Montreal - Outstanding third quarter financial performance (All financial information is in U.S. dollars, and all earnings per share results are diluted, unless otherwise noted.)

Domtar Corporation today reported net earnings of $191 million ($4.44 per share) for the third quarter of 2010 compared to net earnings of $31 million ($0.71 per share) for the second quarter of 2010 and net earnings of $183 million ($4.24 per share) for the third quarter of 2009. Sales for the third quarter of 2010 amounted to $1.5 billion. Excluding items listed below, the Company had earnings before items1 of $183 million ($4.26 per share) for the third quarter of 2010 compared to earnings before items1 of $116 million ($2.67 per share) for the second quarter of 2010 and earnings before items1 of $57 million ($1.32 per share) for the third quarter of 2009.

Third quarter 2010 items:
- Charge of $14 million ($9 million after tax) related to the impairment and write-down of property, plant and equipment;
- Closure and restructuring costs of $1 million ($1 million after tax); and
- Gain on sale of property, plant and equipment, and business of $14 million ($18 million after tax).

Second quarter 2010 items:
- Loss on sale of the Wood business of $50 million ($50 million after tax);
- Costs for debt repurchase, including premium paid, of $40 million ($24 million after tax);
- Charge of $14 million ($9 million after tax) related to the impairment and write-down of property, plant and equipment;
- Closure and restructuring costs of $5 million ($4 million after tax); and
- Gain on sale of property, plant and equipment of $2 million ($2 million after tax).

Third quarter 2009 items:
- Refundable excise tax credit for the production and use of alternative bio fuel mixtures of $159 million ($116 million after tax);
- Gain on sale of property, plant and equipment of $12 million ($12 million after tax); and
- Closure and restructuring costs of $4 million ($2 million after tax).

"Once again, we delivered strong financial results while successfully executing our strategic roadmap. We reduced our exposure to hardwood pulp markets by selling our Woodland mill, paring cyclicality in our earnings and improving our risk profile. We also repaid our outstanding secured debt and maintained a strong liquidity position," said John D. Williams, President and Chief Executive Officer. "While demand for fine paper is fairly stable, we remain conservative in our business approach because of continued high levels of unemployment in the U.S. and economic uncertainty."

Mr. Williams also said, "On the front end of the business, we are working on promoting the responsible use of paper products with the launch of our "Paper Because" campaign. I am confident that this initiative will help educate consumers about the positive messages behind paper - a sustainable and purposeful product, - and demonstrate that sometimes, there is no substitute for paper."

SEGMENT REVIEW

Papers
Operating income before items1 was $238 million in the third quarter of 2010 compared to operating income before items1 of $165 million in the second quarter of 2010. Depreciation and amortization totaled $96 million in the third quarter of 2010. When compared to the second quarter of 2010, paper shipments increased by 0.5% while pulp shipments decreased by 15%. The shipments-to-production ratio for paper was 99% in the third quarter of 2010, compared to 101% in the second quarter of 2010. When compared to the end of June, paper inventories increased by 10,000 tons and pulp inventories increased by 33,000 metric tons at the end of September.

The increase in operating income before items1 in the third quarter of 2010 was the result of lower costs related to planned maintenance downtime and lower wood fiber costs.

(In millions of dollars)    3Q 2010    2Q 2010
Sales    $1,296    $1,317
Operating income    $237    $149
Operating income before items1    $238    $165
Depreciation and amortization    $96    $95

Paper Merchants
Operating income before items was nil in the third quarter of 2010 compared to an operating loss of $1 million in the second quarter of 2010. Depreciation and amortization was $1 million in the third quarter of 2010. Deliveries increased by 9% when compared to the second quarter of 2010.

The increase in operating income in the third quarter of 2010 was primarily the result of higher average selling prices and higher deliveries.

(In millions of dollars)    3Q 2010    2Q 2010
Sales    $233    $213
Operating income (loss)    $-    ($1)
Depreciation and amortization    $1    $1

Liquidity and Capital
Cash flow provided from operating activities amounted to $267 million and capital expenditures amounted to $38 million. Free cash flow1 amounted to $229 million in the third quarter of 2010. Domtar's net debt-to-total capitalization ratio1 stood at 14% at September 30, 2010 compared to 35% at December 31, 2009.

Under its stock repurchase program, Domtar repurchased 399,720 shares of common stock at an average price of $61.07 during the third quarter of 2010. Since the implementation of the program, the Company has repurchased a total of 739,850 shares of common stock at an average price of $58.64.

Outlook
Domtar's paper shipments are expected to decline in the last quarter of the year due to seasonal factors. Pulp shipments are expected to be impacted by the sale of the Woodland facility. The Company anticipates that selling prices for pulp will continue to come under pressure through the end of the year due to capacity restarts. Input costs are expected to be seasonally higher in the fourth quarter.