Mr. Royer also stated that “the transition work to create the new Domtar, the largest fine paper company in North America, in the first quarter of 2007, is progressing according to plan, and we are encouraged by the recent favorable decision of the United States antitrust authorities regarding the transaction. We continue to work on the other closing conditions, including regulatory approvals under the Competition Act (Canada) and the Investment Canada Act.”

OPERATIONAL REVIEW
 THIRD QUARTER 2006 COMPARED TO SECOND QUARTER 2006
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In accordance with Canadian generally accepted accounting principles, effective in the second quarter of 2006, the information pertaining to our Vancouver paper mill was no longer included in our Papers business but presented as a discontinued operation and assets held for sale. In July 2006, we reached an agreement to sell the Vancouver paper mill property, subject to a number of closing conditions.

PAPERS
(In millions of Canadian dollars)

The $47 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 paper and pulp, the settlement of a contract dispute resulting in a payment to Domtar of $14 million, recognition of investment tax credits related to research and development expenditures from prior years, lower energy and freight costs as well as the realization of savings stemming from restructuring activities. These factors were partially offset by lower shipments for paper.

PAPER MERCHANTS
(In millions of Canadian dollars)

Operating profit from continuing operations in the Paper Merchants segment remained stable. Although shipments were down during the quarter, it was offset by higher average selling prices for paper. 

WOOD
(In millions of Canadian dollars)

Operating loss from continuing operations excluding specified items in the Wood segment increased by $8 million, or $1 million if we exclude the $7 million Crown stumpage fees refund recorded in the second quarter of 2006. This increase is mainly attributable to lower average selling prices, partially offset by lower duties on softwood lumber and benefits realized pursuant to the closure in the second quarter of 2006 of the Malartic and Grand-Remous sawmills.
Effective October 12, 2006, Domtar is entitled to receive a refund for duties collected by the U.S. Government since 2002 plus interest, for a total consideration of approximately US$183 million ($204 million). This refund could be subject to a special charge of 19% by the Canadian Government.

PACKAGING
(In millions of Canadian dollars)

The $10 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 with lower maintenance costs, partially offset by higher fiber costs.

LIQUIDITY AND CAPITAL
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FREE CASH FLOW⁽¹⁾
(In millions of Canadian dollars)

Free cash flow amounted to $52 million in the third quarter of 2006 including $37 million of cash requirements for working capital.
Domtar’s net debt-to-total capitalization ratio¹ as at September 30, 2006 stood at 56.7% compared to 57.7% as at December 31, 2005. Domtar’s net indebtedness decreased by $105 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 and repayments on our revolving credit facility.

(1) For a discussion on the use of non-GAAP measures, see “Notes to the summary of results” in the complete Quaterly report in PDF.

OUTLOOK
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Domtar does not anticipate any significant changes to current paper and pulp market conditions. The Company will continue to monitor market conditions and respond accordingly. Domtar expects lumber markets to remain weak for the foreseeable future. Nonetheless, the Company intends to realize the full potential of its restructuring plan.

FORWARD-LOOKING STATEMENTS
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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).

THIRD QUARTER 2006 RESULTS
WEBCAST
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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 third quarter 2006 financial results. It will take place at 4:00 p.m. (EDT) on the Domtar corporate website at: http://www.domtar.com/en/investors/3288.asp.