Business Wire | Feb 11, 2021 06:55AM EST

Domtar Corporation Reports Preliminary Fourth Quarter and Fiscal Year 2020 Financial Results

Feb. 11, 2021

FORT MILL, S.C.--(BUSINESS WIRE)--Feb. 11, 2021--Domtar Corporation (NYSE: UFS) (TSX: UFS) today reported a net loss of $59 million ($1.07 per share) for the fourth quarter of 2020 compared to a net loss of $92 million ($1.67 per share) for the third quarter of 2020, and a net loss of $34 million ($0.59 per share) for the fourth quarter of 2019. Sales for the fourth quarter of 2020 were $0.9 billion.

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The fourth quarter 2020 results include an after-tax loss of $43 million ($0.78 per share) from discontinued operations related to the announced sale of the Personal Care Business, compared to earnings of $19 million ($0.34 per share) for the third quarter of 2020 and earnings of $10 million ($0.17 per share) for the fourth quarter of 2019.

Excluding discontinued operations and the items listed below, the Company had earnings from continuing operations before items1 of $19 million ($0.34 per share) for the fourth quarter of 2020, compared to loss from continuing operations before items1 of $1 million ($0.02 per share) for the third quarter of 2020 and loss from continuing operations before items1 of $9 million ($0.16 per share) for the fourth quarter of 2019.

ITEMS

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

(in millions)

Fourth quarter 2020



? Cost Pulp and Impairment of long-livedreduction Paper assets $25 $15 $0.27program



? Cost Pulp and Closure and restructuringreduction Paper costs $28 $19 $0.34program



? Cost Closure and restructuringreduction Corporate costs $2 $1 $0.02program



Third quarter 2020



? Cost Pulp and Impairment of long-livedreduction Paper assets $111 $68 $1.23program



? Cost Pulp and Closure and restructuringreduction Paper costs $67 $41 $0.75program



? Cost Closure and restructuringreduction Corporate costs $1 $1 $0.02program



Fourth quarter 2019



? Pension Pulp and Non-service components ofsettlement Paper net periodic benefit costs $30 $22 $0.38loss



? Paper Pulp and Closure and restructuringmachine Paper costs $17 $13 $0.22closures



FISCAL YEAR 2020 HIGHLIGHTS

For fiscal year 2020, net loss amounted to $127 million ($2.29 per share), compared to net earnings of $84 million ($1.37 per share) for fiscal year 2019. The Company had earnings from continuing operations before items1 of $1 million ($0.02 per share) for fiscal year 2020, compared to earnings from continuing operations before items1 of $149 million ($2.43 per share) for fiscal year 2019. Sales were $3.7 billion for fiscal year 2020.

"Despite the challenges from the Covid-19 pandemic, our teams demonstrated resiliency by continuously adapting to changing market conditions which led us to achieve solid results. I'm proud of the teamwork that allowed us to not just stand up in the face of adversity, but to move forward during such a challenging time and in accordance with our strategy. We met many goals last year; we prioritized maximizing cash, reducing costs, and remaining an agile, reliable partner to our customers. We believe these changes will improve this Company for the long-term," said Daniel Buron, Senior Vice-President, Chief Financial Officer and Acting Chief Executive Officer.

QUARTERLY REVIEW

"Our paper shipments were in line with the third quarter and order activity remained stable across all channels, while paper pricing was consistent with the year-to-date average. In Pulp, we improved our cost performance, which is attributable to lower maintenance costs, our cost reduction program and favorable wood costs. Market fundamentals continue to improve, and we announced several pulp price increases in the first quarter of 2021."

Mr. Buron added, "In Personal Care, we had a strong finish to the year with improved fourth quarter performance driven by strong sales of adult incontinence products in North America and a good performance in Europe following the seasonality impact of the softer summer period. We announced the sale of the Personal Care Business to American Industrial Partners for $920 million, and we expect the transaction to close in the first quarter of 2021."

Operating loss was $20 million in the fourth quarter of 2020, compared to an operating loss of $152 million in the third quarter of 2020. Depreciation and amortization totaled $53 million in the fourth quarter of 2020.

Operating income before items1was $35 million in the fourth quarter of 2020, compared to an operating income before items1 of $27 million in the third quarter of 2020.



(In millions of dollars) 4Q 2020 3Q 2020



Sales $ 920 $ 899

Operating loss

Pulp and Paper segment (10 ) (140 )

Corporate (10 ) (12 )

Total operating loss (20 ) (152 )

Operating income before items^1 35 27

Depreciation and amortization 53 56

The decrease in operating loss in the fourth quarter of 2020, compared to the prior quarter, was the result of lower long-lived asset impairment and closure and restructuring charges related to the cost savings program, lower maintenance costs, favorable productivity and lower selling, general and administrative expenses. These factors were partially offset by lower volume in pulp and paper, lower average selling prices for pulp, higher freight and other costs and unfavorable exchange rates.

When compared to the third quarter of 2020, manufactured paper shipments were down 1% and pulp shipments increased 14%. The shipment-to-production ratio for paper was 98% in the fourth quarter of 2020, compared to 105% in the third quarter of 2020. Paper inventories increased by 10,000 tons and pulp inventories decreased by 3,000 metric tons when compared to the third quarter of 2020.

LIQUIDITY AND CAPITAL RESOURCES

Cash flow from operating activities was $135 million and capital expenditures were $45 million, resulting in free cash flow1 of $90 million for the fourth quarter of 2020. Domtar's net debt-to-total capitalization ratio1 stood at 26% at December 31, 2020, compared to 28% at September 30, 2020.

For fiscal year 2020, cash flow from operating activities was $411 million and capital expenditures were $175 million, resulting in free cash flow1 of $236 million.

We will resume our share buyback program following this earnings release. The timing, method and amount of stock repurchases will depend on a variety of factors, including the market conditions, as well as corporate and regulatory considerations. The share buyback program may be suspended, modified or discontinued at any time, and the Company has no obligation to repurchase any amount of its common stock under the program.

OUTLOOK

In 2021, paper demand remains uncertain and dependent upon the Covid-19 recovery, in particular quarantine measures impacting the return to office and school. We expect near-term pulp markets to gradually improve driven by better demand, maintenance outages and restocking in China. Overall raw material costs are expected to moderately increase and freight costs are also expected to be higher.

EARNINGS CONFERENCE CALL

The Company will hold a conference call today at 10:00 a.m. (ET) to discuss its fourth quarter and fiscal year 2020 financial results. Financial analysts are invited to participate in the call by dialing 1 (800) 289-0438 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 first quarter 2021 earnings results on May 6, 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 8,700 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 $3.7 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. Buron 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

Consolidated Statements ofEarnings (Loss)

(In millions of dollars, unlessotherwise noted)

For the three months For the twelve months ended ended

December December December December 31, 31, 31, 31,

2020 2019 2020 2019

(Unaudited)

$ $ $ $



Sales 920 1,027 3,652 4,369

Operating expenses

Cost of sales, excluding 776 899 3,125 3,610 depreciation and amortization

Depreciation and amortization 53 57 223 231

Selling, general and 60 76 253 291 administrative

Impairment of long-lived assets 25 - 136 32

Closure and restructuring costs 30 17 99 22

Other operating (income) loss, (4 ) 1 (7 ) 4 net

940 1,050 3,829 4,190

Operating (loss) income (20 ) (23 ) (177 ) 179

Interest expense, net 15 14 58 52

Non-service components of net (4 ) 30 (17 ) 23 periodic benefit cost

(Loss) earnings before income (31 ) (67 ) (218 ) 104 taxes and equity loss

Income tax (benefit) expense (16 ) (24 ) (76 ) 17

Equity loss, net of taxes 1 1 3 2

(Loss) earnings from continuing (16 ) (44 ) (145 ) 85 operations

(Loss) earnings fromdiscontinued operations, net of (43 ) 10 18 (1 )taxes

Net (loss) earnings (59 ) (34 ) (127 ) 84

Per common share (in dollars)

Basic net (loss) earnings

(Loss) earnings from continuing (0.29 ) (0.76 ) (2.62 ) 1.39 operations

(Loss) earnings from (0.78 ) 0.17 0.33 (0.02 )discontinued operations

Basic net (loss) earnings (1.07 ) (0.59 ) (2.29 ) 1.37

Diluted net (loss) earnings

(Loss) earnings from continuing (0.29 ) (0.76 ) (2.62 ) 1.39 operations

(Loss) earnings from (0.78 ) 0.17 0.33 (0.02 )discontinued operations

Diluted net (loss) earnings (1.07 ) (0.59 ) (2.29 ) 1.37

Weighted average number ofcommon shares outstanding (millions)

Basic 55.2 57.3 55.4 61.2

Diluted 55.2 57.3 55.4 61.4



Domtar Corporation

Consolidated Balance Sheets at

(In millions of dollars)

December 31,

December 31,

2020

2019

(Unaudited)

$

$

Assets

Current assets

Cash and cash equivalents

309

61

Receivables, less allowances of $6 and $4

380

482

Inventories

630

663

Prepaid expenses

50

29

Income and other taxes receivable

54

56

Assets held for sale

1,133

227

Total current assets

2,556

1,518

Property, plant and equipment, net

2,023

2,223

Operating lease right-of-use assets

59

58

Intangible assets, net

29

30

Other assets

189

163

Non-current assets held for sale

-

911

Total assets

4,856

4,903

Liabilities and shareholders' equity

Current liabilities

Bank indebtedness

-

9

Trade and other payables

484

580

Income and other taxes payable

15

15

Operating lease liabilities due within one year

20

18

Long-term debt due within one year

13

1

Liabilities held for sale

295

143

Total current liabilities

827

766

Long-term debt

1,084

937

Operating lease liabilities

50

40

Deferred income taxes and other

321

360

Other liabilities and deferred credits

314

269

Long-term liabilities held for sale

-

155

Shareholders' equity

Common stock

1

1

Additional paid-in capital

1,717

1,770

Retained earnings

846

998

Accumulated other comprehensive loss

(304

)

(393

)

Total shareholders' equity

2,260

2,376

Total liabilities and shareholders' equity

4,856

4,903



Domtar Corporation

Consolidated Balance Sheets at

(In millions of dollars)

December 31, December 31,

2020 2019

(Unaudited)

$ $

Assets

Current assets

Cash and cash equivalents 309 61

Receivables, less allowances of $6 and $4 380 482

Inventories 630 663

Prepaid expenses 50 29

Income and other taxes receivable 54 56

Assets held for sale 1,133 227

Total current assets 2,556 1,518

Property, plant and equipment, net 2,023 2,223

Operating lease right-of-use assets 59 58

Intangible assets, net 29 30

Other assets 189 163

Non-current assets held for sale - 911

Total assets 4,856 4,903

Liabilities and shareholders' equity

Current liabilities

Bank indebtedness - 9

Trade and other payables 484 580

Income and other taxes payable 15 15

Operating lease liabilities due within one year 20 18

Long-term debt due within one year 13 1

Liabilities held for sale 295 143

Total current liabilities 827 766

Long-term debt 1,084 937

Operating lease liabilities 50 40

Deferred income taxes and other 321 360

Other liabilities and deferred credits 314 269

Long-term liabilities held for sale - 155



Shareholders' equity

Common stock 1 1

Additional paid-in capital 1,717 1,770

Retained earnings 846 998

Accumulated other comprehensive loss (304 ) (393 )

Total shareholders' equity 2,260 2,376

Total liabilities and shareholders' equity 4,856 4,903

Domtar Corporation

Consolidated Statements of Cash Flows

(In millions of dollars)

For the three months ended

For the twelve months ended

December 31,

December 31,

December 31,

December 31,

2020

2019

2020

2019

(Unaudited)

$

$

$

$

Operating activities

Net (loss) earnings

(59

)

(34

)

(127

)

84

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

Depreciation and amortization

69

74

283

293

Deferred income taxes and tax uncertainties

15

(17

)

(45

)

(16

)

Impairment of long-lived assets

26

-

137

58

Impairment of inventory

-

1

31

6

Net gains on disposals of property, plant and equipment

(1

)

-

(1

)

-

Net loss on disposition of discontinued operations

45

-

45

-

Stock-based compensation expense

3

2

8

9

Equity loss, net

1

1

3

2

Other

4

-

4

-

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

Receivables

61

46

99

96

Inventories

8

17

7

(22

)

Prepaid expenses

2

6

11

2

Trade and other payables

(36

)

44

(57

)

(67

)

Income and other taxes

(21

)

(16

)

13

(43

)

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

2

32

(4

)

29

Other assets and other liabilities

16

4

4

11

Cash flows from operating activities

135

160

411

442

Investing activities

Additions to property, plant and equipment

(45

)

(98

)

(175

)

(255

)

Proceeds from disposals of property, plant and equipment

3

-

3

1

Acquisition of business, net of cash acquired

-

-

(30

)

-

Cash flows used for investing activities

(42

)

(98

)

(202

)

(254

)

Financing activities

Dividend payments

-

(27

)

(51

)

(110

)

Stock repurchase

-

(80

)

(59

)

(219

)

Net change in bank indebtedness

-

7

(10

)

9

Change in revolving credit facility

-

35

(80

)

80

Proceeds from receivables securitization facility

-

55

25

205

Repayments of receivables securitization facility

-

(90

)

(80

)

(200

)

Issuance of long-term debt

-

-

300

-

Repayments of long-term debt

(4

)

-

(7

)

(1

)

Other

-

-

(3

)

(1

)

Cash flows (used for) provided from financing activities

(4

)

(100

)

35

(237

)

Net increase (decrease) in cash and cash equivalents

89

(38

)

244

(49

)

Impact of foreign exchange on cash

2

1

4

(1

)

Cash and cash equivalents at beginning of period

218

98

61

111

Cash and cash equivalents at end of period

309

61

309

61

Supplemental cash flow information

Net cash payments (refund) for:

Interest

8

7

52

46

Income taxes

3

4

(22

)

59

Domtar Corporation

Consolidated Statements of Cash Flows

(In millions of dollars)

For the three months For the twelve ended months ended

December December December December 31, 31, 31, 31,

2020 2019 2020 2019

(Unaudited)

$ $ $ $

Operating activities

Net (loss) earnings (59 ) (34 ) (127 ) 84

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

Depreciation and amortization 69 74 283 293

Deferred income taxes and tax 15 (17 ) (45 ) (16 )uncertainties

Impairment of long-lived assets 26 - 137 58

Impairment of inventory - 1 31 6

Net gains on disposals of property, (1 ) - (1 ) - plant and equipment

Net loss on disposition of 45 - 45 - discontinued operations

Stock-based compensation expense 3 2 8 9

Equity loss, net 1 1 3 2

Other 4 - 4 -

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

Receivables 61 46 99 96

Inventories 8 17 7 (22 )

Prepaid expenses 2 6 11 2

Trade and other payables (36 ) 44 (57 ) (67 )

Income and other taxes (21 ) (16 ) 13 (43 )

Difference between employer pensionand other post-retirement 2 32 (4 ) 29 contributions and pension and otherpost-retirement expense

Other assets and other liabilities 16 4 4 11

Cash flows from operating activities 135 160 411 442

Investing activities

Additions to property, plant and (45 ) (98 ) (175 ) (255 )equipment

Proceeds from disposals of property, 3 - 3 1 plant and equipment

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

Cash flows used for investing (42 ) (98 ) (202 ) (254 )activities

Financing activities

Dividend payments - (27 ) (51 ) (110 )

Stock repurchase - (80 ) (59 ) (219 )

Net change in bank indebtedness - 7 (10 ) 9

Change in revolving credit facility - 35 (80 ) 80

Proceeds from receivables - 55 25 205 securitization facility

Repayments of receivables - (90 ) (80 ) (200 )securitization facility

Issuance of long-term debt - - 300 -

Repayments of long-term debt (4 ) - (7 ) (1 )

Other - - (3 ) (1 )

Cash flows (used for) provided from (4 ) (100 ) 35 (237 )financing activities

Net increase (decrease) in cash and 89 (38 ) 244 (49 )cash equivalents

Impact of foreign exchange on cash 2 1 4 (1 )

Cash and cash equivalents at 218 98 61 111 beginning of period

Cash and cash equivalents at end of 309 61 309 61 period

Supplemental cash flow information

Net cash payments (refund) for:

Interest 8 7 52 46

Income taxes 3 4 (22 ) 59

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 "(Loss) earnings from continuing operations before items", "(Loss) earnings from continuing operations 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 "(Loss) earnings from continuing operations 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

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 "(Loss) earnings from continuing operations before items", "(Loss) earnings from continuing operations 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 "(Loss) earnings from continuing operations 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 Q4 Year Q1 Q2 Q3 Q4 Year

Reconciliation of "(Loss) earnings fromcontinuing operations before items" to Netearnings (loss)

Net earnings ($) 5 19 (92 ) (59 ) (127 ) 80 18 20 (34 ) 84 (loss)

(Earnings) loss (-) from discontinued ($) (20 ) (22 ) (19 ) 43 (18 ) 3 13 (5 ) (10 ) 1 operations, net of taxes

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

(+) Impairment of ($) - - 68 15 83 - - 25 - 25 long-lived assets

Closure and (+) restructuring ($) - 1 42 20 63 - - 4 13 17 costs

(Loss) earnings (=) from continuing ($) (15 ) (2 ) (1 ) 19 1 83 31 44 (9 ) 149 operations before items

Weighted avg. (/) number of common (millions) 56.2 55.3 55.2 55.2 55.4 63.2 63.3 61.7 57.3 61.4 shares outstanding (diluted)

(Loss) earnings from continuing (=) operations before ($) (0.27 ) (0.04 ) (0.02 ) 0.34 0.02 1.31 0.49 0.71 (0.16 ) 2.43 items

per diluted share



Reconciliation of"EBITDA" and "EBITDA before items" to Netearnings (loss)

Net earnings ($) 5 19 (92 ) (59 ) (127 ) 80 18 20 (34 ) 84 (loss)

(Earnings) loss (-) from discontinued ($) (20 ) (22 ) (19 ) 43 (18 ) 3 13 (5 ) (10 ) 1 operations, net of taxes

(+) Equity loss, net ($) 1 - 1 1 3 1 - - 1 2 of taxes

(+) Income tax expense ($) 3 (11 ) (52 ) (16 ) (76 ) 29 10 2 (24 ) 17 (benefit)

(+) Interest expense, ($) 14 15 14 15 58 13 13 12 14 52 net

(+) Depreciation and ($) 58 56 56 53 223 58 59 57 57 231 amortization

(+) Impairment of ($) - - 111 25 136 - - 32 - 32 long-lived assets

Net gains on (-) disposals of ($) - - - (1 ) (1 ) - - - - - property, plant and equipment

(=) EBITDA ($) 61 57 19 61 198 184 113 118 4 419

(/) Sales ($) 1,031 802 899 920 3,652 1,157 1,106 1,079 1,027 4,369

(=) EBITDA margin (%) 6 % 7 % 2 % 7 % 5 % 16 % 10 % 11 % 0 % 10 %

EBITDA ($) 61 57 19 61 198 184 113 118 4 419

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

Closure and (+) restructuring ($) - 1 68 30 99 - - 5 17 22 costs

(=) EBITDA before ($) 61 58 87 91 297 184 113 123 51 471 items

(/) Sales ($) 1,031 802 899 920 3,652 1,157 1,106 1,079 1,027 4,369

(=) EBITDA margin (%) 6 % 7 % 10 % 10 % 8 % 16 % 10 % 11 % 5 % 11 % before items



Reconciliation of "Freecash flow" to Cash flows from operatingactivities

Cash flows from operating ($) 88 67 121 135 411 55 119 108 160 442 activities

Additions to (-) property, plant ($) (62 ) (40 ) (28 ) (45 ) (175 ) (46 ) (55 ) (56 ) (98 ) (255 ) and equipment

(=) Free cash flow ($) 26 27 93 90 236 9 64 52 62 187



"Net debt-to-totalcapitalization" computation

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

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

(+) Long-term debt ($) 1,101 1,088 1,085 1,084 852 822 937 937

(=) Debt ($) 1,102 1,101 1,098 1,097 856 826 939 947

(-) Cash and cash ($) (152 ) (124 ) (218 ) (309 ) (94 ) (93 ) (98 ) (61 ) equivalents

(=) Net debt ($) 950 977 880 788 762 733 841 886

(+) Shareholders' ($) 2,181 2,277 2,211 2,260 2,608 2,619 2,439 2,376 equity

(=) Total ($) 3,131 3,254 3,091 3,048 3,370 3,352 3,280 3,262 capitalization

Net debt ($) 950 977 880 788 762 733 841 886

(/) Total ($) 3,131 3,254 3,091 3,048 3,370 3,352 3,280 3,262 capitalization

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

"(Loss) earnings from continuing operations before items", "(Loss) earnings from continuing operations 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 Corporate Total

Q1'20 Q2'20 Q3'20 Q4'20 Year Q1'20 Q2'20 Q3'20 Q4'20 Year Q1'20 Q2'20 Q3'20 Q4'20 Year

Reconciliation ofOperating income(loss) to "Operating income (loss) beforeitems"

Operating (177 income (loss) ($) 4 3 (140 ) (10 ) (143 ) (5 ) (7 ) (12 ) (10 ) (34 ) (1 ) (4 ) (152 ) (20 ) )

Impairment of 136 (+) long-lived ($) - - 111 25 136 - - - - - - - 111 25 assets

Closure and 99 (+) restructuring ($) - 1 67 28 96 - - 1 2 3 - 1 68 30 costs

Operating 58 (=) income (loss) ($) 4 4 38 43 89 (5 ) (7 ) (11 ) (8 ) (31 ) (1 ) (3 ) 27 35 before items



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

Operating 58 income (loss) ($) 4 4 38 43 89 (5 ) (7 ) (11 ) (8 ) (31 ) (1 ) (3 ) 27 35 before items

Non-service 17 (+) components of ($) 4 6 4 5 19 - (1 ) - (1 ) (2 ) 4 5 4 4 net periodic benefit cost

Net gains on disposals of (1 (- ) property, ($) - - - (1 ) (1 ) - - - - - - - - (1 ) plant and )

equipment

Depreciation 223 (+) and ($) 58 56 56 53 223 - - - - - 58 56 56 53 amortization

EBITDA before 297 (=) items ($) 66 66 98 100 330 (5 ) (8 ) (11 ) (9 ) (33 ) 61 58 87 91

3,652 (/) Sales ($) 1,031 802 899 920 3,652 - - - - - 1,031 802 899 920

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

"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 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

Reconciliation ofOperating income(loss)

to "Operating income(loss) before items"

Operating ($) 144 62 31 (11 ) 226 (21 ) (10 ) (4 ) (12 ) (47 ) 123 52 27 (23 ) 179 income (loss)

Impairment of (+) long-lived ($) - - 32 - 32 - - - - - - - 32 - 32 assets

Closure and (+) restructuring ($) - - 5 17 22 - - - - - - - 5 17 22 costs

Operating (=) income (loss) ($) 144 62 68 6 280 (21 ) (10 ) (4 ) (12 ) (47 ) 123 52 64 (6 ) 233 before items



Reconciliation of"Operating income(loss)

before items" to"EBITDA before items"

Operating income (loss) ($) 144 62 68 6 280 (21 ) (10 ) (4 ) (12 ) (47 ) 123 52 64 (6 ) 233 before items

(+) Pension ($) - - - 30 30 - - - - - - - - 30 30 settlement 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 - - - - - 58 59 57 57 231 amortization

(=) EBITDA before ($) 205 124 127 65 521 (21 ) (11 ) (4 ) (14 ) (50 ) 184 113 123 51 471 items

(/) Sales ($) 1,157 1,106 1,079 1,027 4,369 - - - - - 1,157 1,106 1,079 1,027 4,369

(=) EBITDA margin (%) 18 % 11 % 12 % 6 % 12 % - - - - - 16 % 10 % 11 % 5 % 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.

Domtar Corporation

Supplemental Segmented Information

(In millions of dollars, unless otherwise noted)

2020 2019

Q1 Q2 Q3 Q4 Year Q1 Q2 Q3 Q4 Year

Pulp and Paper Segment

Sales ($) 1,031 802 899 920 3,652 1,157 1,106 1,079 1,027 4,369

Operating income ($) 4 3 (140 ) (10 ) (143 ) 144 62 31 (11 ) 226 (loss)

Depreciation and ($) 58 56 56 53 223 58 59 57 57 231 amortization

Impairment of ($) - - 111 25 136 - - 32 - 32 long-lived assets

Paper

Paper Production ('000 648 436 524 551 2,159 757 697 653 619 2,726 ST)

Paper Shipments - ('000 679 459 550 542 2,230 736 681 672 656 2,745 Manufactured ST)

Communication Papers ('000 569 366 449 441 1,825 615 567 563 554 2,299 ST)

Specialty and ('000 110 93 101 101 405 121 114 109 102 446 Packaging Papers ST)

Paper Shipments - ('000Sourced from 3rd ST) 22 12 16 19 69 23 21 25 24 93 parties

Paper Shipments - ('000 701 471 566 561 2,299 759 702 697 680 2,838 Total ST)

Pulp

Pulp Shipments ('000 422 459 424 482 1,787 383 400 443 438 1,664 ADMT)

Pulp Shipments mix:

Hardwood Kraft Pulp (%) 3 % 2 % 4 % 6 % 4 % 2 % 2 % 5 % 5 % 4 %

Softwood Kraft Pulp (%) 52 % 57 % 62 % 62 % 58 % 53 % 56 % 55 % 54 % 54 %

Fluff Pulp (%) 45 % 41 % 34 % 32 % 38 % 45 % 42 % 40 % 41 % 42 %



Average Exchange Rates $US / 1.344 1.385 1.332 1.304 1.341 1.329 1.337 1.321 1.321 1.327 $CAN

$CAN 0.744 0.722 0.751 0.767 0.746 0.752 0.748 0.757 0.757 0.754 / $US



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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