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DOMTAR CORPORATION REPORTS PRELIMINARY FOURTH QUARTER AND FISCAL YEAR 2010 FINANCIAL RESULTS

Record profitability and cash flow for fiscal 2010 (All financial information is in U.S. dollars, and all earnings (loss) per share results are diluted, unless otherwise noted.)

    --  Fiscal 2010 net earnings of $605 million, earnings before items(1) of
        $471 million
    --  Fourth quarter net earnings of $7.59 per share, earnings before items(1)
        of $2.41 per share
    --  Production related issues led to additional maintenance costs of $17 
        million

MONTREAL, Feb. 4 /PRNewswire-FirstCall/ - Domtar Corporation (NYSE/TSX: UFS) today reported net earnings of $325 million ($7.59 per share) for the fourth quarter of 2010 compared to net earnings of $191 million ($4.44 per share) for the third quarter of 2010 and net earnings of $124 million ($2.86 per share) for the fourth quarter of 2009. Sales for the fourth quarter of 2010 amounted to $1.4 billion. Excluding items listed below, the Company had earnings before items(1) of $103 million ($2.41 per share) for the fourth quarter of 2010 compared to earnings before items(1) of $183 million ($4.26 per share) for the third quarter of 2010 and earnings before items(1) of $60 million ($1.39 per share) for the fourth quarter of 2009.

Fourth quarter 2010 items:

    --  Benefit from cellulosic biofuel producer income tax credit of $127 
        million;
    --  Benefit from reversal of a valuation allowance on Canadian deferred 
        income tax assets of $100 million;
    --  Costs for debt repurchase of $7 million ($4 million after tax); and
    --  Closure and restructuring costs of $1 million ($1 million after tax).

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).

Fourth quarter 2009 items:

    --  Refundable excise tax credit for the production and use of alternative 
        bio fuel mixtures of $162 million ($113 million after tax);
    --  Closure and restructuring costs of $29 million ($24 million after tax);
    --  Charge of $27 million ($22 million after tax) related to the impairment 
        and write-down of property, plant and equipment; and
    --  Loss on sale of property, plant and equipment of $5 million ($3 million 
        after tax).

"Fourth quarter paper shipments were weaker partly due to seasonal factors, but our average pricing held up well. We were able to post best ever fourth quarter profit before items even though production related issues resulted in higher than expected maintenance costs. Higher pulp shipments, net of the impact of the sale of the Woodland hardwood pulp facility, helped offset seasonal weakness. In addition, we redeemed all of our 2011 notes, effectively completing our systematic debt reduction program," said John D. Williams, President and Chief Executive Officer. 

FISCAL YEAR 2010 HIGHLIGHTS

For fiscal year 2010, net earnings amounted to $605 million ($14.00 per share) compared to net earnings of $310 million ($7.18 per share) for fiscal year 2009. The Company had earnings before items(1) of $471 million ($10.90 per share) for fiscal 2010 compared to earnings before items(1) of $46 million ($1.06 per share) for fiscal 2009. Sales amounted to $5.9 billion for fiscal year 2010.

Commenting on the 2010 performance, Mr. Williams said, "We continued to aggressively execute on our "Perform, Grow, Break out" strategic journey, thanks to excellent cost management and decisive actions that realigned our asset portfolio and reduced our exposure to challenging businesses. We have also made strategic investments in growth markets that bode well for the future, notably in fluff pulp and nanocrystalline cellulose, and built a flexible balance sheet that provides us with the ability to seize opportunities. We are well positioned for the year to come."

SEGMENT REVIEW

Papers

Operating income before items(1) was $161 million in the fourth quarter of 2010 compared to operating income before items(1) of $238 million in the third quarter of 2010. Depreciation and amortization totaled $94 million in the fourth quarter of 2010. When compared to the third quarter of 2010, paper and pulp shipments decreased 5% and 9%, respectively. The shipments-to-production ratio for paper was 97% in the fourth quarter of 2010, compared to 99% in the third quarter of 2010. Paper inventories increased by 23,000 tons while pulp inventories declined by 7,000 metric tons as at the end of December versus end of September levels.

The decrease in operating income before items(1) in the fourth quarter of 2010 was the result of lower paper and pulp shipments, lower average selling prices for pulp, unfavorable exchange rate including hedging, higher usage and unit costs for energy and chemicals, higher maintenance costs, and higher freight costs. These factors were partially offset by lower wood fiber costs.

Paper Merchants

Operating loss before items(1) was $2 million in the fourth quarter of 2010 compared to operating income before items(1) of nil in the third quarter of 2010. Depreciation and amortization was $1 million in the fourth quarter of 2010. Deliveries decreased 11% when compared to the third quarter of 2010. The decrease in operating income in the fourth quarter of 2010 was primarily due to lower deliveries.

LIQUIDITY AND CAPITAL

Cash flow provided from operating activities amounted to $166 million and capital expenditures amounted to $41 million, resulting in free cash flow(1) of $125 million in the fourth quarter of 2010. Domtar's net debt-to-total capitalization ratio(1) stood at 9% at December 31, 2010 compared to 35% at December 31, 2009.

OUTLOOK

We expect North American paper demand to continue declining long-term, partially offset by a gradual return of employment in the U.S. closer to pre-recession levels. Our Papers segment is benefiting from a more favorable pulp product mix that should result in reduced pricing volatility. Rising commodity pricing should also put pressure on some of our input costs in 2011.

While the economy appears to be stabilizing, employment remains slow to recover.  Though we are entering 2011 with a strong position, we will continue to manage our business conservatively, looking to grow profitably and to create shareholder value.

EARNINGS CONFERENCE CALL

The Company will hold a conference call today at 11:00 a.m. (ET) to discuss its fourth quarter 2010 financial results. Financial analysts are invited to participate in the call by dialing at least 10 minutes before start time 1 (888) 339-3507 (toll free -North America) or 1 (719) 325-2424 (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 first quarter 2011 earnings on April 28, 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 official earnings release date.

About Domtar

Domtar Corporation (NYSE/TSX:UFS) is the largest integrated manufacturer and marketer of uncoated freesheet paper inNorth 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, Husky((R)) 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 news 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 Form 10-K filed with the SEC as periodically updated by subsequently filed Form 10-Q's. 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.

"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.

((1)) As previously reported, we sold 88% of the Wood segment on June 30, 2010 to EACOM Timber Corporation ("EACOM"). During the fourth quarter 2010, in an unrelated transaction, we sold the remaining 12% of common stock held in EACOM.

SOURCE DOMTAR CORPORATION