar denominated debt. (1) For a discussion on the use of non-GAAP measures, see "Notes to the summary of results" in the appendix. OUTLOOK Although the Company did experience slightly higher average selling prices for most of its pulp and paper products in the second quarter of 2005 compared to the first quarter of the year, the current business environment, mainly higher costs and lower demand for our products, is expected to remain challenging for the balance of the year. Despite the challenges that lie ahead, Domtar remains intent on delivering annualized targeted savings of $100 million by the end of 2005. As at June 30, 2005, the Company already stands at 60% of its goal. FORWARD-LOOKING STATEMENTS This press release may contain forward looking statements relating to trends in, or representing management's beliefs about, Domtar's future growth , results of operations, performance and business prospects and opportunities .These forward-looking statements are generally denoted by the use of words such as "anticipate", "believe", "expect", "intend", "aim", "target", "plan", "continue", "estimate", "may", "will", "should" and similar expressions. These statements reflect management's current beliefs and are based on information currently available to management. Forward looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable by management, are inherently subject to known and unknown risks and uncertainties such as, but not limited to, general economic and business conditions, product selling prices, raw material and operating costs, changes in foreign currency exchange rates, the ability to integrate acquired businesses into existing operations, the ability to realize anticipated cost savings, the performance of manufacturing operations and other factors referenced herein and in Domtar's continuous disclosure filings. These factors should be considered carefully and undue reliance should not be placed on the forward looking statements. Although the forward looking statements are based upon what management believes to be reasonable estimates and assumptions, Domtar cannot ensure that actual results will not be materially different from those expressed or implied by these forward looking statements. Domtar assumes no obligation to update or revise these forward looking statements to reflect new events or circumstances. These risks, uncertainties and other factors include, among other things, those discussed under "Risk Factors" in Domtar's Management's Discussion and Analysis (MD&A). SECOND QUARTER 2005 RESULTS WEBCAST You are invited to listen to a live broadcast of the conference call with financial analysts that the Company will be holding today to present its second quarter 2005 results. It will take place at 4:00 p.m. (EDT) on the Domtar corporate website at: www.domtar.com . Domtar's second quarter 2005 Management's Discussion and Analysis (MD&A) is available on the Domtar corporate website at: www.domtar.com . DOMTAR IS THE THIRD LARGEST PRODUCER OF UNCOATED FREESHEET PAPER IN NORTH AMERICA. IT IS ALSO A LEADING MANUFACTURER OF BUSINESS PAPERS, COMMERCIAL PRINTING AND PUBLICATION PAPERS, AND TECHNICAL AND SPECIALTY PAPERS. DOMTAR MANAGES ACCORDING TO INTERNATIONALLY RECOGNIZED STANDARDS 18 MILLION ACRES OF FORESTLAND IN CANADA AND THE UNITED STATES, AND PRODUCES LUMBER AND OTHER WOOD PRODUCTS. DOMTAR HAS 10,000 EMPLOYEES ACROSS NORTH AMERICA. THE COMPANY ALSO HAS A 50% INVESTMENT INTEREST IN NORAMPAC INC., THE LARGEST CANADIAN PRODUCER OF CONTAINERBOARD. APPENDIX NOTES TO THE SUMMARY OF RESULTS NOTE I. SPECIFIED ITEMS In Domtar's view, specified items are items that do not typify normal operating activities. The following table reconciles operating profit (loss), net earnings (loss) and net earnings (loss) per share, determined in accordance with GAAP(x), to operating profit (loss), net earnings (loss) and net earnings (loss) per share excluding specified items. Q2 2005 Q2 2004 ------------------------------------------------------------------------- (In millions of Canadian dollars, unless otherwise noted) Net Net earnings earnings (loss) per share Net per share Operating Net (in Operating earnings (in profit earnings dollars) profit (loss) dollars) As per GAAP(x) 31 2 0.01 28 (1) (0.01) Specified items: Sales of property, plant and equipment(a) (4) (3) - - Closure and restructuring costs(b) 10 6 - - Unrealized mark-to-market gains or losses(c) (1) (1) 5 3 Foreign exchange impact on long-term debt(d) - 1 - 2 Insurance recoveries(e) (3) (2) - - -------------------------------------------------------- 2 1 - 5 5 0.03 -------------------------------------------------------- Excluding specified items 33 3 0.01 33 4 0.02 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Q1 2005 ------------------------------------------------------------------------- Net earnings per share Operating Net (in profit earnings dollars) As per GAAP(x) 34 10 0.04 Specified items: Sales of property, plant and equipment(a) (3) (3) Closure and restructuring costs(b) 6 4 Unrealized mark-to-market gains or losses(c) (2) (1) Foreign exchange impact on long-term debt(d) - (1) Insurance recoveries(e) - - -------------------------------------------------------- 1 (1) - -------------------------------------------------------- Excluding specified items 35 9 0.04 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (x) Except for operating profit which is a non-GAAP measure. See note 2. a) Sales of property, plant and equipment Domtar's results include gains or losses on sales of property, plant and equipment. These gains or losses are presented under "Selling, general and administrative" expenses in the financial statements. b) Closure and restructuring costs Domtar's results include closure and restructuring charges. These charges are presented under "Closure and restructuring costs" in the financial statements. c) Unrealized mark-to-market gains or losses Domtar's results include unrealized mark-to-market gains or losses on commodity swap contracts and foreign exchange contracts not considered as hedges for accounting purposes. Such gains or losses are presented under "Selling, general and administrative" expenses in the financial statements. d) Foreign exchange impact on long-term debt Domtar's results include foreign exchange gains or losses on the translation of a portion of its long-term debt. Such gains or losses are presented under "Financing expenses" in the financial statements. e) Insurance recoveries Domtar's results include insurance recoveries. These insurance recoveries are presented under "Selling, general and administrative" expenses in the financial statements. NOTE 2. USE OF NON-GAAP MEASURES Except where otherwise indicated, all financial information reflected herein is determined on the basis of Canadian GAAP. Operating profit (loss) is a non-GAAP measure that is calculated within Domtar's financial statements. Domtar focuses on operating profit (loss) as this measure enables it to compare its results between periods without regard to debt service or income taxes. Operating profit (loss) excluding specified items, net earnings (loss) excluding specified items and net earnings (loss) per common share excluding specified items are non-GAAP measures. Measures excluding specified items are used in evaluating the Company's performance between periods without regard to specified items that adversely or positively affected its GAAP measures. Free cash flow is a non-GAAP measure that is defined as the amount by which cash flows provided from operating activities, as determined in accordance with GAAP, exceed net additions to property, plant and equipment, as determined in accordance with GAAP. Free cash flow is used in evaluating the Company's ability to service its debt and pay dividends to its shareholders. Net debt-to-total capitalization ratio is a non-GAAP measure that is calculated as long-term debt and bank indebtedness, net of cash and cash equivalents, to the sum of net debt and shareholders' equity. Domtar's management tracks this ratio on a regular basis in order to assess its debt position. The above non-GAAP measures 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. Domtar believes that it would be useful for investors and other users to be aware of these measures so they can better assess the Company's performance. Consolidated Financial Statements Three months ended Six months ended June 30 June 30 CONSOLIDATED EARNINGS 2005 2005 2004 2005 2005 2004 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (In millions of Canadian ---- (Unaudited) ---- ---- (Unaudited) ---- dollars, unless US$ $ $ US$ $ $ otherwise noted) (NOTE 3) (NOTE 3) Sales 1,050 1,287 1,346 2,077 2,546 2,571 Operating expenses Cost of sales 889 1,089 1,146 1,761 2,159 2,236 Selling, general and administrative 51 62 78 99 121 147 Amortization 77 95 94 151 185 185 Closure and restructuring costs (NOTE 5) 8 10 - 13 16 8 ---------------------- ---------------------- 1,025 1,256 1,318 2,024 2,481 2,576 ---------------------- ---------------------- Operating profit (loss) 25 31 28 53 65 (5) Financing expenses 32 39 41 60 73 80 Amortization of deferred gain (1) (1) (1) (2) (2) (2) ---------------------- ---------------------- Loss before income taxes (6) (7) (12) (5) (6) (83) Income tax recovery (8) (9) (11) (15) (18) (38) ---------------------- ---------------------- Net earnings (loss) 2 2 (1) 10 12 (45) ---------------------- ---------------------- ---------------------- ---------------------- Per common share (in dollars)(NOTE 6) Net earnings (loss) Basic 0.01 0.01 (0.01) 0.04 0.05 (0.20) Diluted 0.01 0.01 (0.01) 0.04 0.05 (0.20) Weighted average number of common shares outstanding (millions) Basic 229.6 229.6 228.6 229.5 229.5 228.4 Diluted 230.7 230.7 228.6 230.6 230.6 228.4 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Three months ended Six months ended June 30 June 30 CONSOLIDATED RETAINED 2005 2005 2004 2005 2005 2004 EARNINGS ------------------------------------------------------------------------- ------------------------------------------------------------------------- (In millions of Canadian ---- (Unaudited) ---- ---- (Unaudited) ---- dollars, unless US$ $ $ US$ $ $ otherwise noted) (NOTE 3) (NOTE 3) Retained earnings at beginning of period - as reported 333 408 452 336 412 512 Cumulative effect of change in accounting policy - - - - - (3) ---------------------- ---------------------- Retained earnings at beginning of period - as restated 333 408 452 336 412 509 Net earnings (loss) 2 2 (1) 10 12 (45) Dividends on common shares (12) (14) (14) (23) (28) (27) Dividends on preferred shares (1) (1) (1) (1) (1) (1) ---------------------- ---------------------- Retained earnings at end of period 322 395 436 322 395 436 ------------------------------------------------------------------------- ------------------------------------------------------------------------- The accompanying notes are an integral part of the consolidated financial statements. CONSOLIDATED BALANCE June 30 June 30 December 31 SHEETS As at 2005 2005 2004 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (In millions of Canadian dollars, --------- (Unaudited) --------- unless otherwise noted) US$ $ $ (NOTE 3) Assets Current assets Cash and cash equivalents 57 70 52 Receivables 216 265 233 Inventories 649 796 723 Prepaid expenses 19 23 12 Income and other taxes receivable 15 18 17 Future income taxes 69 84 87 ------------------------------- 1,025 1,256 1,124 Property, plant and equipment 3,364 4,123 4,215 Goodwill 68 84 84 Other assets 245 300 265 ------------------------------- 4,702 5,763 5,688 ------------------------------- ------------------------------- Liabilities and shareholders' equity Current liabilities Bank indebtedness 24 29 22 Trade and other payables 509 624 654 Income and other taxes payable 27 33 32 Long-term debt due within one year 1 2 8 ------------------------------- 561 688 716 Long-term debt 1,768 2,167 2,026 Future income taxes 441 540 557 Other liabilities and deferred credits 268 328 343 Shareholders' equity Preferred shares 30 37 39 Common shares 1,452 1,780 1,775 Contributed surplus 10 12 10 Retained earnings 322 395 412 Accumulated foreign currency translation adjustments (NOTE 9) (150) (184) (190) ------------------------------- 1,664 2,040 2,046 ------------------------------- 4,702 5,763 5,688 ------------------------------------------------------------------------- ------------------------------------------------------------------------- The accompanying notes are an integral part of the consolidated financial statements Three months ended Six months ended June 30 June 30 CONSOLIDATED CASH FLOWS 2005 2005 2004 2005 2005 2004 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (In millions of Canadian ---- (Unaudited) ---- ---- (Unaudited) ---- dollars, unless US$ $ $ US$ $ $ otherwise noted) (NOTE 3) (NOTE 3) Operating activities Net earnings (loss) 2 2 (1) 10 12 (45) Non-cash items: Amortization and write-down of property, plant and equipment (NOTE 5) 79 97 94 153 187 185 Future income taxes (11) (13) (13) (21) (26) (43) Amortization of deferred gain (1) (1) (1) (2) (2) (2) Closure and restructuring costs, excluding write-down of property, plant and equipment (NOTE 5) 6 8 - 11 14 8 Other (2) (3) 4 (6) (7) (3) -------------------- -------------------- 73 90 83 145 178 100 -------------------- -------------------- Changes in working capital and other items Receivables 8 10 (2) (26) (32) (99) Inventories 3 3 32 (56) (69) 14 Prepaid expenses (2) (2) 5 (8) (10) (9) Trade and other payables (35) (43) (46) (14) (17) (26) Income and other taxes - - (3) (1) (1) 6 Early settlement of interest rate swap contracts (NOTE 8) - - - - - 20 Other (6) (7) 11 (14) (17) 5 Payments of closure and restructuring costs (10) (13) (4) (23) (28) (4) -------------------- -------------------- (42) (52) (7) (142) (174) (93) -------------------- -------------------- Cash flows provided from operating activities 31 38 76 3 4 7 -------------------- -------------------- Investing activities Additions to property, plant and equipment (38) (47) (51) (65) (80) (95) Proceeds from disposals of property, plant and equipment 7 9 1 11 14 4 Business acquisition (NOTE 4) - - (8) - - (8) Other 1 1 - (2) (3) - -------------------- -------------------- Cash flows used for investing activities (30) (37) (58) (56) (69) (99) -------------------- -------------------- Financing activities Dividend payments (11) (14) (14) (23) (28) (28) Change in bank indebtedness 14 17 4 7 8 8 Change in revolving bank credit, net of expenses 17 21 (6) 155 190 134 Issuance of long-term debt, net of expenses - - - - - 1 Repayment of long-term debt (1) (1) - (73) (90) (4) Common shares issued, net of expenses 1 1 6 3 4 13 Redemptions of preferred shares (1) (1) (1) (2) (2) (2) -------------------- -------------------- Cash flows provided from (used for) financing activities 19 23 (11) 67 82 122 -------------------- -------------------- Net increase in cash and cash equivalents 20 24 7 14 17 30 Translation adjustments related to cash and cash equivalents - - (1) 1 1 (1) Cash and cash equivalents at beginning of period 37 46 71 42 52 48 -------------------- -------------------- Cash and cash equivalents at end of period 57 70 77 57 70 77 ------------------------------------------------------------------------- ------------------------------------------------------------------------- The accompanying notes are an integral part of the consolidated financial statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SECOND QUARTER 2005 (IN MILLIONS OF CANADIAN DOLLARS, UNLESS OTHERWISE NOTED) NOTE I. BASIS OF PRESENTATION In the opinion of management, the accompanying unaudited interim consolidated financial statements, prepared in accordance with Canadian generally accepted accounting principles, contain all adjustments necessary to present fairly Domtar Inc.'s (Domtar) financial position as at June 30, 2005 and December 31, 2004, as well as its results of operations and its cash flows for the three months and six months ended June 30, 2005 and 2004. While management believes that the disclosures presented are adequate, these unaudited interim consolidated financial statements and notes should be read in conjunction with Domtar's annual consolidated financial statements. These unaudited interim consolidated financial statements follow the same accounting policies as the most recent annual consolidated financial statements, except as described in Note 2. NOTE 2. ACCOUNTING CHANGE CONSOLIDATION OF VARIABLE INTEREST ENTITIES In June 2003, the Canadian Institute of Chartered Accountants (CICA) issued Accounting Guideline No. 15 (AcG-15) "Consolidation of Variable Interest Entities." AcG-15 applies to annual and interim periods beginning on or after November 1, 2004. The application of this guideline does not have an impact on Domtar's unaudited interim consolidated financial statements under Canadian GAAP. NOTE 3. UNITED STATES DOLLAR AMOUNTS The unaudited interim consolidated financial statements are expressed in Canadian dollars and, solely for the convenience of the reader, the 2005 unaudited interim consolidated financial statements and the tables of certain related notes have been translated into U.S. dollars at the June 2005 month-end rate of CAN$1.00 equals US$0.8159. This translation should not be construed as an application of the recommendations relating to the accounting for foreign currency translation, but rather as supplemental information for the reader. NOTE 4. BUSINESS ACQUISITION On April 2, 2004, Norampac (a 50-50 joint venture with Cascades Inc.) acquired the shares of Johnson Corrugated Products Corp., a corrugated products plant in Thompson, Connecticut. The Corporation's proportionate share of the consideration is approximately $8 million (US$6 million) excluding fees related to the transaction. NOTE 5. CLOSURE AND RESTRUCTURING COSTS In 2004, Domtar's management committed to workforce reduction and restructuring plans throughout the Corporation in Canada and the United States. In addition to the reconciling items in the table below, for the three months and six months ended June 30, 2005, training costs of $1 million and $2 million, respectively, and other closure related costs of $3 million and $6 million, respectively, were incurred. During the second quarter of 2005, Norampac decided to close a corrugated products plant, resulting in a write-down of $2 million of property, plant and equipment, representing the Corporation's proportionate share. The following table provides a reconciliation of all closure and restructuring cost provisions: June 30 June 30 December 31 2005 2005 2004 ------------------------------------------------------------------------- ------------------------------------------------------------------------- --------- (Unaudited) -------- US$ $ $ (NOTE 3) Balance at beginning of period 31 38 13 Severance payments (16) (20) (12) Reversal of provision (1) (1) (10) Proceeds on disposition - - 1 Additions Labor costs 6 7 45 Dismantling costs - - 1 ------------------------------ Balance at end of period 20 24 38 ------------------------------------------------------------------------- ------------------------------------------------------------------------- NOTE 6. _________________ EARNINGS (LOSS) PER SHARE The following table provides the reconciliation between basic and diluted earnings (loss) per share: Three months ended Six months ended June 30 June 30 2005 2005 2004 2005 2005 2004 ------------------------------------------------------------------------- ------------------------------------------------------------------------- ---- (Unaudited) ---- ---- (Unaudited) ---- US$ $ $ US$ $ $ (NOTE 3) (NOTE 3) Net earnings (loss) 2 2 (1) 10 12 (45) Dividend requirements of preferred shares 1 1 1 1 1 1 ------------------------ ---------------------- Net earnings (loss) applicable to common shares 1 1 (2) 9 11 (46) Weighted average number of common shares outstanding (millions) 229.6 229.6 228.6 229.5 229.5 228.4 Effect of dilutive stock options (millions) 1.1 1.1 - 1.1 1.1 - ------------------------ ---------------------- Weighted average number of diluted common shares outstanding (millions) 230.7 230.7 228.6 230.6 230.6 228.4 ------------------------ ---------------------- Basic earnings (loss) per share (in dollars) 0.01 0.01 (0.01) 0.04 0.05 (0.20) Diluted earnings (loss) per share (in dollars) 0.01 0.01 (0.01) 0.04 0.05 (0.20) ------------------------------------------------------------------------- ------------------------------------------------------------------------- The following table provides the securities that could potentially dilute basic earnings (loss) per share in the future but were not included in the computation of diluted earnings (loss) per share because to do so would have been anti-dilutive for the periods presented: June 30 June 30 2005 2004 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Number of shares Options 4,890,136 5,537,659 Bonus shares - 230,393 Rights 84,500 93,000 ------------------------------------------------------------------------- ------------------------------------------------------------------------- NOTE 7. BANK FACILITY On March 3, 2005, the Corporation entered into a new five-year unsecured revolving credit facility of US$700 million. This new facility replaced the prior credit facility, which consisted of a US$500 million unsecured revolving credit facility and a US$70 million unsecured term loan that was scheduled to mature in July 2006. Borrowings under this new unsecured revolving credit facility bear interest at a rate based on the Canadian dollar bankers' acceptance or U.S. dollar LIBOR rate, each with an added spread that varies with Domtar's credit rating, or on the Canadian or U.S. prime rate. This new credit facility also requires commitment fees that vary with Domtar's credit rating. NOTE 8. INTEREST RATE RISK In the first quarter of 2004, the Corporation terminated, prior to maturity, interest rate swap contracts for net cash proceeds of $20 million (US$15 million). The resulting gain of $17 million recorded under "Other liabilities and deferred credits" is being amortized over the original designated hedging period of the underlying 5.375% notes due in November 2013. NOTE 9. ACCUMULATED FOREIGN CURRENCY TRANSLATION ADJUSTMENTS June 30 June 30 December 31 2005 2005 2004 ------------------------------------------------------------------------- ------------------------------------------------------------------------- --------- (Unaudited) -------- US$ $ $ (NOTE 3) Balance at beginning of period (155) (190) (145) Effect of changes in exchange rates during the period: On net investment in self-sustaining foreign subsidiaries 25 31 (141) On certain long-term debt denominated in foreign currencies designated as a hedge of net investment in self-sustaining foreign subsidiaries (26) (32) 117 Future income taxes thereon 6 7 (21) ------------------------------ Balance at end of period (150) (184) (190) ------------------------------------------------------------------------- ------------------------------------------------------------------------- NOTE 10. _________________ DEFINED BENEFIT PLANS AND OTHER EMPLOYEE FUTURE BENEFIT PLANS Three months ended Six months ended June 30 June 30 2005 2005 2004 2005 2005 2004 ------------------------------------------------------------------------- ------------------------------------------------------------------------- ---- (Unaudited) ---- ---- (Unaudited) --- US$ $ $ US$ $ $ (NOTE 3) (NOTE 3) Net periodic benefit cost for defined benefit plans 9 11 13 16 20 22 Net periodic benefit cost for other employee future benefit plans 2 3 3 5 6 6 ------------------------------------------------------------------------- ------------------------------------------------------------------------- NOTE 11. SEGMENTED DISCLOSURES Domtar operates in the four reportable segments described below. Each reportable segment offers different products and services and requires different technology and marketing strategies. The following summary briefly describes the operations included in each of Domtar's reportable segments: - PAPERS - represents the aggregation of the manufacturing and distribution of business, commercial printing and publication, and technical and specialty papers, as well as pulp. - PAPER MERCHANTS - involves the purchasing, warehousing, sale and distribution of various products made by Domtar and by other manufacturers. These products include business and printing papers, graphic arts supplies and certain industrial products. - WOOD - comprises the manufacturing and marketing of lumber and wood-based value-added products and the management of forest resources. - PACKAGING - comprises the Corporation's 50% ownership interest in Norampac, a company that manufactures and distributes containerboard and corrugated products. Domtar evaluates performance based on operating profit, which represents sales, reflecting transfer prices between segments at fair value, less allocable expenses before financing expenses and income taxes. Three months ended Six months ended June 30 June 30 SEGMENTED DATA 2005 2005 2004 2005 2005 2004 ------------------------------------------------------------------------- ------------------------------------------------------------------------- ---- (Unaudited) ---- ---- (Unaudited) ---- US$ $ $ US$ $ $ (NOTE 3) (NOTE 3) Sales Papers 626 768 836 1,252 1,534 1,624 Paper Merchants 212 260 268 423 519 531 Wood 164 201 191 315 386 334 Packaging 139 170 163 269 330 309 ------------------------ ---------------------- Total for reportable segments 1,141 1,399 1,458 2,259 2,769 2,798 Intersegment sales - Papers (59) (73) (75) (121) (148) (153) Intersegment sales - Wood (31) (38) (35) (59) (72) (70) Intersegment sales - Packaging (1) (1) (2) (2) (3) (4) ------------------------ ---------------------- Consolidated sales 1,050 1,287 1,346 2,077 2,546 2,571 ------------------------ ---------------------- ------------------------ ---------------------- Operating profit (loss) Papers 2 2 5 6 8 (33) Paper Merchants 3 4 5 7 9 11 Wood 9 11 6 14 17 (7) Packaging 9 11 8 20 24 19 ------------------------ ---------------------- Total for reportable segments 23 28 24 47 58 (10) Corporate 2 3 4 6 7 5 ------------------------ ---------------------- Consolidated operating profit (loss) 25 31 28 53 65 (5) ------------------------------------------------------------------------- ------------------------------------------------------------------------- NOTE 12. COMPARATIVE FIGURES To conform with the basis of presentation adopted in the current period, certain figures previously reported have been reclassified. ots Originaltext: Domtar Inc. Im Internet recherchierbar: http://www.presseportal.ch Contact: For further information: Christian Tardif, Manager, Corporate and Financial Communications, +1-(514)-848-5515, christian.tardif@domtar.com ; Source: Daniel Buron, Senior Vice-President and Chief Financial Officer, +1-(514)-848-5234, daniel.buron@domtar.com ; To request a free copy of this organization's annual report, please go to http://www.newswire.ca and click on reports@cnw

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