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Domtar Inc.

Domtar Posts Net Earnings of CDN$2 Million in Second Quarter of 2005

Montreal (ots/PRNewswire)

TICKER SYMBOL: (TSX:DTC, NYSE:DTC)
Domtar Inc. announced today net earnings of $2 million ($0.01 per
common  share) in the second quarter of 2005 compared to a net loss
of $1 million  ($0.01 per common share) in the second quarter of 2004
and net earnings of  $10 million ($0.04 per common share) in the
first quarter of 2005.
    SUMMARY OF RESULTS
                                               Q2 2005  Q2 2004    Q1 2005(2)
    (In millions of Canadian dollars,
     unless otherwise noted)
    Sales                                        1,287    1,346        1,259
    Operating profit(1)                             31       28           34
    Net earnings (loss)                              2       (1)          10
    Net earnings (loss)
     per common share (in dollars)                0.01    (0.01)        0.04
    Excluding specified
     items(1)
      Operating profit                              33       33           35
      Net earnings (loss)                            3        4            9
      Net earnings (loss) per common share
       (in dollars)                               0.01     0.02         0.04
    (1) For a discussion on specified items and the use of non-GAAP
        measures, see "Notes to the summary of results" in the appendix.
    (2) Domtar's results for the first quarter of 2005 include a tax recovery
        adjustment of $6 million (or $0.03 per common share) following the
        reassessment of a prior year's income taxes by tax authorities.
"Domtar achieved an operating profit in all business segments as a
result of efficiency and cost reduction efforts by employees, an
increase in average selling prices for pulp and paper, as well as
higher pulp and lumber shipments, despite lower demand in the Papers
segment, a weak US dollar and elevated levels of costs for freight,
fiber, chemicals and energy," said Raymond Royer, President and Chief
Executive Officer of Domtar. "Pressure stemming from these high costs
continues to negatively impact our profitability. While Domtar
progresses internally on its cost reduction initiatives, we have no
indications that the increase in costs will ease in the near term. As
such, these higher costs should be reflected over time in the selling
prices of our products through inflation adjustments. We will
continue to work with our customers to provide tailor-made solutions,
notably through our supply chain management system and our expanding
Domtar EarthChoice(R) line of socially and environmentally
responsible papers,"  added Mr. Royer.
                             OPERATIONAL REVIEW
                             SECOND QUARTER 2005
                        COMPARED TO FIRST QUARTER 2005
    PAPERS                                     Q2 2005  Q1 2005     Variance
    (In millions of Canadian dollars)
    Operating profit                                 2        6          (4)
    Operating profit,
     excluding specified items                       4        9          (5)
The $5 million decline in operating profit excluding specified
items in the Papers segment was mainly attributable to lower paper
shipments and  higher overall costs, namely higher purchased energy,
chemicals and fiber  costs. In addition, during the second quarter,
certain mills undertook  capital and maintenance downtime also
contributing to higher overall costs.  These factors were partially
offset by higher average selling prices for  paper and pulp and
higher pulp shipments as well as the realization of  savings stemming
from restructuring activities.
    PAPER MERCHANTS                            Q2 2005  Q1 2005     Variance
    (In millions of Canadian dollars)
    Operating profit                                 4        5           (1)
The $1 million decline in operating profit in the Paper Merchants
segment was mainly attributable to lower margins achieved as a result
of higher purchased paper costs not being fully reflected in average
paper selling prices.
    WOOD                                       Q2 2005  Q1 2005     Variance
    (In millions of Canadian dollars)
    Operating profit                                11        6            5
The $5 million improvement in operating profit in the Wood segment
was mainly attributable to higher lumber shipments, partially offset
by higher duties on softwood lumber exports due to a higher level of
shipments being exported to the U.S. As of January 1, 2005, the
countervailing and  antidumping duties rate has decreased from 27.22%
to 20.95%. Since May 22,  2002, Domtar has made and expensed cash
deposits of $175 million for export  duties.
    PACKAGING                                  Q2 2005  Q1 2005     Variance
    (In millions of Canadian dollars)
    Operating profit                                11       13           (2)
    Operating profit, excluding specified items     14       11            3
The $3 million improvement in operating profit excluding specified
items in the Packaging segment (our 50% share of Norampac Inc.) was
mainly attributable to higher shipments for corrugated containers,
partially offset by lower shipments of containerboard and higher
overall costs.
                            LIQUIDITY AND CAPITAL
                             SECOND QUARTER 2005
                       COMPARED TO FIRST QUARTER 2005
    FREE CASH FLOW(1)                                   Q2 2005      Q1 2005
    (in millions of Canadian dollars,
     unless otherwise noted)
    Cash flows provided from operating activities
     before changes in working capital and other items       90           88
    Changes in working capital and other items              (52)        (122)
    Cash flows provided by (used for) operating activities   38          (34)
    Net additions to property, plant and equipment          (38)         (28)
    Free cash flow                                            -          (62)
Free cash flow improved by $62 million in the second quarter of
2005 compared to the first quarter of 2005. This improvement mainly
reflects reduced working capital requirements, primarily attributable
to inventory, trade and other payables and receivables fluctuations.
The first quarter of the year is typically impacted by seasonally
high requirements for working capital. These factors were partially
offset by increased capital expenditures.
Domtar's net debt-to-total capitalization ratio(1) as at June 30,
2005 stood at 51.1% compared to 49.5% as at December 31, 2004.
Domtar's total       long-term debt increased by $135 million,
largely due to additional net borrowings of $102 million and the
negative impact of $33 million  attributable to a stronger US dollar
(based on month-end foreign exchange  rates) on its US dollar
denominated debt.
(1) For a discussion on the use of non-GAAP measures, see "Notes
to the  summary of results" in the appendix.
OUTLOOK
Although the Company did experience slightly higher average
selling prices for most of its pulp and paper products in the second
quarter of 2005 compared to the first quarter of the year, the
current business environment, mainly higher costs and lower demand
for our products, is expected to remain challenging for the balance
of the year. Despite the challenges that lie ahead, Domtar remains
intent on delivering annualized targeted savings of $100 million by
the end of 2005. As at June 30, 2005, the Company already stands at
60% of its goal.
FORWARD-LOOKING STATEMENTS
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. 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).
SECOND QUARTER 2005 RESULTS WEBCAST
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 second quarter 2005 results. It will take place at
4:00 p.m. (EDT) on the Domtar corporate website at: www.domtar.com .
Domtar's second quarter 2005 Management's Discussion and Analysis
(MD&A) is available on the Domtar corporate website at:
www.domtar.com .
DOMTAR IS THE THIRD LARGEST PRODUCER OF UNCOATED FREESHEET PAPER
IN NORTH AMERICA. IT IS ALSO A LEADING MANUFACTURER OF BUSINESS
PAPERS, COMMERCIAL PRINTING AND PUBLICATION PAPERS, AND TECHNICAL AND
SPECIALTY PAPERS. DOMTAR MANAGES ACCORDING TO INTERNATIONALLY
RECOGNIZED STANDARDS 18 MILLION ACRES OF FORESTLAND IN CANADA AND THE
UNITED STATES, AND PRODUCES LUMBER AND OTHER  WOOD PRODUCTS. DOMTAR
HAS 10,000 EMPLOYEES ACROSS NORTH AMERICA. THE COMPANY  ALSO HAS A
50% INVESTMENT INTEREST IN NORAMPAC INC., THE LARGEST CANADIAN
PRODUCER OF CONTAINERBOARD.
APPENDIX
NOTES TO THE SUMMARY OF RESULTS
NOTE I.
SPECIFIED ITEMS
In Domtar's view, specified items are items that do not typify
normal operating activities. The following table reconciles operating
profit (loss), net earnings (loss) and net earnings (loss) per share,
determined in accordance with GAAP(x), to operating profit (loss),
net earnings (loss) and net earnings (loss) per share excluding
specified items.
                                       Q2 2005                        Q2 2004
    (In millions of Canadian dollars,
     unless otherwise noted)
                                                                         Net
                                           Net                      earnings
                                      earnings                         (loss)
                                     per share                 Net per share
                 Operating       Net       (in  Operating earnings       (in
                    profit  earnings  dollars)     profit    (loss)  dollars)
    As per GAAP(x)      31         2      0.01        28        (1)    (0.01)
    Specified items:
      Sales of
       property,
       plant and
       equipment(a)     (4)       (3)                  -         -
      Closure and
       restructuring
       costs(b)         10         6                   -         -
      Unrealized
       mark-to-market
       gains or
       losses(c)        (1)       (1)                  5         3
      Foreign exchange
       impact
       on long-term
       debt(d)           -         1                   -         2
      Insurance
       recoveries(e)    (3)       (2)                  -         -
                         2         1         -         5         5      0.03
    Excluding
     specified items    33         3      0.01        33         4      0.02
                                                                     Q1 2005
                                                                         Net
                                                                    earnings
                                                                   per share
                                               Operating       Net       (in
                                                  profit  earnings   dollars)
    As per GAAP(x)                                    34        10      0.04
    Specified items:
      Sales of property, plant and
       equipment(a)                                   (3)       (3)
      Closure and
       restructuring costs(b)                          6         4
      Unrealized
       mark-to-market
       gains or losses(c)                             (2)       (1)
      Foreign exchange impact
       on long-term debt(d)                            -        (1)
      Insurance recoveries(e)                          -         -
                                                       1        (1)        -
    Excluding specified items                         35         9      0.04
    (x) Except for operating profit which is a non-GAAP measure. See note 2.
    a) Sales of property, plant and equipment
       Domtar's results include gains or losses on sales of property, plant
       and equipment. These gains or losses are presented under "Selling,
       general and administrative" expenses in the financial statements.
    b) Closure and restructuring costs
       Domtar's results include closure and restructuring charges. These
       charges are presented under "Closure and restructuring costs" in the
       financial statements.
    c) Unrealized mark-to-market gains or losses
       Domtar's results include unrealized mark-to-market gains or losses on
       commodity swap contracts and foreign exchange contracts not considered
       as hedges for accounting purposes. Such gains or losses are presented
       under "Selling, general and administrative" expenses in the financial
       statements.
    d) Foreign exchange impact on long-term debt
       Domtar's results include foreign exchange gains or losses on the
       translation of a portion of its long-term debt. Such gains or losses
       are presented under "Financing expenses" in the financial statements.
    e) Insurance recoveries
       Domtar's results include insurance recoveries. These insurance
       recoveries are presented under "Selling, general and administrative"
       expenses in the financial statements.
NOTE 2.
USE OF NON-GAAP MEASURES
Except where otherwise indicated, all financial information
reflected herein is determined on the basis of Canadian GAAP.
Operating profit (loss) is a non-GAAP measure that is calculated
within Domtar's financial statements. Domtar focuses on operating
profit (loss) as this measure enables it to compare its results
between periods without regard to debt service or income taxes.
Operating profit (loss) excluding specified items, net earnings
(loss) excluding specified items and net earnings (loss) per common
share excluding specified items are non-GAAP measures. Measures
excluding specified items are used in evaluating the Company's
performance between periods without regard  to specified items that
adversely or positively affected its GAAP measures.
Free cash flow is a non-GAAP measure that is defined as the amount
by which cash flows provided from operating activities, as determined
in accordance with GAAP, exceed net additions to property, plant and
equipment, as determined in accordance with GAAP. Free cash flow is
used in evaluating the Company's ability to service its debt and pay
dividends to its shareholders.
Net debt-to-total capitalization ratio is a non-GAAP measure that
is calculated as long-term debt and bank indebtedness, net of cash
and cash equivalents, to the sum of net debt and shareholders'
equity. Domtar's management tracks this ratio on a regular basis in
order to assess its debt position.
The above non-GAAP measures 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. Domtar believes that it would be useful for
investors and other users to be aware of these measures so they can
better assess the Company's performance.
                           Consolidated Financial
                                 Statements
                                 Three months ended       Six months ended
                                       June 30                 June 30
    CONSOLIDATED EARNINGS       2005    2005    2004    2005    2005    2004
    (In millions of Canadian   ---- (Unaudited) ----    ---- (Unaudited) ----
     dollars, unless             US$       $       $     US$       $       $
     otherwise noted)        (NOTE 3)                (NOTE 3)
    Sales                      1,050   1,287   1,346   2,077   2,546   2,571
    Operating expenses
      Cost of sales              889   1,089   1,146   1,761   2,159   2,236
      Selling, general
       and administrative         51      62      78      99     121     147
      Amortization                77      95      94     151     185     185
      Closure and
       restructuring costs
       (NOTE 5)                    8      10       -      13      16       8
                               ----------------------  ----------------------
                               1,025   1,256   1,318   2,024   2,481   2,576
                               ----------------------  ----------------------
    Operating profit (loss)       25      31      28      53      65      (5)
    Financing expenses            32      39      41      60      73      80
    Amortization of deferred
     gain                         (1)     (1)     (1)     (2)     (2)     (2)
                               ----------------------  ----------------------
    Loss before income taxes      (6)     (7)    (12)     (5)     (6)    (83)
    Income tax recovery           (8)     (9)    (11)    (15)    (18)    (38)
                               ----------------------  ----------------------
    Net earnings (loss)            2       2      (1)     10      12     (45)
                               ----------------------  ----------------------
                               ----------------------  ----------------------
    Per common share
     (in dollars)(NOTE 6)
     Net earnings (loss)
      Basic                     0.01    0.01   (0.01)   0.04    0.05   (0.20)
      Diluted                   0.01    0.01   (0.01)   0.04    0.05   (0.20)
    Weighted average number
     of common shares
     outstanding (millions)
      Basic                    229.6   229.6   228.6   229.5   229.5   228.4
      Diluted                  230.7   230.7   228.6   230.6   230.6   228.4
                                 Three months ended       Six months ended
                                       June 30                 June 30
    CONSOLIDATED RETAINED       2005    2005    2004    2005    2005    2004
    EARNINGS
    (In millions of Canadian    ---- (Unaudited) ----   ---- (Unaudited) ----
     dollars, unless             US$       $       $     US$       $       $
     otherwise noted)        (NOTE 3)                (NOTE 3)
    Retained earnings at
     beginning of period -
     as reported                 333     408     452     336     412     512
    Cumulative effect of
     change in accounting
     policy                        -       -       -       -       -      (3)
                               ----------------------  ----------------------
    Retained earnings at
     beginning of period -
     as restated                 333     408     452     336     412     509
    Net earnings (loss)            2       2      (1)     10      12     (45)
    Dividends on common shares   (12)    (14)    (14)    (23)    (28)    (27)
    Dividends on preferred
     shares                       (1)     (1)     (1)     (1)     (1)     (1)
                               ----------------------  ----------------------
    Retained earnings at end
     of period                   322     395     436     322     395     436
    The accompanying notes are an integral part of the consolidated financial
    statements.
    CONSOLIDATED BALANCE                       June 30  June 30  December 31
    SHEETS  As at                                 2005     2005         2004
    (In millions of Canadian dollars,         --------- (Unaudited) ---------
     unless otherwise noted)                       US$        $            $
                                               (NOTE 3)
    Assets
      Current assets
      Cash and cash equivalents                     57       70           52
      Receivables                                  216      265          233
      Inventories                                  649      796          723
      Prepaid expenses                              19       23           12
      Income and other taxes receivable             15       18           17
      Future income taxes                           69       84           87
                                                 1,025    1,256        1,124
    Property, plant and equipment                3,364    4,123        4,215
    Goodwill                                        68       84           84
    Other assets                                   245      300          265
                                                 4,702    5,763        5,688
    Liabilities and shareholders' equity
    Current liabilities
      Bank indebtedness                             24       29           22
      Trade and other payables                     509      624          654
      Income and other taxes payable                27       33           32
      Long-term debt due within one year             1        2            8
                                                   561      688          716
    Long-term debt                               1,768    2,167        2,026
    Future income taxes                            441      540          557
    Other liabilities and deferred credits         268      328          343
    Shareholders' equity
      Preferred shares                              30       37           39
      Common shares                              1,452    1,780        1,775
      Contributed surplus                           10       12           10
      Retained earnings                            322      395          412
      Accumulated foreign currency
       translation adjustments (NOTE 9)           (150)    (184)        (190)
                                                 1,664    2,040        2,046
                                                 4,702    5,763        5,688
    The accompanying notes are an integral part of the consolidated financial
    statements
                                 Three months ended       Six months ended
                                       June 30                 June 30
    CONSOLIDATED CASH FLOWS     2005    2005    2004    2005    2005    2004
    (In millions of Canadian    ---- (Unaudited) ----   ---- (Unaudited) ----
     dollars, unless             US$       $       $     US$       $       $
     otherwise noted)        (NOTE 3)                (NOTE 3)
    Operating activities
    Net earnings (loss)            2       2      (1)     10      12     (45)
    Non-cash items:
      Amortization and
       write-down of property,
       plant and equipment
       (NOTE 5)                   79      97      94     153     187     185
      Future income taxes        (11)    (13)    (13)    (21)    (26)    (43)
      Amortization of
       deferred gain              (1)     (1)     (1)     (2)     (2)     (2)
      Closure and restructuring
       costs, excluding write-down
       of property, plant and
       equipment (NOTE 5)          6       8       -      11      14       8
      Other                       (2)     (3)      4      (6)     (7)     (3)
                                 --------------------    --------------------
                                  73      90      83     145     178     100
                                 --------------------    --------------------
    Changes in working capital
     and other items
      Receivables                  8      10      (2)    (26)    (32)    (99)
      Inventories                  3       3      32     (56)    (69)     14
      Prepaid expenses            (2)     (2)      5      (8)    (10)     (9)
      Trade and other payables   (35)    (43)    (46)    (14)    (17)    (26)
      Income and other taxes       -       -      (3)     (1)     (1)      6
      Early settlement of
       interest rate swap
       contracts (NOTE 8)          -       -       -       -       -      20
      Other                       (6)     (7)     11     (14)    (17)      5
    Payments of closure and
     restructuring costs         (10)    (13)     (4)    (23)    (28)     (4)
                                 --------------------    --------------------
                                 (42)    (52)     (7)   (142)   (174)    (93)
                                 --------------------    --------------------
      Cash flows provided from
       operating activities       31      38      76       3       4       7
                                 --------------------    --------------------
    Investing activities
    Additions to property, plant
     and equipment               (38)    (47)    (51)    (65)    (80)    (95)
    Proceeds from disposals
     of property, plant and
     equipment                     7       9       1      11      14       4
    Business acquisition (NOTE 4)  -       -      (8)      -       -      (8)
    Other                          1       1       -      (2)     (3)      -
                                 --------------------    --------------------
      Cash flows used for
       investing activities      (30)    (37)    (58)    (56)    (69)    (99)
                                 --------------------    --------------------
    Financing activities
    Dividend payments            (11)    (14)    (14)    (23)    (28)    (28)
    Change in bank indebtedness   14      17       4       7       8       8
    Change in revolving bank
     credit, net of expenses      17      21      (6)    155     190     134
    Issuance of long-term debt,
     net of expenses               -       -       -       -       -       1
    Repayment of long-term debt   (1)     (1)      -     (73)    (90)     (4)
    Common shares issued, net
     of expenses                   1       1       6       3       4      13
    Redemptions of preferred
     shares                       (1)     (1)     (1)     (2)     (2)     (2)
                                 --------------------    --------------------
      Cash flows provided from
       (used for) financing
       activities                 19       23    (11)     67      82     122
                                 --------------------    --------------------
    Net increase in cash and
     cash equivalents             20       24      7      14      17      30
    Translation adjustments
     related to cash and cash
     equivalents                   -        -     (1)      1       1      (1)
    Cash and cash equivalents
     at beginning of period       37       46     71      42      52      48
                                 --------------------    --------------------
    Cash and cash equivalents
     at end of period             57       70     77      57      70      77
    The accompanying notes are an integral part of the consolidated financial
    statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SECOND QUARTER 2005 (IN MILLIONS OF CANADIAN DOLLARS, UNLESS
OTHERWISE  NOTED)
NOTE I.
BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited interim
consolidated financial statements, prepared in accordance with
Canadian generally accepted accounting principles, contain all
adjustments necessary  to present fairly Domtar Inc.'s (Domtar)
financial position as at June 30,  2005 and December 31, 2004, as
well as its results of operations and its  cash flows for the three
months and six months ended June 30, 2005 and 2004.
While management believes that the disclosures presented are
adequate, these unaudited interim consolidated financial statements
and notes should be read in conjunction with Domtar's annual
consolidated financial statements.
These unaudited interim consolidated financial statements follow
the  same accounting policies as the most recent annual consolidated
financial statements, except as described in Note 2.
NOTE 2.
ACCOUNTING CHANGE
CONSOLIDATION OF VARIABLE INTEREST ENTITIES
In June 2003, the Canadian Institute of Chartered Accountants
(CICA) issued Accounting Guideline No. 15 (AcG-15) "Consolidation of
Variable Interest Entities." AcG-15 applies to annual and interim
periods beginning on or after November 1, 2004. The application of
this guideline does not have an impact on Domtar's unaudited interim
consolidated financial statements under Canadian GAAP.
NOTE 3.
UNITED STATES DOLLAR AMOUNTS
The unaudited interim consolidated financial statements are
expressed in Canadian dollars and, solely for the convenience of the
reader, the 2005 unaudited interim consolidated financial statements
and the tables of certain related notes have been translated into
U.S. dollars at the June 2005     month-end rate of CAN$1.00 equals
US$0.8159. This translation should not be construed as an application
of the recommendations relating to the accounting for foreign
currency translation, but rather as supplemental information for the
reader.
NOTE 4.
BUSINESS ACQUISITION
On April 2, 2004, Norampac (a 50-50 joint venture with Cascades
Inc.) acquired the shares of Johnson Corrugated Products Corp., a
corrugated products plant in Thompson, Connecticut. The Corporation's
proportionate  share of the consideration is approximately $8 million
(US$6 million)  excluding fees related to the transaction.
NOTE 5.
CLOSURE AND RESTRUCTURING COSTS
In 2004, Domtar's management committed to workforce reduction and
restructuring plans throughout the Corporation in Canada and the
United States. In addition to the reconciling items in the table
below, for the  three months and six months ended June 30, 2005,
training costs of $1 million  and $2 million, respectively, and other
closure related costs of $3 million  and $6 million, respectively,
were incurred.
During the second quarter of 2005, Norampac decided to close a
corrugated products plant, resulting in a write-down of $2 million of
property, plant  and equipment, representing the Corporation's
proportionate share.
The following table provides a reconciliation of all closure and
restructuring cost provisions:
                                               June 30  June 30  December 31
                                                  2005     2005         2004
                                               --------- (Unaudited) --------
                                                   US$        $            $
                                               (NOTE 3)
    Balance at beginning of period                  31       38           13
    Severance payments                             (16)     (20)         (12)
    Reversal of provision                           (1)      (1)         (10)
    Proceeds on disposition                          -        -            1
    Additions
      Labor costs                                    6        7           45
      Dismantling costs                              -        -            1
    Balance at end of period                        20       24           38
                                   NOTE 6.
                              _________________
                          EARNINGS (LOSS) PER SHARE
    The following table provides the reconciliation between basic and diluted
    earnings (loss) per share:
                                 Three months ended       Six months ended
                                       June 30                 June 30
                                2005    2005    2004    2005    2005    2004
                              ---- (Unaudited) ----    ---- (Unaudited) ----
                                 US$       $       $     US$       $       $
                             (NOTE 3)                 (NOTE 3)
    Net earnings (loss)            2       2      (1)     10      12     (45)
    Dividend requirements of
     preferred shares              1       1       1       1       1       1
                              ------------------------ ----------------------
    Net earnings (loss)
     applicable to common shares   1       1      (2)      9      11     (46)
    Weighted average number of
     common shares outstanding
     (millions)                229.6   229.6   228.6   229.5   229.5   228.4
    Effect of dilutive stock
     options (millions)          1.1     1.1       -     1.1     1.1       -
                              ------------------------ ----------------------
    Weighted average number
     of diluted common shares
     outstanding (millions)    230.7   230.7   228.6   230.6   230.6   228.4
                              ------------------------ ----------------------
    Basic earnings (loss)
     per share (in dollars)     0.01    0.01   (0.01)   0.04    0.05   (0.20)
    Diluted earnings (loss)
     per share (in dollars)     0.01    0.01   (0.01)   0.04    0.05   (0.20)
    The following table provides the securities that could potentially dilute
    basic earnings (loss) per share in the future but were not included in
    the computation of diluted earnings (loss) per share because to do so
    would have been anti-dilutive for the periods presented:
                                                     June 30         June 30
                                                        2005            2004
    Number of shares
    Options                                        4,890,136        5,537,659
    Bonus shares                                           -          230,393
    Rights                                            84,500           93,000
NOTE 7.
BANK FACILITY
On March 3, 2005, the Corporation entered into a new five-year
unsecured revolving credit facility of US$700 million. This new
facility replaced the prior credit facility, which consisted of a
US$500 million unsecured  revolving credit facility and a US$70
million unsecured term loan that was  scheduled to mature in July
2006.
Borrowings under this new unsecured revolving credit facility bear
interest at a rate based on the Canadian dollar bankers' acceptance
or U.S. dollar LIBOR rate, each with an added spread that varies with
Domtar's credit rating, or on the Canadian or U.S. prime rate. This
new credit facility also requires commitment fees that vary with
Domtar's credit rating.
NOTE 8.
INTEREST RATE RISK
In the first quarter of 2004, the Corporation terminated, prior to
maturity, interest rate swap contracts for net cash proceeds of $20
million (US$15 million). The resulting gain of $17 million recorded
under "Other liabilities and deferred credits" is being amortized
over the original designated hedging period of the underlying 5.375%
notes due in November  2013.
NOTE 9.
                        ACCUMULATED FOREIGN CURRENCY
                           TRANSLATION ADJUSTMENTS
                                               June 30  June 30  December 31
                                                  2005     2005         2004
                                               --------- (Unaudited) --------
                                                   US$        $            $
                                               (NOTE 3)
    Balance at beginning of period                (155)    (190)        (145)
    Effect of changes in exchange rates
     during the period:
      On net investment in self-sustaining
       foreign subsidiaries                         25       31         (141)
      On certain long-term debt denominated
       in foreign currencies designated as
       a hedge of net investment in
       self-sustaining foreign subsidiaries        (26)     (32)         117
      Future income taxes thereon                    6        7          (21)
    Balance at end of period                      (150)    (184)        (190)
                                  NOTE 10.
                              _________________
                          DEFINED BENEFIT PLANS AND
                     OTHER EMPLOYEE FUTURE BENEFIT PLANS
                                 Three months ended       Six months ended
                                       June 30                 June 30
                                2005    2005    2004    2005    2005    2004
                                ---- (Unaudited) ----    ---- (Unaudited) ---
                                 US$       $       $     US$       $       $
                            (NOTE 3)                 (NOTE 3)
    Net periodic benefit
     cost for defined
     benefit plans                 9      11      13      16      20      22
    Net periodic benefit cost
     for other employee future
     benefit plans                 2       3       3       5       6       6
NOTE 11.
SEGMENTED DISCLOSURES
Domtar operates in the four reportable segments described below.
Each reportable segment offers different products and services and
requires different technology and marketing strategies. The following
summary briefly describes the operations included in each of Domtar's
reportable segments:
- PAPERS - represents the aggregation of the manufacturing and
      distribution of business, commercial printing and publication, and
      technical and specialty papers, as well as pulp.
    - PAPER MERCHANTS - involves the purchasing, warehousing, sale and
      distribution of various products made by Domtar and by other
      manufacturers. These products include business and printing papers,
      graphic arts supplies and certain industrial products.
    - WOOD - comprises the manufacturing and marketing of lumber and
      wood-based value-added products and the management of forest resources.
    - PACKAGING - comprises the Corporation's 50% ownership interest in
      Norampac, a company that manufactures and distributes containerboard
      and corrugated products.
Domtar evaluates performance based on operating profit, which
represents sales, reflecting transfer prices between segments at fair
value, less allocable expenses before financing expenses and income
taxes.
                                 Three months ended       Six months ended
                                       June 30                 June 30
    SEGMENTED DATA              2005    2005    2004    2005    2005    2004
                               ---- (Unaudited) ----    ---- (Unaudited) ----
                                 US$       $       $     US$       $       $
                             (NOTE 3)                 (NOTE 3)
    Sales
      Papers                     626     768     836   1,252   1,534   1,624
      Paper Merchants            212     260     268     423     519     531
      Wood                       164     201     191     315     386     334
      Packaging                  139     170     163     269     330     309
                              ------------------------ ----------------------
    Total for reportable
     segments                  1,141   1,399   1,458   2,259   2,769   2,798
      Intersegment sales
       - Papers                  (59)    (73)    (75)   (121)   (148)   (153)
      Intersegment sales
       - Wood                    (31)    (38)    (35)    (59)    (72)    (70)
      Intersegment sales
       - Packaging                (1)     (1)     (2)     (2)     (3)     (4)
                              ------------------------ ----------------------
    Consolidated sales         1,050   1,287   1,346   2,077   2,546   2,571
                              ------------------------ ----------------------
                              ------------------------ ----------------------
    Operating profit (loss)
      Papers                       2       2       5       6       8     (33)
      Paper Merchants              3       4       5       7       9      11
      Wood                         9      11       6      14      17      (7)
      Packaging                    9      11       8      20      24      19
                              ------------------------ ----------------------
    Total for reportable
     segments                     23      28      24      47      58     (10)
      Corporate                    2       3       4       6       7       5
                              ------------------------ ----------------------
    Consolidated operating
     profit (loss)                25      31      28      53      65      (5)
NOTE 12.
COMPARATIVE FIGURES
To conform with the basis of presentation adopted in the current
period, certain figures previously reported have been reclassified.

Contact:

For further information: Christian Tardif, Manager, Corporate and
Financial Communications, +1-(514)-848-5515,
christian.tardif@domtar.com ; Source: Daniel Buron, Senior
Vice-President and Chief Financial Officer, +1-(514)-848-5234,
daniel.buron@domtar.com ; To request a free copy of this
organization's annual report, please go to http://www.newswire.ca and
click on reports@cnw