DOMTAR CORPORATION REPORTS PRELIMINARY THIRD QUARTER 2010 FINANCIAL RESULTS

Outstanding third quarter financial performance

(All financial information is in U.S. dollars, and all earnings per
share results are diluted, unless otherwise noted.)

• Net earnings of $4.44 per share, earnings before items(1) of $4.26 per share
• EBITDA before items(1) of $334 million, up 27% over second quarter 2010
• Plymouth mill conversion to fluff pulp on time for scheduled start-up in
  fourth quarter 2010

TICKER SYMBOL

UFS (NYSE, TSX)

MONTREAL, Oct. 29 /PRNewswire-FirstCall/ – Domtar Corporation (NYSE/TSX: UFS)
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 items(1) of $183 million ($4.26 per share) for the third quarter of 2010
compared to earnings before items(1) of $116 million ($2.67 per share) for the second quarter of 2010 and
earnings before items(1) 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 items(1) was $238 million in the third quarter of 2010 compared to operating
income before items(1) 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 items(1) in the third quarter of 2010 was the result of lower costs related to
planned maintenance downtime and lower wood fiber costs.

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.

LIQUIDITY AND CAPITAL

Cash flow provided from operating activities amounted to $267 million
and capital expenditures amounted to $38 million. Free cash flow(1) amounted to $229 million in the third quarter of 2010. Domtar’s net
debt-to-total capitalization ratio(1) 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.

EARNINGS CONFERENCE CALL

The Company will hold a conference call today at 10:00 a.m. (ET) to
discuss its third quarter 2010 financial results. Financial analysts
are invited to participate in the call by dialing at least 10 minutes
before start time 1 (866) 321-8231 (toll free – North America) or 1
(416) 642-5213 (International), while media and other interested
individuals are invited to listen to the live webcast on the Domtar
Corporation website at www.domtar.com.

The Company will release its fourth quarter 2010 earnings on February 4,
2011 before markets open, followed by a conference call at 10:00 a.m.
(ET) to discuss results. The date is tentative and will be confirmed
approximately three weeks prior to the earnings release date.

About Domtar

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

Forward-Looking Statements

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

_____________________________________

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

Domtar Corporation

Quarterly Reconciliation of Non-GAAP Financial Measures

(In millions of dollars, unless otherwise noted)

The following table sets forth certain non-U.S. generally accepted
accounting principles (“GAAP”) financial metrics identified in bold as
“Earnings (loss) before items”, “Earnings (loss) before items per
diluted share”, “EBITDA”, “EBITDA margin”, “EBITDA before items”,
“EBITDA margin before items”, “Free cash flow”, “Net debt” and “Net
debt-to-total capitalization.” Management believes that the financial
metrics presented are frequently used by investors and are useful to
evaluate our ability to service debt and the overall credit profile.
Management believes these metrics are also useful to measure the
operating performance and benchmark with peers within the industry.
These metrics are presented as a complement to enhance the
understanding of operating results but not in substitution for GAAP
results.

The Company calculates “Earnings (loss) before items” and “EBITDA before
items” by excluding the after-tax (pre-tax) effect of items considered
by management as not reflecting our ongoing operations. Management uses
these measures, as well as EBITDA and Free cash flow, to focus on
ongoing operations and believes that it is useful to investors because
it enables them to perform meaningful comparisons between periods.
Domtar believes that using this information along with Net earnings
(loss) provides for a more complete analysis of the results of
operations. Net earnings (loss) and Cash flow provided from operating
activities are the most directly comparable GAAP measures.

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

Domtar Corporation

Quarterly Reconciliation of Non-GAAP Financial Measures – By Segment 2010

(In millions of dollars, unless otherwise noted)

The following table sets forth certain non-U.S. generally accepted
accounting principles (“GAAP”) financial metrics identified in bold as
“Operating income (loss) before items”, “EBITDA before items” and
“EBITDA margin before items” by reportable segment. Management believes
that the financial metrics presented are frequently used by investors
and are useful to measure the operating performance and benchmark with
peers within the industry. These metrics are presented as a complement
to enhance the understanding of operating results but not in
substitution for GAAP results.

The company calculates the segmented “Operating income (loss) before
items” by excluding the pre-tax effect of items considered by
management as not reflecting our ongoing operations. Management uses
these measures to focus on ongoing operations and believes that it is
useful to investors because it enables them to perform meaningful
comparisons between periods. Domtar believes that using this
information along with Operating income (loss) provides for a more
complete analysis of the results of operations. Operating income (loss)
by segment is the most directly comparable GAAP measure

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

Domtar Corporation

Quarterly Reconciliation of Non-GAAP Financial Measures – By Segment
2009

(In millions of dollars, unless otherwise noted)

The following table sets forth certain non-U.S. generally accepted
accounting principles (“GAAP”) financial metrics identified in bold as
“Operating income (loss) before items”, “EBITDA before items” and
“EBITDA margin before items” by reportable segment. Management believes
that the financial metrics presented are frequently used by investors
and are useful to measure the operating performance and benchmark with
peers within the industry. These metrics are presented as a complement
to enhance the understanding of operating results but not in
substitution for GAAP results.

The company calculates the segmented “Operating income (loss) before
items” by excluding the pre-tax effect of items considered by
management as not reflecting our ongoing operations. Management uses
these measures to focus on ongoing operations and believes that it is
useful to investors because it enables them to perform meaningful
comparisons between periods. Domtar believes that using this
information along with Operating income (loss) provides for a more
complete analysis of the results of operations. Operating income (loss)
by segment is the most directly comparable GAAP measure.

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

Domtar Corporation

Supplemental Segmented Information

(In millions of dollars, unless otherwise noted)

SOURCE DOMTAR CORPORATION