Strong execution and higher prices drive solid results
(All financial information is in U.S. dollars, and all earnings per share results are diluted, unless otherwise noted).

• Second quarter 2016 net earnings of $0.29 per share; earnings before items¹ of $0.61 per share
• Personal Care sales growth of 6% year-over-year
• Announced a 4% increase to quarterly dividend

FORT MILL, S.C. -- (Business Wire)

Domtar Corporation (NYSE: UFS) (TSX: UFS) today reported net earnings of $18 million ($0.29 per share) for the second quarter of 2016 compared to net earnings of $4 million ($0.06 per share) for the first quarter of 2016 and net earnings of $38 million ($0.60 per share) for the second quarter of 2015. Sales for the second quarter of 2016 were $1.3 billion.

Excluding items listed below, the Company had earnings before items¹ of $38 million ($0.61 per share) for the second quarter of 2016 compared to earnings before items¹ of $22 million ($0.35 per share) for the first quarter of 2016 and earnings before items¹ of $39 million ($0.61 per share) for the second quarter of 2015.

Second quarter 2016 items:

• Litigation settlement of $2 million ($2 million after tax);
• Impairment of property, plant & equipment of $3 million ($2 million after tax); and
• Closure and restructuring costs of $21 million ($16 million after tax).

First quarter 2016 items:

• Closure and restructuring costs of $2 million ($2 million after tax); and
• Impairment of property, plant & equipment of $21 million ($16 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).

“We had a solid performance given the extensive scheduled maintenance outages and the Ashdown conversion. Our focus on costs and execution resulted in below-plan maintenance spending, and we benefited from higher pulp and paper prices with the implementation of recently announced price increases,” said John D. Williams, President and Chief Executive Officer. “The conversion of the Ashdown paper machine to fluff pulp continues to progress, with the start-up scheduled over the next few days. This is another milestone within our strategic roadmap of pursuing growth opportunities that capitalize on our core competencies.”

Mr. Williams added, “In Personal Care, our sales momentum continues to build, with sales increasing 6% year-over-year as a result of new customer wins. During the quarter, we continued to reinvest in growth, mostly to complete our product assortment, enhance consumer and category insights and deliver innovation to secure additional sales expansion.”

QUARTERLY REVIEW

Operating income was $39 million in the second quarter of 2016 compared to operating income of $18 million in the first quarter of 2016. Depreciation and amortization totaled $87 million in the second quarter of 2016.

Operating income before items¹ was $65 million in the second quarter of 2016 compared to an operating income before items¹ of $41 million in the first quarter of 2016.

The increase in operating income in the second quarter of 2016 was the result of lower impairment of property, plant & equipment charge, higher average selling prices, lower raw material costs, lower freight costs and lower maintenance and other costs. These factors were partially offset by higher closure and restructuring costs, lower volumes, unfavorable exchange rates and a litigation settlement.

When compared to the first quarter of 2016, manufactured paper shipments were down 4.3% and pulp shipments decreased 2.4%. The shipments-to-production ratio for paper was 105% in the second quarter of 2016, compared to 100% in the first quarter of 2016. Paper inventories decreased by 37,000 tons and pulp inventories decreased by 16,000 metric tons when compared to the first quarter of 2016.

LIQUIDITY AND CAPITAL

Cash flow provided from operating activities amounted to $118 million and capital expenditures were $119 million, resulting in negative free cash flow¹ of $1 million for the second quarter of 2016. Domtar’s net debt-to-total capitalization ratio¹ stood at 30% at June 30, 2016 and at March 31, 2016.

OUTLOOK

Domtar paper shipments are expected to trend with market demand in the second half of 2016. Our paper business should continue to benefit from recently announced price increases while we expect some short-term pricing volatility in pulp. Lower maintenance activity and better productivity should positively impact results in Pulp and Paper. Personal Care results are expected to benefit from the new customer wins, market growth and cost savings from the new manufacturing platform. Raw material unit costs are expected to moderately increase.

EARNINGS CONFERENCE CALL

The Company will hold a conference call today at 10:00 a.m. (ET) to discuss its second quarter 2016 financial results. Financial analysts are invited to participate in the call by dialing 1 (800) 505-9573 (toll free - North America) or 1 (416) 204-9498 (International) at least 10 minutes before start time, while media and other interested individuals are invited to listen to the live webcast on the Domtar Corporation website at www.domtar.com.

The Company will release its third quarter 2016 earnings results on October 27, 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.

About Domtar

Domtar is a leading provider of a wide variety of fiber-based products including communication, specialty and packaging papers, market pulp and absorbent hygiene products. With approximately 10,000 employees serving more than 50 countries around the world, Domtar is driven by a commitment to turn sustainable wood fiber into useful products that people rely on every day. Domtar’s annual sales are approximately $5.3 billion and its common stock is traded on the New York and Toronto Stock Exchanges. Domtar’s principal executive office is in Fort Mill, South Carolina. 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 2015 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.

Domtar Corporation
Highlights
(In millions of dollars, unless otherwise noted)

Domtar Corporation
Consolidated Statements of Earnings
(In millions of dollars, unless otherwise noted)

Domtar Corporation
Consolidated Balance Sheets at
(In millions of dollars)

Domtar Corporation
Consolidated Statements of Cash Flows
(In millions of dollars)

Domtar Corporation
Quarterly Reconciliation of Non-GAAP Financial Measures
(In millions of dollars, unless otherwise noted)

The following table sets forth certain non-U.S. generally accepted accounting principles (“GAAP”) financial metrics identified in bold as “Earnings before items”, “Earnings before items per diluted share”, “EBITDA”, “EBITDA margin”, “EBITDA before items”, “EBITDA margin before items”, “Free cash flow”, “Net debt” and “Net debt-to-total capitalization”. Management believes that the financial metrics are useful to understand our operating performance and benchmark with peers within the industry. The Company calculates “Earnings before items” and “EBITDA before items” by excluding the after-tax (pre-tax) effect of specified items. These metrics are presented as a complement to enhance the understanding of operating results but not in substitution for GAAP results.

“Earnings before items”, “Earnings before items per diluted share”, “EBITDA”, “EBITDA margin”, “EBITDA before items”, “EBITDA margin before items”, “Free cash flow”, “Net debt” and “Net debt-to-total capitalization” 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 or as a substitute for Net earnings, Operating income or any other earnings statement, cash flow statement or balance sheet financial information prepared in accordance with GAAP. It is important for readers to understand that certain items may be presented in different lines by different companies on their financial statements, thereby leading to different measures for different companies.

Domtar Corporation
Quarterly Reconciliation of Non-GAAP Financial Measures – By Segment 2016
(In millions of dollars, unless otherwise noted)

The following table sets forth certain non-U.S. generally accepted accounting principles (“GAAP”), financial metrics identified in bold as “Operating income (loss) before items”, “EBITDA before items” and “EBITDA margin before items” by reportable segment. Management believes that the financial metrics are useful to understand our operating performance and benchmark with peers within the industry. The Company calculates the segmented “Operating income (loss) before items” by excluding the pre-tax effect of specified items. These metrics are presented as a complement to enhance the understanding of operating results but not in substitution for GAAP results.

“Operating income (loss) before items”, “EBITDA before items” and “EBITDA margin before items” 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 or as a substitute for Operating income (loss) or any other earnings statement, cash flow statement or balance sheet financial information prepared in accordance with GAAP. It is important for readers to understand that certain items may be presented in different lines by different companies on their financial statements, thereby leading to different measures for different companies.

Domtar Corporation
Quarterly Reconciliation of Non-GAAP Financial Measures – By Segment 2015
(In millions of dollars, unless otherwise noted)

The following table sets forth certain non-U.S. generally accepted accounting principles (“GAAP”), financial metrics identified in bold as “Operating income (loss) before items”, “EBITDA before items” and “EBITDA margin before items” by reportable segment. Management believes that the financial metrics are useful to understand our operating performance and benchmark with peers within the industry. The Company calculates the segmented “Operating income (loss) before items” by excluding the pre-tax effect of specified items. These metrics are presented as a complement to enhance the understanding of operating results but not in substitution for GAAP results.

“Operating income (loss) before items”, “EBITDA before items” and “EBITDA margin before items” 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 or as a substitute for Operating income (loss) or any other earnings statement, cash flow statement or balance sheet financial information prepared in accordance with GAAP. It is important for readers to understand that certain items may be presented in different lines by different companies on their financial statements, thereby leading to different measures for different companies.

Domtar Corporation
Supplemental Segmented Information
(In millions of dollars, unless otherwise noted)

^(a) Figures are gross of market pulp purchased from other producers on the open market for some of our paper making operations. Pulp Shipments represent the amount of pulp produced in excess of our internal requirement.

Note: the term “ST” refers to a short ton and the term “ADMT” refers to an air dry metric ton.

¹ Non-GAAP financial measure. Refer to the Reconciliation of Non-GAAP Financial Measures in the appendix.

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Contacts:

INVESTOR RELATIONS
Nicholas Estrela, 514-848-5555 x 85979
Director
Investor Relations
or
MEDIA RELATIONS
David Struhs, 803-802-8031
Vice-President
Corporate Services and Sustainability

Source: Domtar Corporation