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2012 ANNUAL REPORT MBuaidledlienign eo uFré qfuutiuère in fiber. Together. RDicrehcatrodr ,E C. oMrpuolrlaetne Credit Montreal, QC DVoicme-tParesident Market Development and Analysis Fort Mill, SC
THE FIBER of Domtar OuUrR v iVsiIoSnI OisN t,o M beIS tSheIO leNa,d eAr NinD i nVnAoLvaUtiEnSg fiber-based products, technologies, Oanudr smerivsiscieosn, icso mtom dietltievde rt oth ae shuisgthaeisnta bvlael uaen dto b oeuttre rc ufustoumre.ers, Ttoo eamchpioewvee ro ouur rg eomalps lwoyee ewsi ltlo rexlyc eol,n atnhde toh rpeeo sciotirve evlyal uimesp tahcat to uunr icteo musm, udnefiitniees .us, IaTn’dS c IrNea tOe UouRr FsuIBccEesRs tToOge BthEer: Agility, Caring, and Innovation. OAuGrI LinEdustry is changing and so are we. When we need to change course, we do it. We are doers, not talkers, but when we act, we act thoughtfully. We’re always looking for simpler, more efficient ways to work. CITA’SR IN GOUR FIBER TO BE IWT’eS l oINok OoUutR f oFrI BeaEchR oTthOe rB’sE safety as well as our own. We never forget that our company is woven into the fabric of our communities above all else. WINeN aOlwVaAyTs IlVooEk to the future beyond the horizon. We always want to make things better, and we work together to do it. We bring our resourcefulness and creativity to bear for long-term success.
SJeaalnes S Rhaerpkreysentative, Ariva Albany, NY PMroarcveisns DAeimr Literaiduesr ,G Aayttends Greenville, NC
Every day, Domtar’s 9,300 employees make a difference in peoples’ weh oa rhea bvue imldiandge ua ss ua slteaaidnearb lien ftuhteu rien dinu swtrhyi cbhy Dthoem sttarer nwgitlhl polfa tyh eair DMiogrgee rt hPaonn edver, fiber is at the center of our lives...and yours. MFoarreiset rCy yarnd Woodyard Manager Ashdown, AR WAsisnidsstaonr,t QSuCperintendent ildiveeass .t hWroourgkihn gth teo qguetahlietry w oift ho uoru pr rcoudsutoctms earnsd, ssueprvpilcieesrs. Iatn’sd ahlosost ocuorm pmeoupnlieties, Bdeycriosniv De orowlee,l lnot as a bystander, but as an active participant. HBalewaecshv Pilulelp, KMYill Supervisor CTroancviee rAtilnegx aDnedpearrtment Rothschild, WI
DOMTAR AT A GLANCE iDnocomnttairn eCnocrep poroatdiuocnt s(.N TYhSeE f:o uUnFdSat)i o(TnS oXf :i tUs FbSus) idneessisg inss ,a mneatnwuofarkct uorfe ws,o mrldar-kcleatss, awnodo ddi sfitbriebru ctoesn vae wrtindge vasasrieettsy t hoaf tf ipbreord-buacsee pda ppreorgdruacdtes, ifnlculfuf,d ianngd csopmecmiaultnyi cpautilopns. pTahpe rms, asjpoerictiya lotyf iatnsd p pualpck pargoidnugc ptiaopne riss, caonnds uadmueldt Hinutesrknya®lly O tpoa mquaen uOffafcsteutr,e Fpiarpste rC ahnodi cceo®ns, uamnde rD poromdtuacr tEs.a rDthoCmhtoari cies® th. eD loamrgteasrt iisn taelgsora tae dle amdainrkge tmera rokfe utenrc aonadte dp rfordeeuscheer eot fp aa pceorm inp lNetoe rltihn eA omf eirnicao nwtiinthe nrceec ocganrei zperdo dburacntsd sm saurckhe taesd Cproiumgaarri®ly, uLnydnexr ®th eO Apatqteuned Us®lt rba,rand Cnaommep. aDnyo memtapr loowysn sa papnrdo xoipmeraatteelsy A9r,i3v0a0® p, eao npeletw. Torok loeaf rsnt rmatoegrei,c avlilsyi tl owcwatwed.d poampetar ra.cnodm p.rinting supplies distribution facilities. In 2012, Domtar had sales of US$5.5 billion from some 50 countries. The (SInA LmEilSlions of dollars) 150,8 1510 152,612 5,482 (OInP EmRilAliTonINs Gof IdNoCllOarMs)E 366073 592 E10B 1IT1D 1A2 (BInE FmOilRliEon IsT oEfM dSol1lars) 719,0983 1,100 N10E 1T1 D 1E2BT-TO-TOTAL (CAAs PaI TpeArcLeInZtAagTeI)ON1 126 190 11 12 D1 ONMonT-GAARA 2P0 1f2in AanNciNalU mAeLa sRurEeP. OCRonTsult the Reconciliation of Non-GAAP Financial Measures at the end of this document or at www.domtar.com
Selected financial figures 2(i0n1 m0 i2l0li1o1n s2 0o1f 2dollars, unless otherwise noted) OCpoenrsaotliindga tiendc osmale s( l5o,s8s5)0 p 5er, 6s1e2g m5,e4n8t2 DPuislptr iabnudt ipoanp (e3r )6 –6 7(1 568)1 346 WPeorsoodn1a l( 5c4a)r e– – – 7 45 OCpoerpraotriantge i(n7c) o4m (e8 )603 592 367 CNaest he afrlnoiwn gpsr o6v0i5d e3d6 5fr o1m72 operating activities 1,166 883 551 FCraepei tcaals ehx fploenwd2i t1u,r0es1 31 5733 91 4341 5236 LTontagl- taesrsmet sd e6b,0t,2 i6n c5l,u8d6i9n g6 ,c1u2r3rent portion 827 841 1,207 TNoeta dl esbhta-rteoh-tooltdaelr sc’a peiqtualiitzya t3i,o2n0 2ra t2i,o927 29 %2, 81727% 16% SWAeLigEhSted average number of common and exchangeable shares outstanding in millions (diluted) 43.2 40.2 36.1 8b0y% business segment 1P3u%lp and paper 7D%istribution SPAerLsoEnSal care 7b5y% region 1U3n%ited States 1C2a%nada EOMthPerLOYEES 6b3y% region 3U1n%ited States 6C%anada 1O tDhoermtar sold its wood business on June, 30, 2010. D2 ONMonT-GAARA 2P0 1f2in AanNciNalU mAeLa sRurEeP. OCRonTsult the Reconciliation of Non-GAAP Financial Measures at the end of this document or at www.domtar.com
BMuEilSdSinAgG oEu rT fOut uSrHe AinR fEibHeOr.L TDoEgRetSher. fTinwaon ctihaolu rseasnudlt sa nadre t wneevlevret hwelaess sa ns tiamrtpinogrt aton ts yheoawr itnh eD boemnetafirt’s oevf oinluvteisotnm feronmts wtraed’riet imonaakli npgu lipn aonudr pfaacpielirt imesa,k ienr toou rt rpueo fpiblee,r ainndo ivna otourr. fWuteu raer.e still in the early days of this business transformation, but our aLnodo kpirnogfi toaubti laictyro—ssw 2e0 h1a2v, ew leo tesx teoc ubtee dp rwoeuldl onf. tThhinegres aurne daelrs oo usro mcoen tarroela.s Ownh eoruer wfoeu wr iklel yn epeedrf otorm readnocue bilned oicuart oerfsfo (rKtsP iIns )2 t0h1a3t ,w gei vmenea tshuer er eotursne lovfe sse bcuyl—ar hdeeamlthan adn d escalfientey ,i nc uosutro mcoerre sbautissifnaecstsio. n, pulp productivity, sWtoeo pde brfeolromwe d1 .w0 eflolr bseiyxo onudt ooufr ttwareglvete fmoro hnethalst,h w ahnidc hs aifse twy,o rwldit-hcl aas tso stalf eitnyc ipdeernfot rfmreaqnuceen. cy rate of 1.08, the lowest on record for Domtar. This represents a 20% improvement compared to 2011. Moreover, the rate cLyocolkicianlgit yto o pf rpoufiltpa bpirliictiyn gas t hmaet aissu reemdb beyd doeudr EBITDA target (Earnings before Interest, Taxes, Depreciation, and Amortization), after two years of record earnings our financial performance receded in 2012. The pinri coiunrg b aunsdin gesoso dco cnotsrti bcuotnetdr otlo. tAhen dm oavjoeriatlyl, oift tihs iws oyretahr -uonvdeer-rylienairn dge tchliant et,h be uCt oitm wpialnl yp rgoevniedrea teeadr n$i7n9g9s moilmlioen tiunm E aBsI TthDe Am ianrk 2e0t 1re2c,o wveitrhs. $D3e1s5p imtei ltlhioesne ohfe fardewe icnadshs, folouwr .paper business performed well, with stable oAusr wapep croonactihn.u Te otgoe sthuecrc,e swsfeu allrye bexueilcduitneg o ouur rP feurtfuorrem i—n fGibreorw. — Break Out strategic roadmap, I am reminded of an old proverb “If you want to go fast, go alone; if you want to go far, go together.” This is indeed OFU RF SSCU®S TCAEIRNTAIBFIILEIDT YP APPREORM IINS EN OISR ETMH BAOMDEIERDIC BAY, ETAHRET EHVCOHLOUICTIEO NO OWF AOCUCRO EUANRTTSH FCOHRO IOCVEE BRR 2A0N%D O. FC UORURRE TNOTTLAYL K PNAOPWERN SAASL OENSE A ONFD TAH BE ILALIROGNE DSTO,L MLAORSST ICNO TMEPRRMESH EONFS SIVAEL ELSIN. E DTHOEM BTARRA N2D01 I2S A WNENLULA OLN R IETPSO WRTAY TO BECOMING AN OVERARCHING SUSTAINABILITY PHILOSOPHY FOR OUR ORGANIZATION.
A pivotal year on our strategic journey HOef aclothucrsaere, aL ibmigi tpedar t( “oAf tthene dnse xEtu rcohpape”te),r sc oonf stohlei dDaotemd toaru rs toowryn eisrs ohuipr eoxf ptahnes Aiotnte inndtso bthraen pde orsno nbaolt hc asried mesa orkf etth. eT Ahetl aancqtiuci.sition of the sister operations of our existing North American Attends business, Attends pTehres osnuabls ceaqruee nptr oadcuqcutiss iitni oan hoifg hElAy Mco mCpoerptiotirvatei oind, uasnt riyn.novative manufacturer of absorbent cores, put us in a solid position to grow the business while giving us levers to further differentiate our full line of cOafm npoutes,e sw teh acto mhapvlee tbeedc oam ke ya nb uiinlndoinvgat ibolno chku, bt hfeo rs eat twinidge u rpa nogfe a o gf lcoobnasl uomffiecre p froord tuhcet Preesresaorcnha la Cndar ed edvievliospiomne innt .Raleigh, North Carolina. It stands to benefit from its proximity to the region’s university research rOesuur lPtse.r sWone aalr eC marea kdiinvgi siinovne satcmcoeunnttse tdo fgoro 7w% o oufr DPoermsotanra’ls Ctoatrael bsualseisn,e scslo, swinitgh ian goona l$ 6to7 dmoiulbliloen e aorfn EinBgIsT fDroAm i nth 2is0 1ex2i,s otirn cgl obsues itnoe 1ss0 %ov oerf tohuer nceoxnts ofilvide aytedar sru wn-hrialtee lEoBokITinDgA fo br aasdeddi toino nfaolu brtohl tq-ounar taecrq 2u0is1i2ti ofinnsa.ncial WSieg nairfei ccaonmt dmeivtetelodp tmo emntasx iimn itzhien gco arned enhancing the value of our existing assets, and our ongoing transformation involves just as importantly the repositioning and repurposing of pulp and paper operations. tAh ecramsea li nb apsoe isntto icsk ofuorr epxopinant-soifo-ns ailne pgaropweri.n Tg hpea psiegr ngirnagd eosf aan 1d5 t-hyee acro snuvpeprslyio ang orefe omuer nMt wariltbho Arop, pSleotuotnh PCaapreorlsi,n aIn mc.i ltlo fsroumpp clyo munmcuonatiecdat iforene sphaepeet rb garsaed pesa ptoer sfpoer ctihaeltiyr uasned wpasc kaa gdientegr mgriandiensg, faocrt othr ei np rooudru cdteicoinsi onf to Oinuvre sstt r$a3te2g ym iisl lpioany iinng tohfifs: psrhoijpemcte. nts of specialty and packaging paper grades increased 15% compared to 2011, and reached 15% of total paper shipments for 2012. gWloeb aalls om markadete oa u$t2lo6o mk iflolri osno fctawpoitoadl pinuvlpes itsm heingth ilny ocuorm Apsehlldinogw,n l,e aAdriknagn suass tmo ielxl pteoc tg ahiing hfleerx pibroilfiitty m inar gswinistc lhoinngg tferormm, tahned m thainsu ifna cctoumrinbgin oaft ihoanr dwwitoho dth pe umlpi ltlo’s mloawnu-cfoacsttu prionsgit isoonft wmoaodde tphuel pc oannvde rvsiicoen v deerscais. iTonh eeasy Atod mjuasktien.g our production mix away from communication papers towards GDP-growth-aligned specialty and packaging papers is one way to insulate our earnings profile from the 3-4% decline in annual secular Odefm aalln din fnoorv uatnicoona tperdo jferecetss hbeeeitn ign iNncourbtha tAedm, ewriec ah.a vAen aonthneoru insc eodu rt hloreneg t-hteartm c oiunlvde sttamkee notu irn C foibmerp ainnyo ivna tnieown raensde aerxchci tainndg ddeivreecltoipomnse—ntl.ignin separation, cellulose nanocrystal production, and converting wood ybeioamrs.ass into clean-burning bio-fuel. R&D timelines are by their nature long term, but we are confident that a whole new range of market applications for fiber-based materials will be developed over the coming NDUOMBTAER O20F1 2R AECNONRUDAAL BRLEEP OINRJTURIES 1(P.4e1r 210.306,000 work hours) 10.0 181 12
WPAe PcEonRtbineucaeu tsoe invest in our engagement and advocacy campaign, PAPERbecause, that uses humour as well as facts to point out paper’s enduring value in a digital age. SFtRoEckE bCuAybSaHck F aLnOd Wdi vPidAeYndO UasT a percentage of FCF 1713% 68% W10e 1 h1a v1e2 been delighted by the groundswell of support that has been engendered by the campaign’s “Really, Really Short Films.” It has been rewarding to see others in the industry get on board with us to share Tthhee csaumccpeasigs no’fs PmAePssEaRgeb eacsa iuts ere hsuaslt sin i nit sa owwidne rw, amyo hre lcpoemd pbeulillidn gs ucpopnovret risna ttihoen .United States for a Paper Check-Off Program that, if eventually passed, would see a $0.35 per ton ($0.00000175 per copy paper Wshe ebt)e lcihevareg ien o tnh ep aipmepr osrotladn cien atnhde rUelneivteadn cSet aotfe os utro PcArePatEe Ranb eocnaguosein cga,m spelafi-gsnu sbtaeicnaiunsge $it2 s5p meaiklsli oton ofunr dp rtood purcot’ms optlea cpea pine ra. digital age—its emotional resonance, its sustainability—while dispelling the myths Saruosutnadin tahbei leitnyv iarso na mcoernet ablu isminpeascst ss toraft epgayper. kAesy wpee rifnovrmesatnigcaet ein odpicpaotrotru nfriatmiese wtoo rgko t hbaety ownidll pdurilvpe a bnodt hp aopuer ,p weref owrmilla nccoen tainndu eo utor rlepado rtthineg w oauyt wtoh e2n0 2it0 c aonmde bs etyoo bnuds. iness sustainability. The Sustainable Growth Report released in 2012 unveiled a long-term, aOcucro usnutsst afionra boivleitry 2 p0r%om oifs oe uirs teomtablo pdaipeder bsya ltehse. Tevhoel ubtriaonnd oisf owuerl lE oanrt hitCs hwoaicye tbor abnedco. mCiunrgre nantl yo vkenroarwchni nasg osnues toaifn tahbei lliatryg epshti,l omsospth cyo fmorp roeuhre nosrgivaen ilziantei oonf. FSC certified paper in North America, EarthChoice now eWven atruea lplryo ugdet tion gh atvoe tbheee np oeianrtl yw ahdeorep tweres wofi lFl obree satb lSet etow saordusrhceip a Cll oouf nocuilrT wMo ocde rftibfiecra tfiroonm g FoSinCg cbearctkif iteod tfhoer etsutrsn. of the millennium, and we remain committed to increasing our FSC fiber mix by 25% by 2020, AFi nbaennceifaitl oflfe xoiubri lpirtuyd seunpt pfoinrtasn coiuarl cmapanitaagl eamlloencat toiof nth peo pliacsyt years is the resulting access to capital and opportunities that will open over time to build a capital structure for the long haul. A proof point is our Isnu cacdedsistfiuoln i,s wsuei nhga voef $$635000 miilllliioonn oinf l3iq0u-yideaitri enso toens hata nhdis atonrdi cianlc lroemw einnttaelr ebsot rrraotwesi ntgh acta wpaiblli lhiteylp p fruorvtihdeirn rge dthuec en oeeudr edde bfitn saenrcviiacli nflge xciobsitlsit yfo tro y ceoarnst itnou ceo emxec. uting on our growth plans and capital investments. All Itnh iks epeuptisn gu sw iinth a osuorl icdo mfinmanitcmiaeln pt obsaictiko nin t o2 0g1ro1w, w the ec obnutsiinnueesds trhesisp opnassitb ylyea, rw toit hre vtuisrnio an manadjo priutryp oosf ef,r ewe hcialseh g filvoiwng t ou ss hthaere ahgoillditeyrs t,o 6 t8a%ke ianc ttiootnal ,q uthicrokulyg hw ah ecno mopbpinoarttuionnit ioefs sahraisre .buybacks and regular dividends. DOOurM loTnAg-Rte r2m01 a2s pAiNraNtioUnA iLs tRoE kPeOepR gTrowing the dividend to a level that delivers on our three strategic objectives, increasing at a rate consistent with the business’s long-term earnings growth.
DComnctlaurs icoonntinues to harvest the seeds that were put to ground when our strategic plan was rolled out in 2009. cIto mis ian gfa ycte atrhsa.t Soeutrt ienagr naisnigdse rtehme auinnk vnoolwatnisle o df upeu tlop opurirc ienxgp,o wsuhraet two eg ldoob akln pouwl pi sm tharakt eotsu,r ypeotr tfhoilsi os aomf ea sbsuestsin wesisll wcoilnl tpinrouve itdoe cshoamnge ed, iavnedrs iwfiec awtiiolln cwonhtiilne uoeu tro P aedrsjuosnta lo uCra preu slpal easn dm poampeern tausmse trsa manpds ouupr opvroedr utchteion to OthFe cChOanUgRinSgE n,e AedNs oEfN tDheU mRaINrkGet, aSnUd CoCurE cSuSstFoUmLe rBs’U dSemINaEnSd Sfo IrS p MapOerR. E THAN THE SUM OF THE FINANCIAL NUMBERS IT GENERATES. IT NEEDS A COMMON PURPOSE, A COMMON VISION, SAHNADR AE HCOLMDMEROSN ALLAINKGEU. TAHGIES TISO TBHREID AGGEI LTIHTYE ,D CUAARLIN SGP,A ANNSD O IFN NGOEOVGARTIAOPNH TYH AANTD U TNIIMTE UINS OARSD DEORM TTOA CRR EEMAPTLEO SYOEMEEST, HAINNDG DOEFF LINAES TUISN GIN V TAHLEU ME ATROK CEUTSPTLOAMCE RASN, DE MINP OLOUYRE HEOSS, TAND WCOe MwiMll UalNsoIT cIoEnSt.i nTuHe ItSo IpSu rTsuHeE r eFpIuBrpEoRs iOngF oDpOpoMrtTunAiRtie. s and acquisitions that fit our growth strategy. Our goal is to reach $300-$500 million of annualized EBITDA from new business streams within five Oyefa crso.urse, an enduring, successful business is more than the sum of the financial numbers it generates. It needs a common purpose, a common vision, and a common language to bridge the dual spans of tgheeo gmraaprkheyt palnadc et iamnde in ourdr ehr otsot ccroematem suonmiteieths.i nTgh oisf ilsa sTtihneg Fviableure otfo Dcuosmtotamr.ers, employees, and shareholders alike. This is the agility, caring, and innovation that unite us as Domtar employees, and define us in tAhse If ultouorke. bWacek’ vteo hloado ka fyoerawr awrdh,e Ir ec awne ’svaey mthaadt e2 p0r1o2g rwesas and e xthcerlele inst ae xloamt mploer eo ft oD coommtaer. aWcteilncgo mboel dtoly t,h ye eetv tohlouutigohnt!fully. We are managing our core business to maximize returns while we tailor our Company for PJorehsni dDe.n tW ainldliams DCOhiMef TEAxeRc u2t0iv1e2 OAfNfiNceUr AL REPORT
GOlUoRba lN rEeaTcWh,O lRocKal roots WOuer htavpe sat rnye otwf ofirbke ro fp r1o3c uwreomode nfti,b emr acnounfvaecrttuirnign gm, imllasr kacertoinsgs Nanodr tdhi sAtrmibeuritcioan t hoapte mraatinounfsa citsu wreo pvuelnp aacnrods ps aNpeorr.t hT hAims periocdau, cEtiuorno psey satnedm i nisto s upparptos rotefd A bsyia 1. 5 converting and/or forms manufacturing operations, an feoxrtmenss,i vaes dwiesltlr iabsu dtiiognit anle tpwapoerkr, acnodn vreegrtiionnga lr orlelpsl eannids hsmpeecniat lctyen pterorsd.u Ictt sin. cludes Enterprise Group®, a Domtar business that primarily sells and distributes Domtar-branded cut-size business paper and continuous sInu pApsoirat, two eA hsaiavne pesutlapb lciusshteodm ae rcso.nverting and distribution presence in southern mainland China, in the province of Guangdong. We also have a representative office in Hong Kong that provides customer services MOuidr wDeist raibnudt iNoonr tbhuesaisnte,s asn, dA Eriavsat,e rsne lClsa annad ad. istributes a wide range of paper products from Domtar and other manufacturers. Ariva serves a diverse customer base through 22 locations, primarily in the U.S. GOeuor rPgiear saonnda lA Cnaerbey b, uSswineedsesn p. roduces a wide range of adult incontinence products. These products are marketed out of manufacturing and research and development facilities in Greenville, North Carolina, Jesup, MHEoAntDre aOl,F QFuICebEec OPUpeLraPt iAonNsD C PenAtePrER UFonrcto Mateildl ,F Sreoeusthhe eCtarolina WAsihnddosowrn, ,Q Aurekbaencsas Espanola, Ontario Hawesville, Kentucky Johnsonburg, Pennsylvania Kingsport, Tennessee Marlboro, South Carolina Nekoosa, Wisconsin Port Huron, Michigan Rothschild, Wisconsin DPurylpden, Ontario CKhamipl oMoiplsls, British Columbia Plymouth, North Carolina CHoawnveesrvtiilnlge, aKnden Dtuicsktryi bJuothionnso –n bOunrgsi,t ePennsylvania Kingsport, Tennessee Marlboro, South Carolina CAoshndvoerwtinn,g A arnkda nDsaisst rRibouthtisocnh i–ld O, fWfsisteconsin Windsor, Quebec CAadrdoilsionna, WIllaisnhoinisg tBorno wCnosuvrti lHleo, uTseen, nOeshsieoe ZDeanlglacsh,e nTge,x aCsh DinuaBois, Pennsylvania Griffin, Georgia Indianapolis, Indiana Owensboro, Kentucky Ridgefields, Tennessee Rock Hill, South Carolina Tatum, South DFoarlmlass, MTeaxnausf aIcntduirainagpolis, Indiana Rock Hill, South Carolina AEndtdeirspornis,e I lGlirnoouips – United States DAelbnuvqeur,e rCqouleo, rNadeow D Muleuxtihc,o GAelotrogoinaa E, lI oPwaas oA, nTteioxcahs ,G Taernlanneds,s eTee Bxaisrm Hianygwhamrd, AClaalbifaomrnai aB Hoiosbeo, kIdenah, oN Bewro Joekr sPeyar kH,o Oushtioon B, Tufefxaalos ,I nNdeiwan Yapoorlki sC, hInadrlioatntae ,J Nacokrstohn C, aMroilsisnias sCiphpait tJaancokosgoan,v Tilelen,n Feslsoereid Ca iKncainnsnaast iC, iOtyh,io MKainlwsaasu kKeeen, tW, Wisacsohnisnignt oMni nKnneoaxpvoillilse,, MTeinnesosetae OLamkaehlaan, dN, eFblroarsikdaa OLvanerglhanodrn, eM, Pisesnonusryi lPvahnoiean Lixe,x Ainrgiztoonn,a KPeipnetur,c kInyd Liaonuai sPviitltlseb,u Krgehn,t uPceknyn sMylavnasnfiieal dP,l aMina sCsiatcyh,u Osehtitos MRiecdhlmeyo,n Fdl,o Vriidrag iMnieam Rpihviesr,s iTdeen, nCeaslsiefeornia Salt DLaOkMe CTAityR, 2U0t1ah2 SAaNnN AUnAtoLn iRo,E TPeOxRasT Wayland, Michigan Wayne, Michigan
MHeoandt rOeaflf,i cQe C FOopretr aMtiiolnl,s SCCenter – Pulp and Paper CPuolnpv earntdin Pg aapnedr /Mor iFllosrms Operations RDeisptrreisbeuntitoatni,v eS Oupfpfilcye, and Service Facilities CDoivviisnigotnoanl ,H KeYad Office – Distribution DAirvivisaional Head Office – Personal Care MRaalneuigfahc,t uNrCing and Distribution AGnreeebnyv,i lSlew, eNdeCn EAAttMen dCs oSrpaloersa tOiofnfices – Europe EJenstueprp, rGisAe Group – Canada RCeaglgioarnya,l ARlebpelretna iDshomrveanlt, CQeunetbeercs B(RraRmCp)t o–n U, nOintetdar iSot aDteeslta, British Columbia CAhdadrilsootnte, ,I lNlionrothis Carolina Garland, Texas Jacksonville, Florida Kent, Washington Langhorne, Pennsylvania Mira Loma, California MReigssioisnsaalu Rgae,p lOenitsahrimo eRnitc Chmenotnerds, (QRuReCbe)c – W Ciannnaidpaeg, Manitoba GRuepanregszehnotaut,i vCeh Oinfafi cHeo –n gIn Kteornnagt,i oCnhailna DiIvSiTsiRoInBalU HTeIOadN Office ACroivvian g–t oEna,s tKerenn tRuecgkiyon WAlabsahniyn,g tNoenw, DYCor/kB aBltoismtoonre, ,M Maasrsyalcahnudsetts Harrisburg, Pennsylvania Hartford, Connecticut Lancaster, Pennsylvania New York, New York Philadelphia, Pennsylvania Southport, Connecticut CAirnivcain –n aMti,i dOwheisot RCelegvioelnand, Ohio Columbus, Ohio Covington, Kentucky Dayton, Ohio Fort Wayne, Indiana Indianapolis, Indiana HAarilvifaa x–, CNaonvaad aScotia Montreal, Quebec Mount Pearl, Newfoundland Ottawa, Ontario Quebec City, Quebec Toronto, Ontario DPEivRisSioOnNalA HLe CadA ORfEfice ARtatleenigdhs ,N Noorrtthh ACmareorliicna a– Manufacturing and Distribution AGtrteeenndvsi lEleu, rNopoer t–h MCaarnoulifnacaturing and Distribution Atnteebnyd,s SEwuerodpene – Direct Sales Organizations NBeowxmcaesetrl,e Tuphoe nN Tetyhneer,l aUndnsi tEeds pKoion,g Fdionmla nOds lKoe, eNrboerrwgaeyn ,P Baeslcghiiunmg, Austria Rheinfelden, Switzerland Schwalbach am Taunus, Germany JEeAsuMp, CGoeroprogriaation – Manufacturing and Distribution PLuISlpT aOndF PLaOpCerA MTiIlOlsNS AND CAPACITIES 7A0s3h,d0o0w0 nS, TA oRf paper per year 7E7s,p0a0n0o lSa,T O oNf paper per year 5H7a8w,0es0v0i lSleT, KofY paper per year 3Jo6h9n,0s0o0n bSuTrg o, fP pAaper per year 4K1i4n,g0s0p0o rSt,T T oNf paper per year 2M7a8r,l0b0o0ro S, TS Cof paper per year 1N1e8k,o0o0s0a ,S WT Iof paper per year 1P1o4rt, 0H0u0r oSnT, oMf Ipaper per year 1R3o8t,h0s0c0h iSldT, Wof Ipaper per year 6W4i1n,d0s0o0r ,S QTC of paper per year DMrayrdkeent ,P OuNlp Mills K32a8m,0lo0o0p As,D BMCT of pulp per year P38ly0m,0o0u0t hA, DNMCT of pulp per year A43l8l ,p0a0p0e rA tDonMnaTg eo fi sp euxlpp rpesesr eyde ainr short tons (ST) and by mill production capacity. DAOll MpuTlpA Rto n2n0a1g2e AisN eNxpUrAesLse Rd EinP OaiRr dTry metric tons (ADMT) and by mill market pulp production capacity.
DTROAMNTSAFRO 2R0M12IN AGN WNUOAOLD RFEIBPEORR TINTO PURPOSEFUL, EVERYDAY PRODUCTS
POuUlpR aPnRd OpaDpUerC dTeSsi gAnND SERVICE SOLUTIONS CIna onuadr aP, ualnpd aonvde rPsaepase,r isnegclmudenint,g wmee rdcehsaingtns,, mreataniul foacuttulerets, ,m staartkieotn, earns,d pdriisnttreirbsu, tpe ucbolmismheursn,i ccaotniovne,r tseprse,c iaanldty e, nadn du spearcsk. aWgien gse plla pa ecros.m Wbien adtiisotnri bouf tpe roivuart ep rloadbuelcst sa ntod aw veallr-ireetcyo ogfn iczuesdt obmraenrds eidn pthroed Uucntist esdu cSht aatse sC, ougar, mLyannxu fOacptauqreure aUndlt rma,a rHkuetsekry o Of puanqcuoea tOedf ffsreete,s Fheirestt pCapheori cien, Nanodrt hD Aommtearri cEaa, rathnCd hthoeic teh Oirdff ilcaer gPeaspt eirn, tphaer tw oof roldu.r family of environmentally and socially responsible papers. Domtar is the largest integrated iOs udrr iPeudl pa nadn dso Plda pteor csuegstmomenetr sa losov eirnsecalusd, eins tthhee mUnarikteedti nSgta atensd, dainsdtr ibnu Ctiaonna doaf .s Tofhtew soaoldes a tnod ohvaerrdsweaoso cdu mstoarmketr sp aurlep m, pardoed duicreedc tilny eoxr ctehsrso uogf ho ucro minmterinssailo rneq augierenmtse, natnsd f omr apianplyer mtharokuinggh, aa sN woretlhl aAsm fleurfifc apnu slpal.e Ts hfoisr cpeu ilnp PNAorPthE RA mMeAriRcaK. EDTo mCtOarN iDs ItTheIO thNiSrd1 largest chemical market pulp producer in North America, and the eleventh largest in the world. tIon t2h0e1 2p,r e9v,i6o5u1s ,y0e0a0r .s hDoermt atonnds f orf uncoated freesheet ipna pNeor rwthe rAe mearnicuaf awctausr eadp pinro Nxiomrtaht eAlym 9e,r6ic8a9, ,a0 030.9 s%ho drte ctroenass eo cvoemr tphaer esdame period, a 4.7% decrease compared to 2011. Global demand for uncoated freesheet was Hesatviminagt ebde nate f6it0e dm firlolimon a troenlast,i va e0ly.9 s%ta binlec rdeaesme aonvde rf otrh eu npcroevatieodu sf ryeesahr.eet paper in North America in 2011 compared to 2010, the long-term decline in secular demand resumed in 2012. North American demand has ebxepenec dteedc ltion ignrgo wat at rante aonfn aupapl rroaxtei mofa t1e.l3y% 3 .o7v%e rp tehre y neeaxr ts ifnivce y2e0a0r0s, bwuhoiylee dg lboyb aslt rdoenmg adnedm haansd b iene nS oinuctrheeaassitn gA saita a a rnadte s oufp appoprtreodx itmo aat elelyss 0er. 9d%eg preeer byyea Er aosvteerr nt hEeu sraompee apnedri oLda.t iAn cAcomrderiincga .to RISI, global demand is NPUorLthP AMmAeRricKaEn Tp rCodOuNctDioITn IoOfN cShemical market pulp was 15.3 million metric tons in 2012, a 1.1% decrease compared to 2011. Global production of chemical market pulp in 2012 was approximately 53.5 PmUilLliPo nA mNeDtr iPcA toPnEsR, —a 1K.4E%Y iNncUreMasBe EoRveSr the previous year. Paropdeur cts are manufactured in nine pulp and paper mills in the United States and four in Canada. Our pulp and paper products are sold in some 50 countries. PUanpceora pterdo dfurecetsihoene tc appraocdituyction capacity of approximately 3.4 million short tons CUa.Sna.:d a8:1 %19% CPaopmerm purondicuactti osnh ippampeernst:s 85% PSuplepcialty and packaging: 15% TCraapdaec iptuyl pto p sreoldl uacptpioronx ciampaatceiltyy 1.6 million metric tons (ADMT) of trade pulp CUa.Sna.:d a5:0 %50% SPoufltpw sohoidp:m 5e7n%ts HFlaurfdfw: 2o5o%d: 18% UPu.Slp. :s 3a2le%s by region OCtahneard: a5: 71%1% D1 OSoMuTrcAe:R R 2I0S1I,2 uAnNleNssU oAthLe rRwEisPeO inRdTicated.
SRaEleVsI EdeWcreased by 8% to $4.575 billion compared to 2011. This decrease was mainly driven by lower pulp prices and lower shipments in both paper and pulp. CEBapIiTtaDl Aex bpeefnodreit uitreems sw1e rdee c$r1e8as1e dm bilyl i3o2n%, r etpor e$s7e4n5ti nmgi lal i3o6n% co imncpraeraesde toov e2r0 21011. 1. The increase in discretionary capital projects was mostly due the conversion of the Marlboro, South Carolina mill to the Hpreoadluthc taionnd osaff estpye cpiaelrtfyo ramnadn pcea caksa gmineags upraepde rb gyr athdee st,o atanld f rteoq tuheen ccyap riattael (iTnvFeRst)m imenptrso ivne do nbey o1f4 t%he opvuelrp t hpero pdruecvtiioouns lyineeasr. at the Ashdown, Arkansas mill. YKeEaYr eFnIdGedU RDEecSember 31 20110 (2I0n1 m2 illions of dollars unless otherwise noted) 5S,a0l7es0 (including sales to Distribution) 4,597553 6O6p7erating income 354861 3D8e1preciation and amortization 3618 1E,B08IT2DA before items1 714,0588 1C4a2pital expenditures 18313 5T,o0t8a8l assets 4,58674 3P,a5p9e7r shipments (‘000 ST) 3,352304 1P,u6l6p2 shipments (‘000 ADMT) 1,54597 D1 ONMonT-GAARA 2P0 1f2in AanNciNalU mAeLa sRurEeP. OCRonTsult the Reconciliation of Non-GAAP Financial Measures at the end of this document or at www.domtar.com
HIGHLIGHTS Completed a $2362 million capital investment in the AMsahrdlboowron,, SAorkuathn sCasa rmoliilnla t om gilali nto f lceoxnibvielritt yfr oinm s whiigtchh-vinoglu fmroem c ohmarmdwuonoicda ttioo ns opfatwpeoros dt op uthlpe pmroakdiuncgti ocanp oacf iltiyg.htweight specialty paper grades. pCaopnetrisn.u Sedh itpom eexnptasn odf osupre cpiraelstyen acned i np agcrkoawging paper grades ainncdr esaisgende d1 5a% 1 5c-oymeapr asruedp ptloy 2a0g1re1e,m anendt rweaicthhe Ad p1p5l%et oonf Ptoatpael rps,a pInerc .s htoip smupenptlsy fuonr cfoisacteadl 2fr0e1e2sh. eet base paper for their use in the production of specialty SCtoamrtepdl epteadp eirn cvoenstvmeretnintsg ,t ostaalleisn gan Cd DdNis$tr1ib4u3t imonil loiopner autniodners tahte a C naenwa dsitaante g-oofv-tehrne-maretn fta’csi lPituyl pi na nsdo uPthaperenr GCrheienna Tinra nthsefo prmroavtiinocne Porfo Ggruaamng. dong, location of the highest concentration of commercial printers in China. CAonntoiunnuceedd s tthraet epgeircm iannietinatt icvleoss uinrev oolfv ain gi ntehfef idciesnpto sreacl oovfe nryo nb-ociolreer aasnsde tist sw aistsho tchiaet esdal ep uolfp t hlien he yadt rtoh ea sKseatms loofo tphse, sBhruititsehre dC oOltutmawbai,a Omnitlal.rio/Gatineau, Quebec mill site, and the sale of all of the assets of the DpeOrmMaTnAenRtl y2 0c1lo2s eAdN LNebUeAl-Lsu Rr-QEPuéOvRilTlon, Quebec site.
DFROOMMTA PRA P20E1R2 TAON NPIUXAEL SR,E TPHOER WT AY FORWARD
ODuisrt rDibisuttriiobnution segment involves the purchasing, warehousing, sale, and distribution of our various products and those of other manufacturers. We distribute our products to a wide and diverse customer base, pinucblluidshiningg s mpaaplel,r sm, uednicuomat,e da,n dco laatregde, csopmecmiaelirzceiadl spmrianltle rasn,d c awtaidloeg fuoer manadt dreigtaiitla lp suubblissthraetress,, spigrinn tsihnogp ssu, pipnldiues tarisa lw aenlld ams apnauckfaacgtiunrgin egq fuiirpmms eanntd w ionrsktiftluotwio dneasl iegnnt iatnieds .s Tuphpeslye palroondgu cwtsi tihn ccloundseu bmuasbinleess.s, printing and SRaEleVsI EdeWcreased by 12% to $685 million compared to 2011, mostly due to a 14% decrease in product deliveries. REBecIoTrDdaAb lbe eifnojrue riteesm dse c1re daseecdre absye d2 9$%7 mwihlillieo no vtoe r(a$ll5 )h emalitlhli oan dc osmafeptayr epde rtfoo r2m01an1c.e as measured by the total frequency rate (TFR) was 2.25, a 26% improvement over 2011. CHoIGntHinLuIeGdH bTuSsiness restructuring. Reduced personnel by an additional 5% (14% over 3 years); reduced operations, selling, and administrative costs by 3% (16% over 3 years), and restructured the U.S. Corogmanpizleatteiodn P. hase 1 of the new Enterprise Resource Planning (ERP) system roll-out in the U.S., with final roll-out scheduled for Q2 2013. 2D3i gsiatlaels m aneddi ap rsianlte ss piencciraelaissetds ibny tnhea Urly.S 2. 0a%nd. HCiarneadda to provide momentum to diversified sales in digital small and wide format, as well as packaging categories. PLraeupnacrheedd a w Diidgei-tfaolr mUanti vdeirgsiittayl tprraoingirnamg cporuorvsied fionrg rao lwl-ioduet pinri n2t0 m13e.dia offering, from photo papers to banner and sign media, self-adhesives, and laminates. SMigannaifgiecdan wtloyr kiminpgr ocavpeidt aolc, ceusppaetciioanllayl hinevaletnht oarnyd tsuarnfest,y w whiitchh 7 w oeuret onfe a2r2ly f a4c7i%lit ibeest taecrh tihevanin tgh e1 ,U0.0S0. omr emrcohraen itns caivdernatg-fer eree pdoarytesd d buyri nthge t hAem yeerairc.an Forest & Paper Association (AF&PA). AK EnYet wNoUrkM oBf E2R2 Spaper distribution facilities located across the United States and Canada. We sell approximately 0.5 million tons of paper annually from more than 60 suppliers around the world. Domtar Spraoldesu cbtys repgiroesnent approximately 30% of total products sold. CUa.Sna.:d a6:1 %39% FDriosmtri bwuatrieohnouse: 52% KMEilYl- dFirIeGcUt RdeEliSveries: 48% (YIne amr eilnldioends D oefc demolblaerrs 3u1n l2e0s1s 0o t2h0e1r1w i2s0e1 n2oted) OSapleersa t8in7g0 i7n8c1o m68e5 (loss) (3) – (16) EDBepITreDciAat iboenf oarned i taemmosr1t i2za t2i o(n5 )4 4 4 TCoatpailt aals seextpse n9d9i t8u4r e7s3 2 2 2 DNOonM-GTAAARP 2 f0i1n2an AciNalN mUeAasLu rRe.E CPOonRsTult the Reconciliation of Non-GAAP Financial Measures at the end of this document or at www.domtar.com
DTHOEM FTIABRE R20 O12F AONUNRU FAULT RUERPEORT
Personal care WOuer sPeellr sao ncoalm Cbianrea tsieognm oefn bt riannvdoeldv easn dth per imvaatneu lfaabcetul rbinrige,f ss,a pler,o taencdti vdeis utrnibduetriwoena ro,f uandduelrtp iandcso,n ptiandesn, caen (d“ AwIa”s)h pcrlodthusc,t sa.v Taihlaeb plero idnu ac tvs aarrie tdyi sotfr isbiuzetesd a sin w feolul ra sc hwanitnhe ldsi:f faecruinteg cpaerref,o lromnagn-cteer mlev cealrse ,a nhdo mpreocdaurec,t sa nadtt rriebtuaitle.s. RWEeV aIrEe Wone of the leading suppliers of AI products sold to North American hospitals (acute care) and nursing homes (long-term care), and we have a growing presence in homecare and retail channels. TShalee sin icnrceraesaes ewda sfo murafionlldy oavtterri b2u0t1a1b lteo t ore athche a$c3q9u9i smitiollnio onf. Attends Europe and EAM Corporation in February and May respectively, and the results of the business of Attends North America for a full year. CEBapIiTtaDl Aex bpeefnodreit uitreems sw1e rien c$r4ea4s emd iflilvioenfo. ld over 2011 to reach $67 million. AExmcleuridcianng otpheer aitmiopnasc tw oefr et hien caicdqeunits iftrieoen fso irn t h2e0 1y2ea or f2 A01tt2e.nds Europe and EAM Corporation, which are excluded from the Company’s targeted health and safety total frequency rate (“TFR”), the existing North CHoIGntHinLuIeGdH tTheS expansion of the segment created in 2011 with the acquisition of Attends Europe in February 2012. EAsctqaubilriesdh eEdA tMhe PCeorrspoonraalt iConar ein d Miviasyi o2n0’1s 2g,l ogbivailn hge tahdeq uPaerrtseorsn ainl CRaarlee idgihv,i sNioonrt hth Ce aloronlgin-tae rtmo orevseerasreceh Nanodrt hte Achmneorliocgany acnapda Ebiulriotipeesa tno odpifefrearteinotnisa.te our full line of adult incontinence products in the market. KInEveYs tNedU aM tBotEalR oSf $44 million in 2012 in new machinery and equipment in order to execute on the plan to double the segment’s earnings over five years. pPrroodduuccttss aanred mabasnourfbaecntut rceodr eisn atrwe os omlda niunf a4c5t ucroinugn tarineds .distribution facilities in Greenville, North Carolina and Aneby, Sweden, and one R&D and manufacturing facility in Jesup, Georgia. Our adult incontinence NSaolretsh bAym reegriicoan: 57% OEuthroepr:e :3 %40% ISnaslteistu btiyo nchala n(naceul—te Acatrtee nadnsd Nloonrgth-t eArm ecraicrea): 70% CHaonmadecaa: r6e:% 14% SRaelteasi lb: y1 0c%hannel—Attends Europe PCraesshc/rRipettiaoinl:: 1541% OCtlhoesre/dN Cono-nAtrIa:c 1t:% 34% APrIo: d3u6c%t mix—EAM Feomodi nPinaed :H 3y%giene: 61% YKeEaYr eFnIdGedU RDEecSember 31 2011* 2012 S(Ianl ems i7ll1io 3n9s9 of dollars unless otherwise noted) DOeppereactiinagti oin caonmd ea m7 o4r5tization 4 20 CEBapIiTtaDl Aex bpeefnodreit uitreems s–1 4 142 67 1T oNtaoln a-GssAetAs P4 5f8in 8an4c1ial measure. Consult the Reconciliation of Non-GAAP Financial Measures at the end of this document or at www.domtar.com D* OThMe TPAerRso 2n0a1l 2C AarNe NseUgmALen Rt wEPasO fRoTrmed on September 1, 2011.
DEAORMTTHA RC H2O01IC2 EATNMNUAL REPORT
EXPECT MORE THAN PAPER… gBuuisdienleinsseess, atondda ay dheasviere m toa nlye addi.f fWerhenicth r eiass wonhsy fEora ratdhdCrhesosiicneg r etfhlee cstus sat abinleanbdil iotfy ionfn othveaitri vpea pseorl uptrioodnusc, tasd—vipsroersys usreer vfriocems, NanGdO tsh, ec haignhgeinstg-q cuoanlistuym, enr vdiermonamnde,n tgaollvye rrnemspeonnts riebgleu lpaatipoenr sd, eesnigvnireodn mtoe nmtaele tm yaonudrates and Csuasnt aDinoambitlairt yd egloiavlesr wcuhsitloem im sporlouvtiionngs ?your bottom line. Because sustainability is a tool for business growth, and it’s the people behind the paper that make all the difference. DYoese.s DDoommttaarr wofofrekr sF cSloCs-ecleyr twifitehd yporoud tuoc tusn?derstand your unique business needs and create comprehensive solutions tailored to your business and sustainability goals. DWoem otfafer rh aa sw aind eu lrtainmgea toe fg FoSalC o fc eprrtoifciuerdi npgr o1d0u0c%ts ofof ro au rv afirbieetry f roofm en FdS uCse cse. rtified sources. OCuanr eExaprethrtCs hioni cere hateilnpg m sue sctraeiantaeb lae spuosltiaciineasb alec rpoaspse dr ipffoelriecnyt? industries can help determine the guidelines for responsible pulp, paper, and fiber purchasing to fit your company’s needs. FCraonm y osouu hrceilnpg m the ruonudgehr setnadn-do fm-lyif ee,n voiurro nomnleinneta tlo ioml pTahcet? Paper Trail (domtarpapertrail.com) gives you a complete look at your environmental impact and helps you better evaluate and understand the products you Cusaen. Domtar help me protect my brand? sAu pcpolmy pcahnayin’s amndo sptr ovaclutiavbelley adsesvetesl oapre a i tms abnragnedm aenndt rperpoucteastiso. n. Being aware of where your paper comes from ensures your organization is not exposed to unnecessary risk. Domtar can help you understand the ETahret hECahrtohiCceh ooifcfe rcsy pcrloeducts and services designed to increase responsibility and help customers make better choices across the fiber lifecycle. DWOHMERTAE RF I2B0E1R2 ACNONMUEASL F REOPMO RHTOW PRODUCTS ARE MADE RECYCLING/NEXT LIFE RESPONSIBLE USAGE
CORPORATE GOVERNANCE AND MANAGEMENT rDesopmotnasri’bs lMe faonra gtheem oevnet rCalol mstmewitatredes hainpd oBf othared C oof mDpiraencyto arns da reen csoumrinmgi tttheadt tdoe cthisei osnuss taarien atabkileinty i no ft hthee b beusts iinnetesrse satnsd o tfo D uopmhotaldr ianngd tihtes hshigahreehsot lsdtearnsd. aTrdhse yo fw eothrkic calo asnedly s toocgiaeltlhye rr eisnp doenvseiblolep ibnegh aavnido ra.p Tprhoevyi nagre business fsatcraintegg itehse aCnodm mpaatneyri awl hciolrep eonrastuer iancgti ostnrsic wt choilme paliwanayces wtaiktihn gla winst oa nadcc eotuhnict atlh ge ueicdoenlionmesi.c, social, and environmental impacts of their decisions. They are also constantly assessing the various risks and opportunities ZMyAgmNAunGt EJMabEloNnTsk Ci OMMITTEE Domtar LSaewni oarn Vd iCceo-rPproersaitdee nAtffairs SMeincihoare Vl Eicdew-Parredssident DPualnpi ealn Bd uProapner Manufacturing JSoehnnio Dr .V Wiceil-lPiraemsisdent and Chief Financial Officer DPrOesMidTeAntR a n2d0 1C2h AieNf ENxUeAcuLti vReE OPfOfiRceTr lDevoeml toafr ’tsh ceo omrgmanitimzaetniot nt.o Tshuisst asitnaanbdialirtdy iasn odu ttoli nheidg hi ns tDanodmartdars’ so fC coodned oufc tB guosvinerensss tChoe nCdoumct paanndy ’Est hreilcast iaopnpslhicipabs lwe ittoh aclul setmompleorys,e essu,p ipnlcileursd,i nsgh aoreffhioceldrse.r sT, hceo mBopaertdit oarlss,o haodshte creosm tmo uitnsi toiwesn, aCnodd eem asp lwoyelele sa sa tt oe vtehrey FCoorr pcoormatpel eGteo vienrfnoarnmcaet iGouni doenl iDneosm rteaqru’si rpedo lbicyi etsh,e p Nroecwed Yuroersk aanndd gToovreorntaon cset odcokc uexmcehnatnsg, epsl.ease visit domtar.com. SMeenliiosrs aV Aicned-Perrseosindent RHiucmhaarnd RLe. sTohuorcmesas PSuenlpio arn Vd iPcea-pPerre sSiadleenst and Marketing SPeantriiocrk VLiocue-lPouresident MCoicrphoarealt eF aDgeavnelopment PSernsioonr aVl iCcea-rPeresident SMeanriko rU Vshicpeo-Pl resident DOisMtriTbuAtiRo n2012 ANNUAL REPORT
LBoOuAisR PD. GOiFg nDaIcRECTORS GPr eMsiidneinntg Services Inc. CMaonnatdreaal, Quebec PJarceksi dCe.n Bt ingleman VJCerBo CBoeancshu,l tFinlogr,i dLaLC GUiSaAnnella Alvarez BGaroriulpla PAremsiedriecnat, Inc. UCShiAcago, Illinois CDoavrpido rGat.e MDiarfefcutcocri NCohratrhlo Cttaer,olina HUaSrAold H. MacKay Cohuainrsmelan of the Board RMeagciPnha,e rSsoasnk Latecshleiew &an Tyerman LLP DCOanMadTaAR 2012 ANNUAL REPORT
John D. Williams DProemsitdaern Ct aonrpdo Crahtiioefn Executive Officer CMaonnatdreaal, Quebec CPaomrpeolraa tBe .D Sitrreocbtoerl UCShiAcago, Illinois CRorbpeortr aJt.e SDtieraeccytor CToarnoandtao, Ontario CRhoibeefr tO Ep.e rAatpipnlge Officer MiaasmTei,c ,F Ilnocr.ida DUeSnAis Turcotte NProerstihd eCnht aannnde lC MEOanagement OSanutaltr iSo,t eC. aMnadriae NBorina-nE Mxe.c uLteiveit tCo-Chair MOsolnert,r eHalo, sQkiune b&ec Harcourt LLP DCOanMadTaAR 2012 ANNUAL REPORT
Domtar Corporation Reconciliation of Non-GAAP Financial Measures T(Ihne m foillllioownsin ogf tdabolela srse,t su fnolretshs coetrhteariwn insoen n-Uot.eSd.) generally accepted accounting principles (“GAAP”) financial metrics identified in bold as “Earnings before items,” “Earnings before items per diluted share,” p“EreBseInTtDedA a,”re “ fErBeqIuTeDntAly m uasregdi nb,y” i“nEvBesITtoDrsA a nbdef oare uitseemfusl, ”t o“ EevBaIlTuDatAe omura ragbiinl ibtye ftoor es eitrevmicse, ”d e“bFtr eaen dca oshu rf loovwer,a”l l“ Ncreetd dite bptr,o”f ialne.d M “Naneat gdeembte-ntot -btoetlaiel vceasp itthaelsizea mtioentr.i”c sM aaren aaglseom uenset fbuel ltioev mese athsuatr et hthe ef ionpaenrcaitailn gmetrics Tpehref oCrmomanpcaen ayn cda lbceunlcahtems a“rEka wrniitnhg ps ebeersfo wrei tihteinm tsh”e ainndd u“sEtBryI.T TDhAes be emfoerter iictse marse” pbryes eexncteludd aisn ga tchoem apftleerm-taexn t( ptore e-tnahxa)n ecfef etchte o uf nidteemrssta cnodninsigd eorfe do pbeyra mtinagn argeesmuletsn tb aust not rienf lseucbtisntgit uotuior nc ufrorre nGt AoApePra rteiosunlst.s .Management puesreiso dthse. sDe ommetaasru rbeesl,i eavse ws ethlla ta su sEiBngI TthDiAs iannfodr mFraetei ocna sahl ofnlogw w, ittoh fNoceut se aornn ionnggs opirnogv iodpeesr aftoiro na sm aonrde bceolmiepvleest et haanta ilty sisis u osfe ftuhle troe siunlvtess otof ros pbeercaatiuosnes i.t Neneta belaersn itnhgesm a ntod pCearfsohr mflo mwe panroinvgidfuedl cforommp aorpiseorantsi nbge tawcteievnities are 2th0e1 0most directly comparable GAAP measures. 20121 NRetc oenacrniliinagtiso (n$ )o f6 0“E5 a3rn6i5n g1s7 2before items” to Net earnings (+) CLolossu oren arnepdu rrecshtarsuec toufr ilnogn gc-otsetrsm ( $d)e 2b0t (3$3) 2280 3 30 (–+)) NImetp laoirsmseesn (tg aaninds w) orinte d-disopwons aolsf PofP P&PE&1 Ea1n da nindt asnalgei bolfe baussientse s(s$e)s 3(4$ )5 239 9 (3) 1 (–+)) CImelpluaclot soef bpiuorfcuheals ep raocdcuocuenrt icnregd (i$ts) (–$ )1 ( 127) – – (–) ARletveernrsaatli voef fvuaellu taatxio cnr eadlliotsw (a$n)c e(1 o8n) –C –anadian deferred income tax balances ($) (100) – – (/=) )W Eeairgnhintegds abvegfo. rne uimtembesr (o$f) c4o7m1m 4o5n2 a2n3d3 exchangeable shares outstanding (diluted) (millions) 43.2 40.2 36.1 R(=e)c Eonacrniliinagtiso bne ofof r“eE iBteImTsD pAe”r adnidlu “teEdB sIhTaDreA ( $b)e 1fo0r.e9 0it e1m1.s2”4 t o6 .N45et earnings (N+e)t Eeqaruniitnyg lso s($s,) n6e0t5 o 3f 6t5ax 1e7s 2($) – 7 6 (+) Income tax expense (benefit) ($) (157) 133 58 (=+) OInpteerreastitn egx pinencosem, en e($t )( $6)0 31 5559 28 73 61731 (+) IDmepareircmiaetinotn a nandd w armitoe-rdtiozwatnio onf (P$P) 3&9E51 3 a7n6d 3 i8n5tangible assets ($) 50 85 14 (=–)) NEBetI TloDssAes ( $(g) a1in,0s8) 1o n1 ,d0i4s7p o7s6a8ls of PP&E1 and sale of businesses ($) 33 (6) 2 (=/)) SEaBleIsT (D$A) 5 m,8a5r0g i5n, 6(%12) 51,84%82 19% 14% EBITDA ($) 1,081 1,047 768 (+) ICmlopsaucrte o afn pdu recshtarsuec taucrcionugn ctionsgts ( $($) )– 2 17 152 30 (=–)) AEBlteITrnDatAiv be effuoerle tiatxem crse d($it)s 1(,$0)8 (32 51), 1–0 0– 799 (=/)) SEaBleIsT (D$A) 5 m,8a5r0g i5n, 6b1ef2o r5e, 4i8te2ms (%) 19% 20% 15% CRaescho nfcloilwia tpioronv oidf e“dF frreoem ca sohp efrlaotwin”g taoc tCivaisthie fsl o($w) p1r,o1v6i6d e8d8 3fr o5m51 operating activities (=–)) AFrdedei tciaosnhs ftloo wP P($&) E11,0 (1$3) (713593 )3 1(1544) (236) D1 OPPM&TEA:R P r2o0p1e2r tAy,N pNlaUnAt aLn dR EeqPuOipRmTent
“(cNoentt idneubetd-t)o 2-t0o1t0al 2c0a1p1it a2l0iz1a2tion” computation Bank indebtedness ($) 23 7 18 (+) Long-term debt (d$u)e 8w2i5t h8i3n7 o 1n,e1 2y8ear ($) 2 4 79 (–=)) CDaesbht a($n)d 8c5a0sh 8 e4q8u 1iv,2al2e5nts ($) (530) (444) (661) (+=) SNheat rdehebotl d(e$r)s ’3 2eq0u 4it0y4 (5$6) 43,202 2,972 2,877 N(=e)t Tdoetbatl (c$a)p 3it2a0li z4a0t4io 5n6 (4$) 3,522 3,376 3,441 (=/)) TNoetat ld ceabpti-taol-itzoattailo nca (p$i)t a3li,z5a2t2io 3n, 3(%76) 93%,4 4112% 16% c“aEpairtnailnizgast iboenf,o”r eh aivteem nso, ”s t“aEnadranridnigzse db emfoeraen integm psr epsecrr idbieldu tbedy sGhAarAe,P” “aEndB IaTreD nAo,t” n“eEcBesIsTaDrilAy mcoamrgpianr,a”b “leE BtoI TsDimAi lbare fmoreea situermess ,p”r e“sEeBntIeTdD bAy motahregri nco bmefpoarnei eitse mansd, ”t h“eFrreefeo rcea sh ofuloldw ,n”o “t Nbet cdoenbsti,d”e arendd i“nN iesto dlaetbiot-nto o-tro atsa la usunbdsetristtuatned f othr aNt ecte retaarinni nitgesm, sO mpearya tbineg p irnesceonmteed, oinr adnifyf eorethnet rl ienaerns ibnyg sd siftfaetreemnte ncto,m capsahn ifelso won s ttahteeimr feinnta,n ocri abl asltaantceem sehnetest tfhienraenbcyi alle aindfionrgm taot idoinff eprreenpta rmede aisnu raecsc ofordr adnicfefe wreintth cGomAApaPn.i eIst .is important for readers to (RIne cmonilcliiloiantsi oonf odfo lNlaorns,- GuAnlAesPs Fotihnearnwciiasle Mnoetaesdu)res By Segment “TEhBe IfTolDloAw minagr gtianb lbe esfeotrse fiotertmh sc”e rbtya irne pnoornta-Ubl.eS s. eggemneernatl.l yM aacncaegpetemde anctc boeulnietivnegs pthriantc tihpele fsi n(“aGncAiaAl Pm”e),t rfiicnsa pnrceisael nmteedt raicres firdeeqnuteifniteldy iuns ebdo lbdy a isn “vOespteorrast ianngd ianrceo umse f(ullo stos) mbefaosruer ei ttehme so,”p e“rEatBinITg DpAer fboermfoaren ciete amnsd,” and Tbehnec Chmomarpka wnyit hca plceuelrast ewsi tthhien s tehgem ienndtuesdt r“yO. pTehraetsien gm ientrciocms aer e(l opsress) ebnetfeodr ea si tae mcosm” bpyle mexecnlut dtoin egn thhaen cper et-htaex u enfdfecrst toanf ditienmg so fc oonpseirdaetirnedg breys umltasn baguet mnoent ti na ss unbost trietuflteicotnin fgo ro GurA oAnPgo riensgu lotsp.erations. Management uses athloenseg mweitahs uOrepse rtaot ifnogc uisn coonm oen (glooisnsg) porpoevriadtieosn fso ra nad m boerleie cvoems tphlaett ei ta nisa luysseifsu ol ft oth ien vreessutoltrss obfe coapuesrea tiito nens.a bOlepse rtahteinmg tion cpoemrfoe r(mlo sms)e abnyi nsgefguml ecnotm ips atrhiseo mnso sbte tdwireeecntl yp ecroiomdps.a rDabolme tGarA bAePli emveesa stuhraet. using this information DPuislptr iabnudt iPonaper CPeorrspoonraalt eCare1 R20e1c0o n2c0il1i1at i2o0n1 2o f2 O01p0er a2t0in1g1 i2n0c1o2m 2e0 (1lo0s 2s)0 1to1 “2O0p1e2r a2t0in1g0 i2n0c1o1m 2e 0(1lo2ss) before items” (O+p) eIrmatpinagir minecnotm aen d(l owsrsi)t e(-$d)o 6w6n7 o5f8 P1 P3&46E 2(3 ()$ –) 5(106 8) 5– 97 –4 5– (57 )– 4 – ( 8–) – – – (–+)) NCelto slousres easn (dg areinstsr)u octnu rdiinsgp ocsoasltss o($f )P 2P6& 5E12 2 a7n 1d 1sa 2le –o f– b1u s–i n–e s–ses ($) (17) 3 2 – (3) – – – – 2 (6) – (–+)) AImltperancat toivf ep fuureclh atsaex accrceoduitnst i(n$g) ((2$5) )– – – – – – – – – – – – – – 1 – 1 – – – – – – R(=e)c Oonpceirlaiatitniogn i nocfo “mOep e(rlaotsisn)g b ienfocorem iet e(mloss s()$ )b e7f0o1re 7 i2te0m 3s8”4 t(o2 )“ E(2B) I(T9D) A– 8b e4f7o r(e5 i)t e(2m) s(”8) (O+p) eDraetpinregc iantcioomn ea n(dlo asms) obretfiozartei oitne m($s) (3$8) 17 0316 87 2306 13 844 4 ( 24) –( 24) 2(90) –– –8 –47 (5) (2) (8) (/=) )S EaBleIsT (D$)A5 ,b0e7f0o r4e, 9it5e3m 4s ,(5$7)5 1 8,07802 7 18,10 8688 57 4–5 7 21 23 9(59) –– –1 2– 67 (5) (2) (8) “(=O)p EerBatIiTnDg Ain cmoamrgei n(l obsesf)o rbee fioterme ist e(m%s) ,2” 1“%E B2I2T%D A16 b%e f–o r–e i–t e–m 1s7,”% a n1d7 %“E –B I–T –DA margin before items” have no standardized meaning prescribed by GAAP and are not necessarily comparable to similar measures ipnrfeosremntaetdio bny p orethpearr ecdo minp aacncioersd aanndce t hweirtehf oGreA sAhPou. lIdt inso itm bpe ocrotannsti dfeorre dre aind eirsso tloat iuonnd eorrs taasn ad stuhbats tcieturttaei nfo irt eOmpse rmatainyg b ien pcoremseen (tleods sin) odri fafnerye nott hlienr eesa rbnyi ndgisff esrteantetm coenmt,p acnasiehs folonw t hsetiart efmineanntc,i aolr sbtatleamnceen stsh etehte rfeinbayn lceiadl ing 1to O dnif fMeraeyn t1 m0,e a2s0u1re2s, ftohre dCifofmerpenant yc oamcqpuainreieds .100% of the shares of EAM Corporation. On SMeaprtcehm 1b,e r2 011, 22,0 t1h1e, Cthoem Cpoanmyp acnqyu airceqdu i1r0ed0 %10 o0f% th oef sthhaer essh aorfe sA ottfe nAdtste Hndesa lHthecaalrteh cLairme Iintecd.. D2 OPPM&TEA:R P r2o0p1e2r tAy,N pNlaUnAt aLn dR EeqPuOipRmTent
SHAREHOLDER INFORMATION SDuIVbjIeDctE tNoD a pPpOroLvIaCl Yby its Board of Directors, Domtar pays a quarterly dividend on its common stock (NYSE: UFS) (TSX: UFS) and on its exchangeable shares (TSX: UFX) to stockholders of record on the D15ItVhI DdaEyN oDf MHIaSrcThO, RJuYne, September, and December. DYecalra erendd eRd e2co0r1d2 Date Payable Date Amount per share JOucltyo b3e1r, 3210,1 220 S1e2p Dteemcebmerb 1er7 ,1 42,0 1220 1O2c Jtoabneura r1y5 ,1 52,0 1220 1U3S U$S0.$405.45 FMeabyru 2a,r y2 02122, 2Ju0n1e2 1M5,a r2c0h1 125 J, u2l0y1 126 A, 2p0ri1l 21 6U, S2$001.24 5US$0.35 F20ir1s3t QTEuaNrtTerA: TTIhVuErs dEaAyR, ANpINriGl S25 C, A20L1E3NDAR TShecirodn dQ uQaurtaerrt:e rT: hTuhrusdrsadya,y O, cJtuolbye 2r 52,4 2, 0210313 SFHouArtRh EQHuOarLteDr:E FRr iSdEayR, VFIeCbEruSary 7, 2014 CFoorm sphuatrerhsohladreer -Irnevlaetsetdo rs Serevrivciecse,s including estate settlement, lost stock certificates, change of name or address, stock transfers, and duplicate mailings, please contact the transfer agent at: Pr.oOv.i dBeonxc e4 R30I7 082940-3078 OToultls ifdreee t:h 1e- 8U7.7S-.2:8 12--718116-8575-2879 Cwawnwad.ciaonm sptuotcekrhshoaldree.rcso smhould contact the transfer agent at: 1C0o0m Upnuitveresrhsiatrye AInvveensutoer, S9tehrv Ficleoso rInc. Tolrlo nfrteoe,: O1N-8 6M6-52J4 52-Y410 5C3anada wFawxw: 1.i-n8v8e8s-t4o5rc3e-n0t3r3e.0com/service DSTomOCtaKr C EoXrpCoHraAtiNonG Eco mINmFoOnR sMtoAckT IiOs Ntraded on the New York Stock Exchange and on the Toronto Stock Exchange under the symbol “UFS.” Domtar (Canada) Paper Inc. exchangeable shares are traded on the RToErQonUtoE SSTtoSc kF OExRc hINanFgOe RunMdAerT tIhOe Nsymbol “UFX.” CFoorr paodrdaittei oCnoalm cmopuineisc aotfi otnhse aAnndn Iunavl eRsteopro Rrte olar toiothnesr Dfienpaanrctmiale nint formation, please contact: 3D9o5m dtea rM Caoirspoonrnaetiuovne Blvd. West TMeol.n:t r5e1a4l,- 8Q4C8- 5H535A5 1L6 Canada EVmoiaciel :R ire@codgonmititoarn.:c o“mInvestor Relations” wWwebw s.ditoemtar.com AElNecNtrUonAiLc vMerEsiEoTnIsN oGf this Annual Report, SEC filings, and other Company publications are available through the corporate Web site. MDoomnttraera lA Mnnuusaelu Mm eoeft iFngin oe fA Srttosckholders May 1, 2013, Montreal, Quebec DCOlaMireT aAnRd M20a1rc2 BAoNuNrgUieA PLa vRiEliPonO R13T39 Sherbrooke Street West Montreal, QC H3G 1J5 Canada
PRODUCTION NOTES CPAovPeEr Rprinted on 80 lb. Cougar® Cover, Smooth Finish FInosremrt 1p0ri-nKte pdr ionnt e6d0 olnb .4 C0 olbu.g aLr®yn xT®ex Tt, eSxmt, oSomtho oFtihn iFshinish CPRovINerT aInNdG insert printed with UV inks on a Heidelberg LSepaerend mthaes steorc iCalD a n1d0 2e npvreirsosn 6m-ceonltoarl uimniptsa cwtsi tohf iCn oliungea rc oaantde rL aynndx f uatl ld ionmtetra-drpeacpke artnrdai le.ncdom o f1 p0r%ess extended delivery UV drying systems. ®WWWF FD oRmegtairs tiesr epdl eTarsaedde mtoa mrka. kPe aannd aa nSnyumalb cool n©tr i1b9u8ti6o nW oWf $F3.50,000 to WWF from the sale of EarthChoice® products. ®©“ 1W98W6F P”a insd aa WsyWmbFo Rl WegWistFer-eWd oTrrladd Wemidarek F. und for Nature (also known as World Wildlife Fund). REARINTFHO CRHEOSTIC AELLIANCE CERTIFIED TFhSeC m wawrkw o.f srce.soprognsible forestry
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