Domtar Inc.

Domtar Announces Second Quarter 2006 Financial Results

    Montreal, Canada (ots/PRNewswire) -

    TICKER SYMBOL: (TSX: DTC , NYSE: DTC)

    Domtar Inc. announced today a loss from continuing operations of $3  million ($0.01 per common share) in the second quarter of 2006 compared to a  loss from continuing operations of $22 million ($0.10 per common share) in  the first quarter of 2006 and earnings from continuing operations of $6  million ($0.02 per common share) in the second quarter of 2005.

@@start.t1@@      SUMMARY OF RESULTS
                                                                        Q2 2006        Q1 2006        Q2 2005
      -------------------------------------------------------------------------
      -------------------------------------------------------------------------
      (In millions of Canadian dollars,
        unless otherwise noted)
      Sales                                                            1,159          1,191          1,267
      Operating profit (loss) from
        continuing operations(1)                                 26                (6)              37
      Earnings (loss) from continuing
        operations                                                        (3)            (22)                6
      Net earnings (loss)                                          (9)            (24)                2
      Earnings (loss) from continuing
        operations per common share
        (in dollars)                                                (0.01)         (0.10)          0.02
      Net earnings (loss) per common share
        (in dollars)                                                (0.04)         (0.10)          0.01
      Excluding specified items(1)
         Operating profit (loss) from
          continuing operations                                  44              (15)              39
         Earnings (loss) from continuing
          operations                                                      3              (30)                7
      Earnings (loss) from continuing
        operations per common share
        (in dollars)                                                 0.01          (0.13)          0.03
      -------------------------------------------------------------------------
      -------------------------------------------------------------------------
      (1) Operating profit from continuing operations is a non-GAAP measure.
            For a discussion on specified items and the use of non-GAAP measures,
            see "Notes to the summary of results" in the appendix.@@end@@

    "Overall, our operations continued to benefit from price increases covering most of our products, as well as continued strength in all of our  different market segments except for lumber. While our costs continue to be  impacted by the strong Canadian dollar that reached its highest level since  the 1970s, today's improved results from the first quarter also illustrate  our employees' efforts and focus on executing the restructuring plan  announced in November 2005. The closure of our Vancouver mill in June was a  major step in a series of measures aimed at improving the Company's  profitability and cash flow generation."

    "With regard to the softwood lumber dispute, Domtar remains critical of  the proposed framework agreement, considering Canada's many key legal  victories. The settlement would deprive our shareholders of 20% of the  duties collected so far by the U.S. Goverment, with no guarantee of a long- standing trade peace," said Raymond Royer, Domtar's President and Chief  Executive Officer.

                                              OPERATIONAL REVIEW
                    SECOND QUARTER 2006 COMPARED TO FIRST QUARTER 2006
                                                    ----------

    In acordance with Canadian generally accepted accounting principles,  effective in the second quarter of 2006, the information pertaining to our  Vancouver paper mill will no longer be included in our Paper business but  presented as a discontinued operation and assets held for sale. Subsequent  to quarter-end, we reached an agreement to sell our Vancouver paper mill  property, subject to a number of closing conditions.

@@start.t2@@      PAPERS                                                        Q2 2006        Q1 2006      Variance
      -------------------------------------------------------------------------
      -------------------------------------------------------------------------
      (In millions of Canadian dollars)
      Operating profit (loss) from
        continuing operations                                      17              (18)              35
      Operating profit (loss) from
        continuing operations, excluding
        specified items                                                36              (22)              58
      -------------------------------------------------------------------------
      -------------------------------------------------------------------------@@end@@

    The $58 million increase in operating profit from continuing operations  excluding specified items in the Papers segment was mainly the result of  higher average selling prices for pulp and paper as well as the benefit  pursuant to the closures of the Cornwall and Ottawa paper mills which were  effective at the end of the first quarter. These factors were partially  offset by lower shipments for paper as well as the negative impact of a  stronger Canadian dollar.

@@start.t3@@      PAPER MERCHANTS                                         Q2 2006        Q1 2006      Variance
      -------------------------------------------------------------------------
      -------------------------------------------------------------------------
      (In millions of Canadian dollars)
      Operating profit from continuing
        operations                                                         3                 4                (1)
      Operating profit from continuing
        operations, excluding specified items              3                 4                (1)
      -------------------------------------------------------------------------
      -------------------------------------------------------------------------@@end@@

    The $1 million decrease in operating profit from continuing operations  excluding specified items in the Paper Merchants segment was primarily due  to lower margins offset by operating cost reductions.

@@start.t4@@      WOOD                                                          Q2 2006        Q1 2006      Variance
      -------------------------------------------------------------------------
      -------------------------------------------------------------------------
      (In millions of Canadian dollars)
      Operating loss from continuing
        operations                                                      (10)              (5)              (5)
      Operating loss from continuing
        operations, excluding specified items            (9)              (6)              (3)
      -------------------------------------------------------------------------
      -------------------------------------------------------------------------@@end@@

    The $3 million increase in operating loss from continuing operations  excluding specified items in the Wood segment was mainly attributable to  lower average selling prices and the negative impact of a stronger Canadian  dollar. These factors were partially mitigated by the Ontario government's  one-time retroactive reduction in Crown stumpage fees related to 2005 and  2006. The previously announced closures of the Malartic and Grand-Remous  sawmills became effective in the second quarter of 2006.

@@start.t5@@      PACKAGING                                                  Q2 2006        Q1 2006      Variance
      -------------------------------------------------------------------------
      -------------------------------------------------------------------------
      (In millions of Canadian dollars)
      Operating profit from continuing
        operations                                                        16                11                 5
      Operating profit from continuing
        operations, excluding specified items            14                 7                 7
      -------------------------------------------------------------------------
      -------------------------------------------------------------------------@@end@@

    The $7 million increase in operating profit from continuing operations  excluding specified items in the Packaging segment (our 50% share of  Norampac Inc.) was mainly attributable to higher average selling prices for  both containerboard and corrugated containers, higher shipments of  corrugated containers and lower costs for purchased recycled fiber and  energy, partially offset by the negative impact of a stronger Canadian  dollar and lower containerboard shipments.

@@start.t6@@                                            LIQUIDITY AND CAPITAL
                                                    ----------
      FREE CASH FLOW(1)                                      Q2 2006        Q1 2006        Q2 2005
      -------------------------------------------------------------------------
      -------------------------------------------------------------------------
      (In millions of Canadian dollars)
      Cash flows provided from operating
        activities of continuing operations
        before changes in working capital
        and other items                                                79                28                93
      Changes in working capital and
        other items                                                    (21)            (42)            (44)
      -------------------------------------------------------------------------
      Cash flows provided from (used for)
        operating activities of continuing
        operations                                                        58              (14)              49
      Net additions to property, plant
        and equipment                                                 (33)            (24)            (37)
      -------------------------------------------------------------------------
      Free cash flow                                                  25              (38)              12
      -------------------------------------------------------------------------
      -------------------------------------------------------------------------@@end@@

    Free cash flow amounted to $25 million in the second quarter of 2006  including $21 million of cash requirements for working capital.

    Domtar's net debt-to-total capitalization ratio(1) as at June 30, 2006  stood at 57.9% compared to 57.7% as at December 31, 2005. Domtar's net  indebtedness decreased by $53 million, largely due to the positive impact  of a stronger Canadian dollar (based on month-end exchange rates) on our U. S. dollar denominated debt.

@@start.t7@@      (1) For a discussion on the use of non-GAAP measures, see "Notes to the
            summary of results" in the appendix.
                                                        OUTLOOK
                                                    ----------@@end@@

    The Papers segment continues to enjoy improved market conditions in our  core uncoated freesheet markets. While we remain concerned by the  potentially negative consequences of the softwood lumber negotiations, we  expect a favorable pulp, paper, and containerboard market environment for  the remainder of 2006, and we are determined to achieve the full potential  of our restructuring plan.

                                        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. Unless specifically  required by law, 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 2006 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 2006 financial results. It will take place at 4:00 p.m.  (EDT) on the Domtar corporate website at: www.domtar.com.

@@start.t8@@      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 17
      MILLION ACRES OF FORESTLAND IN CANADA AND THE UNITED STATES, AND PRODUCES
      LUMBER AND OTHER WOOD PRODUCTS. DOMTAR HAS APPROXIMATELY 9,000 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 1.
                                                        -------
                                                 SPECIFIED ITEMS
                                                 ---------------@@end@@

    In Domtar's view, specified items are items that do not typify normal  operating activities. The following table reconciles operating profit (loss ) from continuing operations, earnings (loss) from continuing operations,  earnings (loss) from continuing operations per share, determined in  accordance with GAAP(x), to operating profit (loss) from continuing  operations, earnings (loss) from continuing operations, earnings (loss)  from continuing operations per share, excluding specified items.

@@start.t9@@                                                              Q2 2006                                    Q2 2006
      -------------------------------------------------------------------------
      -------------------------------------------------------------------------
      (In millions of Canadian dollars, unless otherwise noted)
                                                              Earnings
                                                                 (loss)                                        Loss
                                                                  from        Opera-                        from
                          Operating  Earnings        conti-        ting                        conti-
                                profit        (loss)      nuing         loss         Loss        nuing
                                  from         from        opera-        from         from        opera-
                                 conti-      conti-      tions        conti-      conti-      tions
                                 nuing        nuing per share        nuing        nuing per share
                                 opera-      opera-  (in dol-      opera-    operat-  (in dol-
                                 tions        tions         lars)      tions         ions         lars)
      As per GAAP(x)         26            (3)      (0.01)          (6)         (22)      (0.10)
      Specified items:
         Gains on sales
          of property,
          plant and
          equipment (a)        -              -                              -              -
         Closure and
          restructuring
          costs (b)            19            13                              3              2
         Legal
          settle-
          ments (c)              -              -                            (7)          (7)
         Unrealized
            mark-to-market
            (gains)
            losses (d)         (1)          (1)                          (5)          (3)
         Income tax
          legislation
            modification (e) -            (4)                            -              -
         Foreign exchange
          (gains) losses
          on long-
          term debt (f)        -            (2)                            -              -
         Insurance
          recoveries (g)      -              -                              -              -
                                    --------------------------  --------------------------
                                      18              6         0.02            (9)          (8)      (0.03)
      Excluding                --------------------------  --------------------------
        specified
        items                      44              3         0.01          (15)         (30)      (0.13)
      -------------------------------------------------------------------------
      -------------------------------------------------------------------------
                                                                                                              Q2 2005
      -------------------------------------------------------------------------
      -------------------------------------------------------------------------
                                                                                            Earnings
                                                                                                  from
                                                                                Operat-      conti-
                                                                                    ing        nuing
                                                                                  from         from        opera-
                                                                                 conti-      conti-      tions
                                                                                 nuing        nuing per share
                                                                                 opera-      opera-  (in dol-
                                                                                 tions        tions         lars)
        As per GAAP(x)                                                        37              6         0.02
        Specified items:
        Gains on sales
         of property, plant
         and equipment (a)                                                 (4)          (3)
        Closure and
         restructuring
         costs (b)                                                              10              6
        Legal
         settlements (c)                                                      -              1
        Unrealized
          mark-to-market
          (gains)
          losses (d)                                                          (1)          (1)
        Income tax
         legislation
          modification (e)                                                  -              -
        Foreign exchange
         (gains)losses
         on long-
         term debt (f)                                                         -              -
        Insurance
         recoveries (g)                                                      (3)          (2)
      -------------------------------------------------------------------------
                                                                                        2              1         0.01
      -------------------------------------------------------------------------
        Excluding
         specified items                                                    39              7         0.03
      -------------------------------------------------------------------------
      -------------------------------------------------------------------------
      (x) Except for operating profit (loss) from continuing operations 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) Legal settlements
          Domtar's results include charges or revenues related to legal
          settlements. These charges or revenues are presented under "Selling,
          general and administrative" expenses in the financial statements.
      d) 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.
      e) Income tax legislation modification
          Domtar's results include charges related to modifications to the
          income tax legislation. These charges are presented under "Income tax
          recovery" in the financial statements.
      f) 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.
      g) 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@@end@@

    Except where otherwise indicated, all financial information reflected  herein is determined on the basis of Canadian GAAP.

    Operating profit (loss) from continuing operations is a non-GAAP measure that is calculated within Domtar's financial statements. Domtar  focuses on operating profit (loss) from continuing operations as this  measure enables it to compare its results between periods without regard to  debt service or income taxes.

    Operating profit (loss) from continuing operations excluding specified  items, earnings (loss) from continuing operations excluding specified items , earnings (loss) from continuing operations 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 continuing 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.

@@start.t10@@                                          Consolidated Financial
                                                    Statements
      CONSOLIDATED      Three months ended June 30         Six months ended June 30
      EARNINGS                2006         2006         2005         2006         2006         2005
      -------------------------------------------------------------------------
      -------------------------------------------------------------------------
      (In millions of
        Canadian dollars,
        unless
        otherwise noted) -------(Unaudited)------         -------(Unaudited)-------
                                    US$              $              $          US$              $              $
                              (NOTE 2)                                  (NOTE 2)
      Sales                  1,039        1,159        1,267        2,108        2,350        2,503
      Operating
        expenses
         Cost of
          sales                 879          980        1,068        1,824        2,034        2,115
         Selling,
          general and
          adminis-
          trative                50            56            60          104          116          117
         Amorti-
          zation                 70            78            92          142          158          180
         Closure and
          restructuring
          costs (NOTE 3)    17            19            10            20            22            16
                                 --------------------------      --------------------------
                                 1,016        1,133        1,230        2,090        2,330        2,428
                                 --------------------------      --------------------------
      Operating profit
        from continuing
        operations              23            26            37            18            20            75
      Financing
        expenses                 37            41            39            72            80            73
      Amortization of
        deferred gain         (2)          (2)          (1)          (3)          (3)          (2)
                                 --------------------------      --------------------------
      Earnings (loss)
        from continuing
        operations before
        income taxes         (12)          (13)         (1)         (51)         (57)            4
      Income tax
        recovery                 (9)          (10)         (7)         (29)         (32)         (15)
                                 --------------------------      --------------------------
      Earnings (loss)
      from continuing
        operations              (3)            (3)          6          (22)         (25)          19
      Loss from
        discontinued
        operations
        (NOTE 4)                 (5)            (6)         (4)          (7)          (8)          (7)
                                 --------------------------      --------------------------
      Net earnings
        (loss)                    (8)            (9)          2          (29)         (33)          12
                                 --------------------------      --------------------------
                                 --------------------------      --------------------------
      Per common share
        (in dollars)
        (NOTE 5)
         Earnings
          (loss) from
          continuing
          operations
            Basic            (0.01)      (0.01)        0.02        (0.10)      (0.11)        0.08
            Diluted         (0.01)      (0.01)        0.02        (0.10)      (0.11)        0.08
         Net earnings
        (loss)
            Basic            (0.04)      (0.04)        0.01        (0.13)      (0.15)        0.05
            Diluted         (0.04)      (0.04)        0.01        (0.13)      (0.15)        0.05
      Weighted
        average number
        of common
        shares
        outstanding
        (millions)
            Basic            230.4        230.4        229.6        230.3        230.3        229.5
            Diluted         230.4        230.4        230.7        230.3        230.3        230.6
      -------------------------------------------------------------------------
      -------------------------------------------------------------------------
      CONSOLIDATED
      RETAINED            Three months ended June 30         Six months ended June 30
      EARNINGS                2006         2006         2005         2006         2006         2005
      -------------------------------------------------------------------------
      -------------------------------------------------------------------------
      (In millions of
        Canadian dollars,
        unless
        otherwise noted) -------(Unaudited)------         -------(Unaudited)-------
                                    US$              $              $          US$              $              $
                              (NOTE 2)                                  (NOTE 2)
      Retained
        earnings
        (deficit) at
        beginning
        of period              (39)         (43)         408          (18)         (19)         412
      Net earnings
        (loss)                    (8)          (9)            2          (29)         (33)          12
      Dividends on
        common shares          -              -          (14)            -              -          (28)
      Dividends on
        preferred
        shares                    (1)          (1)          (1)          (1)          (1)          (1)
                                 --------------------------      --------------------------
      Retained earnings
        (deficit) at end
        of period              (48)         (53)          395         (48)         (53)         395
      -------------------------------------------------------------------------
      -------------------------------------------------------------------------
      The accompanying notes are an integral part of the consildated financial
      statements.
      CONSOLIDATED BALANCE SHEETS  As at                      June         June  December
                                                                                      30            30            31
                                                                                  2006         2006         2005
      -------------------------------------------------------------------------
      -------------------------------------------------------------------------
      (In millions of Canadian dollars,
        unless otherwise noted)                         -------------(Unaudited)--------
                                                                                    US$              $              $
                                                                              (NOTE 2)
      Assets
      Current assets
         Cash and cash equivalents                                    84            94            83
         Receivables                                                         253          282          294
         Inventories                                                         561          626          715
         Prepaid expenses                                                  20            22            11
         Income and other taxes receivable                        14            15            16
         Future income taxes                                              31            35            38
                                                                      ---------------------------------
                                                                                    963        1,074        1,157
      Property, plant and equipment                            3,073        3,426        3,634
      Assets held for sale (NOTE 4)                                 21            24              -
      Goodwill                                                                  82            91            92
      Other assets                                                          276          308          309
                                                                      ---------------------------------
                                                                                 4,415        4,923        5,192
                                                                      ---------------------------------
                                                                      ---------------------------------
      Liabilities and shareholders' equity
      Current liabilities
         Bank indebtedness                                                 55            62            21
         Trade and other payables                                    481          536          651
         Income and other taxes payable                            29            32            29
         Long-term debt due within one year                        2              2              2
                                                                      ---------------------------------
                                                                                    567          632          703
      Long-term debt                                                    1,950        2,174        2,257
      Future income taxes                                                221          247          292
      Other liabilities and deferred credits                 282          314          331
      Shareholders' equity
         Preferred shares                                                  30            34            36
         Common shares                                                  1,602        1,786        1,783
         Contributed surplus                                              13            14            14
         Deficit                                                                (48)         (53)         (19)
         Accumulated foreign currency translation
          adjustments (NOTE 7)                                        (202)        (225)        (205)
                                                                      ---------------------------------
                                                                                 1,395        1,556        1,609
                                                                      ---------------------------------
                                                                                 4,415        4,923        5,192
      -------------------------------------------------------------------------
      -------------------------------------------------------------------------
      The accompanying notes are an integral part of the consolidated financial
      statements.
      CONSOLIDATED CASH FLOWS
                                Three months ended June 30         Six months ended June 30
                                  2006         2006         2005         2006         2006         2005
      -------------------------------------------------------------------------
      -------------------------------------------------------------------------
      (In millions of
        Canadian dollars,
        unless otherwise
        noted)                ------(Unaudited)--------          -----(Unaudited)-------
                                    US$              $              $          US$              $              $
                              (NOTE 2)                                  (NOTE 2)
      Operating
        activities
      Earnings (loss)
        from continuing
        operations              (3)          (3)            6          (22)         (25)          19
      Non-cash items:
         Amortization and
          write-down of
          property, plant
          and equipment      70            78            94          142          158          182
         Future income
          taxes                 (10)         (12)         (11)         (34)         (38)         (23)
         Amortization of
          deferred gain      (2)          (2)          (1)          (3)          (3)          (2)
         Closure and
          restructuring
          costs, excluding
          write-down of
          property, plant
          and equipment
          (NOTE 3)              17            19              8            20            22            14
         Other                    (1)          (1)          (3)          (7)          (7)          (7)
                                 -------------------------          -----------------------
                                      71            79            93            96          107          183
                                 -------------------------          -----------------------
      Changes in working
        capital and other
        items
         Receivables          (2)          (2)          12            (4)          (4)         (29)
         Inventories          42            47              9            56            62          (58)
         Prepaid expenses    3              3            (1)          (7)          (8)          (9)
         Trade and other
          payables            (23)         (26)         (44)         (51)         (57)         (17)
         Income and other
          taxes                  (1)          (1)            -              4              4            (1)
         Other                      -              -            (7)          (5)          (5)         (17)
      Payments of closure
        and restructuring
        costs                    (38)         (42)         (13)         (49)         (55)         (27)
                                 -------------------------          -----------------------
                                    (19)         (21)         (44)         (56)         (63)        (158)
                                 -------------------------          -----------------------
      Cash flows provided
        from operating
        activities of
        continuing
        operations              52            58            49            40            44            25
                                 -------------------------          -----------------------
      Cash flows used
        for operating
        activities of
        discontinued
        operations
        (NOTE 4)                 (6)          (7)         (11)          (7)          (8)         (21)
                                 -------------------------          -----------------------
         Cash flows
          provided from
          operating
          activities          46            51            38            33            36              4
                                 -------------------------          -----------------------
      Investing activities
      Additions to
        property, plant
        and equipment        (31)         (34)         (46)         (53)         (59)         (79)
      Proceeds from
        disposals of
        property, plant
        and equipment          1              1              9              2              2            14
      Other                         -              -              1            (3)          (3)          (3)
                                 -------------------------          -----------------------
      Cash flows used
        for investing
        activities of
        continuing
        operations            (30)         (33)         (36)         (54)         (60)         (68)
                                 -------------------------          -----------------------
      Cash flows used
        for investing
        activities of
        discontinued
        operations
        (NOTE 4)                  -              -            (1)            -              -            (1)
                                 -------------------------          -----------------------
         Cash flows used
          for investing
          activities         (30)         (33)         (37)         (54)         (60)         (69)
                                 -------------------------          -----------------------
      Financing activities
      Dividend payments    (1)          (1)         (14)          (1)          (1)         (28)
      Change in bank
        indebtedness          25            28            17            36            40              8
      Change in revolving
        bank credit, net
        of expenses          (41)         (46)          21            (1)          (1)         190
      Repayment of long-
        term debt                (1)          (1)          (1)          (1)          (1)         (90)
      Common shares
        issued, net of
        expenses                  1              1              1              2              2              4
      Redemptions of
        preferred shares      -              -            (1)          (1)          (1)          (2)
                                 -------------------------          -----------------------
         Cash flows provided
          from (used for)
          financing
          activities
          of continuing
          operations         (17)         (19)          23            34            38            82
                                 -------------------------          -----------------------
      Cash flows
        provided from
        financing
        activities of
        discontinued
        operations
        (NOTE 4)                  -              -              -              -              -              -
                                 -------------------------          -----------------------
         Cash flows
          provided
          from (used for)
          financing
          activities         (17)         (19)          23            34            38            82
                                 -------------------------          -----------------------
      Net increase
        (decrease) in
        cash and cash
        equivalents            (1)          (1)          24            13            14            17
      Translation
        adjustments
        related to
        cash and cash
        equivalents            (3)          (3)            -            (3)          (3)            1
      Cash and cash
        equivalents at
        beginning of
        period                    88            98            46            74            83            52
                                 -------------------------          -----------------------
      Cash and cash
        equivalents at
        end of period         84            94            70            84            94            70
      -------------------------------------------------------------------------
      -------------------------------------------------------------------------
      Cash and cash
        equivalents at
        end of period,
        related to:
         Continuing
          operations          84            94            70            84            94            70
         Discontinued
          operations            -              -              -              -              -              -
      -------------------------------------------------------------------------
      Cash and cash
        equivalents at
        end of period         84            94            70            84            94            70
                                 -------------------------          -----------------------
      -------------------------------------------------------------------------
      The accompanying notes are an integral part of the consolidated financial
      statements.
                          NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  SECOND QUARTER 2006 (IN MILLIONS OF CANADIAN DOLLARS,
                                          UNLESS OTHERWISE NOTED)
                                                        NOTE I.
                                            ---------------------
                                            BASIS OF PRESENTATION@@end@@

    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,  2006 and December 31, 2005, as well as its results of operations and its  cash flows for the three months and six months ended June 30, 2006 and 2005.

    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.

                                                        NOTE 2.
                                            ---------------------
                                        UNITED STATES DOLLAR AMOUNTS

    The unaudited interim consolidated financial statements are expressed  in Canadian dollars and, solely for the convenience of the reader, the 2006  unaudited interim consolidated financial statements and the tables of  certain related notes have been translated into U.S. dollars at the June  2006 month- end rate of CAN$1.00 = US$0.8969. 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 3.
                                            ---------------------
                                    CLOSURE AND RESTRUCTURING COSTS

    In 2005, Domtar's management announced a series of targeted measures  aimed at returning the Corporation to profitability. The plan included  closures of the Cornwall and Ottawa, Ontario paper mills, the Grand-Remous  and Malartic, Quebec sawmills, the sale of the Vancouver, British Columbia  paper mill and cost-cutting initiatives. This workforce reduction and restructuring plan is in addition to the plans announced in 2004, which covered the Corporation's paper and merchant operations in Canada and the United States . As at June 30, 2006, the balance of the provision was $50 million, which  includes $42 million related to the Papers segment and $8 million related  to the Wood segment. For the three months and six months ended June 30,  2006, the Papers segment incurred severance payments of $29 million and $39  million, respectively, a reversal of the provision of nil and $1 million,  respectively, labor costs of $1 million and $3 million, respectively, and $ 3 million of other additions during the second quarter of 2006 were  incurred, included in the table below. In addition, for the three months  and six months ended June 30, 2006, the Papers segment incurred write-downs  of $1 million of certain inventory items and spare parts to their net  recoverable amounts, asset retirement obligations of $1 million and other  closure related costs of $12 million and $13 million, respectively, and the  Wood segment incurred other closure related costs of $1 million during the  second quarter of 2006.

    In 2005, Norampac's management decided to permanently shut down one  paper machine at its Red Rock, Ontario containerboard plant and also  decided to close three corrugated products plants located in Concord,  Ontario, Montreal, Quebec and Buffalo, New York. As at June 30, 2006, the  balance of the provision was nil, representing the Corporation's  proportionate share. For the three months and six months ended June 30,  2006, severance payments of nil and $2 million, respectively, and labor  costs of nil and $1 million, respectively, were incurred, included in the  table below.

    The following table provides a reconciliation of all closure and restructuring cost provisions:

@@start.t11@@                                                                                  June         June  December
                                                                                      30            30            31
                                                                                  2006         2006         2005
      -------------------------------------------------------------------------
      -------------------------------------------------------------------------
                                                                                --------(Unaudited)--------
                                                                                    US$              $              $
                                                                            (NOTE 2)
      Balance at beginning of period                              76              85            37
      Severance payments                                                (37)          (41)         (32)
      Reversal of provision                                            (1)            (1)          (1)
      Additions
         Labor costs                                                          4                4            71
         Environmental costs                                              -                -            10
         Other                                                                    3                3              -
                                                                                ---------------------------
      Balance at end of period                                        45              50            85
      -------------------------------------------------------------------------
      -------------------------------------------------------------------------
                                                        NOTE 4.
                                            ---------------------
                                          DISCONTINUED OPERATIONS@@end@@

    In November 2005, as part of its restructuring program, Domtar announced its intention to sell the Vancouver, British Columbia paper mill.  Effective in the second quarter of 2006, the Vancouver paper mill was not  sold and has been permanently closed. Considering the fact that its major  product line will not continue to be sold, the Vancouver paper mill will no  longer be included in the Papers segment but classified as a discontinued  operation in the consolidated earnings and in the consolidated cash flows  and the property, plant and equipment as held for sale in the consolidated balance sheets. The consolidated earnings and cash flows for the three  months and six months ended June 30, 2005 have been restated for purposes  of comparability with the basis of presentation adopted in the current  period. Domtar expects to complete a sale transaction within the next year.

    The loss from discontinued operations of the Vancouver paper mill is  summarized as follows:

@@start.t12@@                                Three months ended June 30         Six months ended June 30
                                  2006         2006         2005         2006         2006         2005
      -------------------------------------------------------------------------
      -------------------------------------------------------------------------
                                 -------(Unaudited)-------        -------(Unaudited)-------
                                    US$              $              $          US$              $              $
                              (NOTE 2)                                  (NOTE 2)
      Sales                        14            16            20            32            36            43
                                 -------------------------        -------------------------
      Loss from
        discontinued
        operations
        before
        income taxes          (8)          (9)          (6)         (11)         (12)         (10)
      Income tax
        recovery                 (3)          (3)          (2)          (4)          (4)          (3)
                                 -------------------------        -------------------------
      Loss from
        discontinued
        operations              (5)          (6)          (4)          (7)          (8)          (7)
      Basic loss from
        discontinued
        operations
        per share
        (in dollars)      (0.03)      (0.03)      (0.01)      (0.03)      (0.04)      (0.03)
      Diluted loss
        from
        discontinued
        operations
        per share
        (in dollars)      (0.03)      (0.03)      (0.01)      (0.03)      (0.04)      (0.03)
      -------------------------------------------------------------------------
      -------------------------------------------------------------------------
                                                        NOTE 5.
                                            ---------------------
                                         EARNINGS (LOSS) PER SHARE
      The following table provides the reconciliation between basic and
      diluted earnings (loss) per share:
                                Three months ended June 30         Six months ended June 30
                                  2006         2006         2005         2006         2006         2005
      -------------------------------------------------------------------------
      -------------------------------------------------------------------------
                                 -------(Unaudited)-------        -------(Unaudited)-------
                                    US$              $              $          US$              $              $
                              (NOTE 2)                                  (NOTE 2)
      Earnings (loss)
        from continuing
        operations              (3)          (3)            6          (22)         (25)          19
      Dividend
        requirements of
        preferred shares      1              1              1              1              1              1
                                 -------------------------        -------------------------
      Earnings (loss)
        from continuing
        operations
        applicable to
        common shares         (4)          (4)            5          (23)         (26)          18
      Net earnings
        (loss)                    (8)          (9)            2          (29)         (33)          12
      Dividend
        requirements of
        preferred shares      1              1              1              1              1              1
                                 -------------------------        -------------------------
      Net earnings (loss)
        applicable to
        common shares         (9)         (10)            1          (30)         (34)          11
      Weighted average
        number of
        common shares
        outstanding
        (millions)         230.4        230.4        229.6        230.3        230.3        229.5
      Effect of
        dilutive stock
        options
        (millions)                -              -          1.1              -              -          1.1
                                 -------------------------        -------------------------
      Weighted average
        number of
        diluted common
        shares
        outstanding
        (millions)         230.4        230.4        230.7        230.3        230.3        230.6
                                 -------------------------        -------------------------
      Basic
        earnings (loss)
        from
        continuing
        operations
        per share
        (in dollars)      (0.01)      (0.01)        0.02        (0.10)      (0.11)        0.08
      Diluted earnings
        (loss) from
        continuing
        operations
        per share
        (in dollars)      (0.01)      (0.01)        0.02        (0.10)      (0.11)        0.08
      Basic net
        earnings
        (loss) per
        share
        (in dollars)      (0.04)      (0.04)        0.01        (0.13)      (0.15)        0.05
      Diluted net
        earnings
        (loss) per
        share
        (in dollars)      (0.04)      (0.04)        0.01        (0.13)      (0.15)        0.05
      -------------------------------------------------------------------------
      -------------------------------------------------------------------------@@end@@

    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:

@@start.t13@@                                                                                    June 30              June 30
                                                                                         2006                  2005
      -------------------------------------------------------------------------
      -------------------------------------------------------------------------
      Number of shares
      Options                                                                4,872,495          4,890,136
      Bonus shares                                                            67,875                        -
      Rights                                                                      84,500                84,500
      -------------------------------------------------------------------------
      -------------------------------------------------------------------------
                                                        NOTE 6.
                                            ---------------------
                                                    RECEIVABLES@@end@@

    As at February 22, 2006, Domtar finalized a new three-year securitization agreement, which includes both U.S. and Canadian receivables . The maximum cash consideration that can be received from the sale of  receivables under this new combined agreement is $222 million (US$190  million). As at June 30, 2006, the senior beneficial interest held by third  parties amounted to $193 million (US$173 million) under this new  securitization program compared to $163 million (US$140 million) as at  December 31, 2005 under the old U.S. and Canadian accounts receivable programs.

@@start.t14@@                                                        NOTE 7.
                                            ---------------------
                                        ACCUMULATED FOREIGN CURRENCY
                                          TRANSLATION ADJUSTMENTS
                                                                                  June         June  December
                                                                                      30            30            31
                                                                                  2006         2006         2005
      -------------------------------------------------------------------------
      -------------------------------------------------------------------------
                                                                                  -------(Unaudited)-------
                                                                                    US$              $              $
                                                                              (NOTE 2)
      Balance at beginning of period                            (184)        (205)        (190)
      Effect of changes in exchange rates during
        the period:
         On net investment in self-sustaining foreign
          subsidiaries                                                      (76)         (85)         (69)
         On certain long-term debt denominated
          in foreign currencies designated as
          a hedge of net investment in
          self-sustaining foreign subsidiaries                 71            79            65
         Future income taxes thereon                                (13)         (14)         (11)
                                                                                  -------------------------
      Balance at end of period                                      (202)        (225)        (205)
      -------------------------------------------------------------------------
      -------------------------------------------------------------------------
                                                        NOTE 8.
                                            ---------------------
                                            FINANCIAL INSTRUMENTS
      FOREIGN CURRENCY RISK@@end@@

    In order to reduce the potential negative effects of a fluctuating Canadian dollar, Domtar has entered into various arrangements to stabilize  anticipated future net cash inflows denominated in U.S. dollars. The  following table provides the detail of the arrangements used as hedging  instruments:

@@start.t15@@                                                                  June  December         June  December
                                                                      30            31            30            31
                                                                  2006         2005         2006         2005
      -------------------------------------------------------------------------
      -------------------------------------------------------------------------
                                                                 ------------(Unaudited)-------------
                                                      Average exchange rate  Contractual amounts
                                                                         (CAN$/US$)        (In millions of
                                                                                                      U.S. dollars)
      Forward foreign exchange contracts
         0 to 12 months                                  1.20         1.24          300          295
         13 to 24 months                                 1.13              -              3              -
      Currency options purchased
         0 to 12 months                                  1.15              -          120              -
         13 to 24 months                                 1.15              -            20              -
      Currency options sold
         0 to 12 months                                  1.22              -            20              -
         13 to 24 months                                 1.22              -            20              -
      -------------------------------------------------------------------------
      -------------------------------------------------------------------------@@end@@

    Forward foreign exchange contracts are contracts whereby Domtar has the  obligation to sell U.S. dollars at a specific rate.

    Currency options purchased are contracts whereby Domtar has the right,  but not the obligation, to sell U.S. dollars at the strike rate if the U.S.  dollar trades below that rate. Currency options sold are contracts whereby  Domtar has the obligation to sell U.S. dollars at the strike rate if the U. S. dollar trades above that rate.

@@start.t16@@                                                        NOTE 9.
                                            ---------------------
                                         DEFINED BENEFIT PLANS AND
                                 OTHER EMPLOYEE FUTURE BENEFIT PLANS
                                Three months ended June 30         Six months ended June 30
                                  2006         2006         2005         2006         2006         2005
      -------------------------------------------------------------------------
      -------------------------------------------------------------------------
                          ---------(Unaudited)---------  ---------(Unaudited)--------
                                    US$              $              $          US$              $              $
                              (NOTE 2)                                  (NOTE 2)
      Net periodic
        benefit cost
        for defined
        benefit plans         13            14            11            26            29            20
      Net periodic
        benefit cost for
        other employee
        future benefit
        plans                        3              3              3              4              5              6
      -------------------------------------------------------------------------
      -------------------------------------------------------------------------
                                                        NOTE 10.
                                            ---------------------
                                            SEGMENTED DISCLOSURES@@end@@

    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:

@@start.t17@@      -  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.@@end@@

    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.

@@start.t18@@      SEGMENTED DATA OF CONTINUING OPERATIONS
                                Three months ended June 30         Six months ended June 30
                                  2006         2006         2005         2006         2006         2005
                          ---------(Unaudited)---------  ---------(Unaudited)--------
                                    US$              $              $          US$              $              $
                              (NOTE 2)                                 (NOTE 2)
      Sales
         Papers                 621          693          743        1,260        1,405        1,482
         Paper Merchants  230          256          260          478          533          519
         Wood                    117          130          201          249          278          386
         Packaging            145          162          170          283          315          330
                          -----------------------------  ----------------------------
      Total for
        reportable
        segments            1,113        1,241        1,374        2,270        2,531        2,717
         Intersegment
          sales - Papers  (61)         (68)         (68)        (135)        (151)        (139)
         Intersegment
          sales - Wood      (12)         (13)         (38)         (25)         (28)         (72)
         Intersegment
          sales -
          Packaging            (1)          (1)          (1)          (2)          (2)          (3)
                          -----------------------------  ----------------------------
      Consolidated
        sales                 1,039        1,159        1,267        2,108        2,350        2,503
                          -----------------------------  ----------------------------
                          -----------------------------  ----------------------------
      Amortization and
        write-down of
        property, plant
        and equipment
         Papers                  51            57            69          104          116          136
         Paper Merchants      -              -              1              1              1              2
         Wood                        8              9            11            15            17            22
         Packaging                8              9            11            15            17            19
                          -----------------------------  ----------------------------
      Total for
        reportable
        segments                 67            75            92          135          151          179
         Corporate                3              3              2              7              7              3
                          -----------------------------  ----------------------------
      Consolidated
        amortization
        and write-down
        of property,
        plant and
        equipment                70            78            94          142          158          182
                          -----------------------------  ----------------------------
                          -----------------------------  ----------------------------
      Operating profit
        (loss) from
        continuing
        operations
         Papers                  15            17              8            (1)          (1)          18
         Paper Merchants      3              3              4              6              7              9
         Wood                      (9)         (10)          11          (13)         (15)          17
         Packaging              14            16            11            24            27            24
                          -----------------------------  ----------------------------
      Total for
        reportable
        segments                 23            26            34            16            18            68
         Corporate                -              -              3              2              2              7
                          -----------------------------  ----------------------------
      Consolidated
        operating
        profit from
        continuing
        operations              23            26            37            18            20            75
      -------------------------------------------------------------------------
      -------------------------------------------------------------------------
                                                        NOTE 11.
                                            ---------------------
                                              COMPARATIVE FIGURES@@end@@

    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, Senior Manager, Corporate
and Financial Communications, +1-(514)-848-5515,
christian.tardif@domtar.com; INVESTOR RELATIONS: Pascal Bossé
Manager, Investor Relations, +1-(514)-848-5938,
pascal.bosse@domtar.com; SOURCE: Daniel Buron, Senior Vice-President
and Chief Financial Officer, +1-(514)-848-5234,
daniel.buron@domtar.com



Das könnte Sie auch interessieren: