TICKER SYMBOL: DTC (TSX, NYSE) MONTREAL, Aug. 1
/PRNewswire-FirstCall/ -- 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.
SUMMARY OF RESULTS Q2 2006 Q1 2006 Q2 2005
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(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
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(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. "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. PAPERS Q2 2006 Q1 2006 Variance
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(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
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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. PAPER MERCHANTS Q2 2006 Q1 2006 Variance
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(In millions of Canadian dollars) Operating profit from continuing
operations 3 4 (1) Operating profit from continuing operations,
excluding specified items 3 4 (1)
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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. WOOD Q2 2006 Q1 2006 Variance
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(In millions of Canadian dollars) Operating loss from continuing
operations (10) (5) (5) Operating loss from continuing operations,
excluding specified items (9) (6) (3)
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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. PACKAGING
Q2 2006 Q1 2006 Variance
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(In millions of Canadian dollars) Operating profit from continuing
operations 16 11 5 Operating profit from continuing operations,
excluding specified items 14 7 7
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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. LIQUIDITY AND CAPITAL ---------- FREE
CASH FLOW(1) Q2 2006 Q1 2006 Q2 2005
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(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)
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Cash flows provided from (used for) operating activities of
continuing operations 58 (14) 49 Net additions to property, plant
and equipment (33) (24) (37)
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Free cash flow 25 (38) 12
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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. (1)
For a discussion on the use of non-GAAP measures, see "Notes to the
summary of results" in the appendix. OUTLOOK ---------- 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: http://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 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
--------------- 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*, to operating profit (loss) from continuing operations,
earnings (loss) from continuing operations, earnings (loss) from
continuing operations per share, excluding specified items. Q2 2006
Q2 2006
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(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* 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)
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Q2 2005
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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* 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)
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2 1 0.01
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Excluding specified items 39 7 0.03
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* 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
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. Consolidated Financial Statements
CONSOLIDATED Three months ended June 30 Six months ended June 30
EARNINGS 2006 2006 2005 2006 2006 2005
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(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
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CONSOLIDATED RETAINED Three months ended June 30 Six months ended
June 30 EARNINGS 2006 2006 2005 2006 2006 2005
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(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
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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
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(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
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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
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(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
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Cash and cash equivalents at end of period, related to: Continuing
operations 84 94 70 84 94 70 Discontinued operations - - - - - -
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Cash and cash equivalents at end of period 84 94 70 84 94 70
------------------------- -----------------------
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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 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 $1 million, respectively, were incurred, included
in the table below. The following table provides a reconciliation
of all closure and restructuring cost provisions: June June
December 30 30 31 2006 2006 2005
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--------(Unaudited)-------- US$ $ $ (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
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NOTE 4. --------------------- DISCONTINUED OPERATIONS 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:
Three months ended June 30 Six months ended June 30 2006 2006 2005
2006 2006 2005
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-------(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)
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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
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-------(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
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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 2006 2005
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Number of shares Options 4,872,495 4,890,136 Bonus shares 67,875 -
Rights 84,500 84,500
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NOTE 6. --------------------- RECEIVABLES 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$140 million) as
at December 31, 2005 under the old U.S. and Canadian accounts
receivable programs. NOTE 7. --------------------- ACCUMULATED
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS June June December 30 30
31 2006 2006 2005
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-------(Unaudited)------- US$ $ $ (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)
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NOTE 8. --------------------- FINANCIAL INSTRUMENTS FOREIGN
CURRENCY RISK 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: June
December June December 30 31 30 31 2006 2005 2006 2005
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------------(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 -
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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. 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
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---------(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
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NOTE 10. --------------------- 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. 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
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NOTE 11. --------------------- COMPARATIVE FIGURES To conform with
the basis of presentation adopted in the current period, certain
figures previously reported have been reclassified. DATASOURCE:
DOMTAR INC. CONTACT: Christian Tardif, Senior Manager, Corporate
and Financial Communications, (514) 848-5515, ; INVESTOR RELATIONS:
Pascal Bosse Manager, Investor Relations, (514) 848-5938, ; SOURCE:
Daniel Buron, Senior Vice-President and Chief Financial Officer,
(514) 848-5234,
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