avatar Domtar Paper Company, LLC Manufacturing

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    BUILDING ON OUR CAPABILITIES 2019 ANNUAL REPORT


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    SELECTED TED FINANCIAL FIGURES ES Years ended December 31 2017 2018 2019 2019 SALES BY BUSINESS (In millions of dollars unless otherwise noted) SEGMENT Pulp and Paper 82% Consolidated sales per segment Personal Care 18% Pulp and Paper 4,216 4,523 4,332 Intersegment sales (64) (68) (65) Personal Care 996 1,000 953 Consolidated sales 5,148 5,455 5,220 Operating income (loss) per segment Pulp and Paper 237 438 225 Personal Care (527) (5) (15) Corporate (38) (47) (47) Operating income (loss) (328) 386 163 2019 SALES BY REGION Net earnings (loss) (258) 283 84 U.S. 71% Cash flows from operating activities 449 554 442 Europe 11% Canada 8% Capital expenditures 182 195 255 Asia 7% Free cash flow1 267 359 187 Other 3% Total assets 5,212 4,925 4,903 Long-term debt, including current portion 1,130 854 939 Net debt-to-total capitalization ratio1 29% 23% 27% Total shareholders’ equity 2,483 2,538 2,376 Weighted average number of common shares outstanding in millions (diluted) 62.7 63.1 61.4 1 Non-GAAP financial measure. Please see “Reconciliation of non-GAAP Financial Measures” at the end of this document.


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    SALES EBITDA CASH RETURNED (In millions of dollars) BEFORE ITEMS1 TO SHAREHOLDERS (In millions of dollars) (In millions of dollars) 725 329 5,455 5,220 5,148 569 563 104 108 2017 2018 2019 2017 2018 2019 2017 2018 2019 CASH FLOWS LONG-TERM DEBT, FROM OPERATING FREE INCLUDING CURRENT ACTIVITIES CASH FLOW1 PORTION (In millions of dollars) (In millions of dollars) (In millions of dollars) 554 359 1,130 449 442 939 267 854 187 2017 2018 2019 2017 2018 2019 2017 2018 2019 DOMTAR 2019 ANNUAL REPORT 1


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    MESSAGE TO SHAREHOLDERS BUILDING ON OUR CAPABILITIES DOMTAR CONTINUES TO BUILD RESILIENT PAPER BUSINESS Our paper business EBITDA margins1 improved in 2019 compared to ON ITS CAPABILITIES AND EXECUTE the prior year due to pricing and improved product mix. We continue A WELL-DEFINED STRATEGY TO to provide best-in-class service to our customers and to increase our MAXIMIZE THE VALUE OF EACH share of wallet with them, while pursuing new sales opportunities. OF ITS BUSINESSES. We remain committed to balancing our supply with customer demand, maintaining lower inventories and minimizing our downtime costs. We took approximately 300,000 short tons of Led by a strong team, Domtar is well positioned to drive market downtime during the year to match our capacity with growth, return capital to shareholders and reach the customer demand before permanently idling 204,000 short tons next stage in its evolution as a leading North American of paper capacity. Our ability to adjust quickly to changing market pulp and paper company and a recognized personal care conditions reflects both the agility of our team and the optionality of products supplier. our asset base. We have shown that we can find creative uses for our paper assets as demand declines, and we have identified repurposing Despite market challenges in 2019, we showed resilience optionality for approximately half of our remaining paper capacity. and delivered strong results, including $442 million in cash flows from operating activities. The businesses in which we We continue to invest in projects that strengthen our best-performing operate are adjusting to market volatility, and we continue mills, reduce our cost structure and support new capabilities. As we to be agile and flexible in these changing market conditions. accelerate our efforts in the development of innovative products for Our solid financial position allowed us to return $329 million plastic substitution and other emerging markets, we remain focused to our shareholders for the year through dividends and on being North America’s uncoated freesheet market leader and share buy-backs, while we continue to invest strategically supplier of choice for our paper customers. in our assets. Our commitment to operating responsibly and sustainably EXPANDING MARKET PULP BUSINESS remains steadfast. Versatile and renewable wood fiber is While 2019 was a challenging year for pulp pricing, our growth the foundation of our business. As a fiber innovator, we are plans remain on track. We made progress toward improving our proud of our record as a sustainability leader for the benefit cost position through targeted investments and continuous of our people, our communities and our planet. improvement projects, while aligning our business with winning customers and markets. Tissue, hygiene and select specialty pulp markets are showing global demand growth, and our product mix evolved further in their direction during the year. 1 Non-GAAP financial measure. Please see “Reconciliation of non-GAAP Financial Measures” at the end of this document. 2 DOMTAR 2019 ANNUAL REPORT


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    “WHETHER IT’S THE QUALITY OF OUR ASSETS, THE MARKETS IN WHICH WE OPERATE, OR THE STRENGTH AND CREATIVITY OF OUR PEOPLE, DOMTAR IS WELL POSITIONED FOR LONG-TERM SUCCESS.” DOMTAR 2019 ANNUAL REPORT 3


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    MESSAGE TO SHAREHOLDERS Domtar is a major pulp supplier with high-performing, In paper, we maximize value by providing best-in-class service low-cost mills and has the ability to meet customer needs for and keeping our supply in line with our customers’ demand. high-quality products in North America and globally. We plan Capital is judiciously allocated to projects that increase to continue improving customer and product mix, enhancing productivity and efficiency across our operations in support our value proposition and increasing productivity so that we of higher profitability. Paper manufacturing assets no longer can fully realize the capability of our assets. required to serve our customers will be repurposed in a timely manner to their next best use, being either low-cost pulp or competitive containerboard. In our growing pulp business, FOCUSED PERSONAL CARE BUSINESS we are investing strategically to strengthen the long-term In Personal Care, we improved EBITDA margins 1 when competitiveness of our assets, while the priority in Personal Care compared to the prior year, and we simplified and stabilized is to reach the profitability potential of our current asset base. the business to compete more effectively in a challenging global market. These actions included consolidating our North With strong cash generation and a solid balance sheet, we American manufacturing footprint, streamlining expenses, also have the capacity to consider value-creating acquisitions. and simplifying our operating structure and work processes, In terms of targets, we will favor only meaningful, fiber-based which resulted in productivity improvements and supply chain opportunities with a strong overlap with our existing businesses. efficiencies. While executing our margin improvement plan, we also achieved some important wins in our infant diaper We will maintain a balanced capital allocation approach business that will scale up this year. by returning the majority of future free cash flows 1 to shareholders, while maintaining the flexibility to deploy We have built the foundation for a lower cost position and capital to the highest value-creating options. established the commercial focus required to unlock future growth and profitability. Looking ahead, we will focus on delivering on our commercial commitments, developing our CREATING A SUSTAINABLE FUTURE strategic customer relationships and investing to serve our While striving to make Domtar even more resilient and customers in the longer term. successful, we are also committed to operating responsibly. Wood fiber, the building block of all our products, is a highly versatile and renewable resource. Our unwavering support DISCIPLINED CAPITAL ALLOCATION for sustainable forestry is evidenced by our actions in both The shareholder returns consistently generated by Domtar Domtar-owned lands and in our continuing efforts to help through the years are driven by a successful and sustainable small landowners achieve certification for their forest business strategy underpinned by disciplined capital management. Additionally, we are among the leaders in the allocation. Across our businesses, our objective is to make use of renewable energy to power our mills and the beneficial sound investments that will help sustain earnings throughout reuse of manufacturing by-products. Each year, our goal is to the business cycle. outperform industry benchmarks and other key sustainability performance indicators, including the safety of our workplaces and well-being of our people. 1 Non-GAAP financial measure. Please see “Reconciliation of non-GAAP Financial Measures” at the end of this document. 4 DOMTAR 2019 ANNUAL REPORT


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    Our latest sustainability report was published last year, and it provides a full picture of our approach and performance. Operating responsibly, ethically and sustainably is embedded in Domtar’s culture, and we will continue to report with candor and transparency on the issues that matter most to our stakeholders. TAKING DOMTAR TO THE NEXT LEVEL We are focused on transforming Domtar into a growth company while living up to our values of agility, caring and innovation. I am confident that we have the capabilities to move forward on our current path, while driving value for all our stakeholders. Our readiness and adaptability are reflected in the strength of our team and the potential opportunitiess we have identified. By remaining focused and disciplined in areas where we can add value and improve our business, wee will make Domtar even stronger. Thank you to our employees for their hardd work and creativity, our customers for their partnership a nd trust, and our shareholders for their continued supportt and investment in Domtar. I also recognize and appreciate our management team and Board members for their vision and leeadership. Sincerely, John D. Williams President and Ch hief Executive Officer DOMTAR 2019 ANNUAL REPORT 5


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    1. 2. MANAGEMENT COMMITTEE AND BOARD OF DIRECTORS 3. 4. 5. 6. LEADERSHIP AND CORPORATE GOVERNANCE Domtar upholds the highest standards of business MANAGEMENT integrity and corporate social responsibility. These are COMMITTEE reflected in our wide range of policies, regularly reviewed and updated, to promote strong governance, best 1. John D. Williams 2. Daniel Buron practices, diversity and sustainability. President and Senior Vice President and Chief Executive Officer Chief Financial Officer Our commitment to operating responsibly is supported by our Code of Business Conduct and Ethics applicable to all employees and Board members. Strict Corporate 3. Michael D. Garcia 4. Michael Fagan Governance Guidelines are the basis for our robust President President compliance program. For more information on our Pulp and Paper Personal Care Division Division governance practices, or to consult our proxy statement, please visit domtar.com. 5. Zygmunt Jablonski 6. Patrick Loulou Senior Vice President and Senior Vice President Chief Legal and Corporate Administrative Officer Development 6 DOMTAR 2019 ANNUAL REPORT


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    1. 2. 3. 4. 5. 6. 7. 8. 9. BOARD COMMITTEE OF DIRECTORS MEMBERSHIPS 1. Robert E. Apple 2. Giannella Alvarez 3. David J. Illingworth Audit Committee Chief Operating Officer Corporate Director Corporate Director David G. Maffucci, Chair MasTec, Inc. Atlanta, Georgia Orchid, Florida David J. Illingworth Miami, Florida Mary A. Winston Member of our Member of our Member of our Board of Directors Board of Directors Board of Directors since since 2012 since 2013 Environmental, Health, Safety 2012 and Chairman of and Sustainability Committee the Board since 2017 Denis Turcotte, Chair Giannella Alvarez 4. Brian M. Levitt 5. David G. Maffucci 6. Pamela B. Strobel David J. Illingworth Chairman of the Board Corporate Director Corporate Director The Toronto Isle of Palms, South Carolina Chicago, Illinois Finance Committee Dominion Bank Member of our Member of our Brian M. Levitt, Chair Kingston, Ontario Board of Directors Board of Directors David G. Maffucci Member of our since 2011 since 2007 Denis Turcotte Board of Directors Mary A. Winston since 2007 Human Resources Committee 7. Denis Turcotte 8. John D. Williams 9. Mary A. Winston Pamela B. Strobel, Chair Managing Partner and President and President Giannella Alvarez Chief Operating Officer Chief Executive Officer WinsCo Enterprises, Inc. Brian M. Levitt Brookfield Asset Domtar Corporation Charlotte, North Carolina Denis Turcotte Management Inc. Charlotte, North Carolina Member of our Toronto, Ontario Member of our Board of Directors Nominating and Corporate Member of our Board of Directors since 2015 Governance Committee Board of Directors since 2009 since 2007 Robert E. Apple, Chair Brian M. Levitt David G. Maffucci Pamela B. Strobel DOMTAR 2019 ANNUAL REPORT 7


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    BUSINESS OVERVIEW PULP AND PAPER SEGMENT PULP AND PAPER Domtar is the largest integrated manufacturer and marketer of TRUSTED PAPER PARTNER uncoated freesheet paper in North America and an important Maintaining our position as the leading North American supplier of specialty and packaging papers, with an annual uncoated freesheet paper manufacturer, Domtar sold just paper production capacity of 2.9 million short tons. We are over 2.8 million short tons of paper in 2019. We provide a wide also one of the largest global pulp manufacturers, and a major range of communication, specialty and packaging papers to a supplier of high-quality papergrade, fluff and specialty pulp. variety of customers, primarily in the United States, including We produce over 4 million air-dried metric tons of pulp in merchants, retail outlets, stationers, printers, converters and total, approximately half for internal use and the balance for end-users. Domtar is committed to remaining the long-term sale to third parties. paper supplier of choice for its customers. Our pulp and paper business is built on a network of wood fiber converting assets strategically located across the United States and Canada. Over the past decade, we have repurposed 1.7 million short tons of our paper capacity to manufacture products for growing markets. We invest annually in projects that strengthen our best-performing mills while actively seeking new opportunities to redeploy assets no longer needed for paper production. 8 DOMTAR 2019 ANNUAL REPORT


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    DOMTAR PAPER PRODUCTS AND APPLICATIONS Communication Papers Specialty and Packaging Papers CATEGORY Business Papers Commercial Printing and Publishing Papers • Thermal papers • Imaging papers GRADE • Copy • Offset • Tag • Premium opaques • Food packaging • Label papers • Premium imaging • Colors • Bristol • Lightweight • Bag stock • Medical • Technology papers • Index • Opaques • Tradebook • Security papers disposables APPLICATION • Photocopies • Presentations • Commercial printing • Pamphlets • Cards • Food and candy • Check and security • Office documents • Reports • Forms and Envelopes • Brochures • Posters packaging papers • Annual reports • Books • Fast food takeout • Surgical gowns • Direct mail • Catalogs bag stock Communication papers Specialty and packaging papers Right-sizing our paper Communication papers represent the We manufacture specialty and packaging production capacity majority of our total sales, with business papers destined for applications as far We produce paper at 10 mills in the papers being the largest product ranging as food packaging and medical United States and Canada, supported offering within this category. They are supplies. In addition, we supply base by an efficient network of 13 offsite sold mainly to major North American stock for thermal papers used to and onsite converting and forms retailers, independent office supply make cash register receipts, ATM print manufacturing operations. In 2019, dealers and paper merchants. We offer outs and lottery tickets, as well as an we permanently shut down two paper a selection of our own recognized extensive range of industrial papers for machines located in the United States, business paper brands, including applications such as sandpaper or tile thereby reducing our uncoated freesheet Xerox® Paper and Specialty Media, backing, among other uses. production capacity by 204,000 short ImagePrint® MultiUse and EarthChoice® tons, in addition to taking approximately Office Paper, and we also assist our We continue to leverage our innovation 300,000 short tons of market-related customers in developing their own and new product development pipeline downtime during the year, to balance store brands. to grow our position in specialty papers. supply with our customers’ demand. We see an opportunity in this category Our communication papers are also to use specialty paper as a substitution used for commercial printing and for single-use plastics as customers publishing. In this category, customers increasingly seek alternatives for such are primarily paper merchants and items as straws and food packaging. converters who further process the paper to its final end-use state such as into books, pamphlets or envelopes, depending on the application. Cougar®, Lynx® Opaque Ultra and Husky® Opaque Offset are among our most recognized brands in this category. DOMTAR 2019 ANNUAL REPORT 9


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    BUSINESS OVERVIEW PULP AND PAPER SEGMENT PAPER MARKET DYNAMICS FOCUSED ON GROWTH IN In 2019, 6.5 million short tons of MARKET PULP uncoated freesheet paper were Domtar is a major global producer of manufactured in North America, softwood and fluff pulp. We operate representing an approximately two stand-alone pulp mills in Canada 10% decline compared to the previous and one in the Southern United States, year. This reflects market-related and we produce market pulp in six of downtime and permanent paper our integrated North American pulp production capacity reductions in and paper mills. In 2019, we shipped such as bathroom and facial tissue, and response to the market developments. 1.6 million air-dried metric tons of paper towels. Domtar Lighthouse® fluff papergrade, fluff and specialty pulp to pulp is mainly used in the absorbent core North American demand was nearly a diverse range of customers in over of infant diapers, adult incontinence 7 million short tons, an 8.4% decrease 50 countries around the world, in line products, feminine hygiene products compared to 2018. This decline with shipments in prior years. In 2020, and airlaid nonwovens. Our specialty exceeded the long-term secular trend we expect volume growth driven by our pulp customers produce a wide variety due mostly to customer destocking. For strategic investments, the restart of our of products ranging from specialty and its part, the North American specialty Espanola, Ontario, mill and additional packaging papers to electrical insulating papers market is expected to continue market pulp from our Ashdown, papers and building products. to grow in line with population Arkansas, mill following the paper growth, and the manufacturing and machine closure late last year. DOMTAR PULP SHIPMENTS construction sectors. BY END USES1 End Use % of Total Shipments Absorbent Hygiene 43% Towel and Tissue 34% Specialty Paper and Materials 18% Most of the pulp we sell is used in products that serve growing end-use Printing and Writing 5% markets. Our papergrade pulp is used for manufacturing consumer products 1 Includes pulp shipments to Personal Care 10 DOMTAR 2019 ANNUAL REPORT


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    HEALTH AND SAFETY PULP AND PAPER Domtar made significant progress during TOTAL INJURY FREQUENCY RATES the past decade in reducing total injury frequency rates and the severity of 0.84 0.85 0.79 injuries in Pulp and Paper. Over the past three years, our performance has been stable as we strive to eliminate workplace injuries through a comprehensive accident prevention strategy. 2017 2018 2019 Market pulp is subject to short-term LEADING THE SHIFT TO A BIO-BASED ECONOMY fluctuations in selling prices, and As a fiber innovator working with one of the world’s most renewable resources, 2019 was a challenging year in both Domtar has extensive experience turning wood fiber into useful, sustainable domestic and global markets. However, products. In recent years, we have accelerated our fiber-based product development the historical trend in average prices activities to create new revenue opportunities from biomaterials, as the world shifts over a period of consecutive years to a bio-based economy. has been positive. Our growing pulp business is well-positioned in attractive We have developed BioChoice® Lignin, a kraft lignin that can be used in the markets with a favorable medium to production of resins, thermoplastics and other chemicals, and to produce products long-term outlook. as an alternative to common petroleum-based products, including plastics. We are also a major partner in CelluForce, a world leader in the commercial production In 2019,, we invested in strategic g of CelluForce NCC®, which is a form of Cellulose NanoCrystals. Produced from the projects at several mills to improve cellulose in trees, it is abundant, renewable and biodegradable. Its properties help our overall competitive position in the improve product performance in materials for the oil and gas, health care, and global pulp market. These investments food and beverage industries, among others. included projects to increase energy efficiency and related environmental benefits, reduce fiber loss and maximize resource use, as well as improved productivity. DOMTAR 2019 ANNUAL REPORT 11


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    BUSINESS OVERVIEW PULP AND PAPER SEGMENT PULP AND PAPER SEGMENT KEY FIGURES Years ended December 31 2017 2018 2019 (In millions of dollars) Sales (including sales to Personal Care) 4,216 4,523 4,332 Operating income (loss) 237 438 225 Depreciation and amortization 254 238 228 Capital expenditures 128 164 220 Total assets 3,649 3,475 3,507 Paper shipments – manufactured (‘000 ST) 2,891 2,971 2,745 Market pulp shipments (‘000 ADMT) 1,722 1,536 1,539 PULP MARKET DYNAMICS Global demand for chemical market pulp in MANUFACTURING CAPACITY BY REGION 2019 was approximately 64.2 million air-dried PAPER MARKET PULP metric tons, compared to 61.2 million tons in 2018. North American demand was 7.4 million tons, a 0.5% increase, while demand in China was 23.9 million tons, a 16% increase when compared to 2018. U.S. 76% U.S. 54% Papergrade wood pulp consumption is Canada 24% Canada 46% expected to grow by an average of 1.6% per year for 2020-2023. Demand for wood pulp SALES BY REGION in China is projected to generate the largest PAPER MARKET PULP portion of this growth, with an expected annual growth rate of 3.1% during the same period. For 2020-2023, global tissue demand is expected to grow on average 2.7% per year. As a result, global tissue demand is projected to rise well over 4 million tons, fueling demand for chemical U.S. 88% U.S. 40% Europe 11% market pulp. Canada 8% China 24% Mexico 7% Europe 4% Other 16% Canada 2% World fluff pulp demand is forecast to expand at a 2.4% annual rate over the next five years. SHIPMENTS BY GRADE This is expected to be driven by the growth in PAPER – MANUFACTURED MARKET PULP1 the use of disposable diapers in less developed economies and incontinence products in developed economies as the population ages. Worldwide demand for absorbent hygiene products by units is expected to grow 2.9% over the same period. Communication 84% Softwood 54% Specialty and Packaging 16% Fluff 42% Hardwood 4% 1 Includes pulp shipments to Personal Care 12 DOMTAR 2019 ANNUAL REPORT


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    PULP AND PAPER SEGMENT FOOTPRINT CORPORATE OFFICES Fort Mill, South Carolina Montreal, Quebec DIVISION HEADQUARTERS Fort Mill, South Carolina UNCOATED FREESHEET (Annual paper manufacturing capacity in short tons) Ashdown, Arkansas (200,000 tons) Espanola, Ontario (69,000 tons) Hawesville, Kentucky (596,000 tons) Johnsonburg, Pennsylvania CHIP MILLS ARIVA – CANADA REPRESENTATIVE (344,000 tons) Hawesville, Kentucky Halifax, Nova Scotia OFFICE – INTERNATIONAL Kingsport, Tennessee Johnsonburg, Pennsylvania Montreal, Quebec Hong Kong, China (426,000 tons) Kingsport, Tennessee Mount Pearl, Newfoundland Marlboro (Bennettsville), and Labrador Marlboro (Bennettsville), LOCAL DISTRIBUTION South Carolina (274,000 tons) South Carolina Ottawa, Ontario CENTERS Quebec City, Quebec Nekoosa, Wisconsin Buffalo, New York (168,000 tons) CONVERTING AND Toronto, Ontario Cincinnati, Ohio Port Huron, Michigan DISTRIBUTION – ONSITE Cleveland, Ohio (95,000 tons) Ashdown, Arkansas REGIONAL REPLENISHMENT Denver, Colorado Rothschild, Wisconsin Rothschild, Wisconsin CENTERS – UNITED STATES Des Moines, Iowa (131,000 tons) Windsor, Quebec Charlotte, North Carolina Houston, Texas Windsor, Quebec Chicago, Illinois Kansas City, Kansas (642,000 tons) CONVERTING AND FORMS Dallas, Texas Minneapolis, Minnesota MANUFACTURING Delran, New Jersey Omaha, Nebraska MARKET PULP Addison, Illinois Indianapolis, Indiana Phoenix, Arizona Brownsville, Tennessee Jacksonville, Florida (Annual pulp manufacturing Plain City, Ohio capacity in air-dried metric tons) Dallas, Texas Mira Loma, California Richmond, Virginia DuBois, Pennsylvania Seattle, Washington Ashdown, Arkansas Salt Lake City, Utah (586,000 tons)2 Griffin, Georgia San Antonio, Texas Dryden, Ontario Owensboro, Kentucky REGIONAL REPLENISHMENT San Lorenzo, California (327,000 tons) Ridgefields, Tennessee CENTERS – CANADA St. Louis, Missouri Rock Hill, South Carolina Richmond, Quebec Vancouver, Washington Kamloops, British Columbia (408,000 tons) Tatum, South Carolina Toronto, Ontario Walton, Kentucky Washington Court House, Ohio Winnipeg, Manitoba Wayne, Michigan Plymouth, North Carolina (390,000 tons) Wisconsin Rapids, Wisconsin 2 This reflects an incremental 70,000 tons of softwood and fluff pulp production expected as a result of the closure of a paper machine in November of 2019. DOMTAR 2019 ANNUAL REPORT 13


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    BUSINESS OVERVIEW PERSONAL CARE SEGMENT PERSONAL CARE Domtar is a recognized manufacturer of high-quality and IMPROVING QUALITY OF LIFE innovative absorbent hygiene products, which we also design, Our vision is to be a global leader in absorbent hygiene markets market and distribute. We are one of the leading suppliers of by meeting the diverse needs of consumers through effective, adult incontinence products sold into North America and affordable and widely available personal care solutions. Each Europe. We are also a recognized supplier of infant diaper year, we manufacture and ship billions of products for adults, products and engineered absorbent materials. infants and children that help improve their quality of life. Our products are designed with the consumer in mind, focused Our five manufacturing plants are supported by a sales force on leakage protection, absorbency, comfort, fit and aesthetics. in Europe and the United States. We sell our products primarily in North America and Europe, as well as in other countries Adult incontinence products around world. We produce high-quality branded and partner-branded products for people – both young and old – living with light to heavy incontinence incontinence. Our proprietary brands include Attends® Attends , Indasec®, IndasSlip® and Reassure®. Additionally, we make partner brands for major retailers around the world. We serve institutional and consumer channels with products available online, in pharmacies and stores, and through healthcare services. In 2019, we shipped over 2.6 billion units of adult diapers, a 3% increase when compared to 2018 reflecting strong product and customer growth. 14 DOMTAR 2019 ANNUAL REPORT


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    HEA HEALTH AND SAFETY PERSONAL CARE Ongoing attention to the prevention Ongo TOTAL INJURY FREQUENCY RATES of ha hand injuries has enabled a major redu reduction in total injury frequency 0.73 0.73 rates in Personal Care during the past 0.64 deca decade. In 2019, our performance impr improved during the first 11 months of the year before suffering a setback in De December. 2017 2018 2019 Infant, child and youth products POSITIONING FOR SUCCESS product category is in large part driven We design and make baby diapers, In 2019, our personal care business by pressure to reduce public spending training, youth pants and bed mats. was focused on margin improvement on healthcare costs and on the Our brand names include Comfees®, in a challenging global market. We availability of reimbursement programs. ChelinoTM, NeneTM and BambinoTM. We consolidated our manufacturing This category represents about two- also work closely with major retailers footprint with the closure of our Waco, thirds of Personal Care’s total sales, supplying partner brand diapers for their Texas, facility in the second quarter and our strategy for 2020 is to focus own stores. In 2019, we shipped nearly of 2019, and further optimized our on higher margin segments, install 1.5 billion units of baby diapers, which production lines and capabilities across and ramp-up new capacity to support was lower than in 2018 largely due to the the network. We made solid progress growth and capture insource savings. planned exit of unprofitable customers. in our asset repositioning and start-up activities in North America. The infant diaper market is currently experiencing flat to declining demand We also continued to adjust our due to low bir th rates, but the product and customer mix in order to importance of this category to key reduce complexity and align ourselves retailers is expected to remain strong with strategic, long-term customers. given the purchasing power of the This has enabled us to lower our cost infant diaper shopper. Oversupply is position and create opportunities for also driving pricing pressure. We are future growth and profitability. While focused on growing our partner Engineered absorbent materials executing our margin improvement branded opportunities and expanding We are also innovators in producing plan, we achieved some important our relationships with major retailers ultrathin, disposable absorbent customer wins in our infant diaper that are committed to this space. c o m p o s i te s fo r m a n u f a c t u r i n g business that will scale up in 2020. companies worldwide. Some of the In 2020, we will remain focused on world's largest branded and private MARKET DYNAMICS developing and scaling strategic label manufacturers – including The adult incontinence category customer, channel and supplier Domtar – incorporate our NovaThin® continues to show solid growth, par tnerships both in the adult and NovaZorb® brand cores into a estimated at 3% to 5% annually, as the incontinence and infant categories to wide range of consumer products. world’s population ages. It is expected capture opportunities for growth. These include feminine hygiene, adult that in 10 years’ time over 12% of the incontinence, baby diapers, medical projected total world population will and healthcare applications, and food be 65 or older. Lower pricing in this packaging. DOMTAR 2019 ANNUAL REPORT 15


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    PERSONAL CARE SEGMENT PERSONAL CARE SEGMENT KEY FIGURES FOOTPRINT Years ended December 31 2017 2018 2019 (In millions of dollars) Sales 996 1,000 953 Operating income (loss) (527) (5) (15) Depreciation and amortization 67 70 65 Capital expenditures 48 37 41 Total assets 1,406 1,331 1,258 SALES BY PRODUCT CATEGORY CORPORATE OFFICES Fort Mill, South Carolina Montreal, Quebec DIVISION HEADQUARTERS Raleigh, North Carolina Adult Incontinence 69% Infant 23% Other 8% MANUFACTURING AND DISTRIBUTION FACILITIES Aneby, Sweden SALES BY REGION Delaware, Ohio Greenville, North Carolina Jesup, Georgia Toledo, Spain SALES OFFICES U.S. 52% Asia 1% Bodö, Norway Europe 46% Other 1% Bourgoin Jallieu, France Daytona Beach, Florida SALES BY CHANNEL Tuitjenhorn, The Netherlands Olivette, Missouri Oslo, Norway Linz, Austria Madrid, Spain Rheinfelden, Switzerland Schwalbach am Taunus, Germany Healthcare 51% Direct-to-consumer 9% Retail 37% Other 3% Stockholm, Sweden Texarkana, Arkansas Wakefield, United Kingdom 16 DOMTAR 2019 ANNUAL REPORT


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    UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2019 or ‘ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO Commission File Number: 001-33164 Domtar Corporation (Exact name of registrant as specified in its charter) Delaware 20-5901152 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 234 Kingsley Park Drive Fort Mill, SC 29715 (Address of principal executive offices) (Zip Code) Registrant’s telephone number, including area code: (803) 802-7500 Securities registered pursuant to Section 12(b) of the Act: Common Stock, Par Value $0.01 Per Share; Common stock traded on the New York Stock Exchange; trading symbol UFS. Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES È NO ‘ Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. YES ‘ NO È Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES È NO ‘ Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). YES È NO ‘ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ‘ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer È Accelerated filer ‘ Non-accelerated filer ‘ Small reporting company ‘ Emerging growth company ‘ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ‘ Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ‘ NO È The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, based on the closing price of the shares of common stock on The New York Stock Exchange on June 30, 2019, was $2,801,211,465. The number of shares of Registrant’s Common Stock outstanding as of February 17, 2020 was 56,273,429. Portions of the Registrant’s Proxy Statement relating to the Annual Meeting of Shareholders, scheduled to be held on May 6, 2020, are incorporated by reference into Part III of this Report.


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    DOMTAR CORPORATION ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2019 TABLE OF CONTENTS PAGE PART I ITEM 1 BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Availability of Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Our Corporate Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Our Business Segments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Pulp and Paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Personal Care . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Our Strategic Initiatives and Financial Priorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Our Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Our Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Our Approach to Sustainability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Our Environmental Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Our Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Our Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Forward-looking Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 ITEM 1A RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 ITEM 1B UNRESOLVED STAFF COMMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 ITEM 2 PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 ITEM 3 LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 ITEM 4 MINE SAFETY DISCLOSURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 PART II ITEM 5 MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES . . . . . . . . . . . . . . 29 Market Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Performance Graph . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 ITEM 6 SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 ITEM 7 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 2019 Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Consolidated Results of Operations and Segment Review . . . . . . . . . . . . . . . . . . . . . . . 34 Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Recent Accounting Pronouncements and Critical Accounting Estimates and Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 2


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    PAGE ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK . . . . 51 ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . . . . . . . . . . . . . . . 53 Management’s Reports to Shareholders of Domtar Corporation . . . . . . . . . . . . . . . . . . 53 Report of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Consolidated Statements of Earnings (Loss) and Comprehensive Income (Loss) . . . . . 57 Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Consolidated Statement of Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132 ITEM 9A CONTROLS AND PROCEDURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132 ITEM 9B OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132 PART III ITEM 10 DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE . . . . . . 133 ITEM 11 EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133 ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . 133 ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133 ITEM 14 PRINCIPAL ACCOUNTANT FEES AND SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134 PART IV ITEM 15 EXHIBITS AND FINANCIAL STATEMENT SCHEDULES . . . . . . . . . . . . . . . . . . . . . . . 135 Schedule II – Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138 ITEM 16 FORM 10-K SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140 3


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    PART I ITEM 1. BUSINESS GENERAL We design, manufacture, market and distribute a wide variety of fiber-based products, including communication papers, specialty and packaging papers, and absorbent hygiene products. The foundation of our business is a network of wood fiber converting assets that produce paper grade, fluff and specialty pulp. More than 50% of our pulp production is consumed internally to manufacture paper and other consumer products, with the balance sold as market pulp. We are the largest integrated marketer of uncoated freesheet paper in North America serving a variety of customers, including merchants, retail outlets, stationers, printers, publishers, converters and end-users. We are also a marketer and producer of a broad line of incontinence care products as well as infant diapers. To learn more, visit www.domtar.com. We operate the following business segments: Pulp and Paper and Personal Care. We had revenues of $5.2 billion in 2019, of which approximately 82% was from the Pulp and Paper segment and approximately 18% was from the Personal Care segment. Throughout this Annual Report on Form 10-K, unless otherwise specified, “Domtar Corporation,” “the Company,” “Domtar,” “we,” “us” and “our” refer to Domtar Corporation, its subsidiaries, as well as its investments. AVAILABILITY OF INFORMATION In this Annual Report on Form 10-K, we incorporate by reference certain information contained in other documents filed with the Securities and Exchange Commission (“SEC”) and we refer you to such information. We file annual, quarterly and current reports and other information with the SEC. The SEC maintains a website at www.sec.gov that contains our quarterly and current reports, proxy and information statements, and other information we file electronically with the SEC. You may also access, free of charge, our reports filed with the SEC through our website. Reports filed or furnished to the SEC will be available through our website as soon as reasonably practicable after they are filed or furnished to the SEC. The information contained on or connected to our website, www.domtar.com, is not incorporated by reference into this Form 10-K and should in no way be construed as a part of this or any other report that we filed with or furnished to the SEC. OUR CORPORATE STRUCTURE At December 31, 2019, Domtar Corporation had a total of 56,880,910 shares of common stock issued and outstanding. Our common stock is traded on the New York Stock Exchange and the Toronto Stock Exchange under the symbol “UFS”. Information regarding our common stock is included in Item 8, Financial Statements and Supplementary Data under Note 21 “Shareholders’ Equity”. OUR BUSINESS SEGMENTS We have two reportable segments as described below, which also represent our two operating segments. Each reportable segment offers different products and services and requires different manufacturing processes, technology and/or marketing strategies. The following summary briefly describes the operations included in each of our reportable segments. Pulp and Paper: Our Pulp and Paper segment consists of the design, manufacturing, marketing and distribution of communication, specialty and packaging papers, as well as softwood, fluff and hardwood market pulp. 4


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    Personal Care: Our Personal Care segment consists of the design, manufacturing, marketing and distribution of absorbent hygiene products. Information regarding our reportable segments is included in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, as well as Item 8, Financial Statements and Supplementary Data under Note 24 “Segment Disclosures”. Geographic information is also included under Note 24 of the Financial Statements and Supplementary Data. 5


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    PULP AND PAPER Our Manufacturing Operations We produce approximately 4 million metric tons of softwood, fluff and hardwood pulp at 12 of our 13 mills (Port Huron being a non-integrated paper mill). More than 50% of our pulp is consumed internally to manufacture paper, with the balance being sold as market pulp. We also purchase limited papergrade pulp from third parties for specific grades and to optimize the logistics of our pulp capacity while reducing transportation costs. We are the largest integrated manufacturer and marketer of uncoated freesheet paper in North America. We have nine integrated pulp and paper mills and one non-integrated paper mill (eight in the United States and two in Canada), with an annual paper production capacity of approximately 2.9 million tons of uncoated freesheet paper. Our paper manufacturing operations are supported by 13 converting and forms manufacturing operations (including a network of 10 plants located offsite from our paper making operations). Approximately 76% of our paper production capacity is in the United States and 24% is located in Canada. We produce market pulp in excess of our internal requirements at our pulp and paper mills in Ashdown, Espanola, Hawesville, Windsor, Marlboro and Nekoosa. We also produce papergrade, fluff and specialty pulps at our three stand-alone pulp mills in Kamloops, Dryden and Plymouth. We can sell approximately 1.9 million metric tons of pulp per year depending on market conditions. Approximately 54% of our trade pulp production capacity is in the U.S., and 46% is located in Canada. The table below lists our operating pulp and paper mills and their annual production capacity: Saleable Production Facility Fiberline Pulp Capacity Paper (1) # lines (‘000 ADMT) (2) # machines Category (3) (‘000 ST) (2) Uncoated freesheet Ashdown, Arkansas 3 707 1 Communication 200 Windsor, Quebec 1 447 2 Communication 642 Hawesville, Kentucky 1 412 2 Communication 596 Kingsport, Tennessee 1 304 1 Communication 426 Marlboro, South Carolina 1 320 1 Specialty & Packaging 274 Johnsonburg, Pennsylvania 1 228 2 Communication 344 Nekoosa, Wisconsin 1 155 3 Specialty & Packaging 168 Rothschild, Wisconsin 1 65 1 Communication 131 Port Huron, Michigan — — 3 Specialty & Packaging 95 Espanola, Ontario 2 300 2 Specialty & Packaging 69 Total Uncoated freesheet 12 2,938 18 2,945 Pulp Kamloops, British Columbia 1 408 — — Dryden, Ontario 1 327 — — Plymouth, North Carolina 1 390 — — Total Pulp 3 1,125 — — Total 15 4,063 18 2,945 Total Trade Pulp (4) 1,922 (1) Paper capacity is based on an operating schedule of 360 days and the production at the winder. (2) ADMT refers to an air dry metric ton and ST refers to short ton. 6


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    (3) Represents the majority of the capacity at each of these facilities. (4) Estimated third-party shipments dependent upon market conditions. This also includes shipments to our Personal Care segment. Our Raw Materials The manufacturing of pulp and paper requires wood fiber, chemicals and energy. We discuss these three major raw materials used in our manufacturing operations below. Wood Fiber United States pulp and paper mills The fiber used by our pulp and paper mills in the U.S. is softwood and hardwood, both readily available in the market from multiple third-party sources. The mills obtain fiber from a variety of sources, depending on their location. These sources include a combination of supply contracts, wood lot management arrangements, advance stumpage purchases and spot market purchases. Canadian pulp and paper mills The fiber used at our Windsor pulp and paper mill is hardwood originating from a variety of sources, including purchases on the open market in Canada and the U.S., contracts with Quebec wood producers’ marketing boards, public land where we have wood supply allocations and from Domtar’s private lands. The softwood and hardwood fiber for our Espanola pulp and paper mill and the softwood fiber for our Dryden pulp mill, are obtained from third parties, directly or indirectly from public lands and through designated wood supply allocations. The fiber used at our Kamloops pulp mill is all softwood, originating mostly from third-party sawmill operations in the southern-interior part of British Columbia. Cutting rights on public lands related to our pulp and paper mills in Canada represent about 1.5 million cubic meters of softwood and 1.0 million cubic meters of hardwood per year. Access to harvesting of fiber on public lands in Ontario and Quebec is subject to licenses and review by the respective governmental authorities. During 2019, the cost of wood fiber relating to our Pulp and Paper segment comprised approximately 20% of the total consolidated cost of sales. Chemicals We use various chemical compounds in our pulp and paper manufacturing operations that we purchase, primarily on a centralized basis, through contracts varying between one and ten years in length to ensure product availability. Most of the contracts have pricing that fluctuates based on prevailing market conditions. For pulp manufacturing, we use numerous chemicals including caustic soda, sodium chlorate, sulfuric acid, lime and peroxide. For paper manufacturing, we also use several chemical products including starch, precipitated calcium carbonate, optical brighteners, dyes and aluminum sulfate. During 2019, the cost of chemicals relating to our Pulp and Paper segment comprised approximately 11% of the total consolidated cost of sales. Energy Our operations produce and consume substantial amounts of energy. Our primary energy sources include: biomass, natural gas and electricity. Approximately 72% of the total energy required to manufacture our products 7


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    comes from renewable fuels such as bark and spent pulping liquor, generated as byproducts from our manufacturing processes. The remainder of the energy comes from smaller amounts of other fossil fuels and purchased steam procured under supply contracts. Under most of these contracts, suppliers are committed to provide quantities within pre-determined ranges that provide us with our needs for a particular type of fuel at a specific facility. Most of these contracts have pricing that fluctuate based on prevailing market conditions. Biomass and fossil fuels are consumed primarily to produce steam that is used in the manufacturing process and, to a lesser extent, to provide direct heat used in the chemical recovery process. We have cogenerating assets at all of our integrated pulp and paper mills, as well as hydro assets at three locations: Espanola, Nekoosa and Rothschild. These generating assets produce approximately 67% of the electricity requirements of this business segment, with the balance supplied from local utilities. Electricity is primarily used to drive motors, pumps and other equipment, as well as provide lighting. During 2019, net energy costs relating to our Pulp and Paper segment comprised approximately 5% of the total consolidated cost of sales. Our Transportation Transportation of raw materials, wood fiber, chemicals and pulp into our mills is mostly done by rail and trucks, although barges are used in certain circumstances. We rely strictly on third parties for the transportation of our pulp and paper products between our mills, converting operations, distribution centers and customers. Our paper products are shipped mostly by truck and logistics are managed centrally in collaboration with each location. Our pulp is either shipped by vessel, rail or truck depending on destination and customer preference. We work with all major railroads and approximately 300 trucking companies in the U.S. and Canada. Service agreements are typically negotiated on an annual basis. We pay diesel fuel surcharges which vary depending on the mode of transportation used and the cost of diesel fuel. During 2019, outbound transportation costs relating to our Pulp and Paper segment comprised approximately 10% of the total consolidated cost of sales. Our Product Offering and Go-to-Market Strategy Paper Our uncoated freesheet papers are categorized into both communication papers and specialty and packaging papers. Communication papers are further categorized into business papers and commercial printing and publishing papers. Our business papers include copy and electronic imaging papers, which are used with inkjet and laser printers, photocopiers and plain-paper fax machines, as well as computer papers, preprinted forms and digital papers. These products are primarily for office and home use. Business papers accounted for approximately 51% of our shipments of paper products in 2019. Our commercial printing and publishing papers include uncoated freesheet papers, such as offset papers and opaques. These uncoated freesheet grades are used in sheet and roll fed offset presses across the spectrum of commercial printing end-uses, including digital printing. Our publishing papers include tradebook and lightweight uncoated papers used primarily in book publishing applications such as textbooks, dictionaries, catalogs, magazines, hard cover novels and financial documents. These products also include converting papers, such as envelopes, tablets, business forms and data processing/computer forms. Commercial printing and publishing papers accounted for approximately 33% of our shipments of paper products in 2019. Our specialty and packaging papers include papers used for thermal printing, flexible packaging, food packaging, medical packaging, medical gowns and drapes, sandpaper backing, carbonless printing, labels and 8


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    other papers used for coating and laminating applications. We also manufacture papers for industrial and specialty applications including carrier papers, treated papers, security papers and specialized printing and converting applications. These specialty and packaging papers accounted for approximately 16% of our shipments of paper products in 2019. These grades of papers require a certain amount of innovation and agility in the manufacturing system. The chart below illustrates our main uncoated freesheet paper products and their applications: Communication Papers Specialty and Packaging Papers Commercial Printing and Publishing Category Business Papers Papers Grade Copy Premium imaging Offset Opaques Thermal papers Technology papers Colors Premium opaques Food packaging Index Lightweight Bag stock Tag Tradebook Security papers Bristol Imaging papers Label papers Medical disposables Application Photocopies Presentations Commercial Stationery Food & candy packaging Office Reports printing Brochures Fast food takeout bag stock documents Direct mail Annual reports Check and security papers Presentations Pamphlets Books Surgical gowns Brochures Catalogs Cards Forms & Posters Envelopes Our paper sales channels are aligned to efficiently bring a competitive and complete product offering to our varied customers. Our customer service personnel work closely with sales, marketing and production staff to provide service and support to merchants, converters, end-users, stationers, printers and retailers. We sell our products directly to end-users and others who influence paper purchasing decisions in order to enhance brand recognition and increase product demand. In addition, our sales representatives work closely with mill-based product development personnel and undertake joint marketing initiatives with customers in order to better understand their business needs and to support their future requirements. We sell business papers primarily to paper stationers, merchants, office equipment manufacturers and retail outlets. We distribute uncoated commercial printing and publishing papers to end-users and commercial printers, mainly through paper merchants, as well as selling directly to converters. We sell our specialty and packaging papers mainly to converters, who apply a further production process such as coating, laminating, folding or waxing to our papers before selling them to a variety of specialized end-users. The chart below illustrates our channels of distribution for our paper products: Communication Papers Specialty and Packaging Papers Commercial Printing and Publishing Category Business Papers Papers Domtar sells Retailers Merchants Office Merchants Converters End-Users Converters to: ↓ ↓ Equipment ↓ ↓ ↓ Manufacturers / Stationers ↓ Customer sells Printers / Printers / Retailers / Printers / Merchants End-users to: End-users Retailers / Stationers / Converters / / Retailers End-users End-users End-users 9


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    Pulp Our pulp products are comprised of softwood, fluff and hardwood kraft. These grades are sold to customers in over 50 countries worldwide. Our pulp is used in a variety of end products, such as diapers and personal hygiene products, bathroom and facial tissue, specialty and packaging papers, customers who make printing and writing grades, building products and electrical insulating papers. We sell market pulp to customers in North America mainly through a North American sales force while sales to most overseas customers are made directly or through commission agents. We maintain pulp supplies at strategically located warehouses, which allow us to respond to customer orders on short notice. Our Customers Our ten largest customers represented approximately 46% of our Pulp and Paper segment sales or approximately 37% of our total sales in 2019. In 2019, Staples, a customer of our Pulp and Paper segment, represented approximately 11% of our total sales. The majority of our customers purchase products through individual purchase orders. In 2019, approximately 75% of our Pulp and Paper segment sales were in the United States, 10% were in Canada, and 15% were in other countries. PERSONAL CARE Our Operations Our Personal Care business consists of the design, manufacturing, marketing and distribution of absorbent hygiene products, including adult incontinence and infant diaper products. We are one of the leading suppliers of adult incontinence and infant diaper products sold into North America and Europe, servicing institutional and consumer channels, marketed primarily under our Attends®, IncoPack®, Indasec®, Reassure®, Chelino and Comfees® brands, in addition to our customers’ brands. We operate five manufacturing facilities located in the U.S. and Europe, with the ability to produce multiple product categories including our Jesup, Georgia facility, which manufactures high quality airlaid and ultrathin laminated absorbent cores. We have research and development capabilities across our manufacturing footprint to maintain quality assurance and drive product innovation. Our operations are supported by our divisional headquarters located in Raleigh, North Carolina. Our Industry Dynamics Aging population We compete in an industry with fundamental drivers for long-term growth. The worldwide aging population suggests that adult incontinence will become much more prevalent over the next several decades, as baby boomers enter their senior years and medical advances continue to extend the average lifespan. By the year 2030, approximately one billion people worldwide are estimated to be 65 years old or older, representing 12% of the projected total world population. Increased healthcare spending While we are expected to benefit from the overall increase in healthcare spending due to an aging population, the pressure to limit public spending on healthcare may impact overall consumption or the channels in which consumption occurs. 10


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    Infant products We compete mainly within the competitive store brand segment of infant diapers and training pants. Future unit demand growth based on birth rate and demographic trends is forecasted to be limited in North America and Europe. The focus is on driving category value by offering new benefits and by marketing to shift product mix to higher priced segments. The importance of the category to key retailers is expected to remain strong given the purchasing power and strategic importance of the infant diaper shopper. Today, our business is focused on securing multiyear contracts with large retailers that control the majority of volume, leading to intense competition with other manufacturers in the industry. Our focus on insight and innovation provides our customers with competitive products and services at a scale required to meet their national distribution requirements. Our Raw Materials The primary raw materials used in our manufacturing process are fluff pulp, nonwovens and super absorbent polymers. A significant portion of the fluff pulp used in our Personal Care business is supplied internally from our Pulp and Paper business. The majority of our nonwoven and super absorbent polymers are purchased centrally based on multiyear contracts with pricing that fluctuates with market conditions. Other raw materials used in our manufacturing process include polypropylene film, elastics and adhesives which are also purchased with multiyear contracts. Our Product Offering and Go-to-Market Strategy We supply a variety of products, which include branded and private label briefs, bladder control pads, protective underwear, underpads and washcloths, as well as baby diapers, change mats, youth pants and training pants. They are available in a variety of sizes, differing performance levels and product attributes. Our broad product portfolio covers most price points across each category. Our Product Development We currently offer a comprehensive, full line of products, and we continue to focus on product development to improve comfort, dryness and leakage protection for our consumers. We continue to explore new materials, designs and processes that will allow us to improve future performance and value to meet global market needs. OUR STRATEGIC INITIATIVES AND FINANCIAL PRIORITIES As a leading fiber-based technology company, Domtar is focused on driving innovation, enhancing our operating platforms, and delivering high quality products. To further bolster our position and drive enhanced value for our stockholders, Domtar is focused on four key business objectives: (1) driving value in our Pulp and Paper business through strategic investment; (2) building on our core competencies in wood fiber to diversify and expand Domtar’s footprint in growth markets and industries; (3) maintaining a balanced and disciplined approach to capital allocation that allows for investments in growth opportunities and rewards stockholders with capital returns; and (4) operating with a focus on environmental responsibility and sustainability. We are confident that the continued focus on these objectives will bolster the competitive position of our business and drive value for our stakeholders, including stockholders, customers and employees. Driving value in our Pulp and Paper business. Domtar’s Pulp and Paper business remains an important part of our growth plan, and we have strategies and operating priorities designed to maximize the value of the business. Our key priorities include: increasing productivity in our pulp business, pursuing new sources of paper consumption, pursuing asset repurposing opportunities and operating an optimal portfolio of strategic assets. We believe that execution on these priorities will enable Domtar to expand into complementary growth areas and protect its market position in Pulp and Paper. 11


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    Expanding into areas of growth and leveraging our fiber expertise. We are focused on optimizing and expanding our operations in markets with positive demand dynamics through investments for organic growth, the repurposing of assets and strategic acquisitions. Domtar has a history of proactively adapting to changing market conditions, and today, we are repositioning the Company towards areas of growth. We are well positioned to capitalize on new opportunities in the wood fiber market. The Company already has the financial resources, infrastructure, raw materials, technologies and expertise necessary to deliver new products. We believe that we have built a strong foundation for diversification and continue to make important, but disciplined, progress. Maintaining a balanced and disciplined approach to capital allocation that allows for investments in growth opportunities and rewards stockholders with capital returns. We believe in a balanced and disciplined approach to capital allocation, and we are committed to deploying capital only to the areas that will achieve the best possible return for our stockholders. Domtar’s free cash flow allows us to invest in growth opportunities and maintain a strong and flexible financial position for operating and strategic initiatives, while still returning capital to our stockholders. To continue generating free cash flow, we are focused on assigning our capital expenditures effectively and minimizing working capital requirements by reducing discretionary spending, reviewing procurement costs and pursuing the balance of production and inventory control. Operating responsibly on behalf of all of Domtar’s stakeholders. We try to make a positive difference every day by pursuing sustainable growth, valuing relationships, and responsibly managing our resources. We aim to care for our customers, end-users and stakeholders in the communities where we operate, all seeking assurances that resources are managed in a sustainable manner. We strive to provide these assurances by certifying our distribution and manufacturing operations and measuring our performance against internationally recognized benchmarks. Domtar is committed to the responsible use of forest resources across our operations, and we are enrolled in programs and initiatives to encourage landowners to pursue certification to improve their market access and increase their revenue opportunities. We believe that each of these initiatives also creates value for our stockholders and is part of our larger business strategy and commitment to environmental sustainability. OUR COMPETITION The markets in which our businesses operate are highly competitive with well-established domestic and foreign manufacturers. In the paper business, our paper production does not rely on proprietary processes or formulas, except in highly specialized papers or customized products. In uncoated freesheet, we compete primarily on the basis of product quality, breadth of offering, service solutions and competitively priced paper products, which include an extensive offering of high quality Forest Stewardship Council (“FSC”)-certified paper products. While we have a leading position in the North American uncoated freesheet market, we also compete with other paper grades, including coated freesheet, and with electronic transmission and document storage alternatives. As the use of these alternative products continues to grow, we continue to see a decrease in the overall demand for paper products. All of our pulp and paper manufacturing facilities are located in the U.S. or in Canada where we sell approximately 85% of our products. The five largest manufacturers of uncoated freesheet papers in North America (including Domtar) represent approximately 82% of total production capacity. On a global basis, there are hundreds of manufacturers that produce and sell uncoated freesheet paper. The level of competitive pressures from foreign producers in the North American market is highly dependent upon exchange rates, particularly the rate between the U.S. dollar and the Euro as well as the U.S. dollar and the Brazilian real. The market pulp we sell is fluff, softwood or hardwood pulp. The pulp market is highly fragmented with many manufacturers competing worldwide. Competition is primarily on the basis of access to low-cost wood fiber, product quality and competitively priced pulp products. The fluff pulp we sell is used in absorbent products, incontinence products, diapers and feminine hygiene products. The softwood and hardwood pulp we sell is primarily slow growth northern bleached softwood and hardwood kraft, and we produce specialty 12


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    engineered pulp grades with a pre-determined mix of wood species. Our softwood and hardwood pulps are sold to customers who make a variety of products for specialty paper, packaging, tissue and industrial applications, and customers who make printing and writing grades. We also seek product differentiation through the certification of our pulp mills to the FSC chain-of-custody standard and the procurement of FSC-certified virgin fiber. All of our market pulp production capacity is located in the U.S. or in Canada, and we sell approximately 58% of our pulp to other countries. In the adult incontinence business, competition is primarily faced across four major product categories: protective underwear, pads, briefs and underpads, with customers served through the healthcare, retail (mass retailers, drug stores, dollar stores, supermarkets, warehouse clubs), and emerging direct to consumer channels. In North America, the market is split equally between retail and institutional/healthcare sectors. In Europe, approximately 68% of market demand is served through institutional/reimbursed channels, with the retail sector delivering lower sales through a more fragmented mix of players than in North America. In the infant business, competition is primarily across three major product categories: diapers, training pants and youth pants with customers served through the retail (mass retailers, hypermarkets, drug stores, dollar stores, supermarkets, warehouse clubs) and direct to consumer channels. In North America, branded labels represent the majority of the infant market with the top two manufacturers supplying a significant portion of the branded demand. The remaining supply is represented by private label, and is split among the competition. In Europe, the top manufacturer supplies approximately half of the demand with branded labels, and the remainder is represented by private label and niche lifestyle brands. In both the adult incontinence and infant diaper industries, the principal levers of competition remain brand loyalty, product innovation, quality, price and marketing and distribution capabilities. Competitive market pressures in both the healthcare and retail sectors have increased in recent years, including increased competition in the private label category, excess industry capacity and the pressure to limit public healthcare spending. OUR EMPLOYEES We have approximately 10,000 employees, of which approximately 60% are employed in the United States, 28% in Canada and 12% in Europe. Approximately 44% of our employees are covered by collective bargaining agreements, generally on a facility-by-facility basis. Certain agreements will expire in 2020 and others will expire between 2021 and 2022. OUR APPROACH TO SUSTAINABILITY Domtar aims to deliver value to our customers, employees, shareholders and communities by viewing our business decisions within the larger context of sustainability. We take a long-term view on managing natural resources for the future. We strive to minimize waste and encourage recycling. We aim to have the highest standards for ethical conduct, for caring about the health and safety of each other, and for maintaining the environmental quality in the communities where we live and work. We value the partnerships we have formed with non-governmental organizations and believe they make us a better company. We focus on agility to respond to new opportunities, and we are committed to turning innovation into value creation. By embracing sustainability as our operating philosophy, we seek to internalize the fact that the choices we have and the impact of the decisions we make on our stakeholders are all interconnected. We believe that our business and the people and communities who depend on us are better served as we weave this focus on sustainability into the things we do. Domtar executes this commitment to sustainability at every level and every location across the company. With the support of the Board of Directors, our Management Committee empowers senior managers from manufacturing, technology, finance, sales and marketing and corporate staff functions to regularly come together and establish key sustainability performance metrics, and to routinely assess and report on progress. We have a 13


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    vice-president position to help lead this effort, allowing the company’s organizational structure to better reflect the priority the company places on sustainable performance. We believe that weaving sustainability into our business better positions Domtar for the future. OUR ENVIRONMENTAL COMPLIANCE Our business is subject to a wide range of general and industry-specific laws and regulations in the U.S. and other countries where we have operations, relating to the protection of the environment, including those governing wood harvesting, air emissions, climate change, waste water discharges, storage, management and disposal of hazardous substances and wastes, contaminated sites, landfill operation and closure obligations and health and safety matters. Compliance with these laws and regulations is a significant factor in the operation of our business. We may encounter situations in which our operations fail to maintain full compliance with applicable environmental requirements, possibly leading to civil or criminal fines, penalties or enforcement actions, including those that could result in governmental or judicial orders that stop or interrupt our operations or require us to take corrective measures at substantial costs, such as the installation of additional pollution control equipment or other remedial actions. Compliance with environmental laws and regulations involves capital expenditures as well as additional operating costs. Additional information regarding environmental matters is included in Item 8, Financial Statements and Supplementary Data under Note 22 “Commitments and Contingencies” and in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations under the section of Critical accounting estimates and policies, caption “Environmental matters and asset retirement obligations.” OUR INTELLECTUAL PROPERTY Many of our brand name products are protected by registered trademarks. Our key trademarks include Cougar®, Lynx® Opaque Ultra, Husky® Opaque Offset, First Choice®, EarthChoice®, Ariva®, Attends®, NovaThin®, NovaZorb®, IncoPack®, Indasec®, Reassure®, Chelino and Comfees®. These brand names and trademarks are important to our business. Our numerous trademarks have been registered in the U.S. and/or in other countries where our products are sold. The current registrations of these trademarks are effective for various periods of time. These trademarks may be renewed periodically, provided that we, as the registered owner, and/or licensee comply with all applicable renewal requirements, including the continued use of the trademarks in connection with similar goods. We own U.S. and foreign patents and have several pending patent applications. Our management regards these patents and patent applications as important but does not consider any single patent or group of patents to be materially important to our business as a whole. 14


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    OUR EXECUTIVE OFFICERS (“MANAGEMENT COMMITTEE”) Name Age Position and Business Experience John D. Williams 65 President and Chief Executive Officer of the Company since January 2009. He is also a member of the Board of Directors. Previously, Mr. Williams served as President of SCA Packaging Europe between 2005 and 2008. Prior to assuming his leadership position with SCA Packaging Europe, Mr. Williams held increasingly senior management and operational roles in the packaging business and related industries. Mr. Williams is Lead Independent Director of the Board of Directors of Owens Corning and the Non-Executive Chairman of Form Technologies, Inc., a privately- held leading global group of precision component manufacturers based in Charlotte, North Carolina. Daniel Buron 56 Senior Vice President and Chief Financial Officer of the Company since March 2007. Mr. Buron was previously Senior Vice-President and Chief Financial Officer of Domtar Inc. since May 2004. He joined Domtar Inc. in 1999. Prior to May 2004, he was Vice-President, Finance, Pulp and Paper sales division and, prior to September 2002, he was Vice-President and Controller. He has over 30 years of experience in finance. Mr. Buron is a Director of the McGill University Health Centre Foundation and also serves on the Board of Directors of Semafo Inc. and Nouveau Monde Graphite Inc. Michael D. Garcia 55 President, Pulp and Paper Division of the Company. Mr. Garcia joined Domtar in 2014. Prior to joining the Company, he was the chief executive officer at EVRAZ Highveld Steel & Vanadium Co., South Africa’s second largest steel producer. Mr. Garcia has more than 25 years of international management experience in paper, steel, and aluminum manufacturing and marketing. He has broad global experience, including executive assignments in Asia and Africa. Mr. Garcia is a Director of the Federal Reserve Bank of Richmond, Charlotte Branch, and of the USO of North Carolina. He also serves on the Board of Directors of Alliant Energy Corp. Michael Fagan 58 President, Personal Care Division of the Company. Mr. Fagan joined Domtar in 2011, following the acquisition of Attends Healthcare Products, Inc. Mr. Fagan has been with Attends since 1999, when he was hired as Senior Vice-President of Sales and Marketing. He was promoted to President and CEO in 2006. Prior to joining Attends, Mr. Fagan held a variety of sales development roles with Procter & Gamble, the previous owners of the Attends line of products. Zygmunt Jablonski 66 Senior Vice President and Chief Legal and Administrative Officer of the Company. Mr. Jablonski joined Domtar in 2008, after serving in various in-house counsel positions for major manufacturing and distribution companies in the paper industry for 13 years. From 1985 to 1994, he practiced law in Washington, DC. Patrick Loulou 51 Senior Vice President, Corporate Development since he joined the Company in March 2007. Previously, he held a number of positions in the telecommunications sector as well as in management consulting. His over 20 year career has spanned a number of areas and functions such as corporate strategy, M&A, operations, business transformation and business development. 15


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    FORWARD-LOOKING STATEMENTS This Annual Report on Form 10-K contains forward-looking statements relating to trends in, or representing management’s beliefs about, Domtar Corporation’s future growth, results of operations, performance and business prospects and opportunities. These forward-looking statements are generally denoted by the use of words such as “anticipate,” “believe,” “expect,” “intend,” “aim,” “target,” “plan,” “continue,” “estimate,” “project,” “may,” “will,” “should” and similar expressions. These statements reflect management’s current beliefs and are based on information currently available to management. Forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable by management, are inherently subject to known and unknown risks and uncertainties and other factors that could cause actual results to differ materially from historical results or those anticipated. Accordingly, no assurances can be given that any of the events anticipated by the forward-looking statements will occur, or if any occur, what effect they will have on our results of operations or financial condition. These factors include, but are not limited to: • continued decline in usage of fine paper products in our core North American market; • our ability to implement our business diversification initiatives, including repurposing of assets and strategic acquisitions; • product selling prices; • raw material prices, including wood fiber, chemical and energy; • conditions in the global capital and credit markets, and the economy generally, particularly in the U.S., Canada and Europe; • performance of our manufacturing operations, including unexpected maintenance requirements; • the level of competition from domestic and foreign producers; • cyberattack or other security breaches; • the effect of, or change in, forestry, land use, environmental and other governmental regulations and accounting regulations; • the effect of weather and the risk of loss from fires, floods, windstorms, hurricanes and other natural disasters; • transportation costs; • the loss of current customers or the inability to obtain new customers; • legal proceedings; • changes in asset valuations, including impairment of property, plant and equipment, inventory, accounts receivable or other assets for impairment or other reasons; • changes in currency exchange rates, particularly the relative value of the U.S. dollar to the Canadian dollar and European currencies; • the effect of timing of retirements and changes in the market price of Domtar Corporation’s common stock on charges for stock-based compensation; • performance of pension fund investments and related derivatives, if any; and • the other factors described under “Risk Factors,” Item 1A. You are cautioned not to unduly rely on such forward-looking statements, which speak only as of the date made, when evaluating the information presented in this Annual Report on Form 10-K. Unless specifically required by law, Domtar Corporation disclaims any obligation to update or revise these forward-looking statements to reflect new events or circumstances. 16


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    ITEM 1A. RISK FACTORS You should carefully consider the risks described below in addition to the other information presented in this Annual Report on Form 10-K. The Company faces intense competition in its markets, and the failure to compete effectively could have a material adverse effect on its business and results of operations. The Company competes with U.S., Canadian, European and Asian producers and, for many of its product lines with global producers, some of which may have greater financial resources and lower production costs than the Company. The principal basis for competition is selling price. The Company’s ability to maintain satisfactory margins depends largely on its ability to control its costs. Our industries also are particularly sensitive to other factors including innovation, design, quality and service, with varying emphasis on these factors depending on the product line. The Company cannot provide assurance that it will compete effectively and maintain current levels of sales and profitability. If the Company cannot compete effectively, such failure could have a material adverse effect on its business and results of operations. Conditions in the global political and economic environment, including the global capital and credit markets, can adversely affect the Company’s business, results of operations and financial position. A significant or prolonged downturn in the general economic environment may affect the Company’s sales and profitability. The Company has exposure to counterparties with which it routinely executes transactions. Such counterparties include commercial banks, insurance companies and other financial institutions, some of which may be exposed to bankruptcy or liquidity risks. A bankruptcy or illiquidity event by one of its significant counterparties may materially and adversely affect the Company’s access to capital, future business and results of operations. In addition, the Company’s customers and suppliers may be adversely affected by severe economic conditions. This could result in reduced demand for its products or its inability to obtain necessary supplies at reasonable costs, or at all. The Company may be negatively impacted by political issues or crisis in individual countries or regions, including sovereign risk related to a default by or deterioration in the credit worthiness of local governments. Any of these effects, and others the Company cannot anticipate, may have a negative effect and may adversely affect the Company’s business. Certain countries in Europe provide medicare coverage for adult incontinence products. The governments of these countries may decide to no longer reimburse part or all of the costs of adult incontinence products, and this may have a negative impact on the Company’s operating results in the future. Failure to successfully implement the Company’s business diversification initiatives could have a material adverse effect on its business, results of operations and financial position. The Company is pursuing strategic initiatives that management considers important to our long-term success. The intent of these initiatives is to help grow the business and counteract the secular decline in our North American paper business. These initiatives may involve organic growth, select joint ventures and strategic acquisitions. The success of these initiatives will depend on, among other things, our ability to identify potential strategic initiatives, understand the key trends and principal drivers affecting those businesses and to execute the initiatives in a cost effective manner. There are significant risks involved with the execution of such initiatives, including significant business, economic and competitive uncertainties, many of which are outside the Company’s control. In addition, in the past we have converted paper mills to fluff pulp production facilities. If circumstances warrant, in the future we may again convert paper mills to produce pulp or other products. Conversions can be 17


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    capital intensive and can involve the shutdown of a facility for an extended period of time, followed by an extended ramp-up and customer certification process. In addition, the success of a conversion depends upon demand over time for the new product relative to the previously produced paper products, as well as costs and other factors, and there can be no assurance that a conversion will be as successful as expected. Strategic acquisitions may expose the Company to additional risks. The Company may have to compete for acquisition targets and any acquisition it makes may fail to accomplish our strategic objectives or may not perform as expected. In addition, the costs of integrating an acquired business may exceed our estimates and may require significant time and attention from senior management. Accordingly, the Company cannot predict whether it will succeed in implementing these strategic initiatives. If it fails to successfully diversify our business, it may have a material adverse effect on the Company’s competitive position, financial condition and operating results. The Company’s paper products are vulnerable to long-term declines in demand due to competing technologies or materials. The Company’s paper business competes with electronic transmission and document storage alternatives, as well as with paper grades it does not produce, such as uncoated groundwood. As a result of such competition, the Company is experiencing ongoing decreasing demand for most of its existing paper products. As the use of these alternatives grows, demand for paper products is likely to decline further. Declines in demand for our paper products may adversely affect the Company’s business, results of operations and financial position. The pulp and paper industry is highly cyclical. Fluctuations in the prices of and the demand for the Company’s pulp and paper products could result in lower sales volumes and smaller profit margins. The pulp and paper industry is highly cyclical. Historically, economic and market shifts, fluctuations in capacity and changes in foreign currency exchange rates have created cyclical changes in prices, sales volume and margins for the Company’s pulp and paper products. The length and magnitude of industry cycles have varied over time and by product, but generally reflect changes in macroeconomic conditions and levels of industry capacity. Most of the Company’s paper products are commodities that are widely available from other producers. Because commodity products have few distinguishing qualities from producer to producer, competition for these products is based primarily on price, which is determined by supply relative to demand. The overall levels of demand for the pulp and paper products that the Company manufactures and distributes, and consequently its sales and profitability, reflect fluctuations in levels of end-user demand, which depend in part on general macroeconomic conditions in North America and worldwide, the continuation of the current level of service and cost of postal services, as well as competition from electronic substitution. See “Conditions in the global political and economic environment, including the global capital and credit markets, can adversely affect the Company’s business, results of operations and financial position” and “The Company’s paper products are vulnerable to long-term declines in demand due to competing technologies or materials”. Industry supply of pulp and paper products is also subject to fluctuation, as changing industry conditions can influence producers to idle or permanently close individual machines or entire mills. Such closures can result in significant cash and/or non-cash charges. In addition, to avoid substantial cash costs in connection with idling or closing a mill, some producers will choose to continue to operate at a loss, sometimes even a cash loss, which could prolong weak pricing environments due to oversupply. Oversupply can also result from producers introducing new capacity in response to favorable pricing trends. Industry supply of pulp and paper products is also influenced by overseas production capacity, which has grown in recent years and is expected to continue to grow. As a result, prices for all of the Company’s pulp and paper products are driven by many factors outside of its control, and the Company has little influence over the timing and extent of price changes, which are often 18


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    volatile. Because market conditions beyond the Company’s control determine the prices for its commodity products, the price for any one or more of these products may fall below its cash production costs, requiring the Company to either incur cash losses on product sales or cease production at one or more of its pulp and paper manufacturing facilities. The Company continuously evaluates potential adjustments to its production capacity, which may include additional closures of machines or entire mills, and the Company could recognize significant cash and/or non-cash charges relating to any such closures in future periods. Refer to Item 8, Financial Statements and Supplementary Data under Note 16 “Closure and restructuring costs and liability” for more details. Therefore, the Company’s profitability with respect to these products depends on managing its cost structure, particularly wood fiber, chemical, transportation and energy costs, which represent the largest components of its operating costs and can fluctuate based upon factors beyond its control. If the prices or demand for its pulp and paper products decline, or if its wood fiber, chemical, transportation or energy costs increase, or both, this could adversely affect the Company’s results of operations and financial position. The Company is affected by changes in currency exchange rates. The Company has manufacturing operations in the U.S., Canada, Sweden and Spain. As a result, it is exposed to movements in foreign currency exchange rates in Canada and Europe. Moreover, certain assets and liabilities are denominated in currencies other than the U.S. dollar and are exposed to foreign currency movements. As a result, the Company’s earnings are affected by increases or decreases in the value of the Canadian dollar and of other European currencies relative to the U.S. dollar. The Company’s European subsidiaries are exposed to movements in foreign currency exchange rates on transactions denominated in a different currency than their Euro functional currency. Additionally, there has been, and may continue to be, volatility in currency exchange rates. The Company’s risk management policy allows hedging a significant portion of its exposure to fluctuations in foreign currency exchange rates for periods up to three years. The Company may use foreign exchange derivative instruments to mitigate its exposure to fluctuations in foreign currency exchange rates. There can be no assurance that the Company will be protected against substantial foreign currency fluctuations. Currency exchange rates could adversely affect the Company’s results of operations and financial position. The Company relies heavily on a small number of significant customers, including one customer that represented approximately 11% of the Company’s sales in 2019. A significant change in customer relationships or in customer demand for our products could materially adversely affect the Company’s business, financial condition or results of operations. The Company heavily relies on a small number of significant customers. The Company’s largest customer, Staples, represented approximately 11% of the Company’s sales in 2019. A significant reduction in sales to any of the Company’s key customers could materially adversely affect the Company’s business, financial condition or results of operations, could result from such customers further diversifying their product sourcing, or experiencing financial difficulty or consolidating with each other. The Company’s operations require substantial capital, and it may not have adequate capital resources to provide for all of its capital requirements. The Company’s businesses are capital intensive and require ongoing capital expenditures in order to maintain its equipment, increase its operating efficiency and comply with environmental laws. In 2019, the Company’s total capital expenditures were $255 million. If the Company’s available cash resources and cash generated from operations are not sufficient to fund its operating needs and capital expenditures, the Company would have to obtain additional funds from borrowings or other available sources or reduce or delay its capital expenditures. The Company may not be able to obtain additional funds on favorable terms, or at all. In addition, the Company’s debt service obligations will reduce its available cash flows. If the Company cannot maintain or upgrade its equipment as it requires or allocate funds to 19


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    ensure environmental compliance, it could be required to curtail or cease some of its manufacturing operations, or it may become unable to manufacture products that compete effectively in one or more of its product lines. The Company and its subsidiaries may incur substantially more debt. This could increase risks associated with its leverage. The Company and its subsidiaries may incur substantial additional indebtedness in the future. Although the revolving credit facility contains restrictions on the incurrence of additional indebtedness, including secured indebtedness, these restrictions are subject to a number of qualifications and exceptions, and additional indebtedness incurred in compliance with these restrictions could be substantial. Refer to Item 8, Financial Statements and Supplementary Data under Note 19 “Long-term debt” for more details. The Company’s ability to generate the significant amount of cash needed to pay interest and principal on the Company’s unsecured long-term notes and service its other debt and financial obligations and its ability to refinance all or a portion of its indebtedness or obtain additional financing depends on many factors beyond the Company’s control. In 2019, the Company paid approximately $47 million in interest and principal payments. The Company’s ability to make payments on and refinance its debt, including the Company’s unsecured long-term notes and amounts borrowed under its revolving credit facility and term loan, if any, and other financial obligations and to fund its operations will depend on its ability to generate substantial operating cash flow. The Company’s cash flow generation will depend on its future performance, which will be subject to prevailing economic conditions and to financial, business and other factors, many of which are beyond its control. The Company’s business may not generate sufficient cash flow from operations and future borrowings may not be available to the Company under its revolving credit facility or otherwise in amounts sufficient to enable the Company to service its indebtedness, including the Company’s unsecured long-term notes, and borrowings, if any, under its revolving credit facility and securitization or to fund its other liquidity needs. If the Company cannot service its debt, the Company will have to take actions such as reducing or delaying capital investments, selling assets, restructuring or refinancing its debt or seek additional equity capital. Any of these remedies may not be executed on commercially reasonable terms, or at all, and may impede the implementation of its business strategy. Furthermore, the revolving credit facility may restrict the Company from adopting any of these alternatives. Because of these and other factors that may be beyond its control, the Company may be unable to service its indebtedness. The Company could incur substantial costs as a result of compliance with, violations of or liabilities under applicable environmental laws and regulations. It could also incur costs as a result of asbestos-related personal injury litigation. The Company is subject to a wide range of general and industry-specific laws and regulations in the United States and other countries where we have operations, relating to the protection of the environment and natural resources, including those governing air emissions, greenhouse gases and climate change, wastewater discharges, harvesting, silvicultural activities, storage, management and disposal of hazardous substances and wastes, the cleanup of contaminated sites, landfill operation and closure obligations, forestry operations and endangered species habitat, and health and safety matters. In particular, the pulp and paper industry in the U.S. is subject to the United States Environmental Protection Agency’s (“EPA”) Cluster Rules. The Company has incurred, and expects that it will continue to incur, significant capital, operating and other expenditures complying with applicable environmental laws and regulations as a result of remedial obligations. The Company incurred $71 million of operating expenses and $19 million of capital expenditures in connection with environmental compliance and remediation in 2019. As of December 31, 2019, the Company had a provision of $35 million for environmental expenditures, including certain asset retirement obligations (such as for landfill capping). 20


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    The Company could also incur substantial costs, such as civil or criminal fines, sanctions and enforcement actions (including orders limiting its operations or requiring corrective measures, installation of pollution control equipment or other remedial actions), cleanup and closure costs, and third-party claims for property damage and personal injury as a result of violations of, or liabilities under, environmental laws and regulations. The Company’s ongoing efforts to identify potential environmental concerns that may be associated with its past and present properties may lead to future environmental investigations. Those efforts may result in the determination of additional environmental costs and liabilities which cannot be reasonably estimated at this time. As the owner and operator of real estate, the Company may be liable under environmental laws for cleanup, closure and other damages resulting from the presence and release of hazardous substances, including asbestos, on or from its properties or operations, including properties that it no longer owns. The amount and timing of environmental expenditures is difficult to predict, and, in some cases, the Company’s liability may be imposed without regard to contribution or to whether it knew of, or caused, the release of hazardous substances and may exceed forecasted amounts or the value of the property itself. The discovery of additional contamination or the imposition of additional cleanup obligations at the Company’s or third-party sites may result in significant additional costs. Any material liability the Company incurs could adversely impact its financial condition or preclude it from making capital expenditures that would otherwise benefit its business. In addition, the Company may be subject to asbestos-related personal injury litigation arising out of exposure to asbestos on or from its properties or operations, and may incur substantial costs as a result of any defense, settlement, or adverse judgment in such litigation. The Company may not have access to insurance proceeds to cover costs associated with asbestos-related personal injury litigation. Enactment of new environmental laws or regulations or changes in existing laws or regulations (such as changes in climate change regulation), or interpretation thereof, might require significant expenditures. For additional information, refer to Item 8, Financial Statements and Supplementary Data under Note 22 “Commitments and Contingencies”. The Company may be unable to generate funds or other sources of liquidity and capital to fund environmental liabilities or expenditures. Failure to comply with applicable laws and regulations could have a material adverse effect on our business, financial results or condition. In addition to environmental laws, the Company’s business and operations are subject to a broad range of other laws and regulations in the U.S. and Canada as well as other jurisdictions in which the Company operates, including antitrust and competition laws, occupational health and safety laws, healthcare reimbursement laws, such as Medicare and Medicaid, and employment laws. Many of these laws and regulations are complex and subject to evolving and differing interpretation. If the Company is determined to have violated any such laws or regulations, whether inadvertently or willfully, it may be subject to civil and criminal penalties, including substantial fines, loss of authorizations to participate in or exclusion from government programs, claims for damages by third parties or fines or monetary penalties which may have a material adverse effect on the Company’s financial position, results of operations or cash flows. For additional information, refer to Item 8, Financial Statements and Supplementary Data under Note 22 “Commitments and Contingencies.” The Company’s financial results could be affected by changes in U.S. and foreign tax laws or in the mix of our U.S. and foreign earnings, as well as adjustments to our estimates of uncertain tax issues or results from audits by U.S. or foreign tax authorities. The Company is subject to U.S. and foreign tax laws and regulations. Tax laws, regulations, and administrative practices in various jurisdictions may be subject to significant change, with or without notice, due to economic, political and other conditions, and significant judgment is required in evaluating and estimating our provision and accruals for these taxes. International tax norms governing each country’s jurisdiction to tax cross- border international trade have evolved partly due to the Base Erosion and Profit Shifting project led by the 21


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    Organization for Economic Cooperation and Development and supported by the G20. Changes in these laws and regulations, or any change in the position of tax authorities regarding their application, administration or interpretation could adversely affect the Company’s financial results. In addition, a number of countries are actively pursuing changes to their tax laws applicable to multinational corporations, such as the U.S. Tax Cuts and Jobs Acts (“U.S. Tax Reform”), enacted in 2017. Finally, foreign governments may enact tax laws in response to the U.S. Tax Reform that could result in further changes to global taxation and materially impact the Company’s financial results. The U.S. Tax Reform significantly changes how the U.S. taxes corporations. The U.S. Tax Reform requires complex computations to be performed that were not previously required under U.S. tax law, significant judgments to be made in interpretation of the provisions of the U.S Tax Reform and significant estimates in calculations, and the preparation and analysis of information not previously relevant or regularly produced. The U.S. Treasury Department, the IRS, and other standard-setting bodies could interpret or issue guidance on how provisions of the U.S. Tax Reform will be applied or otherwise administered that is different from the Company’s interpretation. The Company’s effective tax rates could be affected by changes in the mix of earnings in countries with differing statutory tax rates or changes in the valuation of deferred tax assets and liabilities. The Company is also subject to the examination of its tax returns and other matters by tax authorities and governmental bodies. The Company regularly assesses the likelihood of an adverse outcome resulting from these examinations to determine the adequacy of its provision for taxes and as of December 31, 2019, has a reserve for liabilities relating to uncertain tax positions of $29 million. Taxing authorities may disagree with the positions the Company has taken regarding the tax treatment or characterization of its transactions. If any tax authorities were successful in challenging the tax treatment or characterization of any of the Company’s transactions, it could also adversely affect its financial results. The Company’s Pulp and Paper business may have difficulty obtaining wood fiber at favorable prices, or at all. Wood fiber is the principal raw material used by the Company’s Pulp and Paper business, comprising approximately 20% of the consolidated cost of sales in 2019. Wood fiber is a commodity, and prices historically have been impacted by a variety of factors. The primary source for wood fiber is timber. Environmental litigation and regulatory developments, alternative use for energy production and reduction in harvesting related to the housing market, have caused, and may cause in the future, significant reductions in the amount of timber available for commercial harvest in the U.S. and Canada. In addition, future domestic or foreign legislation and litigation concerning the use of timberlands, the protection of endangered species, the promotion of forest health and the response to and prevention of catastrophic wildfires could also affect timber supplies. Availability of harvested timber may be further limited by adverse weather, fire, insect infestation, disease, ice storms, wind storms, flooding and other natural and man-made causes, thereby reducing supply and increasing prices. Wood fiber pricing is subject to regional market influences, and the Company’s cost of wood fiber may increase in particular regions due to market shifts in those regions. Any sustained increase in wood fiber prices would increase the Company’s operating costs, and the Company may be unable to increase prices for its products in response to increased wood fiber costs due to additional factors affecting the demand or supply of these products. The Company currently meets its wood fiber requirements by purchasing wood fiber from third parties and by harvesting timber pursuant to its forest licenses and forest management agreements. If the Company’s cutting rights, pursuant to its forest licenses or forest management agreements are reduced, or any third-party supplier of wood fiber stops selling or is unable to sell wood fiber to the Company, its financial condition or results of operations could be materially and adversely affected. 22


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    An increase in the cost of the Company’s purchased energy or other raw materials would lead to higher manufacturing costs, thereby reducing its margins. The Company’s operations consume substantial amounts of energy such as biomass, natural gas and electricity. Energy prices, particularly for electricity, natural gas and fuel oil, have been volatile in recent years. As a result, fluctuations in energy prices will impact the Company’s manufacturing costs and contribute to earnings volatility. While the Company purchases substantial portions of its energy under supply contracts, most of these contracts are based on market pricing. Other raw materials the Company uses include various chemical compounds, such as precipitated calcium carbonate, sodium chlorate, sulfuric acid, dyes, peroxide, methanol and aluminum sulfate, super absorbent polymers and nonwovens. The costs of these other raw materials have been volatile historically, and they are influenced by capacity utilization, energy prices and other factors beyond the Company’s control. Due to the commodity nature of the Company’s products, the relationship between supply and demand for these products, rather than changes in the cost of raw materials or purchased energy, will determine the Company’s ability to increase prices. Consequently, the Company may be unable to pass on increases in its operating costs to its customers. Any sustained increase in raw material or energy prices without any corresponding increase in product pricing would reduce the Company’s operating margins and may have a material adverse effect on its business and results of operations. The Company depends on third parties for transportation services. The Company relies primarily on third parties for transportation of the products it manufactures and/or distributes, as well as delivery of its raw materials. In particular, a significant portion of the goods it manufactures and raw materials it uses are transported by railroad or trucks, which are highly regulated. If any of its third-party transportation providers were to fail to deliver the goods that the Company manufactures or distributes in a timely manner, the Company may be unable to sell those products at full value, or at all. Similarly, if any of these providers were to fail to deliver raw materials to the Company in a timely manner, it may be unable to manufacture its products in response to customer demand. In addition, if any of these third parties were to cease operations or cease doing business with the Company, it may be unable to replace them at reasonable cost. Any failure of a third-party transportation provider to deliver raw materials or finished products in a timely manner could harm the Company’s reputation, negatively impact its customer relationships and may have a material adverse effect on its financial condition and results of operations. The Company could experience disruptions in operations and/or increased labor costs due to labor disputes. Employees at 17 of the Company’s facilities, representing approximately 44% of the Company’s employees, are represented by unions through collective bargaining agreements generally negotiated on a facility-by-facility basis. In the future, the Company may not be able to negotiate acceptable new collective bargaining agreements, which could result in strikes or work stoppages or other labor disputes by affected workers. Renewal of collective bargaining agreements could also result in higher wages or benefits paid to union members. In addition, labor organizing activities could occur at any of the Company’s facilities. Therefore, the Company could experience a disruption of its operations or higher ongoing labor costs, which could have a material adverse effect on its business and results of operations. A material disruption in the Company supply chain, manufacturing or distribution operations could prevent it from meeting customer demand, reduce its sales and/or negatively impact its results of operations. The Company’s ability to manufacture, distribute and sell products is critical to its operations. These activities are subject to inherent risks such as: • unscheduled maintenance outages; 23


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    • prolonged power failures; • equipment failure; • chemical spill or release; • malfunction of a boiler; • the effect of a drought or reduced rainfall on its water supply; • labor disputes; • government regulations; • disruptions in the transportation infrastructure, including roads, bridges, railroad tracks and tunnels; • adverse weather, fires, floods, earthquakes, hurricanes or other catastrophes; • cyberattack or other security breaches; • failure of our IT systems, including any failure of our current systems and/or as a result of transitioning to additional or replacement IT system; • public health crises that impact trade or the general economy, including the COVID-19 and other viruses, diseases or illnesses; • terrorism or threats of terrorism; or • other operational problems, including those resulting from the risks described in this section. Events such as those listed above could disrupt the Company’s supply chain and impair its ability to manufacture or sell its products and have resulted in operating losses in the past. Any interruption or facility damage could prevent the Company from meeting customer demand for its products as well as require additional resources and/or require unplanned expenditures. If one or more of these machines or facilities were to incur significant downtime, it may have a material adverse effect on the Company’s results of operations and financial position. The efficiency of our operations could be adversely affected by disruptions to our Information Technology (IT) Services. The Company’s IT systems, some of which are dependent on services provided by third parties, serve an important role in the efficient operation of its business. The protection of customers, employees and company data is critical to the Company’s business. This role includes ordering and managing materials from suppliers, managing its inventory, converting materials to finished products, facilitating order entry and fulfillment and processing of transactions, summarizing and reporting its financial results, facilitating internal and external communications, administering human resources functions, retaining certain personal information and providing other processes necessary to manage its business. The failure of the Company’s IT systems, including any failure of the Company’s current systems and/or as a result of transitioning to additional or replacement IT systems, as the case may be, to perform as the Company anticipates could disrupt the Company’s business and could result in, among other things, transactions errors, processing inefficiencies, disruption of production and/or deliveries, loss of data and the loss of sales and customers, which could have a material adverse effect on the Company’s business, financial position and results of operations and the effectiveness of our internal control over financial reporting could be negatively impact. The Company is exposed to the risk of cyber incidents in the normal course of business. Cyber incidents may be deliberate attacks for the theft of intellectual property or other sensitive information or may be the result of unintentional events. Like most companies, the Company’s information technology systems may be vulnerable to interruption due to a variety of events beyond the Company’s control, including, but not limited to, 24


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    natural disasters, terrorist attacks, power and/or telecommunications failures, computer viruses, hackers and other security issues. The Company has technology security initiatives and disaster recovery plans in place to mitigate the Company’s risk to these vulnerabilities, including protection of confidential or personal information, but these measures may not be adequate or implemented properly to ensure that the Company’s operations are not disrupted. The Company’s IT systems have been, and will likely continue to be, subject to computer viruses or other malicious codes, unauthorized access attempts, phishing and other cyber-incidents. The Company cannot guarantee that its security efforts will prevent breaches or breakdowns to its IT systems or those of its third party providers. Potential consequences of a material cyber incident, which could result in confidential or personal information being accessed, obtained, damaged or used by unauthorized or improper persons, include damage to the Company’s reputation, litigation, inefficiencies or production downtimes and increased cyber security protection and remediation costs. Such consequences could have a negative impact on the Company’s ability to meet customers’ orders, resulting in a delay or decrease to its revenue and a reduction to its operating margins. The Company could encounter difficulties restructuring operations or closing or disposing of facilities. The Company is continuously seeking the most cost-effective means and structure to serve our customers and to respond to changes in our markets. Accordingly, from time to time, the Company has, and is likely to again close facilities, sell non-core assets and otherwise restructure operations in an effort to improve cost competitiveness and profitability. As a result, restructuring and divesture costs have been, and are expected to be, a recurring component of our operating costs, and may vary significantly from year to year depending on the scope of such activities. Divestures and restructuring may also result in significant financial charges for the impairment of assets, including intangible assets. Furthermore, such activities may divert the attention of management, disrupt our ordinary operations, or result in a reduction in the volume of products produced and sold. There is no guarantee that any such activities will achieve its goal, and if the Company cannot successfully manage the associated risks, its financial condition and results of operations could be adversely affected. The Company has liabilities with respect to its pension plans and the actual cost of its pension plan obligations could exceed current provisions. As of December 31, 2019, the Company’s defined benefit plans had a surplus of $141 million on certain plans and a deficit of $105 million on others. Since pension fund obligations are primarily long-term in nature, losses in pension fund investments, if any, would result in increased contributions by the Company, to be paid over 5 year or 10 year periods, depending upon the applicable legislation for funding pension deficits. Losses, if any, would also impact the Company’s results over a longer period of time and immediately increase liabilities and reduce equity. The Company’s future funding obligations for its defined benefit pension plans depend upon changes to the level of benefits provided by the plans, the future performance of assets set aside in trusts for these plans, the level of interest rates used to determine minimum funding levels, actuarial data and experience, and any changes in government laws and regulations. As of December 31, 2019, the Company’s defined benefit pension plans held assets with a fair value of $1,475 million. The Company’s intellectual property rights are valuable, and any inability to protect them could reduce the value of its products and its brands. The Company relies on patent, trademark and other intellectual property laws of the U.S. and other countries to protect its intellectual property rights. However, the Company may be unable to prevent third parties from using its intellectual property without its authorization, which may reduce any competitive advantage it has developed. If the Company had to litigate to protect these rights, any proceedings could be costly, and it may not prevail. The Company cannot guarantee that any U.S. or foreign patents, issued or pending, will provide it with any competitive advantage or will not be challenged by third parties. Additionally, the Company has obtained and applied for U.S. and foreign trademark registrations, and will continue to evaluate the registration of additional service marks and trademarks, as appropriate. The Company cannot guarantee that any of its pending 25


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    patent or trademark applications will be approved by the applicable governmental authorities and, even if the applications are approved, third parties may seek to oppose or otherwise challenge these registrations. The failure to secure any pending patent or trademark applications may limit the Company’s ability to protect the intellectual property rights that these applications were intended to cover. If the Company is unable to successfully retain and develop executive leadership and other key personnel, it may be unable to fully realize critical organizational strategies, goals and objectives. The success of the Company is substantially dependent on the efforts and abilities of its key personnel, including its executive management team, to develop and implement its business strategies and manage its operations. The failure to retain key personnel or to develop successors with appropriate skills and experience for key positions in the Company could adversely affect the development and achievement of critical organizational strategies, goals and objectives. There can be no assurance that the Company will be able to retain or develop the key personnel it needs and the failure to do so may adversely affect its financial condition and results of operations. The Company’s balance sheet includes a significant amount of intangible assets. The Company may be required to record a material charge to earnings due to impairment of intangible assets carried on its balance sheet. As a result of business acquisitions in the past years, mostly in the Personal Care segment, the Company carries on its balance sheet intangible assets. As of December 31, 2019, the Company’s balance sheet included intangible assets of $573 million, of which $290 million related to definite-lived intangible assets subject to amortization and $283 million related to indefinite-lived intangible assets. The Company performs annual evaluations or more frequently if indicators arise, for potential impairment of the carrying value of its intangible assets. Impairment assessments inherently involve management judgment as to the assumptions used to estimate fair value of the intangible asset being evaluated. Changes in assumptions or estimates can materially affect the determination of fair value. The major factors that influence the analysis of fair value are the Company’s assessment of industry and market conditions, estimates for future revenue growth rates, royalty rates, economic indicators, tax rates and the discount rate associated with the asset being tested. In connection with the Company’s annual impairment evaluation performed in the fourth quarter of 2019, the Company performed a quantitative assessment for each indefinite-lived intangible asset (trade names and catalog rights) of the Personal Care segment. The tests indicated that the indefinite-lived intangible assets had fair values that exceeded their carrying amounts. One Personal Care segment indefinite-lived intangible asset is considered to be at risk for future impairment given its respective fair values exceeded its respective carrying value by 18% at the time the test was performed. As of December 31, 2019, the carrying value of these indefinite-lived intangible assets was $115 million. If assumed revenue growth is not achieved in future periods and/or events occur that lead to a royalty rate decrease and/or there is an increase to the rate used to discount the estimated cash flows, there is the potential for partial or full impairment related to the indefinite-lived intangible assets. If the Company is required to impair all or a significant amount of the carrying value of related intangible assets, and consequently record a non-cash impairment charge, the Company’s net earnings could be materially and adversely affected. ITEM 1B. UNRESOLVED STAFF COMMENTS None. 26


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    ITEM 2. PROPERTIES A description of our mills and related properties is included in Item I, Business. Production facilities We own substantially all of our production facilities with the exception of some production facilities where a certain portion is subject to a lease in connection with an industrial development bond arrangement, or are leased with a third party or are fee-in-lieu-of-tax agreements, and lease substantially all of our sales offices, regional replenishment centers and warehouse facilities. We believe our properties are in good operating condition and are suitable and adequate for the operations for which they are used. We own substantially all of the equipment used in our facilities. Forestlands We efficiently manage approximately 5 million acres of forestlands that are directly licensed or owned by Domtar in Canada, through the application of certified sustainable forest management practices. We also have access to fiber from an additional 25 million acres of public forestlands in Canada that are licensed and managed by third parties. We believe that these forestlands will provide a continuous supply of wood for future needs. Listing of facilities and locations CORPORATE OFFICES Converting and Distribution— Richmond, Virginia Fort Mill, South Carolina Onsite Salt Lake City, Utah Montreal, Quebec Ashdown, Arkansas San Antonio, Texas Rothschild, Wisconsin San Lorenzo, California PULP & PAPER Windsor, Quebec St. Louis, Missouri DIVISION HEADQUARTERS Vancouver, Washington Fort Mill, South Carolina Converting and Forms Walton, Kentucky Manufacturing Uncoated Freesheet Wayne, Michigan Addison, Illinois Ashdown, Arkansas Wisconsin Rapids, Wisconsin Brownsville, Tennessee Espanola, Ontario Dallas, Texas Regional Replenishment Hawesville, Kentucky DuBois, Pennsylvania Centers—United States Johnsonburg, Pennsylvania Griffin, Georgia Charlotte, North Carolina Kingsport, Tennessee Owensboro, Kentucky Chicago, Illinois Marlboro (Bennettsville), Ridgefields, Tennessee Dallas, Texas South Carolina Rock Hill, South Carolina Delran, New Jersey Nekoosa, Wisconsin Tatum, South Carolina Indianapolis, Indiana Port Huron, Michigan Washington Court House, Ohio Jacksonville, Florida Rothschild, Wisconsin Mira Loma, California Windsor, Quebec Local Distribution Centers Seattle, Washington Buffalo, New York Pulp Cincinnati, Ohio Regional Replenishment Dryden, Ontario Cleveland, Ohio Centers—Canada Kamloops, British Columbia Denver, Colorado Richmond, Quebec Plymouth, North Carolina Des Moines, Iowa Toronto, Ontario Chip Mills Houston, Texas Winnipeg, Manitoba Hawesville, Kentucky Kansas City, Kansas Representative Office— Johnsonburg, Pennsylvania Minneapolis, Minnesota International Kingsport, Tennessee Omaha, Nebraska Hong Kong, China Marlboro (Bennettsville), Phoenix, Arizona South Carolina Plain City, Ohio 27


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    Ariva—Canada EUROPE Tuitjenhorn, The Netherlands Halifax, Nova Scotia Aneby, Sweden Wakefield, United Kingdom Montreal, Quebec Toledo, Spain Mount Pearl, Newfoundland and Personal Care— Labrador Sales offices Ottawa, Ontario Bodö, Norway Quebec City, Quebec Bourgoin Jallieu, France Toronto, Ontario Daytona Beach, Florida PERSONAL CARE Linz, Austria DIVISION HEADQUARTERS Madrid, Spain Raleigh, North Carolina Olivette, Missouri Oslo, Norway Personal Care—Manufacturing Rheinfelden, Switzerland and Distribution Schwalbach am Taunus, NORTH AMERICA Germany Delaware, Ohio Stockholm, Sweden Jesup, Georgia Texarkana, Arkansas Greenville, North Carolina ITEM 3. LEGAL PROCEEDINGS In the normal course of operations, the Company becomes involved in various legal actions mostly related to contract disputes, patent infringements, environmental and product warranty claims, and labor issues. The Company periodically reviews the status of these proceedings and assesses the likelihood of any adverse judgments or outcomes of these legal proceedings, as well as analyzes probable losses. Although the final outcome of any legal proceeding is subject to a number of variables and cannot be predicted with any degree of certainty, management currently believes that the ultimate outcome of current legal proceedings will not have a material adverse effect on the Company’s long-term results of operations, cash flow or financial position. However, an adverse outcome in one or more of the significant legal proceedings could have a material adverse effect on the Company’s results, financial condition or cash flow in a given quarter or year. For a discussion of commitments, legal proceedings and related contingencies, refer to Item 8, Financial Statements and Supplementary Data under Note 22 “Commitments and Contingencies” for more details. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 28


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    PART II ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES MARKET INFORMATION Domtar Corporation’s common stock is traded on the New York Stock Exchange and the Toronto Stock Exchange under the symbol “UFS”. HOLDERS At December 31, 2019, the number of shareholders of record (registered and non-registered) of Domtar Corporation common stock was approximately 27,362. DIVIDENDS AND STOCK REPURCHASE PROGRAM During 2019, the Company declared one quarterly dividend of $0.435 and three quarterly dividends of $0.455 per share, to holders of the Company’s common stock. Dividends aggregating $28 million, $28 million, $27 million and $26 million were paid on April 15, 2019, July 16, 2019, October 15, 2019 and January 15, 2020, respectively, to shareholders of record as of April 2, 2019, July 2, 2019, October 2, 2019 and January 2, 2020, respectively. During 2018, the Company declared four quarterly dividends of $0.435 per share, to holders of the Company’s common stock. Dividends of $27 million, $28 million, $27 million and $27 million were paid on April 16, 2018, July 16, 2018, October 15, 2018 and January 15, 2019, respectively, to shareholders of record as of April 2, 2018, July 3, 2018, October 2, 2018 and January 2, 2019, respectively. On February 18, 2020, the Company’s Board of Directors approved a quarterly dividend of $0.455 per share, to be paid to holders of the Company’s common stock. This dividend is to be paid on April 15, 2020 to shareholders of record on April 2, 2020. The Company’s Board of Directors has authorized a stock repurchase program (“the Program”) of up to $1.3 billion. On November 5, 2019, the Company’s Board of Directors approved an increase to the Program from $1.3 billion to $1.6 billion. At December 31, 2019, the Company had approximately $403 million of remaining availability under the Program. Under the Program, the Company is authorized to repurchase, from time to time, shares of its outstanding common stock on the open market or in privately negotiated transactions. The timing and amount of stock repurchases will depend on a variety of factors, including the market conditions as well as corporate and regulatory considerations. The 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. The Program has no set expiration date. The Company repurchases its common stock in part to reduce the dilutive effects of our stock options, awards, and to improve shareholders’ returns. The Company makes open market purchases of its common stock using general corporate funds. Additionally, the Company may enter into structured stock repurchase agreements with large financial institutions using general corporate funds in order to lower the average cost to acquire shares. The agreements would require the Company to make up-front payments to the counterparty financial institutions which would result in either the receipt of stock at the beginning of the term of the agreements followed by a share adjustment at the maturity of the agreements, or the receipt of either stock or cash at the maturity of the agreements, depending upon the price of the stock. During 2019, the Company repurchased 6,220,658 shares at an average price of $35.29 for a total cost of $219 million. During 2018, there were no shares repurchased under the Program. 29


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    Share repurchase activity under our share repurchase program was as follows during the year ended December 31, 2019: (d) Approximate (c) Total Number Dollar Value of of Shares Shares that May Purchased as Yet be Purchased (a) Total Number (b) Average Part of Publicly under the Plans of Shares Price Paid Announced Plans or Programs Period Purchased per Share or Programs (in 000s) January 1 through March 31, 2019 — $ — — $322,572 April 1 through June 30, 2019 194,407 $42.26 194,407 $314,356 July 1 through September 30, 2019 3,882,316 $35.13 3,882,316 $177,968 October 1 through October 31, 2019 1,751,643 $34.27 1,751,643 $117,942 November 1 through November 30, 2019 391,792 $37.98 391,792 $403,061 December 1 through December 31, 2019 500 $38.01 500 $403,042 6,220,658 $35.29 6,220,658 PERFORMANCE GRAPH This graph compares the return on a $100 investment in the Company’s common stock on December 31, 2014 with a $100 investment in an equally-weighted portfolio of a peer group(1), and a $100 investment in the S&P 400 MidCap Index. This graph assumes that returns are in local currencies and assumes quarterly reinvestment of dividends. The measurement dates are the last trading day of the period as shown. Return on $100 Investment 180 160 140 120 100 Dollars 80 60 40 20 0 2014 2015 2016 2017 2018 2019 Domtar Corporation Peer Group S&P 400 S&P 500 S&P 500 Materials (1) On May 18, 2007, the Human Resources Committee of the Board of Directors established performance measures as part of the Performance Conditioned Restricted Stock Units (“PCRSUs”) Agreement including the achievement of a total shareholder return compared to a peer group. The peer group includes: WestRock Company, Ontex Group NV, Glatfelter Corporation, International Paper Co., Kimberly-Clark Corporation, Neenah Paper, Inc., Packaging Corp. of America, Resolute Forest Products Inc., SCA, Sonoco Products Company, Stora Enso Oyj and UPM-Kymmene Corp. 30


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    ITEM 6. SELECTED FINANCIAL DATA The following sets forth selected historical financial data of the Company for the periods and as of the dates indicated. The selected financial data as of and for the fiscal years then ended have been derived from the audited financial statements of Domtar Corporation. The following table should be read in conjunction with Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 8, Financial Statements and Supplementary Data. Year ended December 31, December 31, December 31, December 31, December 31, FIVE YEAR FINANCIAL SUMMARY 2019 2018 2017 2016 2015 (In millions of dollars, except per share figures) Statement of Income Data: Sales $5,220 $5,455 $5,148 $5,090 $5,257 Closure and restructuring costs and impairment of long-lived assets and goodwill 1,2 100 15 580 61 81 Depreciation and amortization 293 308 321 348 359 Operating income (loss) 1,2 163 386 (328) 208 276 Net earnings (loss) 3 84 283 (258) 128 142 Net earnings (loss) per common share—Basic $ 1.37 $ 4.50 $ (4.11) $ 2.04 $ 2.24 Net earnings (loss) per common share—Diluted $ 1.37 $ 4.48 $ (4.11) $ 2.04 $ 2.24 Cash dividends paid per common share $ 1.78 $ 1.72 $ 1.66 $ 1.63 $ 1.58 Balance Sheet Data: Cash and cash equivalents $ 61 $ 111 $ 139 $ 125 $ 126 Property, plant and equipment, net 2,567 2,605 2,765 2,825 2,825 Total assets 4,903 4,925 5,212 5,680 5,654 Long-term debt due within one year 1 1 1 63 41 Long-term debt 938 853 1,129 1,218 1,210 Total shareholders’ equity 2,376 2,538 2,483 2,676 2,652 1 In 2019, we recorded $32 million of accelerated depreciation under Impairment of long-lived assets related to our decision to permanently close two paper machines in our Pulp and Paper segment and $26 million of accelerated depreciation and impairment of operating lease right-of-use assets under Impairment of long- lived assets, related to our margin improvement plan in our Personal Care segment. In addition, we recorded $42 million of Closure and restructuring costs in 2019 related to the aforementioned. For additional information, refer to Item 8, Financial Statement and Supplementary Data under Note 4 “Impairment of Long-Lived Assets” and Note 16 “Closure and Restructuring Costs and Liability.” 2 In 2017, we recorded a non-cash goodwill impairment charge associated with our Personal Care segment of $578 million. For additional information, refer to Item 8, Financial Statement and Supplementary Data under Note 4 “Impairment of Long-Lived Assets.” 3 In 2017, we recorded a net tax benefit of $140 million related to the U.S. Tax Reform of 2017, which is composed of a benefit of $186 million for the remeasurement of deferred tax assets and liabilities and a charge of $46 million for the repatriation tax. During 2018, we recorded an additional tax benefit of $13 million, $7 million related to adjustments to the repatriation tax and $6 million related to the revaluation of net deferred tax liabilities. Also, the net earnings for 2018 included a tax expense of $10 million related to the U.S. Tax Reform. For additional information, refer to Item 8, Financial Statement and Supplementary Data under Note 10 “Income Taxes.” 31


  • Page 50

    ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with Domtar Corporation’s audited consolidated financial statements and notes thereto included in Item 8, Financial Statements and Supplementary Data. Throughout this MD&A, unless otherwise specified, “Domtar Corporation,” “the Company,” “Domtar,” “we,” “us” and “our” refers to Domtar Corporation and its subsidiaries. Domtar Corporation’s common stock is listed on the New York Stock Exchange and the Toronto Stock Exchange. Except where otherwise indicated, all financial information reflected herein is determined on the basis of accounting principles generally accepted in the United States. The information contained on our website, www.domtar.com, is not incorporated by reference into this Form 10-K and should in no way be construed as a part of this or any other report that we file with or furnish to the SEC. In accordance with industry practice, in this report, the term “ton” or the symbol “ST” refers to a short ton, an imperial unit of measurement equal to 0.9072 metric tons. The term “metric ton” or the symbol “ADMT” refers to an air dry metric ton. In this report, unless otherwise indicated, all dollar amounts are expressed in U.S. dollars, and the term “dollars” and the symbol “$” refer to U.S. dollars. In the following discussion, unless otherwise noted, references to increases or decreases in income and expense items, prices, contribution to net earnings (loss), and shipment volumes are based on the twelve-month periods ended December 31, 2019 and 2018. The twelve month periods are also referred to as 2019 and 2018. References to notes refer to footnotes to the consolidated financial statements and notes thereto included in Item 8, Financial Statements and Supplementary Data. This MD&A is intended to provide investors with an understanding of our recent performance, financial condition and outlook. Topics discussed and analyzed include: • Overview • 2019 Highlights • Outlook • Consolidated Results of Operations and Segment Review • Liquidity and Capital Resources • Recent Accounting Pronouncements and Critical Accounting Estimates and Policies For a discussion of the year ended December 31, 2018 compared to the year ended December 31, 2017, please refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2018 (filed with the SEC on February 22, 2019). OVERVIEW We have two reportable segments as described below, which also represent our two operating segments. Each reportable segment offers different products and services and requires different manufacturing processes, technology and/or marketing strategies. The following summary briefly describes the operations included in each of our reportable segments. Pulp and Paper: Our Pulp and Paper segment consists of the design, manufacturing, marketing and distribution of communication, specialty and packaging papers, as well as softwood, fluff and hardwood market pulp. 32

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