Domtar (UFS) 8-K Domtar Corporation Reports Second Quarter 2008 Financial Results

Exhibit 99.1

395 de Maisonneuve Blvd. West

Montreal, QC H3A 1L6

News Release

TICKER SYMBOL	MEDIA RELATIONS	INVESTOR RELATIONS
UFS (NYSE, TSX)	Michel A. Rathier Tel.: 514-848-5103 Email: communications@domtar.com	Pascal Bossé Tel.: 514-848-5938 Email: ir@domtar.com

DOMTAR CORPORATION REPORTS SECOND QUARTER 2008 FINANCIAL RESULTS

Synergy program well underway – target increased to $250 million

• Net earnings of $0.05 per diluted share, earnings before items⁽¹⁾ of $0.06 per diluted share

• Free cash flow⁽¹⁾ of $77 million in the second quarter

• Net debt⁽¹⁾ reduced by $104 million year-to-date

Montreal, August 8, 2008 – Domtar Corporation (NYSE/TSX: UFS) today reported net earnings of $24 million ($0.05 per diluted share) for the second quarter of 2008 compared to net earnings of $36 million ($0.07 per diluted share) for the first quarter of 2008 and $11 million ($0.02 per diluted share) for the second quarter of 2007. Sales for the second quarter amounted to $1.6 billion.

Excluding the items listed below, the Company earned $32 million ($0.06 per diluted share) for the second quarter of 2008 compared to $25 million ($0.05 per diluted share) for the first quarter of 2008 and $9 million ($0.02 per diluted share) for the second quarter of 2007.

Second quarter 2008:

• Gain of $6 million ($4 million after tax) related to the sale of trademarks;

• Closure and restructuring costs of $11 million ($7 million after tax); and

• Costs of $9 million ($5 million after tax) related to synergies and integration.

First quarter 2008:

• Reversal of a provision for $23 million ($17 million after tax) due to the early termination of an unfavorable contract;

• Costs of $8 million ($5 million after tax) related to synergies and integration; and

• Closure and restructuring costs of $1 million ($1 million after tax).

Second quarter 2007:

• Gains of $10 million ($6 million after tax) related to financial instruments;

• Gain of $1 million related to a change in statutory income tax rates;

• Costs of $6 million ($4 million after tax) related to synergies and integration; and

• Closure and restructuring costs of $2 million ($1 million after tax).

¹ Non-GAAP financial measure. Refer to theReconciliation of Non-GAAP Financial Measures in the appendix.

1/12

“We had a better quarter when compared to the same period last year with sales up 3.5% and earnings before items increasing $23 million despite a 5.9% drop in paper shipments. Clearly, the synergies are starting to show in our results and the projected benefits from new initiatives have led us to increase our synergy target to $250 million,”said Mr. Raymond Royer, President and Chief Executive Officer. “Having said that, the announced price increases for papers in June are necessary to adjust to this new business environment of structurally higher input costs,” added Mr. Royer.

SEGMENT REVIEW

PAPERS

Operating income before items⁽¹⁾ was $106 million in the second quarter of 2008 compared to operating income before items⁽¹⁾ of $100 million in the first quarter of 2008. Depreciation and amortization totaled $110 million in the second quarter. When compared to the first quarter, paper shipments decreased 5.6% while pulp shipments remained flat. The shipments-to-production ratio for papers was 99% in the second quarter compared to 103% in the first quarter. When compared to March 30, 2008 levels, paper inventories were 6,000 tons higher at the end of June.

The increase in operating income before items⁽¹⁾ in the second quarter was the result of higher average selling prices for paper and pulp, lower overall costs including the negative impact of higher costs related to fiber, energy, freight and chemicals, lower usage for energy and a favorable exchange rate. These factors were partially mitigated by higher costs related to planned maintenance shutdowns and lower paper shipments.

(In millions of dollars)	2Q 2008		1Q 2008
Sales	$	1,407	$	1,429
Operating income	$	92	$	114
Operating income before items1	$	106	$	100
Depreciation and amortization	$	110	$	110

Commenting on the current business environment and recent demand statistics for uncoated freesheet, Mr. Royer said,“While trade publications have painted a fairly negative demand picture for the paper industry so far in 2008, Domtar’s core business has weathered the storm quite well with no lack-of-order downtime, shipments-to-production close to 100% and paper inventories virtually flat from March-end levels. The closure of the Port Edwards mill in June further tightened our manufacturing system. The U.S. economy remains challenging and we will be closely tracking our order books and will make adjustments to production where needed to respond to customer demand.”

2/12

PAPER MERCHANTS

Operating income was $2 million in the second quarter of 2008 compared to operating income of $3 million in the first quarter of 2008. Depreciation and amortization was $1 million in the second quarter. Deliveries decreased 11% when compared to the first quarter.

The decrease in operating income in the second quarter was the result of the depreciation and amortization expense and lower deliveries, partially offset by higher average selling prices.

(In millions of dollars)	2Q 2008		1Q 2008
Sales	$	243	$	262
Operating income	$	2	$	3
Depreciation and amortization	$	1		—

WOOD

Operating loss was $12 million in the second quarter of 2008, compared to an operating loss of $22 million in the first quarter of 2008. Depreciation and amortization totaled $7 million in the second quarter. When compared to the first quarter, lumber shipments increased 13% in the second quarter.

The decrease in operating loss in the second quarter was the result of higher average selling prices, higher shipments, lower costs and better productivity at several operations. The results were partially offset by a higher depreciation and amortization expense.

(In millions of dollars)	2Q 2008			1Q 2008
Sales	$	70		$	63
Operating loss	($	12	)	($	22	)
Depreciation and amortization	$	7		$	6

“The financial results in our Wood business improved significantly in the second quarter, better than what we had expected, and this is due to higher prices but also to the concerted efforts made by our employees to reduce costs and improve the efficiency of our operations,”said Mr. Royer. “I am pleased with this progress and look forward to making additional improvements going forward.”

3/12

OUTLOOK

For the second half of the year, we anticipate the demand for uncoated freesheet paper in North America to remain under pressure due to the challenging economic environment although low inventory levels and capacity rationalization within the industry help maintain a supply-demand balance. Domtar’s synergy program is well-advanced; profit margin expansion in the Papers segment is expected both from the continued benefits from synergies and from price increases implemented in uncoated freesheet early in the third quarter.

EARNINGS CONFERENCE CALL

The Company will hold a conference call today at 10:00 a.m. (ET) to discuss its second quarter 2008 financial results. Financial analysts are invited to participate in the call by dialing in at least 10 minutes before start time at 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.

About Domtar

Domtar Corporation (NYSE/TSX:UFS) is the largest integrated manufacturer and a leading 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 publication as well as converting and specialty papers including recognized brands such as Cougar^®, Lynx^® Opaque, Husky^® Offset, First Choice^® and Domtar EarthChoice^® 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. Domtar also produces lumber and other specialty and industrial wood products. The Company employs nearly 13,000 people. To learn more, visitwww.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 Form 10-K filed with the SEC. Unless specifically required by law, we assume no obligation to update or revise these forward-looking statements to reflect new events or circumstances.

- (30) -

4/12

Domtar Corporation

Highlights

(In millions of dollars, unless otherwise noted)

	Thirteen weeks ended			Thirteen weeks ended			Twenty-six weeks ended			Twenty-six weeks ended
	June 29 2008			July 1 2007			June 29 2008			July 1 2007
	(Unaudited)						(Unaudited)
Selected Segment Information
Sales
Papers	$	1,407		$	1,349		$	2,836		$	2,304
Paper Merchants		243			226			505			302
Wood		70			90			133			137
Total for reportable segments		1,720			1,665			3,474			2,743
Intersegment sales – Papers		(73	)		(66	)		(156	)		(90	)
Intersegment sales – Paper Merchants		—			(1	)		—			(1	)
Intersegment sales – Wood		(8	)		(15	)		(14	)		(18	)
Consolidated sales		1,639			1,583			3,304			2,634
Depreciation and amortization
Papers		110			126			220			198
Paper Merchants		1			—			1			1
Wood		7			6			13			11
Consolidated depreciation and amortization		118			132			234			210
Operating income (loss)
Papers		92			92			206			163
Paper Merchants		2			2			5			6
Wood		(12	)		(20	)		(34	)		(24	)
Total for reportable segments		82			74			177			145
Corporate		(2	)		(5	)		(3	)		(5	)
Consolidated operating income		80			69			174			140
Interest expense		37			47			76			58
Earnings before income taxes		43			22			98			82
Income tax expense		19			11			38			22
Net earnings		24			11			60			60
Per common share (in dollars)
Net earnings
Basic		0.05			0.02			0.12			0.14
Diluted		0.05			0.02			0.12			0.14
Weighted average number of common and exchangeable shares outstanding (millions)
Basic		515.5			515.2			515.5			431.7
Diluted		515.8			516.3			515.9			432.3
Cash flows provided from operating activities		113			189			140			280
Additions to property, plant and equipment		36			32			65			46

5/12

Domtar Corporation

Consolidated Statement of Earnings

(In millions of dollars, unless otherwise noted)

	Thirteen weeks ended		Thirteen weeks ended		Twenty-six weeks ended		Twenty-six weeks ended
	June 29 2008		July 1 2007		June 29 2008		July 1 2007
	(Unaudited)				(Unaudited)
Sales	$	1,639	$	1,583	$	3,304	$	2,634
Operating expenses
Cost of sales, excluding depreciation and amortization		1,336		1,288		2,678		2,146
Depreciation and amortization		118		132		234		210
Selling, general and administrative		94		92		206		133
Closure and restructuring costs		11		2		12		5
		1,559		1,514		3,130		2,494
Operating income		80		69		174		140
Interest expense		37		47		76		58
Earnings before income taxes		43		22		98		82
Income tax expense		19		11		38		22
Net earnings		24		11		60		60
Per common share (in dollars)
Net earnings
Basic		0.05		0.02		0.12		0.14
Diluted		0.05		0.02		0.12		0.14
Weighted average number of common and exchangeable shares outstanding (millions)
Basic		515.5		515.2		515.5		431.7
Diluted		515.8		516.3		515.9		432.3

6/12

Domtar Corporation

Consolidated Balance Sheets at

(In millions of dollars)

	June 29 2008			December 30 2007
	(Unaudited)
Assets
Current assets
Cash and cash equivalents	$	61		$	71
Receivables, less allowances of $10 and $9		560			504
Inventories		926			936
Prepaid expenses		37			14
Income and other taxes receivable		77			69
Deferred income taxes		181			182
Total current assets		1,842			1,776
Property, plant and equipment, at cost		9,680			9,685
Accumulated depreciation		(4,562	)		(4,323	)
Net property, plant and equipment		5,118			5,362
Goodwill		363			372
Intangible assets, net of amortization		104			111
Other assets		109			105
Total assets		7,536			7,726
Liabilities and shareholders’ equity
Current liabilities
Bank indebtedness		38			63
Trade and other payables		743			765
Income and other taxes payable		37			28
Long-term debt due within one year		19			17
Total current liabilities		837			873
Long-term debt		2,122			2,213
Deferred income taxes		999			1,003
Other liabilities and deferred credits		361			440
Shareholders’ equity
Common stock		5			5
Exchangeable shares		159			293
Additional paid-in capital		2,715			2,573
Retained earnings		107			47
Accumulated other comprehensive income		231			279
Total shareholders’ equity		3,217			3,197
Total liabilities and shareholders’ equity		7,536			7,726

7/12

Domtar Corporation

Consolidated Statement of Cash Flows

(In millions of dollars)

	Thirteen weeks ended			Thirteen weeks ended			Twenty-six weeks ended			Twenty-six weeks ended
	June 29 2008			July 1 2007			June 29 2008			July 1 2007
	(Unaudited)						(Unaudited)
Operating activities
Net earnings	$	24		$	11		$	60		$	60
Adjustments to reconcile net earnings to cash flows from operating activities
Depreciation and amortization		118			132			234			210
Deferred income taxes		1			(4	)		13			(15	)
Net gains on disposals of property, plant and equipment		(1	)		—			(1	)		—
Stock-based compensation expense		4			1			9			1
Gain on sale of trademark		(6	)		—			(6	)		—
Other		2			—			4			1
Changes in assets and liabilities, net of effects of acquisition
Receivables		23			68			(58	)		(19	)
Inventories		11			19			—			27
Prepaid expenses		(5	)		(2	)		(22	)		(7	)
Trade and other payables		(13	)		(8	)		(31	)		38
Income and other taxes		(11	)		2			1			16
Difference between employer pension and other post-retirement contributions and pension and other post-retirement expense		(42	)		(25	)		(47	)		(29	)
Other assets and other liabilities		8			(5	)		(16	)		(3	)
Cash flows provided from operating activities		113			189			140			280
Investing activities
Additions to property, plant and equipment		(36	)		(32	)		(65	)		(46	)
Proceeds from disposals of property, plant and equipment		1			22			22			22
Proceeds from sale of trademark		6			—			6			—
Business acquisitions – cash acquired		—			—			—			573
Other		—			(4	)		—			(4	)
Cash flows provided from (used for) investing activities		(29	)		(14	)		(37	)		545
Financing activities
Net change in bank indebtedness		(49	)		(23	)		(26	)		(3	)
Repayment of revolving bank credit		—			(90	)		(50	)		—
Issuance of short-term debt		—			—			—			1,350
Issuance of long-term debt		—			—			—			800
Repayment of short-term debt		—			—			—			(1,350	)
Repayment of long-term debt		(31	)		(81	)		(37	)		(81	)
Debt issue costs		—			—			—			(24	)
Distribution to Weyerhaeuser prior to March 7, 2007		—			—			—			(1,431	)
Other		—			(4	)		—			(5	)
Cash flows used for financing activities		(80	)		(198	)		(113	)		(744	)
Net increase (decrease) in cash and cash equivalents		4			(23	)		(10	)		81
Translation adjustments related to cash and cash equivalents		—			(7	)		—			(2	)
Cash and cash equivalents at beginning of period		57			110			71			1
Cash and cash equivalents at end of period		61			80			61			80
Supplemental cash flow information
Net cash payments for:
Interest		36			43			55			43
Income taxes		39			18			46			21

8/12

Domtar Corporation

Supplemental Segmented Information

(In millions of dollars, unless otherwise noted)

		2008								2007
		Q1		Q2		Q3	Q4	YTD		Q1		Q2		Q3		Q4		YTD
Papers Segment
Sales	($)	1,429		1,407				2,836		955		1,349		1,411		1,401		5,116
Intersegment sales – Papers	($)	(83	)	(73	)			(156	)	(24	)	(66	)	(72	)	(73	)	(235	)
Operating income	($)	114		92				206		71		92		133		25		321
Depreciation & amortization	($)	110		110				220		72		126		122		124		444
Impairment of PP&E	($)															92		92
Papers
Papers Production	('000 ST)	1,173		1,146				2,319		826		1,216		1,187		1,182		4,411
Papers Shipments	('000 ST)	1,205		1,137				2,342		871		1,209		1,261		1,160		4,501
Uncoated freesheet	('000 ST)	1,149		1,096				2,245		814		1,163		1,194		1,104		4,275
Coated groundwood	('000 ST)	56		41				97		57		46		67		56		226
20-lb repro bond, 92 bright (copy) (a) list price	($/ton)	1,007		1,050				1,029		930		963		990		990		968
50-lb offset, rolls (a) list price	($/ton)	860		907				884		810		810		803		847		818
Coated publication No. 5, 40-lb offset, rolls (a) list price	($/ton)	900		975				938		778		748		782		840		787
Pulp
Pulp Shipments (b)	('000 ADMT)	347		347				694		249		335		334		411		1,329
Hardwood Kraft Pulp	(%)	44	%	43	%			44	%	21	%	46	%	48	%	45	%	42	%
Softwood Kraft Pulp	(%)	47	%	46	%			46	%	61	%	41	%	40	%	46	%	46	%
Fluff Pulp	(%)	9	%	11	%			10	%	18	%	13	%	12	%	9	%	12	%
Pulp NBSK – U.S. market (a) list price	($/ADMT)	880		880				880		790		810		837		858		824
Pulp NBHK – Japan market (a)(c) list price	($/ADMT)	715		755				735		640		640		658		683		655
Paper Merchants Segment
Sales	($)	262		243				505		76		226		249		262		813
Intersegment sales – Paper Merchants	($)											(1	)					(1	)
Operating income	($)	3		2				5		4		2		6		1		13
Depreciation & amortization	($)			1				1		1						1		2
Wood Segment
Sales	($)	63		70				133		47		90		88		79		304
Intersegment sales – Wood	($)	(6	)	(8	)			(14	)	(3	)	(15	)	(16	)	(16	)	(50	)
Operating loss	($)	(22	)	(12	)			(34	)	(4	)	(20	)	(13	)	(26	)	(63	)
Depreciation & amortization	($)	6		7				13		5		6		6		8		25
Impairment of goodwill	($)															4		4
Lumber Production	(Millions FBM)	168		155				323		68		152		164		158		542
Lumber Shipments	(Millions FBM)	160		181				341		88		227		197		172		684
Lumber G.L. 2x4x8 studs (a) prices	($/MFBM)	277		306				292		317		335		336		294		321
Lumber G.L. 2x4 R/L, no. 1 & no. 2 (a) prices	($/MFBM)	291		309				300		332		332		343		308		329
Average Exchange Rates	CAN	1.004		1.010				1.007		1.172		1.098		1.044		0.981		1.074
	US	0.996		0.990				0.993		0.854		0.911		0.958		1.019		0.931

(a) Source: Pulp & Paper Week and Random Lengths.

(b) Figures are gross of market pulp purchased from other producers on the open market for some of our paper making operations. Pulp shipments represents the amount of pulp produced in excess of our internal requirement.

(c) Based on Pulp & Paper Week's Southern Bleached Hardwood Kraft pulp prices for Japan, increased by an average differential of $15/ADMT between Northern and Southern Bleached Hardwood Kraft pulp prices.

9/12

Domtar Corporation

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 Before Items,” “EBITDA,” “EBITDA 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 the ability to service debt and the overall credit profile of the company. 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 Before Items” and “EBITDA Before Items” by excluding the after-tax (pre-tax) effect of items considered by management as not typifying the Net earnings (loss) reported under U.S. GAAP. 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 Net earnings (loss) provides for a more complete analysis of the results of operations. Net earnings (loss) is the most directly comparable GAAP measure.

		2008								2007
		Q1		Q2		Q3	Q4	YTD		Q1		Q2		Q3		Q4		YTD
Reconciliation of “Earnings Before Items” to Net Earnings (Loss)
Net earnings (loss)	($)	36		24				60		49		11		36		(26	)	70
(-)     Reversal of a provision for unfavorable contract	($)	(17	)					(17	)
(+)    Costs related to synergies, integration and optimization	($)	5		5				10		4		4		8		14		30
(+)    Closure and restructuring costs	($)	1		7				8		2		1		1		5		9
(-)     Gain related to the sale of trademarks	($)			(4	)			(4	)
(+)    Impairment of goodwill and property, plant and equipment	($)															66		66
(-)     Gains for lawsuit and insurance claim settlements	($)															(35	)	(35	)
(+)    Expenses related to the debt restructuring	($)															17		17
(-)     Gain related to change in statutory income tax rate	($)									(6	)	(1	)	3		(11	)	(15	)
(-)     Gains related to financial instruments	($)											(6	)	(4	)	(1	)	(11	)
(=)    Earnings Before Items	($)	25		32				57		49		9		44		29		131
Reconciliation of “EBITDA” and “EBITDA Before Items” to Net Earnings (Loss)
Net earnings (loss)	($)	36		24				60		49		11		36		(26	)	70
(+)    Income tax expense (benefit)	($)	19		19				38		11		11		39		(32	)	29
(+)    Interest expense	($)	39		37				76		11		47		48		65		171
(=)    Operating income	($)	94		80				174		71		69		123		7		270
(+)    Depreciation and amortization	($)	116		118				234		78		132		128		133		471
(+)    Impairment of goodwill and property, plant and equipment	($)															96		96
(=)    EBITDA	($)	210		198				408		149		201		251		236		837
(-)     Reversal of a provision for unfavorable contract	($)	(23	)					(23	)
(+)    Costs related to synergies, integration and optimization	($)	8		9				17		7		6		14		21		48
(+)    Closure and restructuring costs	($)	1		11				12		3		2		2		7		14
(-)     Gain related to the sale of trademarks	($)			(6	)			(6	)
(-)     Gains for lawsuit and insurance claim settlements	($)															(51	)	(51	)
(-)     Gains related to financial instruments	($)											(10	)	(6	)	(2	)	(18	)
(=)    EBITDA Before Items	($)	196		212				408		159		199		261		211		830
Reconciliation of “Free Cash Flow” to Cash Flow from Operating Activities
Cash flow provided from operating activities	($)	27		113				140		91		189		144		182		606
(-)     Additions to property, plant and equipment	($)	(29	)	(36	)			(65	)	(14	)	(32	)	(19	)	(51	)	(116	)
(=)    Free Cash Flow	($)	(2	)	77				75		77		157		125		131		490
“Net Debt-to-Total Capitalization” Computation
Bank indebtedness	($)	86		38						89		74		75		63
(+)    Current portion of long-term debt	($)	17		19						21		19		19		17
(+)    Long-term debt	($)	2,155		2,122						2,577		2,425		2,356		2,213
(-)     Cash and cash equivalents	($)	(57	)	(61	)					(110	)	(80	)	(136	)	(71	)
(=)    Net debt	($)	2,201		2,118						2,577		2,438		2,314		2,222
(+)    Shareholders’ equity	($)	3,172		3,217						2,941		3,094		3,212		3,197
(=)    Total capitalization	($)	5,373		5,335						5,518		5,532		5,526		5,419
Net debt	($)	2,201		2,118						2,577		2,438		2,314		2,222
(/)     Total capitalization	($)	5,373		5,335						5,518		5,532		5,526		5,419
(=)    Net Debt-to-Total Capitalization	(%)	41	%	40	%					47	%	44	%	42	%	41	%

“Earnings Before Items,” “EBITDA,” “EBITDA Before Items,” “Free Cash Flow” 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.

10/12

Domtar Corporation

Reconciliation of Non-GAAP Financial Measures - By Segment 2008

(In millions of dollars, unless otherwise noted)

The following table sets forth certain non-U.S. generally accepted accounting principles (“GAAP”) financial metrics identified as “Operating Income Before Items” and “EBITDA 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 segment “Operating Income Before Items” by excluding the pre-tax effect of items considered by management as not typifying the segment Operating income (loss) reported under U.S. GAAP. 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 Net earnings (loss) provides for a more complete analysis of the results of operations. Operating Income (loss) by segment is the most directly comparable GAAP measure.

			Papers								Paper Merchants					Wood								Corporate
			Q1'08		Q2'08		Q3'08	Q4'08	YTD		Q1'08	Q2'08	Q3'08	Q4'08	YTD	Q1'08		Q2'08		Q3'08	Q4'08	YTD		Q1'08		Q2'08		Q3'08	Q4'08	YTD
Reconciliation of Operating Income to “Operating Income Before Items”
Operating Income (loss)	($	)	114		92				206		3	2			5	(22	)	(12	)			(34	)	(1	)	(2	)			(3	)
(-)     Reversal of a provision for unfavorable contract	($	)	(23	)					(23	)
(+)    Costs related to synergies, integration and optimization	($	)	8		9				17
(+)    Closure and restructuring costs	($	)	1		11				12
(-)     Gain related to the sale of trademarks	($	)			(6	)			(6	)
(=)    Operating Income Before Items	($	)	100		106				206		3	2			5	(22	)	(12	)			(34	)	(1	)	(2	)			(3	)
Reconciliation of “Operating Income Before Items” to “EBITDA Before Items”
Operating Income Before Items	($	)	100		106				206		3	2			5	(22	)	(12	)			(34	)	(1	)	(2	)			(3	)
(+)    Depreciation and amortization	($	)	110		110				220			1			1	6		7				13
(=)    EBITDA Before Items	($	)	210		216				426		3	3			6	(16	)	(5	)			(21	)	(1	)	(2	)			(3	)

“Operating Income Before Items” and “EBITDA 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.

11/12

Domtar Corporation

Reconciliation of Non-GAAP Financial Measures - By Segment 2007

(In millions of dollars, unless otherwise noted)

The following table sets forth certain non-U.S. generally accepted accounting principles (“GAAP”) financial metrics identified as “Operating Income Before Items” and “EBITDA 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 segment “Operating Income Before Items” by excluding the pre-tax effect of items considered by management as not typifying the segment Operating income (loss) reported under U.S. GAAP. 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 Net earnings (loss) provides for a more complete analysis of the results of operations. Operating Income (loss) by segment is the most directly comparable GAAP measure.

			Papers										Paper Merchants					Wood										Corporate
			Q1'07	Q2'07		Q3'07			Q4'07		YTD		Q1'07	Q2'07	Q3'07	Q4'07	YTD	Q1'07		Q2'07		Q3'07		Q4'07		YTD		Q1'07	Q2'07		Q3'07		Q4'07		YTD
Reconciliation of Operating Income to “Operating Income Before Items”
Operating Income (loss)	($	)	71	92		133		��	25		321		4	2	6	1	13	(4	)	(20	)	(13	)	(26	)	(63	)		(5	)	(3	)	7		(1	)
(+)    Costs related to synergies, integration and optimization	($	)	7	6		14			21		48
(-)     Gains for lawsuit and insurance claim settlements	($	)							(39	)	(39	)																					(12	)	(12	)
(-)     Gains related to financial instruments	($	)		(10	)	(6	)		(2	)	(18	)
(+)    Closure and restructuring costs	($	)	2	2		2			7		13							1								1
(+)    Impairment of goodwill and property, plant and equipment	($	)							92		92													4		4
(=)    Operating Income Before Items	($	)	80	90		143			104		417		4	2	6	1	13	(3	)	(20	)	(13	)	(22	)	(58	)		(5	)	(3	)	(5	)	(13	)
Reconciliation of “Operating Income Before Items” to “EBITDA Before Items”
Operating Income Before Items	($	)	80	90		143			104		417		4	2	6	1	13	(3	)	(20	)	(13	)	(22	)	(58	)		(5	)	(3	)	(5	)	(13	)
(+)    Depreciation and amortization	($	)	72	126		122			124		444		1			1	2	5		6		6		8		25
(=)    EBITDA Before Items	($	)	152	216		265			228		861		5	2	6	2	15	2		(14	)	(7	)	(14	)	(33	)		(5	)	(3	)	(5	)	(13	)

“Operating Income Before Items” and “EBITDA 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.

12/12