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Domtar Corporation Reports Preliminary First Quarter 2020 Financial Results

BusinessWire - Fri May 8, 5:55AM CDT

Domtar Corporation (NYSE:UFS) (TSX:UFS.TO) today reported net earnings of $5 million ($0.09 per share) for the first quarter of 2020 compared to a net loss of $34 million ($0.59 per share) for the fourth quarter of 2019 and net earnings of $80 million ($1.27 per share) for the first quarter of 2019. Sales for the first quarter of 2020 were $1.3 billion.

This press release features multimedia. View the full release here: https://www.businesswire.com/news/home/20200508005201/en/

Excluding items listed below, the Company had earnings before items(1) of $5 million ($0.09 per share) for the first quarter of 2020 compared to earnings before items(1) of $2 million ($0.03 per share) for the fourth quarter of 2019 and earnings before items(1) of $91 million ($1.44 per share) for the first quarter of 2019.

ITEMS

Description               Segment                Line item               Amount              After tax           EPS impact
                                                                                                      effect             (per share)
-------------------------- -------------------- ------------------------- -------------------- -------------------- --------------------
                                (in millions)               
First quarter 2020                       
--------------------------
                      
a- None                                  
                      
Fourth quarter 2019                      
--------------------------
                      
a- Pension settlement loss    Pulp and Paper     Non-service components of         $30                  $22                 $0.38
                                                 net periodic benefit cost
                      
a- Paper machine closures     Pulp and Paper            Closure and                $17                  $13                 $0.22
                                                    restructuring costs
                      
a- Margin improvement plan     Personal Care            Closure and                $2                   $1                  $0.02
                                                    restructuring costs
                      
First quarter 2019                       
--------------------------
                      
a- Margin improvement plan     Personal Care     Impairment of long-lived          $10                  $8                  $0.12
                                                          assets
                      
a- Margin improvement plan     Personal Care            Closure and                $4                   $3                  $0.05
                                                    restructuring costs

QUARTERLY REVIEW

"As the global community reacts to COVID-19 and the large-scale effort to contain it continues, we remain focused on navigating the crisis, keeping our employees and their families safe, serving our customers as an essential business, and protecting our financial stability. We are taking steps to reduce spending to further strengthen our balance sheet, liquidity and cash flow while seeking to ensure we are well positioned when the economy starts moving again", said John D. Williams, President and Chief Executive Officer.

"Despite our paper volumes increasing in Q1, we experienced a significant reduction of orders in April due to the COVID crisis and the resulting lockdown of schools, offices, retailers and other business sectors. As a result, we are taking the appropriate steps to optimize our operations and to remain an agile, reliable partner to our customers. We continue to closely monitor customer orders and backlogs, and will adjust capacity accordingly, but we anticipate inventory to be at appropriate levels as a result of our recently-announced capacity reduction plan," said Mr. Williams. "Our pulp shipments were stable in Q1 despite some logistical challenges and a major shutdown of operations in China due to COVID-19. We did see good demand from our North American tissue customers, and we expect overall demand for pulp in the second quarter to remain strong, particularly in China as they continue to reopen their economy."

Commenting on Personal Care, Mr. Williams added, "We had a record sales and EBITDA quarter. Our sales line in Q1 benefited from consumer pantry loading in preparation for in-home quarantine and the scale-up of new customer wins. We continue to increase operating rates, and we have established rapid response teams to maximize productivity to support an uptick in demand, inventory replenishment and portfolio simplification."

Operating income was $19 million in the first quarter of 2020 compared to an operating loss of $15 million in the fourth quarter of 2019. Depreciation and amortization totaled $72 million in the first quarter of 2020.

Operating income before items(1) was $19 million in the first quarter of 2020 compared to operating income before items(1) of $4 million in the fourth quarter of 2019.

(In millions of dollars)                             1Q 2020                                       4Q 2019                  
--------------------------------                      ----------------------------------------                                            ----------------------------------------
                             
Sales                                                 $                1,278                        $                1,244  
Operating income (loss)                         
                                                        4                        (11 )
    Pulp and Paper segment
                                                       20                          8  
    Personal Care segment
                                                       (5 )                                         (12 )
    Corporate
                                                      ==================== ====================                                           ==================== ====================
Total operating income (loss)                          19                        (15 )
Operating income before items(1)                       19                          4

The increase in operating income in the first quarter of 2020 was the result of favorable productivity, higher volume, lower selling, general and administrative expenses, lower raw material and freight costs and favorable exchange rates. These factors were partially offset by lower average selling prices in pulp and paper and higher maintenance, fixed and other costs.

When compared to the fourth quarter of 2019, manufactured paper shipments were up 4% and pulp shipments decreased 4%. The shipment-to-production ratio for paper was 105% in the first quarter of 2020, compared to 106% in the fourth quarter of 2019. Paper inventories decreased by 30,000 tons, and pulp inventories increased by 24,000 metric tons when compared to the fourth quarter of 2019.

LIQUIDITY AND CAPITAL RESOURCES

Cash flow from operating activities amounted to $88 million and capital expenditures were $62 million, resulting in free cash flow(1) of $26 million for the first quarter of 2020. Domtar's net debt-to-total capitalization ratio(1) stood at 30% at March 31, 2020 compared to 27% at December 31, 2019. At March 31, 2020, we had total liquidity of approximately $643 million ($152 million of cash on hand, $491 million in available credit facilities) with no near-term debt maturities. Subsequently to March 31, 2020, the Company closed a new $300 million, five year term loan, the proceeds of which will be used to further improve its liquidity position.

COVID-19 UPDATE

Government authorities across the globe have recognized the importance of the forest products sector based on the products we manufacture and their end uses. Accordingly, Domtar anticipates continuing to operate in all of its business segments, but the Company has taken and may take further temporary steps to reduce its current paper capacity to be in line with current and expected demand levels for the duration of the crisis.

Domtar has implemented COVID-19 response and business continuity plans to protect its employees and their families, to safeguard the continuity of Domtar's operations, and to ensure full support to its customers and partners.

COST CONTROL MEASURES

Domtar is taking further actions to strengthen cash flow and improve liquidity. Cost control actions, capital deferment, closely managing working capital and a reduction of operating costs and selling, general and administrative expenses will generate cash savings, providing us flexibility to take advantage of opportunities as the market rebounds.

SUSPENSION OF CAPITAL RETURN PROGRAM

Due to the unprecedented market conditions and uncertainty caused by COVID-19, the Company has suspended the payment of its regular quarterly dividend and stock repurchase program in order to preserve cash and provide additional flexibility in the current environment. The Board of Directors will continue to evaluate the Company's capital return program based upon customary considerations, including market conditions.

OUTLOOK

The high degree of uncertainty and volatility day-to-day and the longer term potential impacts of the economic lockdown remain unclear. In Paper, we expect significantly lower demand in the second quarter. We expect demand for softwood and fluff pulp to remain strong in the near-term driven by accelerated growth in tissue and towel, while containment measures across Europe and North America are expected to weigh on certain end-use markets. Personal Care will continue to benefit from higher usage and the impact from new customer wins, but we expect a portion of the demand increase from consumer stock-up may reverse later in the year. Raw material costs are expected to remain stable.

EARNINGS CONFERENCE CALL

The Company will hold a conference call today at 10:00 a.m. (ET) to discuss its first quarter 2020 financial results. Financial analysts are invited to participate in the call by dialing 1 (888) 394-8218 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 second quarter 2020 earnings results on July 30, 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 9,700 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 $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 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, 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 months ended
                                                                                                        --------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                  March 31,                                     March 31,  
                                                                                                       2020                                          2019  
                                                                                                        ----------------------------------------  --------------------                      ----------------------------------------  --------------------
                                                                                                                                      (Unaudited)
                                                                                                          $                                             $  
Selected Segment Information                                                                      
Sales                                                                                             
                                                                                                      1,031                      1,157  
    Pulp and Paper
                                                                                                        266                        239  
    Personal Care
                                                                                                        -------------------- -------------------- --------------------                      -------------------- -------------------- --------------------
Total for reportable segments                                                                         1,297                      1,396  
                                                                                                        (19 )                                         (20 )
    Intersegment sales
                                                                                                        -------------------- -------------------- --------------------                      -------------------- -------------------- --------------------
Consolidated sales                                                                                    1,278                      1,376  
                                                                                                        ==================== ==================== ====================                      ==================== ==================== ====================
Depreciation and amortization                                                                     
                                                                                                         58                         58  
    Pulp and Paper
                                                                                                         14                         15  
    Personal Care
                                                                                                        -------------------- -------------------- --------------------                      -------------------- -------------------- --------------------
Total for reportable segments                                                                            72                         73  
                                                                                                                --                         10  
    Impairment of long-lived assets - Personal Care                                 
                                                                                                        -------------------- -------------------- -------------------- -------------------- -------------------- -------------------- --------------------
Consolidated depreciation and amortization and impairment of long-lived assets                           72                         83  
                                                                                                        ==================== ==================== ====================                      ==================== ==================== ====================
Operating income (loss)                                                                           
                                                                                                          4                        144  
    Pulp and Paper
                                                                                                         20                         (8 )
    Personal Care
                                                                                                         (5 )                                         (21 )
    Corporate
                                                                                                        -------------------- -------------------- --------------------                      -------------------- -------------------- --------------------
Consolidated operating income                                                                            19                        115  
Interest expense, net                                                                                    14                         13  
Non-service components of net periodic benefit cost                                                      (4 )                                          (3 )
                                                                                                        -------------------- -------------------- --------------------                      -------------------- -------------------- --------------------
Earnings before income taxes and equity loss                                                              9                        105  
Income tax expense                                                                                        3                         24  
Equity loss, net of taxes                                                                                 1                          1  
                                                                                                        -------------------- -------------------- --------------------                      -------------------- -------------------- --------------------
Net earnings                                                                                              5                         80  
                                                                                                        ==================== ==================== ====================                      ==================== ==================== ====================
Per common share (in dollars)                                                                     
                                                                                                  
  Net earnings
                                                                                                       0.09                       1.27  
    Basic
                                                                                                       0.09                       1.27  
    Diluted
Weighted average number of common                                                                 
shares outstanding (millions)
                                                                                                       56.1                       63.0  
    Basic
                                                                                                       56.2                       63.2  
    Diluted
                                                                                                        ==================== ==================== ====================                      ==================== ==================== ====================
Cash flows from operating activities                                                                     88                         55

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 months ended
                                                                                --------------------------------------------------------------------------------------------------------------------------------------------
                                                                          March 31,                                     March 31,  
                                                                               2020                                          2019  
                                                                                ----------------------------------------  --------------------                      ----------------------------------------  --------------------
                                                                                                              (Unaudited)
                                                                                  $                                             $  
                                                       
Sales                                                                         1,278                      1,376  
Operating expenses                                                        
                                                                              1,083                      1,052  
    Cost of sales, excluding depreciation and amortization
                                                                                 72                         73  
    Depreciation and amortization
                                                                                102                        123  
    Selling, general and administrative
                                                                     --                         10  
    Impairment of long-lived assets
                                                                     --                          4  
    Closure and restructuring costs
                                                                                  2                         (1 )
    Other operating loss (income), net
                                                                                -------------------- -------------------- --------------------                      -------------------- -------------------- --------------------
                                                           1,259                      1,261  
                                                                                -------------------- -------------------- --------------------                      -------------------- -------------------- --------------------
Operating income                                                                 19                        115  
Interest expense, net                                                            14                         13  
Non-service components of net periodic benefit cost                              (4 )                                          (3 )
                                                                                -------------------- -------------------- --------------------                      -------------------- -------------------- --------------------
Earnings before income taxes and equity loss                                      9                        105  
Income tax expense                                                                3                         24  
Equity loss, net of taxes                                                         1                          1  
                                                                                -------------------- -------------------- --------------------                      -------------------- -------------------- --------------------
Net earnings                                                                      5                         80  
                                                                                ==================== ==================== ====================                      ==================== ==================== ====================
Per common share (in dollars)                                             
                                                                          
  Net earnings
                                                                               0.09                       1.27  
    Basic
                                                                               0.09                       1.27  
    Diluted
Weighted average number of common                                         
shares outstanding (millions)
                                                                               56.1                       63.0  
    Basic
Domtar Corporation
Consolidated Balance Sheets at
(In millions of dollars)
                                                                                                                                               
                                                                   March 31,                                  December 31,  
                                                                        2020                                          2019  
                                                                         ----------------------------------------  --------------------                      ----------------------------------------  --------------------
                                                                                                       (Unaudited)
                                                                           $                                             $  
Assets                                                             
Current assets                                                     
                                                                         152                         61  
    Cash and cash equivalents
                                                                         600                        577  
    Receivables, less allowances of $10 and $6
                                                                         740                        786  
    Inventories
                                                                          32                         33  
    Prepaid expenses
                                                                          27                         61  
    Income and other taxes receivable
                                                                         -------------------- -------------------- --------------------                      -------------------- -------------------- --------------------
                                                                       1,551                      1,518  
        Total current assets
Property, plant and equipment, net                                     2,493                      2,567  
Operating lease right-of-use assets                                       77                         81  
Intangible assets, net                                                   561                        573  
Other assets                                                             151                        164  
                                                                         -------------------- -------------------- --------------------                      -------------------- -------------------- --------------------
                                                                       4,833                      4,903  
        Total assets
                                                                         ==================== ==================== ====================                      ==================== ==================== ====================
Liabilities and shareholders' equity                               
Current liabilities                                                
                                                              --                          9  
    Bank indebtedness
                                                                         700                        705  
    Trade and other payables
                                                                          26                         23  
    Income and other taxes payable
                                                                          27                         28  
    Operating lease liabilities due within one year
                                                                           1                          1  
    Long-term debt due within one year
                                                                         -------------------- -------------------- --------------------                      -------------------- -------------------- --------------------
                                                                         754                        766  
        Total current liabilities
Long-term debt                                                         1,102                        938  
Operating lease liabilities                                               65                         69  
Deferred income taxes and other                                          457                        479  
Other liabilities and deferred credits                                   274                        275  
Shareholders' equity                                               
                                                                           1                          1  
    Common stock
                                                                       1,710                      1,770  
    Additional paid-in capital
                                                                         978                        998  
    Retained earnings
                                                                        (508 )                                        (393 )
    Accumulated other comprehensive loss
                                                                         -------------------- -------------------- --------------------                      -------------------- -------------------- --------------------
                                                                       2,181                      2,376  
        Total shareholders' equity
                                                                         -------------------- -------------------- --------------------                      -------------------- -------------------- --------------------
Domtar Corporation
Consolidated Statements of Cash Flows
(In millions of dollars)
                                                                                                                       For the three months ended
                                                                              --------------------------------------------------------------------------------------------------------------------------------------------
                                                                                      March 31, 2020                                March 31, 2019  
                                                                              ----------------------------------------  --------------------                      ----------------------------------------  --------------------
                                                                                                                               (Unaudited)
                                                                                                   $                                             $  
Operating activities                                                                       
Net earnings                                                                                       5                         80  
Adjustments to reconcile net earnings to cash flows from operating activities              
                                                                                                  72                         73  
    Depreciation and amortization
                                                                                                   1                         (3 )
    Deferred income taxes and tax uncertainties
                                                                                      --                         10  
    Impairment of long-lived assets
                                                                                                   1                          2  
    Stock-based compensation expense
                                                                                                   1                          1  
    Equity loss, net
Changes in assets and liabilities                                                          
                                                                                                 (28 )                                         (30 )
    Receivables
                                                                                                  28                        (49 )
    Inventories
                                                                                                  (5 )                              --  
    Prepaid expenses
                                                                                                 (16 )                                         (69 )
    Trade and other payables
                                                                                                  39                         26  
    Income and other taxes
                                                                                                  (1 )                                           1  
    Difference between employer pension and
    other post-retirement contributions and
    pension and other post-retirement expense
                                                                                                  (9 )                                          13  
    Other assets and other liabilities
                                                                              -------------------- -------------------- --------------------                      -------------------- -------------------- --------------------
                                                                                                  88                         55  
  Cash flows from operating activities
                                                                              -------------------- -------------------- --------------------                      -------------------- -------------------- --------------------
Investing activities                                                                       
Additions to property, plant and equipment                                                       (62 )                                         (46 )
                                                                              -------------------- -------------------- --------------------                      -------------------- -------------------- --------------------
                                                                                                 (62 )                                         (46 )
  Cash flows used for investing activities
                                                                              -------------------- -------------------- --------------------                      -------------------- -------------------- --------------------
Financing activities                                                                       
Dividend payments                                                                                (26 )                                         (27 )
Stock repurchase                                                                                 (59 )                              --  
Net change in bank indebtedness                                                                  (10 )                                           3  
Change in revolving credit facility                                                              140             --  
Proceeds from receivables securitization facility                                                 25                         20  
                                                                        
Repayments of receivables securitization facility                                     --                        (20 )
Other                                                                                             (3 )                                          (1 )
                                                                              -------------------- -------------------- --------------------                      -------------------- -------------------- --------------------
                                                                                                  67                        (25 )
  Cash flows provided from (used for) financing activities
                                                                              -------------------- -------------------- --------------------                      -------------------- -------------------- --------------------
Net increase (decrease) in cash and cash equivalents                                              93                        (16 )
Impact of foreign exchange on cash                                                                (2 )                                          (1 )
Cash and cash equivalents at beginning of period                                                  61                        111  
                                                                              -------------------- -------------------- --------------------                      -------------------- -------------------- --------------------
Cash and cash equivalents at end of period                                                       152                         94  
                                                                              ==================== ==================== ====================                      ==================== ==================== ====================
Supplemental cash flow information                                                         
                                                                                           
  Net cash payments (refund) for:
                                                                                                  17                         16  
    Interest
Domtar Corporation
Quarterly Reconciliation of Non-GAAP Financial Measures

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                                            Q1                                            Q2                                            Q3                                            Q4                                           Year                    
                                                                                                                                                                               ----------------------------------------                                            ----------------------------------------                                            ----------------------------------------                                            ----------------------------------------                                            ----------------------------------------                                            ----------------------------------------
Reconciliation of "Earnings before items" to Net earnings (loss)                                                                                                   
              Net earnings (loss)                                                            ($)                        5                         80                         18                         20                        (34 )                                          84  
                   (+)           Pension settlement loss                                                        ($)           --             --             --             --                         22                         22  
                   (+)           Impairment of long-lived assets                                                ($)           --                          8                         12                         26             --                         46  
                   (+)           Closure and restructuring costs                                                ($)           --                          3                          6                          9                         14                         32  
                   (=)           Earnings before items                                                          ($)                        5                         91                         36                         55                          2                        184  
                   (/)           Weighted avg. number of common shares outstanding (diluted)             (millions)                     56.2                       63.2                       63.3                       61.7                       57.3                       61.4  
                   (=)           Earnings before items per diluted share                                        ($)                     0.09                       1.44                       0.57                       0.89                       0.03                       3.00  
                                                                                                          
Reconciliation of "EBITDA" and "EBITDA before items" to Net earnings (loss)                                                                                        
              Net earnings (loss)                                                            ($)                        5                         80                         18                         20                        (34 )                                          84  
                   (+)           Equity loss, net of taxes                                                      ($)                        1                          1             --             --                          1                          2  
                   (+)           Income tax expense (benefit)                                                   ($)                        3                         24                          5                         (1 )                                         (26 )                                           2  
                   (+)           Interest expense, net                                                          ($)                       14                         13                         13                         12                         14                         52  
                   (+)           Depreciation and amortization                                                  ($)                       72                         73                         74                         72                         74                        293  
                   (+)           Impairment of long-lived assets                                                ($)           --                         10                         15                         33             --                         58  
                   (=)           EBITDA                                                                         ($)                       95                        201                        125                        136                         29                        491  
                   (/)           Sales                                                                          ($)                    1,278                      1,376                      1,317                      1,283                      1,244                      5,220  
                   (=)           EBITDA margin                                                                  (%)                        7 %                                          15 %                                           9 %                                          11 %                                           2 %                                           9 %
              EBITDA                                                                         ($)                       95                        201                        125                        136                         29                        491  
                   (+)           Pension settlement loss                                                        ($)           --             --             --             --                         30                         30  
                   (+)           Closure and restructuring costs                                                ($)           --                          4                          8                         11                         19                         42  
                   (=)           EBITDA before items                                                            ($)                       95                        205                        133                        147                         78                        563  
                   (/)           Sales                                                                          ($)                    1,278                      1,376                      1,317                      1,283                      1,244                      5,220  
                   (=)           EBITDA margin before items                                                     (%)                        7 %                                          15 %                                          10 %                                          11 %                                           6 %                                          11 %
                                                                                                          
Reconciliation of "Free cash flow" to Cash flows from operating activities                                                                                         
              Cash flows from operating activities                                           ($)                       88                         55                        119                        108                        160                        442  
                   (-)           Additions to property, plant and equipment                                     ($)                      (62 )                                         (46 )                                         (55 )                                         (56 )                                         (98 )                                        (255 )
                   (=)           Free cash flow                                                                 ($)                       26                          9                         64                         52                         62                        187  
                                                                                                          
"Net debt-to-total capitalization" computation                                                                                                                     
              Bank indebtedness                                                              ($)           --                          3                          3                          1                          9          
                   (+)           Long-term debt due within one year                                             ($)                        1                          1                          1                          1                          1          
                   (+)           Long-term debt                                                                 ($)                    1,102                        853                        824                        938                        938          
                   (=)           Debt                                                                           ($)                    1,103                        857                        828                        940                        948          
                   (-)           Cash and cash equivalents                                                      ($)                     (152 )                                         (94 )                                         (93 )                                         (98 )                                         (61 )                           
                   (=)           Net debt                                                                       ($)                      951                        763                        735                        842                        887          
                   (+)           Shareholders' equity                                                           ($)                    2,181                      2,608                      2,619                      2,439                      2,376          
                   (=)           Total capitalization                                                           ($)                    3,132                      3,371                      3,354                      3,281                      3,263          
              Net debt                                                                       ($)                      951                        763                        735                        842                        887          
                   (/)           Total capitalization                                                           ($)                    3,132                      3,371                      3,354                      3,281                      3,263

"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

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 income (loss)                                                ($)                      4         --         --         --                      4                     20         --         --         --                     20                    (5)         --         --         --                    (5)                     19         --         --         --                     19
                      (=)            Operating income (loss) before items                                   ($)                      4         --         --         --                      4                     20         --         --         --                     20                    (5)         --         --         --                    (5)                     19         --         --         --                     19
                                                                                                                                      
Reconciliation of "Operating income (loss) before items" to "EBITDA before items"                                                                                                              
                  Operating income (loss) before items                                   ($)                      4         --         --         --                      4                     20         --         --         --                     20                    (5)         --         --         --                    (5)                     19         --         --         --                     19
                      (+)            Non-service components of net periodic benefit cost                    ($)                      4         --         --         --                      4         --         --         --         --         --         --         --         --         --         --                      4         --         --         --                      4
                      (+)            Depreciation and amortization                                          ($)                     58         --         --         --                     58                     14         --         --         --                     14         --         --         --         --         --                     72         --         --         --                     72
                      (=)            EBITDA before items                                                    ($)                     66         --         --         --                     66                     34         --         --         --                     34                    (5)         --         --         --                    (5)                     95         --         --         --                     95
                      (/)            Sales                                                                  ($)                  1,031         --         --         --                  1,031                    266         --         --         --                    266         --         --         --         --         --                  1,297         --         --         --                  1,297

"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

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 income (loss)                                                ($)                    144                     62                     31                   (11)                    226                    (8)                   (18)                      2                      8                   (16)                   (21)                   (10)                    (4)                   (12)                   (47)                    115                     34                     29                   (15)                    163
                      (+)            Impairment of long-lived assets                                        ($)         --         --                     32         --                     32                     10                     15                      1         --                     26         --         --         --         --         --                     10                     15                     33         --                     58
                      (+)            Closure and restructuring costs                                        ($)         --         --                      5                     17                     22                      4                      8                      6                      2                     20         --         --         --         --         --                      4                      8                     11                     19                     42
                      (=)            Operating income (loss) before items                                   ($)                    144                     62                     68                      6                    280                      6                      5                      9                     10                     30                   (21)                   (10)                    (4)                   (12)                   (47)                    129                     57                     73                      4                    263
                                                                                                                                      
Reconciliation of "Operating income (loss) before items" to "EBITDA before items"                                                                                                              
                  Operating income (loss) before items                                   ($)                    144                     62                     68                      6                    280                      6                      5                      9                     10                     30                   (21)                   (10)                    (4)                   (12)                   (47)                    129                     57                     73                      4                    263
                      (+)            Pension settlement loss                                                ($)         --         --         --                     30                     30         --         --         --         --         --         --         --         --         --         --         --         --         --                     30                     30
                      (+)            Non-service components of net periodic benefit cost                    ($)                      3                      3                      2                   (28)                   (20)         --         --         --         --         --         --                    (1)         --                    (2)                    (3)                      3                      2                      2                   (30)                   (23)
                      (+)            Depreciation and amortization                                          ($)                     58                     59                     57                     57                    231                     15                     15                     15                     17                     62         --         --         --         --         --                     73                     74                     72                     74                    293
                      (=)            EBITDA before items                                                    ($)                    205                    124                    127                     65                    521                     21                     20                     24                     27                     92                   (21)                   (11)                    (4)                   (14)                   (50)                    205                    133                    147                     78                    563
                      (/)            Sales                                                                  ($)                  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

"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                                            Q1                                            Q2                                            Q3                                            Q4                                           Year                    
                                                                                                                ----------------------------------------                                            ----------------------------------------                                            ----------------------------------------                                            ----------------------------------------                                            ----------------------------------------                                            ----------------------------------------
Pulp and Paper Segment                                                                              
                                                                    ($)                    1,031                      1,157                      1,106                      1,079                      1,027                      4,369  
  Sales
                                                                    ($)                        4                        144                         62                         31                        (11 )                                         226  
  Operating income (loss)
                                                                    ($)                       58                         58                         59                         57                         57                        231  
  Depreciation and amortization
                                                                    ($)           --             --             --                         32             --                         32  
  Impairment of long-lived assets
Paper                                                                                               
                                                              ('000 ST)                      648                        757                        697                        653                        619                      2,726  
  Paper Production
                                                              ('000 ST)                      679                        736                        681                        672                        656                      2,745  
  Paper Shipments - Manufactured
                                                              ('000 ST)                      569                        615                        567                        563                        554                      2,299  
    Communication Papers
                                                              ('000 ST)                      110                        121                        114                        109                        102                        446  
    Specialty and Packaging Papers
                                                              ('000 ST)                       22                         23                         21                         25                         24                         93  
  Paper Shipments - Sourced from 3rd parties
                                                              ('000 ST)                      701                        759                        702                        697                        680                      2,838  
  Paper Shipments - Total
Pulp                                                                                                
                                                            ('000 ADMT)                      389                        349                        370                        416                        404                      1,539  
  Pulp Shipments(a)
                                                                                                    
  Pulp Shipments mix(b):
                                                                    (%)                        3 %                                           2 %                                           2 %                                           5 %                                           5 %                                           4 %
    Hardwood Kraft Pulp
                                                                    (%)                       52 %                                          53 %                                          56 %                                          55 %                                          54 %                                          54 %
    Softwood Kraft Pulp
                                                                    (%)                       45 %                                          45 %                                          42 %                                          40 %                                          41 %                                          42 %
    Fluff Pulp
                                                                                 
Personal Care Segment                                                                               
                                                                    ($)                      266                        239                        228                        219                        234                        920  
  Sales
                                                                    ($)                       20                         (8 )                                         (18 )                                           2                          8                        (16 )
  Operating income (loss)
                                                                    ($)                       14                         15                         15                         15                         17                         62  
  Depreciation and amortization
                                                                    ($)           --                         10                         15                          1             --                         26  
  Impairment of long-lived assets
                                                                                 
Average Exchange Rates                                       $US / $CAN                    1.344                      1.329                      1.337                      1.321                      1.321                      1.327  
                                          $CAN / $US                    0.744                      0.752                      0.748                      0.757                      0.757                      0.754

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.

View source version on businesswire.com: https://www.businesswire.com/news/home/20200508005201/en/

SOURCE: Domtar Corporation

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


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

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