Domtar Corporation Reports Preliminary Fourth Quarter and Fiscal Year 2012 Financial Results

Operating income (loss)                                                

            Pulp and Paper segment          40                    103

            Distribution segment               (8)                    (5)

            Personal Care segment            13                    12

            Corporate                             (2)                    (1)

            Total                                   43                    109

Operating income before items             84                    111

Depreciation and amortization              96                    96

The decrease in operating income before items1 in the fourth quarter of 2012 was the result of lower average selling prices for pulp and paper, higher unit costs for fiber and energy, higher SG&A, freight, and maintenance costs and lower volumes for pulp and paper. These factors were partially offset by high productivity and lower costs for lack-of-order downtime in paper.

When compared to the third quarter of 2012, paper shipments decreased 2.5% and pulp shipments decreased 7.2%. Paper deliveries of Ariva decreased 10.4% when compared to the third quarter of 2012. The shipments-to-production ratio for paper was 97% in the fourth quarter of 2012, compared to 105% in the third quarter of 2012. Lack-of-order downtime and machine slowdowns in papers totaled 23,000 short tons in the fourth quarter of 2012. Paper inventories increased by 27,000 tons while pulp inventories increased by 3,000 metric tons as at the end of December, compared to September levels.

LIQUIDITY AND CAPITAL

Cash flow provided from operating activities amounted to $551 million and capital expenditures amounted to $236 million, resulting in free cash flow1 of $315 million for fiscal year 2012. Domtar's net debt-to-total capitalization ratio1 stood at 16% at December 31, 2012 compared to 12% at December 31, 2011.

Domtar returned a total of $215 million to its shareholders through a combination of dividends and share buybacks in 2012. Under its stock repurchase program, Domtar repurchased 2,000,925 shares of common stock throughout 2012 and a total of 8,660,703 shares of common stock at an average price of $80.04 since the implementation of the program in May 2010. At the end of the year, Domtar had $304 million remaining under this program.

OUTLOOK

In 2013, we expect market demand for uncoated freesheet paper to decline at a 3 to 4% rate in North America, but our shipments are expected to trend slightly better than market due to an exposure to stable specialty and packaging papers and the incremental volume from the supply agreement signed with Appleton. Paper prices are expected to trend at levels similar to year-end while we expect a slow and steady recovery in pulp prices. The implementation of our growth plans in the Personal Care segment are expected to yield incremental earnings beginning in the fourth quarter of 2013.