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Domtar reports preliminary Q3 2015 financial results

October 30, 2015 - Domtar Corporation today reported net earnings of $11 million ($0.17 per share) for the third quarter of 2015 compared to net earnings of $38 million ($0.60 per share) for the second quarter of 2015 and net earnings of $281 million ($4.33 per share) for the third quarter of 2014. Sales for the third quarter of 2015 were $1.3 billion.

Excluding items listed below, the company had earnings before items1 of $54 million ($0.86 per share) for the third quarter of 2015 compared to earnings before items1 of $39 million ($0.61 per share) for the second quarter of 2015 and earnings before items1 of $61 million ($0.94 per share) for the third quarter of 2014.

Third quarter 2015 items:
•Closure and restructuring costs of $1 million ($1 million after tax);
•Impairment of property, plant & equipment of $20 million ($12 million after tax); and
•Debt refinancing costs of $42 million ($30 million after tax).

Second quarter 2015 items:
•Closure and restructuring costs of $1 million ($1 million after tax);
•Gain on disposal of property, plant and equipment of $14 million ($11 million after tax); and
•Impairment of property, plant & equipment of $18 million ($11 million after tax).

Third quarter 2014 items:
•Deferred tax benefit of $204 million for the settlement of IRS audits, primarily related to Alternative Fuel Tax Credits;
•Recognitions of $18 million of deferred Alternative Fuel Tax Credits ($18 million after tax); and
•Closure and restructuring costs of $2 million ($2 million after tax).

"We delivered a solid quarter in a steady market environment. We had a good operating performance in pulp and paper, particularly during our annual maintenance outages, resulting in strong productivity and lower costs. Our paper shipments are also trending better than forecast due to better demand and lower imports and we continue to position the company to capitalize on opportunities in our key markets," said John D. Williams, president and CEO. "We remain focused on solid execution in areas such as operational excellence, continuous improvement, and innovation to ensure that we extract maximum value from our assets.

"In personal care, the business continues its earnings progression. Our near-term priority remains on achieving our growth plans, continuing to capture the benefits of our cost savings program, and building out our core capabilities to support and sustain our unique business model. We have plenty yet to do and our focus on execution will continue to be vital."

Quarterly review
Operating income before items1 was $82 million in the third quarter of 2015 compared to an operating income before items1 of $67 million in the second quarter of 2015. Depreciation and amortization totaled $89  million in the third quarter of 2015.

Screen Shot 2015 10 30 at 1.56.07 PM

The increase in operating income before items1 in the third quarter of 2015 was the result of lower raw material costs, a favourable exchange rate, lower freight costs, lower costs for planned maintenance and lower selling, general and administrative expense. These factors were partially offset by lower average selling prices, higher other costs, lower volume in pulp and paper and lower productivity.

When compared to the second quarter of 2015, manufactured paper shipments were down 0.5% and pulp shipments decreased 3.5%. The shipments-to-production ratio for paper was 98% in the third quarter of 2015, compared to 97% in the second quarter of 2015. Paper inventories increased by 14,000 tons and pulp inventories increased by 36,000 metric tons in September when compared to June levels.

Income taxes
The third quarter 2015 income tax benefit includes a benefit of $4 million related to enacted tax rate changes as well as the impact of the recognition of $5 million of additional tax benefits related to the finalization of certain estimates in connection with the filing of our 2014 tax returns. 

Liquidity and capital
Cash flow provided from operating activities amounted to $67 million and capital expenditures were $66 million, resulting in free cash flow1 of $1 million for the third quarter of 2015. Domtar's net debt-to-total capitalization ratio1 stood at 30% at September 30, 2015 compared to 29% at June 30, 2015.

During the quarter, Domtar repurchased $20 million of common stock under its stock repurchase program.

Paper should be impacted by seasonality and mix in the fourth quarter while prices for pulp are still expected to remain under pressure. We remain cautious on the short-term pulp outlook due to the strong U.S. dollar. The fourth quarter should benefit from lower maintenance activities in our network while we expect higher input costs due to increased raw material and energy usage due to colder weather. Personal Care results are expected to continue to benefit from market growth and cost savings from its new manufacturing platform.

The company will release its fourth quarter 2015 earnings results on February 5, 2016 before markets open, followed by a conference call at 10:00 a.m. (ET) to discuss results. The date is tentative and will be confirmed approximately three weeks prior to the official earnings release date.

Non-GAAP financial measure. Refer to the Reconciliation of Non-GAAP Financial Measures in the appendix.

About Domtar 
Domtar Corporation (NYSE: UFS) (TSX: UFS) designs, manufactures, markets and distributes a wide variety of fiber-based products, including communication papers, specialty and packaging papers, and absorbent hygiene products. The foundation of our business is a network of world-class wood fiber-converting assets that produce papergrade, fluff and specialty pulp. The majority of our pulp production is consumed internally to manufacture paper and consumer products. Domtar is the largest integrated marketer and manufacturer of uncoated freesheet paper in North America with recognized brands such as Cougar®, Lynx® Opaque Ultra, Husky® Opaque Offset, First Choice®, EarthChoice® and Xerox® Paper and Specialty Media. Domtar is also a marketer and producer of a broad line of absorbent hygiene products marketed primarily under the Attends®, IncoPack® and Indasec® brand names. In 2014, Domtar had sales of $5.6 billion from some 50 countries. The Company employs approximately 9,800 people. To learn more, visit www.domtar.com.

Forward-Looking Statements
Statements in this release about our plans, expectations and future performance, including the statements by Mr. Williams and those contained under "Outlook," are "forward-looking statements." Actual results may differ materially from those suggested by these statements for a number of reasons, including changes in customer demand and pricing, changes in manufacturing costs, future acquisitions and divestitures, including facility closings, and the other reasons identified under "Risk Factors" in our Form 10-K for 2014 as filed with the SEC and as updated by subsequently filed Form 10-Q's. Except to the extent required by law, we expressly disclaim any obligation to update or revise these forward-looking statements to reflect new events or circumstances or otherwise.

October 30, 2015  By CNW Telbec/Domtar

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