Business Wire | Nov 6, 2020 06:55AM EST

Domtar Corporation Reports Preliminary Third Quarter 2020 Financial Results

Nov. 06, 2020

FORT MILL, S.C.--(BUSINESS WIRE)--Nov. 06, 2020--Domtar Corporation (NYSE: UFS) (TSX: UFS) today reported a net loss of $92 million ($1.67 per share) for the third quarter of 2020 compared to net earnings of $19 million ($0.34 per share) for the second quarter of 2020 and net earnings of $20 million ($0.32 per share) for the third quarter of 2019. Sales for the third quarter of 2020 were $1.1 billion.

This press release features multimedia. View the full release here: https://www.businesswire.com/news/home/20201106005240/en/

Excluding items listed below, the Company had earnings before items1 of $18 million ($0.33 per share) for the third quarter of 2020 compared to earnings before items1 of $20 million ($0.36 per share) for the second quarter of 2020 and earnings before items1 of $55 million ($0.89 per share) for the third quarter of 2019.

ITEMS

After EPSDescription Segment Line item Amount tax impact effect (per share)

(in millions)

Third quarter 2020



* Cost reduction Pulp and Impairment of program Paper long-lived $111 $68 $1.23 assets



* Cost reduction Pulp and Closure and program Paper restructuring $67 $41 $0.75 costs



* Closure and Closure and restructuring Corporate restructuring $1 $1 $0.02 costs costs



Second quarter 2020



* Closure and Pulp and Closure and restructuring Paper restructuring $1 $1 $0.02 costs costs



Third quarter 2019



* Paper machine Pulp and Impairment of closures Paper long-lived $32 $25 $0.40 assets



* Paper machine Pulp and Closure and closures Paper restructuring $5 $4 $0.07 costs



* Margin improvement Personal Impairment of plan Care long-lived $1 $1 $0.02 assets



* Margin improvement Personal Closure and plan Care restructuring $6 $5 $0.08 costs

QUARTERLY REVIEW

"We performed very well in the quarter in a challenging operating environment. Our teams have demonstrated tremendous resiliency, continuously adapting to changing market conditions, maintaining a keen focus on health and safety and decisively taking actions to serve our customers in the face of unprecedented conditions," said John D. Williams, President and Chief Executive Officer. "We benefited from further market recovery and we made good progress with some of our strategic initiatives."

"Our results in Paper significantly improved in the third quarter reflecting a strong operational performance and our team's fast response in implementing cost savings in a better paper demand environment. In Pulp, prices remain at cyclically low levels but the supply and demand balance is improving."

"The Kingsport conversion to recycled linerboard is going according to plan. All efforts are now being put into enabling a start-up by the end of 2022. We have signed an agreement with Voith to provide equipment and technical services to help build one of the most modern recycled containerboard machines in the world. We expect to receive our first equipment deliveries in the next few months with construction set to begin in the second quarter of 2021. We are also focusing on implementing our commercial strategy while building our various teams that will help lead the business."

Mr. Williams added, "In Personal Care, we had a strong cost performance in the quarter. We continue to execute well against our objectives, both commercially and operationally, which has contributed to our strong year-to-date performance."

Operating loss was $136 million in the third quarter of 2020 compared to operating income of $14 million in the second quarter of 2020. Depreciation and amortization totaled $71 million in the third quarter of 2020.

Operating income before items1was $43 million in the third quarter of 2020 compared to operating income before items1 of $15 million in the second quarter of 2020.



(In millions of dollars) 3Q 2020 2Q 2020



Sales $ 1,124 $ 1,012

Operating (loss) income

Pulp and Paper segment (140 ) 3

Personal Care segment 16 18

Corporate (12 ) (7 )

Total operating (loss) income (136 ) 14

Operating income before items^1 43 15

Depreciation and amortization 71 71

The net operating loss in the third quarter of 2020 was the result of the long-lived assets impairment and closure and restructuring charges related to the cost savings program, lower wage subsidies, higher maintenance costs, higher selling, general and administrative expenses and higher freight costs. These factors were partially offset by favorable productivity, higher volume in paper, lower raw material costs, higher average selling prices for paper and favorable exchange rates.

When compared to the second quarter of 2020, manufactured paper shipments were up 20% and pulp shipments decreased 7%. The shipment-to-production ratio for paper was 105% in the third and second quarters of 2020. Paper inventories decreased by 20,000 tons, and pulp inventories increased by 38,000 metric tons when compared to the second quarter of 2020.

LIQUIDITY AND CAPITAL RESOURCES

Cash flow from operating activities amounted to $121 million and capital expenditures were $28 million, resulting in free cash flow1 of $93 million for the third quarter of 2020. Domtar's net debt-to-total capitalization ratio1 stood at 28% at September 30, 2020 compared to 30% at June 30, 2020.

OUTLOOK

In the fourth quarter, paper volume is expected to be flat quarter-over-quarter while mix should be unfavorable due to the usual seasonality. We expect near-term pulp markets to continue to gradually improve driven by better demand, maintenance outages and restocking in China. We expect Personal Care to continue to benefit from higher usage and the impact from new customer wins. Overall raw material costs are expected to remain stable while planned maintenance costs will be lower.

EARNINGS CONFERENCE CALL

The Company will hold a conference call today at 10:00 a.m. (ET) to discuss its third quarter 2020 financial results. Financial analysts are invited to participate in the call by dialing 1 (800) 367-2403 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 fourth quarter 2020 earnings results on February 11, 2021 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 8,900 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 $5.2 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.

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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 the COVID-19 pandemic and the resulting decrease in paper sales and the challenges we face in maintaining manufacturing operations, changes in customer demand and pricing, changes in manufacturing costs, future acquisitions and divestitures, including facility closings, the failure to achieve our cost containment goals, costs of conversion in excess of our expectations, demand for linerboard, and the other reasons identified under "Risk Factors" in our Form 10-K for 2019 as filed with the SEC and as updated by subsequently-filed Form 10-Qs. 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 ofdollars, unlessotherwise noted)

For the three months For the nine months ended ended

September September September September 30, 30, 30, 30, 2020 2019 2020 2019

(Unaudited)

$ $ $ $

Selected Segment Information

Sales

Pulp and Paper 899 1,079 2,732 3,342

Personal Care 243 219 738 686

Total for reportable 1,142 1,298 3,470 4,028 segments

Intersegment sales (18 ) (15 ) (56 ) (52 )

Consolidated sales 1,124 1,283 3,414 3,976

Depreciation and amortization

Pulp and Paper 56 57 170 174

Personal Care 15 15 44 45

Total for reportable 71 72 214 219 segments

Impairment oflong-lived assets - 111 32 111 32 Pulp and Paper

Impairment oflong-lived assets - - 1 - 26 Personal Care

Consolidateddepreciation andamortization and 182 105 325 277 impairment oflong-lived assets

Operating (loss) income

Pulp and Paper (140 ) 31 (133 ) 237

Personal Care 16 2 54 (24 )

Corporate (12 ) (4 ) (24 ) (35 )

Consolidated operating (136 ) 29 (103 ) 178 (loss) income

Interest expense, net 14 12 43 38

Non-service componentsof net periodic benefit (4 ) (2 ) (13 ) (7 )cost

(Loss) earnings beforeincome taxes and equity (146 ) 19 (133 ) 147 loss

Income tax (benefit) (55 ) (1 ) (67 ) 28 expense

Equity loss, net of 1 - 2 1 taxes

Net (loss) earnings (92 ) 20 (68 ) 118

Per common share (in dollars)

Net (loss) earnings

Basic (1.67 ) 0.33 (1.23 ) 1.89

Diluted (1.67 ) 0.32 (1.23 ) 1.88

Weighted average numberof common shares outstanding (millions)

Basic 55.2 61.5 55.5 62.5

Diluted 55.2 61.7 55.5 62.7

Cash flows from 121 108 276 282 operating activities

Additions to property, 28 56 130 157 plant and equipment

As a result of changes in our organization structure, we have changed our segment reporting. Starting January 1, 2020, our materials business EAM Corporation, ("EAM"), a manufacturer of high quality airlaid and ultrathin laminated cores, previously reported under our Personal Care segment is now presented under our Pulp and Paper segment. Prior period segment results have been restated to the new segment presentation with no significant impact on segment results. There were no changes to our consolidated sales or operating income.

Domtar Corporation

Consolidated Statementsof Earnings (Loss) (In millions ofdollars, unlessotherwise noted)

For the three months For the nine months ended ended

September September September September 30, 30, 30, 30, 2020 2019 2020 2019

(Unaudited)

$ $ $ $



Sales 1,124 1,283 3,414 3,976

Operating expenses

Cost of sales,excluding depreciation 911 1,041 2,831 3,172 and amortization

Depreciation and 71 72 214 219 amortization

Selling, general and 99 94 294 322 administrative

Impairment of 111 33 111 58 long-lived assets

Closure and 68 11 69 23 restructuring costs

Other operating loss - 3 (2 ) 4 (income), net

1,260 1,254 3,517 3,798

Operating (loss) income (136 ) 29 (103 ) 178

Interest expense, net 14 12 43 38

Non-service componentsof net periodic benefit (4 ) (2 ) (13 ) (7 )cost

(Loss) earnings beforeincome taxes and equity (146 ) 19 (133 ) 147 loss

Income tax (benefit) (55 ) (1 ) (67 ) 28 expense

Equity loss, net of 1 - 2 1 taxes

Net (loss) earnings (92 ) 20 (68 ) 118

Per common share (in dollars)

Net (loss) earnings

Basic (1.67 ) 0.33 (1.23 ) 1.89

Diluted (1.67 ) 0.32 (1.23 ) 1.88

Weighted average numberof common shares outstanding (millions)

Basic 55.2 61.5 55.5 62.5

Diluted 55.2 61.7 55.5 62.7

Domtar Corporation

Consolidated Balance Sheets at

(In millions of dollars)

September 30,2020

December 31, 2019

(Unaudited)

$

$

Assets

Current assets

Cash and cash equivalents

218

61

Receivables, less allowances of $11 and $6

543

577

Inventories

764

786

Prepaid expenses

36

33

Income and other taxes receivable

44

61

Total current assets

1,605

1,518

Property, plant and equipment, net

2,378

2,567

Operating lease right-of-use assets

72

81

Intangible assets, net

573

573

Other assets

163

164

Total assets

4,791

4,903

Liabilities and shareholders' equity

Current liabilities

Bank indebtedness

-

9

Trade and other payables

626

705

Income and other taxes payable

37

23

Operating lease liabilities due within one year

27

28

Long-term debt due within one year

13

1

Total current liabilities

703

766

Long-term debt

1,086

938

Operating lease liabilities

58

69

Deferred income taxes and other

413

479

Other liabilities and deferred credits

320

275

Shareholders' equity

Common stock

1

1

Additional paid-in capital

1,714

1,770

Retained earnings

905

998

Accumulated other comprehensive loss

(409

)

(393

)

Total shareholders' equity

2,211

2,376

Total liabilities and shareholders' equity

4,791

4,903

Domtar Corporation

Consolidated Balance Sheets at

(In millions of dollars)



September December 31, 30, 2019 2020

(Unaudited)

$ $

Assets

Current assets

Cash and cash equivalents 218 61

Receivables, less allowances of $11 and $6 543 577

Inventories 764 786

Prepaid expenses 36 33

Income and other taxes receivable 44 61

Total current assets 1,605 1,518

Property, plant and equipment, net 2,378 2,567

Operating lease right-of-use assets 72 81

Intangible assets, net 573 573

Other assets 163 164

Total assets 4,791 4,903

Liabilities and shareholders' equity

Current liabilities

Bank indebtedness - 9

Trade and other payables 626 705

Income and other taxes payable 37 23

Operating lease liabilities due within one 27 28 year

Long-term debt due within one year 13 1

Total current liabilities 703 766

Long-term debt 1,086 938

Operating lease liabilities 58 69

Deferred income taxes and other 413 479

Other liabilities and deferred credits 320 275

Shareholders' equity

Common stock 1 1

Additional paid-in capital 1,714 1,770

Retained earnings 905 998

Accumulated other comprehensive loss (409 ) (393 )

Total shareholders' equity 2,211 2,376

Total liabilities and shareholders' equity 4,791 4,903

Domtar Corporation

Consolidated Statements of Cash Flows

(In millions of dollars)

For the three months ended

For the nine months ended

September 30,2020

September 30, 2019

September 30,2020

September 30, 2019

(Unaudited)

$

$

$

$

Operating activities

Net (loss) earnings

(92

)

20

(68

)

118

Adjustments to reconcile net (loss) earnings to cash flows from operating activities

Depreciation and amortization

71

72

214

219

Deferred income taxes and tax uncertainties

(48

)

2

(60

)

1

Impairment of long-lived assets

111

33

111

58

Stock-based compensation expense

2

2

5

7

Equity loss, net

1

-

2

1

Changes in assets and liabilities, excluding the effect of acquisition of business

Receivables

(4

)

10

38

50

Inventories

10

20

30

(34

)

Prepaid expenses

7

7

9

(4

)

Trade and other payables

74

(35

)

(21

)

(111

)

Income and other taxes

(6

)

(13

)

34

(27

)

Difference between employer pension and other post-retirement contributions and pension and other post-retirement expense

(5

)

(4

)

(6

)

(3

)

Other assets and other liabilities

-

(6

)

(12

)

7

Cash flows from operating activities

121

108

276

282

Investing activities

Additions to property, plant and equipment

(28

)

(56

)

(130

)

(157

)

Proceeds from disposals of property, plant and equipment

-

-

-

1

Acquisition of business, net of cash acquired

-

-

(30

)

-

Cash flows used for investing activities

(28

)

(56

)

(160

)

(156

)

Financing activities

Dividend payments

-

(28

)

(51

)

(83

)

Stock repurchase

-

(131

)

(59

)

(139

)

Net change in bank indebtedness

-

(1

)

(10

)

2

Change in revolving credit facility

-

45

(80

)

45

Proceeds from receivables securitization facility

-

70

25

150

Repayments of receivables securitization facility

-

-

(80

)

(110

)

Issuance of long-term debt

-

-

300

-

Repayments of long-term debt

(3

)

-

(3

)

(1

)

Other

1

-

(3

)

(1

)

Cash flows (used for) provided from financing activities

(2

)

(45

)

39

(137

)

Net increase (decrease) in cash and cash equivalents

91

7

155

(11

)

Impact of foreign exchange on cash

3

(2

)

2

(2

)

Cash and cash equivalents at beginning of period

124

93

61

111

Cash and cash equivalents at end of period

218

98

218

98

Supplemental cash flow information

Net cash payments (refund) for:

Interest

19

16

44

39

Income taxes

(1

)

5

(25

)

55

Domtar CorporationQuarterly 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.

Domtar Corporation

Consolidated Statementsof Cash Flows

(In millions ofdollars)

For the three months For the nine months ended ended

September September September September 30, 30, 30, 30, 2020 2019 2020 2019

(Unaudited)

$ $ $ $

Operating activities

Net (loss) earnings (92 ) 20 (68 ) 118

Adjustments toreconcile net (loss)earnings to cash flows from operatingactivities

Depreciation and 71 72 214 219 amortization

Deferred income taxes (48 ) 2 (60 ) 1 and tax uncertainties

Impairment of 111 33 111 58 long-lived assets

Stock-based 2 2 5 7 compensation expense

Equity loss, net 1 - 2 1

Changes in assets andliabilities, excluding the effect of acquisition of business

Receivables (4 ) 10 38 50

Inventories 10 20 30 (34 )

Prepaid expenses 7 7 9 (4 )

Trade and other 74 (35 ) (21 ) (111 )payables

Income and other taxes (6 ) (13 ) 34 (27 )

Difference betweenemployer pension andother post-retirement (5 ) (4 ) (6 ) (3 )contributions and pension and otherpost-retirement expense

Other assets and other - (6 ) (12 ) 7 liabilities

Cash flows from 121 108 276 282 operating activities

Investing activities

Additions to property, (28 ) (56 ) (130 ) (157 )plant and equipment

Proceeds from disposalsof property, plant and - - - 1 equipment

Acquisition ofbusiness, net of cash - - (30 ) - acquired

Cash flows used for (28 ) (56 ) (160 ) (156 )investing activities

Financing activities

Dividend payments - (28 ) (51 ) (83 )

Stock repurchase - (131 ) (59 ) (139 )

Net change in bank - (1 ) (10 ) 2 indebtedness

Change in revolving - 45 (80 ) 45 credit facility

Proceeds fromreceivables - 70 25 150 securitization facility

Repayments ofreceivables - - (80 ) (110 )securitization facility

Issuance of long-term - - 300 - debt

Repayments of long-term (3 ) - (3 ) (1 )debt

Other 1 - (3 ) (1 )

Cash flows (used for)provided from financing (2 ) (45 ) 39 (137 )activities

Net increase (decrease)in cash and cash 91 7 155 (11 )equivalents

Impact of foreign 3 (2 ) 2 (2 )exchange on cash

Cash and cashequivalents at 124 93 61 111 beginning of period

Cash and cashequivalents at end of 218 98 218 98 period

Supplemental cash flow information

Net cash payments (refund) for:

Interest 19 16 44 39

Income taxes (1 ) 5 (25 ) 55

Domtar CorporationQuarterly 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.

2020 2019

Q1 Q2 Q3 YTD Q1 Q2 Q3 Q4 Year

Reconciliation of "Earnings before items" to Net earnings (loss)

Net earnings ($) 5 19 (92 ) (68 ) 80 18 20 (34 ) 84 (loss)

(+) Pension ($) - - - - - - - 22 22 settlement loss

Impairment of (+) long-lived ($) - - 68 68 8 12 26 - 46 assets

Closure and (+) restructuring ($) - 1 42 43 3 6 9 14 32 costs

(=) Earnings before ($) 5 20 18 43 91 36 55 2 184 items

Weighted avg. number of common (/) shares (millions) 56.2 55.3 55.2 55.5 63.2 63.3 61.7 57.3 61.4 outstanding (diluted)

Earnings before (=) items per ($) 0.09 0.36 0.33 0.77 1.44 0.57 0.89 0.03 3.00 diluted share



Reconciliation of "EBITDA" and "EBITDA before items" to Net earnings (loss)

Net earnings ($) 5 19 (92 ) (68 ) 80 18 20 (34 ) 84 (loss)

(+) Equity loss, net ($) 1 - 1 2 1 - - 1 2 of taxes

Income tax (+) expense ($) 3 (15 ) (55 ) (67 ) 24 5 (1 ) (26 ) 2 (benefit)

(+) Interest ($) 14 15 14 43 13 13 12 14 52 expense, net

(+) Depreciation and ($) 72 71 71 214 73 74 72 74 293 amortization

Impairment of (+) long-lived ($) - - 111 111 10 15 33 - 58 assets

(=) EBITDA ($) 95 90 50 235 201 125 136 29 491

(/) Sales ($) 1,278 1,012 1,124 3,414 1,376 1,317 1,283 1,244 5,220

(=) EBITDA margin (%) 7 % 9 % 4 % 7 % 15 % 9 % 11 % 2 % 9 %

EBITDA ($) 95 90 50 235 201 125 136 29 491

(+) Pension ($) - - - - - - - 30 30 settlement loss

Closure and (+) restructuring ($) - 1 68 69 4 8 11 19 42 costs

(=) EBITDA before ($) 95 91 118 304 205 133 147 78 563 items

(/) Sales ($) 1,278 1,012 1,124 3,414 1,376 1,317 1,283 1,244 5,220

(=) EBITDA margin (%) 7 % 9 % 10 % 9 % 15 % 10 % 11 % 6 % 11 % before items



Reconciliation of "Free cash flow" to Cash flows from operating activities

Cash flows from operating ($) 88 67 121 276 55 119 108 160 442 activities

Additions to (-) property, plant ($) (62 ) (40 ) (28 ) (130 ) (46 ) (55 ) (56 ) (98 ) (255 ) and equipment

(=) Free cash flow ($) 26 27 93 146 9 64 52 62 187



"Net debt-to-total capitalization" computation

Bank ($) - - - 3 3 1 9 indebtedness

Long-term debt (+) due within one ($) 1 13 13 1 1 1 1 year

(+) Long-term debt ($) 1,102 1,089 1,086 853 824 938 938

(=) Debt ($) 1,103 1,102 1,099 857 828 940 948

(-) Cash and cash ($) (152 ) (124 ) (218 ) (94 ) (93 ) (98 ) (61 ) equivalents

(=) Net debt ($) 951 978 881 763 735 842 887

(+) Shareholders' ($) 2,181 2,277 2,211 2,608 2,619 2,439 2,376 equity

(=) Total ($) 3,132 3,255 3,092 3,371 3,354 3,281 3,263 capitalization

Net debt ($) 951 978 881 763 735 842 887

(/) Total ($) 3,132 3,255 3,092 3,371 3,354 3,281 3,263 capitalization

Net (=) debt-to-total (%) 30 % 30 % 28 % 23 % 22 % 26 % 27 % capitalization

"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 (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 CorporationQuarterly Reconciliation of Non-GAAP Financial Measures - By Segment 2020(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.

Pulp and Paper Personal Care Corporate Total

Q1'20 Q2'20 Q3'20 Q4'20 YTD Q1'20 Q2'20 Q3'20 Q4'20 YTD Q1'20 Q2'20 Q3'20 Q4'20 YTD Q1'20 Q2'20 Q3'20 Q4'20 YTD

Reconciliation of Operating income (loss)to "Operating income (loss) before items"

Operating ($) 4 3 (140) - (133) 20 18 16 - 54 (5) (7) (12) - (24) 19 14 (136) - (103) income (loss)

Impairment of (+) long-lived ($) - - 111 - 111 - - - - - - - - - - - - 111 - 111 assets

Closure and (+) restructuring ($) - 1 67 - 68 - - - - - - - 1 - 1 - 1 68 - 69 costs

Operating (=) income (loss) ($) 4 4 38 - 46 20 18 16 - 54 (5) (7) (11) - (23) 19 15 43 - 77 before items



Reconciliation of "Operating income (loss)before items" to "EBITDA before items"

Operating income (loss) ($) 4 4 38 - 46 20 18 16 - 54 (5) (7) (11) - (23) 19 15 43 - 77 before items

Non-service (+) components of ($) 4 6 4 - 14 - - - - - - (1) - - (1) 4 5 4 - 13 net periodic benefit cost

Depreciation (+) and ($) 58 56 56 - 170 14 15 15 - 44 - - - - - 72 71 71 - 214 amortization

(=) EBITDA before ($) 66 66 98 - 230 34 33 31 - 98 (5) (8) (11) - (24) 95 91 118 - 304 items

(/) Sales ($) 1,031 802 899 - 2,732 266 229 243 - 738 - - - - - 1,297 1,031 1,142 - 3,470

(=) EBITDA margin (%) 6% 8% 11% - 8% 13% 14% 13% - 13% - - - - - 7% 9% 10% - 9% before items

"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 CorporationQuarterly Reconciliation of Non-GAAP Financial Measures - By Segment 2019(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.

Pulp and Paper Personal Care Corporate Total

Q1'19 Q2'19 Q3'19 Q4'19 Year Q1'19 Q2'19 Q3'19 Q4'19 Year Q1'19 Q2'19 Q3'19 Q4'19 Year Q1'19 Q2'19 Q3'19 Q4'19 Year

Reconciliation of Operating income (loss)to "Operating income (loss) before items"

Operating ($) 144 62 31 (11) 226 (8) (18) 2 8 (16) (21) (10) (4) (12) (47) 115 34 29 (15) 163 income (loss)

Impairment of (+) long-lived ($) - - 32 - 32 10 15 1 - 26 - - - - - 10 15 33 - 58 assets

Closure and (+) restructuring ($) - - 5 17 22 4 8 6 2 20 - - - - - 4 8 11 19 42 costs

Operating (=) income (loss) ($) 144 62 68 6 280 6 5 9 10 30 (21) (10) (4) (12) (47) 129 57 73 4 263 before items



Reconciliation of "Operating income (loss)before items" to "EBITDA before items"

Operating income (loss) ($) 144 62 68 6 280 6 5 9 10 30 (21) (10) (4) (12) (47) 129 57 73 4 263 before items

Pension (+) settlement ($) - - - 30 30 - - - - - - - - - - - - - 30 30 loss

Non-service (+) components of ($) 3 3 2 (28) (20) - - - - - - (1) - (2) (3) 3 2 2 (30) (23) net periodic benefit cost

Depreciation (+) and ($) 58 59 57 57 231 15 15 15 17 62 - - - - - 73 74 72 74 293 amortization

(=) EBITDA before ($) 205 124 127 65 521 21 20 24 27 92 (21) (11) (4) (14) (50) 205 133 147 78 563 items

(/) Sales ($) 1,157 1,106 1,079 1,027 4,369 239 228 219 234 920 - - - - - 1,396 1,334 1,298 1,261 5,289

(=) EBITDA margin (%) 18% 11% 12% 6% 12% 9% 9% 11% 12% 10% - - - - - 15% 10% 11% 6% 11% before items

"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.

As a result of changes in our organization structure, we have changed our segment reporting. Starting January 1, 2020, our materials business EAM, a manufacturer of high quality airlaid and ultrathin laminated cores, previously reported under our Personal Care segment is now presented under our Pulp and Paper segment. Prior period segment results have been restated to the new segment presentation with no significant impact on segment results. There were no changes to our consolidated sales or operating income.

Domtar Corporation

Supplemental Segmented Information

(In millions of dollars, unless otherwise noted)

2020 2019

Q1 Q2 Q3 YTD Q1 Q2 Q3 Q4 Year

Pulp and Paper Segment

Sales ($) 1,031 802 899 2,732 1,157 1,106 1,079 1,027 4,369

Operating ($) 4 3 (140 ) (133 ) 144 62 31 (11 ) 226 income (loss)

Depreciationand ($) 58 56 56 170 58 59 57 57 231 amortization

Impairment oflong-lived ($) - - 111 111 - - 32 - 32 assets

Paper

Paper ('000 648 436 524 1,608 757 697 653 619 2,726 Production ST)

Paper Shipments ('000 679 459 550 1,688 736 681 672 656 2,745 - Manufactured ST)

Communication ('000 569 366 449 1,384 615 567 563 554 2,299 Papers ST)

Specialty and ('000Packaging ST) 110 93 101 304 121 114 109 102 446 Papers

Paper Shipments ('000- Sourced from ST) 22 12 16 50 23 21 25 24 93 3rd parties

Paper Shipments ('000 701 471 566 1,738 759 702 697 680 2,838 - Total ST)

Pulp

Pulp Shipments^ ('000 389 427 396 1,212 349 370 416 404 1,539 (a) ADMT)

Pulp Shipments mix^(b):

Hardwood Kraft (%) 3 % 2 % 4 % 3 % 2 % 2 % 5 % 5 % 4 %Pulp

Softwood Kraft (%) 52 % 57 % 62 % 57 % 53 % 56 % 55 % 54 % 54 %Pulp

Fluff Pulp (%) 45 % 41 % 34 % 40 % 45 % 42 % 40 % 41 % 42 %



Personal Care Segment

Sales ($) 266 229 243 738 239 228 219 234 920

Operating ($) 20 18 16 54 (8 ) (18 ) 2 8 (16 )income (loss)

Depreciationand ($) 14 15 15 44 15 15 15 17 62 amortization

Impairment oflong-lived ($) - - - - 10 15 1 - 26 assets



Average $US / 1.344 1.385 1.332 1.354 1.329 1.337 1.321 1.321 1.327 Exchange Rates $CAN

$CAN 0.744 0.722 0.751 0.739 0.752 0.748 0.757 0.757 0.754 / $US

(eu) 1.102 1.101 1.170 1.124 1.136 1.124 1.111 1.107 1.120 / $US

As a result of changes in our organization structure, we have changed our segment reporting. Starting January 1, 2020, our materials business EAM, a manufacturer of high quality airlaid and ultrathin laminated cores, previously reported under our Personal Care segment is now presented under our Pulp and Paper segment. Prior period segment results have been restated to the new segment presentation with no significant impact on segment results. There were no changes to our consolidated sales or operating income.

(a) Figures represent Pulp Shipments to third parties. (b) Percentages include Pulp Shipments to our Personal Care segment.

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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