Business Wire | Aug 7, 2020 06:55AM EDT

Domtar Corporation Reports Preliminary Second Quarter 2020 Financial Results and Announces Strategic Initiatives

Aug. 07, 2020

FORT MILL, S.C.--(BUSINESS WIRE)--Aug. 07, 2020--Domtar Corporation (NYSE: UFS) (TSX: UFS) today reported net earnings of $19 million ($0.34 per share) for the second quarter of 2020 compared to net earnings of $5 million ($0.09 per share) for the first quarter of 2020 and net earnings of $18 million ($0.28 per share) for the second quarter of 2019. Sales for the second quarter of 2020 were $1.0 billion.

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Excluding items listed below, the Company had earnings before items1 of $20 million ($0.36 per share) for the second quarter of 2020 compared to earnings before items1 of $5 million ($0.09 per share) for the first quarter of 2020 and earnings before items1 of $36 million ($0.57 per share) for the second quarter of 2019.

ITEMS

After EPS tax impactDescription Segment Line item Amount effect (per share)

(in millions)

Second quarter 2020



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



First quarter 2020



* None



Second quarter 2019



* Margin improvement Personal Impairment of plan Care long-lived $15 $12 $0.19 assets



* Margin improvement Personal Closure and plan Care restructuring $8 $6 $0.10 costs



_________________________^1 Non-GAAP financial measure. Refer to the Reconciliation of Non-GAAPFinancial Measures in the appendix.

QUARTERLY REVIEW

"We have been proactive in reducing risk and safeguarding our ability to weather the current crisis. We are taking the appropriate steps to optimize our operations and to remain an agile, reliable partner to our customers," said John D. Williams, President and Chief Executive Officer. "Despite the significant challenges we faced in Pulp and Paper markets, we have been able to manage costs while initiating cash and cost conservation initiatives across the network."

Mr. Williams added, "In Personal Care, second quarter revenues were lower following a record first quarter, which was driven partly by consumer pantry loading. While revenues were lower than prior quarter, good cost control and improved operational efficiencies supported a solid EBITDA performance. The second quarter ended with an EBITDA margin of 14.4%, which was a 160 basis point improvement when compared to the first quarter and the highest divisional margin since the fourth quarter of 2015."

Operating income was $14 million in the second quarter of 2020 compared to operating income of $19 million in the first quarter of 2020. Depreciation and amortization totaled $71 million in the second quarter of 2020.

Operating income before items1was $15 million in the second quarter of 2020 compared to operating income before items1 of $19 million in the first quarter of 2020.



(In millions of dollars) 2Q 2020 1Q 2020



Sales $ 1,012 $ 1,278

Operating income (loss)

Pulp and Paper segment 3 4

Personal Care segment 18 20

Corporate (7 ) (5 )

Total operating income 14 19

Operating income before items^1 15 19

Depreciation and amortization 71 72

The decrease in operating income in the second quarter of 2020 was the result of lower volume and unfavorable productivity. These factors were partially offset by lower maintenance costs and lower salaries and wages, mostly due to wage subsidies, lower selling, general and administrative expenses, lower raw material costs, favorable exchange rates and lower fixed and other costs.

When compared to the first quarter of 2020, manufactured paper shipments were down 32% and pulp shipments increased 10%. The shipment-to-production ratio for paper was 105% in the second and the first quarters of 2020. Paper inventories decreased by 22,000 tons, and pulp inventories decreased by 2,000 metric tons when compared to the first quarter of 2020.

_________________________^1 Non-GAAP financial measure. Refer to the Reconciliation of Non-GAAPFinancial Measures in the appendix.

LIQUIDITY AND CAPITAL RESOURCES

Cash flow from operating activities amounted to $67 million and capital expenditures were $40 million, resulting in free cash flow1 of $27 million for the second quarter of 2020. Domtar's net debt-to-total capitalization ratio1 stood at 30% at June 30, 2020 and at March 31, 2020. At June 30, 2020, we had total liquidity of approximately $906 million ($124 million of cash on hand, $782 million in available credit facilities) with no near-term debt maturities.

OUTLOOK

We expect the overall environment to continue to be challenging. In Paper, we expect demand to remain weak, with some incremental recovery expected in quarter three and towards year-end. We expect near-term pulp markets to be impacted by seasonal softness, elevated global inventories, and weak demand trends from paper markets. Personal Care will continue to benefit from productivity gains and the impact from new customer wins. Overall raw material costs are expected to remain stable.

STRATEGIC INITIATIVES

COST REDUCTION PROGRAM

The Company is implementing a cost reduction program, targeting $200 million in annual run-rate cost savings to be realized by the end of 2021. The goal of the program is to build a stronger business operation, enhance the Company's cost efficiency, and improve operating margins and maximize productivity and cash flow. The cost saving initiatives include capacity reduction and asset closures, mill-level cost savings and rightsizing support functions. The leaner organizational structure is also expected to improve communication flow and cross-functional collaboration, leveraging more efficient business processes.

As part of the cost savings program, the Company will permanently close the uncoated freesheet manufacturing at the Kingsport, Tennessee and Port Huron, Michigan mills, the remaining paper machine at the Ashdown, Arkansas mill and the converting center in Ridgefields, Tennessee. These actions will reduce the Company's annual uncoated freesheet paper capacity by approximately 721,000 short tons, and will result in a workforce reduction of approximately 780 employees. The Kingsport and Ashdown paper machines, which have been idled since April 2020, will not recommence operations. The Port Huron and Ridgefields mills are expected to shut down by the end of the first quarter of 2021.

_________________________

^1Non-GAAP financial measure. Refer to the Reconciliation of Non-GAAP FinancialMeasures in the appendix.

"We remain disciplined in our efforts to manage our costs to improve profitability and further strengthen our balance sheet. In line with these goals and current market conditions, we are implementing a significant cost savings program to streamline operations, maximize productivity and improve margins. This program will create a stronger, leaner organization aligned to meet the needs of the business and our customers in a post COVID-19 era," said Mr. Williams. "This important and necessary step is expected to reduce our annualized costs by more than $200 million, while significantly improving our free cash flow and return on invested capital. We have a talented and dedicated workforce at Domtar, and decisions that affect people are never easy. However, we are taking the necessary steps to better position our business for the future."

EXECUTION OF THE ASSET CONVERSION ROADMAP

Domtar's decision to repurpose assets at Kingsport, Tennessee and Ashdown, Arkansas follows a disciplined and measured review of the Company's manufacturing footprint. This conversion program is consistent with the roadmap that Domtar made public in 2018. The previously announced multi-mill conversion roadmap is designed to increase shareholder value as we adjust our paper capacity to align with our customer demand. Through this process, we have identified up to four large scale paper machine/mill repurposing projects that have the ability to produce 2.5 million tons of containerboard and/or 570,000 ADMT of additional market softwood and fluff pulp.

Entering the recycled linerboard market at Kingsport, Tennessee

The Company plans to enter the linerboard market with the conversion of the Kingsport paper machine. Once in full operation, the mill will produce and market approximately 600,000 tons annually of high-quality recycled linerboard and medium, providing the Company with a strategic footprint in a growing adjacent market. The conversion is expected to be completed by the first quarter of 2023.

Domtar estimates the conversion cost to be between $300 and $350 million. Once fully operational, the mill is expected to be a very low-cost, first quartile recycled linerboard mill in North America. The converted mill is expected to directly employ approximately 160 employees.

"Repurposing the Kingsport mill provides Domtar with the best strategic entry point into a growing market with a very competitive, low-cost asset and represents a first step to building a large and cost-competitive business," said Mr. Williams. "Kingsport is well positioned to be the go-to supplier to independent converters for quality, service and innovation as the mill is less than a day's drive from over 60 customers representing an addressable 3.9 million tons of annual containerboard demand."

Completing the conversion to softwood and fluff pulp at Ashdown, Arkansas

The Company will complete the conversion of the Ashdown mill to 100% softwood and fluff pulp, which will require $15 to $20 million of capital investments and will take 12 to 14 months to implement. The mill will produce additional market hardwood pulp until it converts the fiberline to softwood pulp. The conversion of the fiberline to 100% softwood is also necessary for an eventual expansion into containerboard. Following the fiberline conversion, Ashdown will be a world-class market pulp mill with annual production capactiy of 775,000 tons of fluff and softwood pulp.

With these two conversions, Domtar continues to deliver on its strategic roadmap to make value creating investments in its world-class facilities, and to this end, provides a bright future for the Kingsport and Ashdown mills.

REVIEW OF STRATEGIC ALTERNATIVES FOR PERSONAL CARE DIVISION

The Company has commenced a strategic review process to explore a range of value-creating alternatives for its Personal Care division, which may include a sale of the business. The strategic review process will be conducted with the assistance of Domtar's independent financial and legal advisors and will consider a full range of potential alternatives with respect to the Company's Personal Care division.

"Over the past year, we have significantly improved the operating structure and cost profile of our Personal Care division due in large part to the hard work and perseverance of our teams. In addition, the scale-up of new customer and sales pipeline gives us confidence in the long-term prospects for the business." Mr. Williams said. "With this positive momentum, we believe now is the right time to initiate a strategic review."

The Company has not set a deadline for the conclusion of its review of strategic alternatives, and does not intend to comment further unless and until the Board of Directors has approved a specific course of action or the Company has otherwise determined that further disclosure is appropriate or necessary.

EARNINGS CONFERENCE CALL

The Company will hold a conference call today at 10:00 a.m. (ET) to discuss its second 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 third quarter 2020 earnings results on October 29, 2020 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 9,200 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.

Forward-Looking Statements

Statements in this release about our plans, expectations and future performance, including the statements by Mr. Williams, those contained under "Outlook" and under "Strategic Initiatives," 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 of dollars, unless otherwise noted)

For the three For the six months months ended ended

June June June June 30, 30, 30, 30,

2020 2019 2020 2019

(Unaudited)

$ $ $ $

Selected Segment Information

Sales

Pulp and Paper 802 1,106 1,833 2,263

Personal Care 229 228 495 467

Total for reportable segments 1,031 1,334 2,328 2,730

Intersegment sales (19 ) (17 ) (38 ) (37 )

Consolidated sales 1,012 1,317 2,290 2,693

Depreciation and amortization

Pulp and Paper 56 59 114 117

Personal Care 15 15 29 30

Total for reportable segments 71 74 143 147

Impairment of long-lived assets - 15 - 25 - Personal Care

Consolidated depreciation andamortization and 71 89 143 172

impairment of long-lived assets

Operating income (loss)

Pulp and Paper 3 62 7 206

Personal Care 18 (18 ) 38 (26 )

Corporate (7 ) (10 ) (12 ) (31 )

Consolidated operating income 14 34 33 149

Interest expense, net 15 13 29 26

Non-service components of net (5 ) (2 ) (9 ) (5 )periodic benefit cost

Earnings before income taxes and 4 23 13 128 equity loss

Income tax (benefit) expense (15 ) 5 (12 ) 29

Equity loss, net of taxes - - 1 1

Net earnings 19 18 24 98

Per common share (in dollars)

Net earnings

Basic 0.34 0.29 0.43 1.56

Diluted 0.34 0.28 0.43 1.55

Weighted average number ofcommon

shares outstanding (millions)

Basic 55.2 63.0 55.6 63.0

Diluted 55.3 63.3 55.7 63.3

Cash flows from operating 67 119 155 174 activities

Additions to property, plant and 40 55 102 101 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 Statements of Earnings

(In millions of dollars, unless otherwise noted)

For the three For the six months months ended ended

June June June June 30, 30, 30, 30,

2020 2019 2020 2019

(Unaudited)

$ $ $ $



Sales 1,012 1,317 2,290 2,693

Operating expenses

Cost of sales, excluding 837 1,079 1,920 2,131 depreciation and amortization

Depreciation and amortization 71 74 143 147

Selling, general and 93 105 195 228 administrative

Impairment of long-lived assets - 15 - 25

Closure and restructuring costs 1 8 1 12

Other operating (income) loss, (4 ) 2 (2 ) 1 net

998 1,283 2,257 2,544

Operating income 14 34 33 149

Interest expense, net 15 13 29 26

Non-service components of net (5 ) (2 ) (9 ) (5 )periodic benefit cost

Earnings before income taxes and 4 23 13 128 equity loss

Income tax (benefit) expense (15 ) 5 (12 ) 29

Equity loss, net of taxes - - 1 1

Net earnings 19 18 24 98

Per common share (in dollars)

Net earnings

Basic 0.34 0.29 0.43 1.56

Diluted 0.34 0.28 0.43 1.55

Weighted average number ofcommon

shares outstanding (millions)

Basic 55.2 63.0 55.6 63.0

Diluted 55.3 63.3 55.7 63.3



Domtar Corporation

Consolidated Balance Sheets at

(In millions of dollars)



June 30, December 31,

2020 2019

(Unaudited)

$ $

Assets

Current assets

Cash and cash equivalents 124 61

Receivables, less allowances of $11 and $6 535 577

Inventories 767 786

Prepaid expenses 36 33

Income and other taxes receivable 34 61

Total current assets 1,496 1,518

Property, plant and equipment, net 2,509 2,567

Operating lease right-of-use assets 74 81

Intangible assets, net 564 573

Other assets 162 164

Total assets 4,805 4,903

Liabilities and shareholders' equity

Current liabilities

Bank indebtedness - 9

Trade and other payables 565 705

Income and other taxes payable 33 23

Operating lease liabilities due within one year 28 28

Long-term debt due within one year 13 1

Total current liabilities 639 766

Long-term debt 1,089 938

Operating lease liabilities 62 69

Deferred income taxes and other 461 479

Other liabilities and deferred credits 277 275

Shareholders' equity

Common stock 1 1

Additional paid-in capital 1,711 1,770

Retained earnings 997 998

Accumulated other comprehensive loss (432 ) (393 )

Total shareholders' equity 2,277 2,376

Total liabilities and shareholders' equity 4,805 4,903

Domtar Corporation

Consolidated Statements of Cash Flows

(In millions of dollars)

For the three For the six months ended months ended

June June June June 30, 30, 30, 30,

2020 2019 2020 2019

(Unaudited)

$ $ $ $

Operating activities

Net earnings 19 18 24 98

Adjustments to reconcile netearnings to cash flows

from operating activities

Depreciation and amortization 71 74 143 147

Deferred income taxes and tax (13 ) 2 (12 ) (1 )uncertainties

Impairment of long-lived assets - 15 - 25

Stock-based compensation expense 2 3 3 5

Equity loss, net - - 1 1

Changes in assets and liabilities,excluding the effect

of acquisition of business

Receivables 70 70 42 40

Inventories (8 ) (5 ) 20 (54 )

Prepaid expenses 7 (11 ) 2 (11 )

Trade and other payables (79 ) (7 ) (95 ) (76 )

Income and other taxes 1 (40 ) 40 (14 )

Difference between employer pensionand

other post-retirement contributions - - (1 ) 1 and

pension and other post-retirementexpense

Other assets and other liabilities (3 ) - (12 ) 13

Cash flows from operating activities 67 119 155 174

Investing activities

Additions to property, plant and (40 ) (55 ) (102 ) (101 )equipment

Proceeds from disposals of property, - 1 - 1 plant and equipment

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

Cash flows used for investing (70 ) (54 ) (132 ) (100 )activities

Financing activities

Dividend payments (25 ) (28 ) (51 ) (55 )

Stock repurchase - (8 ) (59 ) (8 )

Net change in bank indebtedness - - (10 ) 3

Change in revolving credit facility (220 ) - (80 ) -

Proceeds from receivables - 60 25 80 securitization facility

Repayments of receivables (80 ) (90 ) (80 ) (110 )securitization facility

Issuance of long-term debt 300 - 300 -

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

Other (1 ) - (4 ) (1 )

Cash flows (used for) provided from (26 ) (67 ) 41 (92 )financing activities

Net (decrease) increase in cash and (29 ) (2 ) 64 (18 )cash equivalents

Impact of foreign exchange on cash 1 1 (1 ) -

Cash and cash equivalents at 152 94 61 111 beginning of period

Cash and cash equivalents at end of 124 93 124 93 period

Supplemental cash flow information

Net cash payments (refund) for:

Interest 8 7 25 23

Income taxes 1 44 (24 ) 50

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.

2020 2019

Q1 Q2 YTD Q1 Q2 Q3 Q4 Year

Reconciliation of"Earnings before items" to Netearnings (loss)

Net earnings ($) 5 19 24 80 18 20 (34 ) 84 (loss)

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

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

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

(=) Earnings ($) 5 20 25 91 36 55 2 184 before items

Weighted avg. number of (/) common shares (millions) 56.2 55.3 55.7 63.2 63.3 61.7 57.3 61.4 outstanding (diluted)

Earnings (=) before items ($) 0.09 0.36 0.45 1.44 0.57 0.89 0.03 3.00 per diluted share



Reconciliation of"EBITDA" and "EBITDAbefore items" to

Net earnings (loss)

Net earnings ($) 5 19 24 80 18 20 (34 ) 84 (loss)

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

Income tax (+) expense ($) 3 (15 ) (12 ) 24 5 (1 ) (26 ) 2 (benefit)

(+) Interest ($) 14 15 29 13 13 12 14 52 expense, net

Depreciation (+) and ($) 72 71 143 73 74 72 74 293 amortization

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

(=) EBITDA ($) 95 90 185 201 125 136 29 491

(/) Sales ($) 1,278 1,012 2,290 1,376 1,317 1,283 1,244 5,220

(=) EBITDA margin (%) 7 % 9 % 8 % 15 % 9 % 11 % 2 % 9 %

EBITDA ($) 95 90 185 201 125 136 29 491

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

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

(=) EBITDA before ($) 95 91 186 205 133 147 78 563 items

(/) Sales ($) 1,278 1,012 2,290 1,376 1,317 1,283 1,244 5,220

(=) EBITDA margin (%) 7 % 9 % 8 % 15 % 10 % 11 % 6 % 11 % before items



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

2020 2019

Q1 Q2 YTD Q1 Q2 Q3 Q4 Year

Reconciliation of"Free cash flow" to Cash flows fromoperating activities

Cash flows from operating ($) 88 67 155 55 119 108 160 442 activities

Additions to (-) property, plant ($) (62 ) (40 ) (102 ) (46 ) (55 ) (56 ) (98 ) (255 ) and equipment

(=) Free cash flow ($) 26 27 53 9 64 52 62 187



"Net debt-to-totalcapitalization" computation

Bank ($) - - 3 3 1 9 indebtedness

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

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

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

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

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

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

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

Net debt ($) 951 978 763 735 842 887

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

Net (=) debt-to-total (%) 30 % 30 % 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 Corporation Quarterly 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 ofOperating income(loss) to "Operatingincome (loss)before items"

Operating ($) 4 3 - - 7 20 18 - - 38 (5) (7) - - (12) 19 14 - - 33 income (loss)

Closure and (+) restructuring ($) - 1 - - 1 - - - - - - - - - - - 1 - - 1 costs

Operating (=) income (loss) ($) 4 4 - - 8 20 18 - - 38 (5) (7) - - (12) 19 15 - - 34 before items



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

Operating income (loss) ($) 4 4 - - 8 20 18 - - 38 (5) (7) - - (12) 19 15 - - 34 before items

Non-service (+) components of ($) 4 6 - - 10 - - - - - - (1) - - (1) 4 5 - - 9 net periodic benefit cost

Depreciation (+) and ($) 58 56 - - 114 14 15 - - 29 - - - - - 72 71 - - 143 amortization

(=) EBITDA before ($) 66 66 - - 132 34 33 - - 67 (5) (8) - - (13) 95 91 - - 186 items

(/) Sales ($) 1,031 802 - - 1,833 266 229 - - 495 - - - - - 1,297 1,031 - - 2,328

(=) EBITDA margin (%) 6% 8% - - 7% 13% 14% - - 14% - - - - - 7% 9% - - 8% 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 Corporation Quarterly 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 ofOperating income(loss) to "Operatingincome (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 beforeitems"

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 YTD Q1 Q2 Q3 Q4 Year

Pulp and Paper Segment

Sales ($) 1,031 802 1,833 1,157 1,106 1,079 1,027 4,369

Operating ($) 4 3 7 144 62 31 (11 ) 226 income (loss)

Depreciationand ($) 58 56 114 58 59 57 57 231 amortization

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

Paper

Paper ('000 648 436 1,084 757 697 653 619 2,726 Production ST)

Paper ('000Shipments - ST) 679 459 1,138 736 681 672 656 2,745 Manufactured

Communication ('000 569 366 935 615 567 563 554 2,299 Papers ST)

Specialty and ('000Packaging ST) 110 93 203 121 114 109 102 446 Papers

PaperShipments - ('000 22 12 34 23 21 25 24 93 Sourced from ST)3rd parties

Paper ('000Shipments - ST) 701 471 1,172 759 702 697 680 2,838 Total

Pulp

Pulp Shipments ('000 389 427 816 349 370 416 404 1,539 ^(a) ADMT)

Pulp Shipments mix^(b):

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

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

Fluff Pulp (%) 45 % 41 % 43 % 45 % 42 % 40 % 41 % 42 %



Personal Care Segment

Sales ($) 266 229 495 239 228 219 234 920

Operating ($) 20 18 38 (8 ) (18 ) 2 8 (16 )income (loss)

Depreciationand ($) 14 15 29 15 15 15 17 62 amortization

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



Average $US / 1.344 1.385 1.365 1.329 1.337 1.321 1.321 1.327 Exchange Rates $CAN

$CAN 0.744 0.722 0.733 0.752 0.748 0.757 0.757 0.754 / $US

(eu) 1.102 1.101 1.102 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.

View source version on businesswire.com: https://www.businesswire.com/news/home/20200807005175/en/

CONTACT: INVESTOR RELATIONS Nicholas Estrela Director Investor Relations Tel.: 514-848-5049

CONTACT: MEDIA RELATIONS David Struhs Vice-President Corporate Services and Sustainability Tel.: 803-802-8031