Mr. John Williams reports

DOMTAR CORPORATION REPORTS PRELIMINARY FIRST QUARTER 2012 FINANCIAL RESULTS

Domtar Corp. has recorded net earnings of $28-million (76 cents per share) for the first quarter of 2012 compared with net earnings of $61-million ($1.63 per share) for the fourth quarter of 2011 and net earnings of $133-million ($3.14 per share) for the first quarter of 2011. Sales for the first quarter of 2012 amounted to $1.4-billion.

Excluding items listed below, the company had earnings before items of $61-million ($1.65 per share) for the first quarter of 2012 compared with earnings before items of $93-million ($2.49 per share) for the fourth quarter of 2011 and earnings before items of $138-million ($3.25 per share) for the first quarter of 2011. First quarter 2012 items:

• Premium paid and costs related to the debt repurchase of $50-million ($30-million after tax);

• Closure and restructuring costs, including writedown of property, plant and equipment, of $3-million ($2-million after tax);

• Negative impact of purchase accounting of $1-million ($1-million after tax).

Fourth quarter 2011 items:

• Closure and restructuring costs of $38-million ($23-million after tax), mostly related to the restructuring of certain U.S. pension benefit plans;

• Charge of $12-million ($9-million after tax) related to the impairment and writedown of property, plant and equipment.

First quarter 2011 items:

• Closure and restructuring costs of $11-million ($8-million after tax);

• Gain on the sale of property, plant and equipment and business of $7-million ($5-million after tax);

• Charge of $3-million ($2-million after tax) related to the impairment and writedown of property, plant and equipment.

"Our businesses performed well in the quarter, but cyclically low prices in global pulp markets and higher costs affected results," said John D. Williams, president and chief executive officer. "On strategy, we announced and completed the acquisition of Attends Europe further expanding our personal care segment and we announced an innovative 15-year supply agreement with Appleton Papers that will result in the conversion of high-volume communication paper capacity to specialty paper grades, securing a growing business long term."

Quarterly review

Operating income before items was $113-million in the first quarter of 2012 compared with an operating income before items of $148-million in the fourth quarter of 2011. Depreciation and amortization totalled $97-million in the first quarter of 2012.

The decrease in operating income before items in the first quarter of 2012 was the result of lower selling prices for paper and pulp, higher input costs, transaction costs, and the negative impact of a stronger Canadian dollar. These factors were partially offset by higher shipments for papers and lower maintenance costs.

When compared with the fourth quarter of 2011, paper shipments increased 4.7 per cent and pulp shipments decreased 3.5 per cent. Paper deliveries of Ariva increased 5.1 per cent when compared with the fourth quarter of 2011. The shipment-to-production ratio for paper was 100 per cent in the first quarter of 2012, compared with 95 per cent in the fourth quarter of 2011. Paper inventories decreased by 1,000 tons while pulp inventories decreased by 26,000 metric tons as at the end of March, compared with December levels.

Liquidity and capital

Cash flow provided from operating activities amounted to $30-million and capital expenditures amounted to $29-million, resulting in free cash flow of $1-million for the first quarter of 2012. Domtar's net-debt-to-total-capitalization ratio stood at 18 per cent at March 31, 2012, compared with 12 per cent at Dec. 31, 2011.

In the first quarter of 2012, Domtar paid $47-million in premiums in relation to the completion of a tender offer for certain outstanding notes. Excluding these premiums, free cash flow was $48-million for the period ended March 31, 2012.

Outlook

Price realizations in pulp are expected to improve from trough first quarter prices as a result of recently announced price increases. In paper, both volumes and prices are expected to positively impact results due to new business in specialty and packaging papers, and price increases in the process of being implemented. The second quarter will be affected by the usual seasonal higher maintenance activity.

Earnings conference call

The company will hold a conference call today at 10 a.m. ET to discuss its first quarter 2012 financial results. Financial analysts are invited to participate in the call by dialling at least 10 minutes before start time 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 website.

The company will release its second quarter 2012 earnings on July 27, 2012, before markets open, followed by a conference call at 10 a.m. ET to discuss results. The date is tentative and will be confirmed approximately three weeks prior to the official earnings release date.

               CONSOLIDATED STATEMENT OF EARNINGS 
                   Three months ended March 31
        (in millions of dollars, except per share amounts)

                                 2012                       2011            

Sales                          $1,398                     $1,423
Operating expenses
Cost of sales, excluding
depreciation and amortization   1,088                      1,021
Depreciation and amortization      97                         93
Selling, general and admin         99                         90
Impairment and writedown of
property, plant and equipment       2                          3
Closure and restructuring costs     1                         11
Other operating loss
(income), net                       2                        (6)
                               ------                     ------
                                1,289                      1,212
                               ------                     ------
Operating income                  109                        211
Interest expense, net              71                         21
                               ------                     ------
Earnings before income taxes
and equity earnings                38                        190
Income tax expense                  8                         57
Equity loss, net of taxes           2                          -
                               ------                     ------
Net earnings                   $   28                     $  133
                               ======                     ======
Per common share (in dollars)
Net earnings
Basic                            0.76                       3.16
Diluted                          0.76                       3.14

We seek Safe Harbor.