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 x NO ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation ST (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES x NO ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 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 x

At ~~October 30, 2015, 62,849,936~~July 29, 2016, 62,585,337 shares of the issuer’s ~~voting~~ common stock were outstanding.

The accompanying notes are an integral part of the consolidated financial statements.

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, in the opinion of Management, include all adjustments that are necessary for the fair statement of Domtar Corporation’s (“the Company”) financial position, results of operations, and cash flows for the interim periods presented. Results for the first ~~nine~~six months of the year may not necessarily be indicative of full year results. It is suggested that these consolidated financial statements be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Domtar Corporation Annual Report on Form 10-K for the fiscal year ended December 31, ~~2014,~~2015, as filed with the Securities and Exchange Commission. The December 31, ~~2014~~2015 Consolidated Balance Sheet, presented for comparative purposes in this interim report, was derived from audited consolidated financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.

In April ~~2014,~~2015, the ~~Financial Accounting Standards Board (“FASB”)~~FASB issued Accounting ~~Standards~~Standard Update (“ASU”) ~~2014-08,~~2015-03, “Simplifying the Presentation of Debt Issuance Costs,” which requires debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying value of the associated debt liability, consistent with the presentation of a debt discount. In August 2015, the FASB also issued ASU 2015-15, “Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements,” which allows debt issuance costs associated with line-of-credit arrangements to be presented as an update on Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The amendments in this update change the requirements for reporting discontinued operations and require additional disclosures for both disposal transactions that meet the criteria for a discontinued operation and disposals that do not meet these criteria. The objective of this update is to reach a greater convergence between the FASB’s and IASB’s reporting requirements for discontinued operations.asset.

The Company adopted the new ~~requirement~~requirements on January 1, 2016 with retrospective application. The effect of this change in accounting policy on our Consolidated Balance Sheet as at December 31, 2015 was as a reduction of $9 million in Other assets and Long-term debt.

In April 2015, the FASB issued ASU 2015-05, “Customer’s Accounting for Fees Paid in Cloud Computing Arrangements,” which clarifies the circumstances under which a cloud computing customer would account for a cloud computing arrangement as a license of internal-use software under Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40). The amendments provide customers with guidance on determining whether or not a cloud computing arrangement includes a software license that should be accounted as internal-use software.

The Company adopted the new requirements prospectively on January 1, 2016 with no material impact on the ~~Company’s~~ consolidated financial ~~statements, as no triggering event occurred throughout the period.~~statements.

In May 2014, the FASB issued ASU 2014-09, ~~an update on revenue~~“Revenue from ~~contracts~~Contracts with ~~customers.~~Customers.” The core principal of this guideline is that an entity should recognize revenue, to depict the transfer of promised goods or services to customers, in an amount that reflects the consideration for which the entity is entitled to, in exchange for those goods and services. Guidance in this section supersedes the revenue recognition requirements found in topic 605.

~~In August 2015, the FASB issued~~ ASU ~~2015-14, which defers by one year ASU 2014-09’s effective date. The amendment~~2014-09 will be effective for annual reporting periods beginning after December 15, 2017 including interim periods within that reporting period. Early adoption is permitted only for annual and interim periods beginning after December 15, 2016.

The Company is currently evaluating these changes to determine ~~whether~~how they ~~have an~~will impact ~~on the presentation of~~ the consolidated financial statements.

In April 2015, the FASB issued ASU 2015-05, which clarifies the circumstances under which a cloud computing customer would account for a cloud computing arrangement as a license of internal-use software under Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40). The amendments provide customers with guidance on determining whether or not, a cloud computing arrangement includes a software license that should be accounted as an internal-use software.INVENTORY

The amendments in this update are effective for interim and annual periods beginning after December 15, 2015. Early adoption is permitted. The Company does not expect this additional guidance to have a material impact on the consolidated financial statements.

In July 2015, the FASB issued ASU 2015-11, ~~an update on Inventory. The amendments in~~“Simplifying the Measurement of Inventory,” which simplifies the measurement of inventories valued under FIFO – first-in, first-out – and moving average methods. Under this ~~update require entities to measure most inventory at the lower of cost and net realizable value, therefore simplifying the current~~new guidance, inventories valued under ~~which an entity must measure inventory~~these methods would be valued at the lower of cost or ~~market, which in this context, was~~net realizable value. Net realizable value is defined as ~~one of three different measures and was unnecessarily complex. The amendment~~the estimated selling costs less reasonable costs to sell the inventory. This ASU does not ~~apply to inventory that has been~~change the measurement principles for inventories valued ~~using~~under the ~~Last-in First-out (“LIFO”) method or the Retail inventory method (“RIM”).~~

LIFO – last-in, first-out – method. The amendments in ~~this~~the update are effective for interim and annual periods beginning after December 15, 2016. The amendments should be applied prospectively and early adoption is permitted.

The Company does not expect this ~~additional~~new guidance to have a material impact on the consolidated financial statements.

In January 2016, the FASB issued ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities,” which amends the guidance on the classification and measurement of financial instruments. Although the ASU retains many current requirements, it significantly revises an entity’s accounting related to the classification and measurement of investments in equity securities and the presentation of certain fair value changes for financial liabilities measured at fair value. The ASU also amends certain disclosure requirements associated with the fair value of financial instruments.

The amendments in this update are effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2017. To adopt the amendments, the Company will be required to make a cumulative-effect adjustment to beginning retained earnings as of the beginning of the fiscal year in which the guidance is effective. Early adoption is permitted.

The Company does not expect this new guidance to have a material impact on the consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, “Leases,” which requires lessees to recognize a right-of-use asset and a lease liability for all of their leases with a lease term greater than 12 months while continuing to recognize expenses in the statement of earnings in a manner similar to current accounting standards. For lessors, the new standard modifies the classification criteria and the accounting for sales-type and direct financing leases. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted as of the beginning of an interim or annual reporting period.

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~The Company is currently evaluating the impact of this guidance on the consolidated financial statements.

~~(UNAUDITED)~~In March 2016, the FASB issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting,” which simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. This ASU is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years, with early adoption permitted as of the beginning of an interim or annual reporting period.

The Company does not expect this new guidance to have a material impact on the consolidated financial statements.

In March 2016, the FASB issued ASU 2016-05, “Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships,” which clarifies that "a change in the counterparty to a derivative instrument that has been designated as the hedging instrument in an existing hedging relationship would not, in and of itself, be considered a termination of the derivative instrument" or "a change in a critical term of the hedging relationship." As long as all other hedge accounting criteria in ASC 815 are met, a hedging relationship in which the hedging derivative instrument is novated would not be discontinued or require redesignation. This clarification applies to both cash flow and fair value hedging relationships. This ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted as of the beginning of an interim or annual reporting period.

The Company does not expect this new guidance to have a material impact on the consolidated financial statements.

On January 2, 2014, Domtar Corporation completed the acquisition of 100% of the outstanding shares of Laboratorios Indas, S.A.U. (“Indas”), primarily a branded incontinence products manufacturer and marketer in Spain. Indas has approximately 570 employees and operates two manufacturing facilities in Spain. The results of Indas’ operations have been included in the Personal Care reportable segment as of January 2, 2014. The purchase price was $546 million (€399 million) in cash, net of cash acquired of $46 million (€34 million). The acquisition was accounted for as a business combination under the acquisition method of accounting, in accordance with the Business Combinations Topic of FASB Accounting Standards Codification (“ASC”).

~~The total purchase price was allocated to tangible and intangible assets acquired and liabilities assumed based on the Company’s estimates of their fair value.~~

Goodwill represents the future economic benefit arising from other assets acquired that could not be individually identified and separately recognized. The goodwill is attributable to the general reputation of the business, the assembled workforce, the expected synergies and the expected future cash flows of the business. Goodwill is not deductible for tax purposes.

The Company is exposed to market risk, such as changes in currency exchange rates, commodity prices, and interest rates. To the extent the Company decides to manage the volatility related to these exposures, the Company may enter into various financial derivatives that are accounted for under the derivatives and hedging guidance. These transactions are governed by the Company's hedging policies which provide direction on acceptable hedging activities, including instrument type and acceptable counterparty exposure.

Upon inception, the Company formally documents the relationship between hedging instruments and hedged items. At inception and quarterly thereafter, the Company formally assesses whether the financial instruments used in hedging transactions are effective at offsetting changes in either the cash flow or the fair value of the underlying exposures. The ineffective portion of the qualifying instrument is immediately recognized to earnings. The amount of ineffectiveness recognized was immaterial for all ~~years~~periods presented. The Company does not hold derivative financial instruments for trading purposes.

The Company is exposed to credit risk on the accounts receivable from its customers. In order to reduce this risk, the Company reviews new customers’ credit history before granting credit and conducts regular reviews of existing customers’ credit performance. As of ~~September~~June 30, ~~2015,~~2016, one of Domtar’s Pulp and Paper segment customers located in the United States represented ~~14%~~12% ($8576 million) ~~(2014~~(2015 – ~~10%~~12% ($6478 million)) of the Company’s receivables.

The Company is exposed to credit risk in the event of non-performance by counterparties to its financial instruments. The Company ~~minimizes~~attempts to minimize this exposure by entering into contracts with counterparties that are believed to be of high credit quality. Collateral or other security to support financial instruments subject to credit risk is usually not obtained. The credit standing of counterparties is regularly monitored.

The Company is exposed to interest rate risk arising from fluctuations in interest rates on its cash and cash equivalents, bank indebtedness, bank credit facility and long-term debt. The Company’s objective in managing exposure to interest rate changes is to minimize the impact of interest rate changes on earnings and cash flows and to lower its overall borrowing costs. The Company may manage this interest rate exposure through the use of derivative instruments such as interest rate swap contracts, whereby it agrees to exchange the difference between fixed and variable interest amounts calculated by reference to an agreed upon notional principal amount. In December 2014, the Company entered into a $100 million notional 2.5 year fixed to floating interest rate swap to receive fixed (1.0225%) and pay the 3 month LIBOR. This swap was designated as a fair value hedge for a portion of its 10.75% notes due June 2017. The changes in fair value of both the hedging and the hedged item were immediately recognized in interest expense. Gains (losses) related to the ineffectiveness portion of the hedges were not material for this reporting period. In August 2015, the Company terminated this swap simultaneously with the redemption of $215 million of its 10.75% notes, with no significant impact on net earnings.

The Company purchases natural gas at the prevailing market price at the time of delivery. To reduce the impact on cash flow and earnings due to pricing volatility, the Company may utilize derivatives to fix the price of forecasted natural gas purchases. The

NOTE 3. DERIVATIVES AND HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENT (CONTINUED)

changes in the fair value on qualifying instruments are included in Accumulated other comprehensive loss to the extent effective, and reclassified into Cost of sales in the period during which the hedged transaction affects earnings. Current contracts are used to hedge a portion of forecasted purchases over the next 2760 months.

~~NOTE 4. DERIVATIVES AND HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENT (CONTINUED)~~

The following table presents the volumes under derivative financial instruments for natural gas contracts outstanding as of ~~September~~June 30, ~~2015~~2016 to hedge forecasted purchases:

The natural gas derivative contracts were fully effective as of ~~September~~June 30, ~~2015.~~2016. There were no amounts reflected in the Consolidated Statements of Earnings and Comprehensive Income (Loss) ~~Income~~ for the three and ~~nine~~six months ended ~~September~~June 30, ~~2015~~2016 resulting from hedge ineffectiveness (three and ~~nine~~six months ended ~~September~~June 30, ~~2014~~2015 – nil).

The Company has manufacturing operations in the United States, Canada and Europe. 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. Accordingly, the Company’s earnings are affected by increases or decreases in the value of the Canadian dollar and the European currencies. The Company’s European subsidiaries are also exposed to movements in foreign currency exchange rates on transactions denominated in a currency other than their Euro functional currency. Additionally, there has been, and may continue to be, volatility in currency exchange rates as a result of the United Kingdon’s June 23, 2016 referendum in which voters approved the United Kingdom’s exit from the European Union, commonly referred to as “Brexit.” The Company’s risk management policy allows it to hedge a significant portion of its exposure to fluctuations in foreign currency exchange rates for periods up to three years. The Company may use derivative financial instruments (currency options and foreign exchange forward contracts) to mitigate its exposure to fluctuations in foreign currency exchange rates.

Derivatives are used to hedge forecasted purchases in Canadian dollars by ~~its~~the Company’s Canadian subsidiary over the next 24 months. Derivatives are used to hedge a portion of forecasted sales by its USU.S. subsidiaries in Euros ~~over the next 15 months~~ and in British pounds over the next ~~three~~12 months. Derivatives are also used to hedge a portion of forecasted sales in British pounds and Norwegian krone and ~~forecasted purchases~~a portion of ~~Swedish krona over the next 12 months and~~ forecasted purchases in USU.S. dollars ~~over the next 15 months~~and Swedish krona by its European ~~subsidiaries.~~subsidiaries over a period of between 12 to 24 months. Such derivatives are designated as cash flow hedges. The changes in the fair value on qualifying instruments are included in Accumulated other comprehensive loss to the extent effective, and reclassified into Sales or Cost of sales in the period during which the hedged transaction affects earnings.

NOTE 4.3. DERIVATIVES AND HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENT (CONTINUED)

The following table presents the currency values under significant ~~contracts~~currency positions pursuant to currency ~~options~~derivatives outstanding as of ~~September~~June 30, ~~2015~~2016 to hedge forecasted purchases and sales:

The foreign exchange derivative contracts were fully effective as of ~~September~~June 30, ~~2015.~~2016. There were no amounts reflected in the Consolidated Statements of Earnings and Comprehensive Income (Loss) ~~Income~~ for the three and ~~nine~~six months ended ~~September~~June 30, ~~2015~~2016 resulting from hedge ineffectiveness (three and ~~nine~~six months ended ~~September~~June 30, ~~2014~~2015 - nil).

The accounting standards for fair value measurements and disclosures, establishes a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three levels. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is available and significant to the fair value measurement.

NOTE 4.3. DERIVATIVES AND HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENT (CONTINUED)

The following tables present information about the Company’s financial assets and financial liabilities measured at fair value on a recurring basis (except Long-term debt, see (c) below) at ~~September~~June 30, ~~2015~~2016 and December 31, ~~2014,~~2015, in accordance with the accounting standards for fair value measurements and disclosures and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value.

The cumulative ~~loss~~gain recorded in Other comprehensive loss relating to natural gas contracts of $17 million at September 30, 2015, will be recognized in Cost of sales upon maturity of the derivatives over the next 27 months at the then prevailing values, which may be different from those at September 30, 2015.

~~NOTE 4. DERIVATIVES AND HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENT (CONTINUED)~~

~~The cumulative loss recorded in Other comprehensive loss~~income (loss) relating to currency options and forwards hedging forecasted purchases of ~~$42~~$13 million at ~~September~~June 30, ~~2015,~~2016, will be recognized in Cost of sales or Sales upon maturity of the derivatives over the next 24 months at the then prevailing values, which may be different from those at ~~September~~June 30, ~~2015.~~2016.

NOTE 3. DERIVATIVES AND HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENT (CONTINUED)

Due to their short-term maturity, the carrying amounts of cash and cash equivalents, receivables, bank indebtedness, trade and other payables and income and other taxes approximate their fair values.

The following table provides the reconciliation between basic and diluted earnings per common share:

The following table provides the securities that could potentially dilute basic earnings per common share in the future, but were not included in the computation of diluted earnings per common share because to do so would have been anti-dilutive:

The Company has several defined contribution plans and ~~two Canadian~~ multiemployer plans. The pension expense under these plans is equal to the Company’s contribution. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2015,~~2016, the ~~related~~ pension expense was $9$8 million and ~~$24~~$18 million, respectively ~~(2014 -~~(2015 – $7 million and ~~$22~~$15 million, respectively).

The Company sponsors both contributory and non-contributory U.S. and non-U.S. defined benefit pension plans. Non-unionized employees in Canada joining the Company after ~~June~~January 1, ~~2000~~1998 participate in a defined contribution pension plan. Salaried employees in the U.S. joining the Company after January 1, 2008 participate in a defined contribution pension plan. ~~Most unionized~~Unionized and non-union hourly employees in the U.S. ~~and all U.S. non-hourly employees that~~who are not grandfathered under the existing defined benefit pension plans, participate in a defined contribution pension plan for future service. The Company also sponsors a number of other post-retirement benefit plans for eligible U.S. and non-U.S. employees; the plans are unfunded and include life insurance programs and medical and dental benefits. The Company also provides supplemental unfunded defined benefit pension plans and supplemental unfunded defined contribution pension plans to certain senior management employees.

Components of net periodic benefit cost for pension plans and other post-retirement benefit plans:

For the three and six months ended June 30, 2016, the Company contributed $5 million and $9 million, respectively (2015 – $3 million and $6 million, respectively) to the pension plans and $1 million and $2 million, respectively (2015 – $2 million and $3 million, respectively) to the other post-retirement benefit plans.

The Company contributed $5 million and $11 million for the three and nine months ended September 30, 2015, respectively (2014 – nil and $19 million, respectively) to the pension plans. The Company also contributed $1 million and $4 million for the three and nine months ended September 30, 2015, respectively (2014 - $1 million and $4 million, respectively) to the other post-retirement benefit plans.

Other operating ~~income,~~loss (income), net is an aggregate of both recurring and occasional loss or income items and, as a result, can fluctuate from period to period. The Company’s other operating ~~income,~~loss (income), net includes the following:

For the ~~third~~second quarter of ~~2015,~~2016, the Company’s income tax ~~benefit~~expense was ~~$14~~$6 million, consisting of a current income tax expense of $4$8 million and a deferred income tax benefit of ~~$18~~$2 million. This compares to an income tax benefit of ~~$186~~$1 million in the ~~third~~second quarter of ~~2014,~~2015, consisting of a current income tax expense of ~~$10~~$16 million and a deferred income tax benefit of ~~$196~~$17 million. The ~~Company made income~~effective tax ~~payments, net~~rate was 25% compared with an effective tax rate of ~~refunds, of $14 million during~~(3)% in the ~~third~~second quarter of 2015. The effective tax rate was 467 % compared with an effective tax rate of -196% in the third quarter of 2014. The effective tax rates for both the third quarter of 2015 and the third quarter of 2014 were impacted by the recognition of additional tax benefits related to the finalization of certain estimates in connection with the filing of the Company’s 2014 and 2013 income tax returns, respectively. Additionally, the effective tax rate for the ~~third~~second quarter of 2015 was impacted by enacted law changes in several U.S. states and by the impairment and write-down of property, plant, and equipment charges occurring in a high-tax jurisdiction. Also, for the third quarter of 2014, the effective tax rate was impacted by the recognition of previously unrecognized tax benefits of approximately $204 million as a result of the closure of U.S. federal tax audits for tax years 2009 through 2011, as well as the impact of recognizing $18 million of Alternative Fuel Tax Credits (“AFTC”) income in the third quarter of 2014 with no related tax expense.

For the nine months of 2015, the Company’s income tax benefit amounted to $6 million, consisting of a current tax expense of $44 million and a deferred tax benefit of $50 million. This compares to an income tax benefit of $158 million in the first nine months of 2014, consisting of a current income tax expense of $44 million and a deferred tax benefit of $202 million. The Company made income tax payments, net of refunds, of $16 million during the first nine months of 2015. The Company’s effective tax rate was negative in the first nine months of both 2015 and 2014. The effective tax rate for the first nine months of 2015 was impacted by the recognition of additional tax benefits related to the finalization of certain estimates in connection with the filing of the Company’s 2014 tax returns, by the recognition of previously unrecognized tax benefits due to the expiration of certain statutes of limitations, by enacted law changes in several U.S. states, by the favorable tax treatment of certain gains on property dispositions and by the impairment ~~and write-down~~ of property, plant, and equipment charges occurring in a high-tax jurisdiction.

For the first half of 2016, the Company’s income tax expense amounted to $3 million, consisting of a current income tax expense of $8 million and a deferred income tax benefit of $5 million. This compares to an income tax expense of $8 million in the first half of 2015, consisting of a current income tax expense of $40 million and a deferred income tax benefit of $32 million. The effective tax rate was 12% compared to an effective tax rate of 10% in the first half of 2015. The effective tax rate for the first ~~nine months~~half of ~~2014~~2016 was impacted by the approval of a state tax credit in the U.S. The effective tax rate for the first half of 2015 was impacted by the recognition of previously unrecognized tax benefits due to the expiration of ~~approximately $204 million as~~certain statutes of limitations, by enacted law changes in several U.S. states, by the favorable tax treatment of certain gains on property dispositions and by the impairment of property, plant, and equipment charges occurring in a ~~result~~high-tax jurisdiction.

The following table presents the components of ~~the closure of U.S. federal tax audits for tax years 2009 through 2011, as well as the impact of recognizing $18 million of AFTC income with no related tax expense.~~inventories:

The carrying value and any changes in the carrying value of goodwill are as follows:

The goodwill at ~~September~~June 30, ~~2015~~2016 is entirely related to the Personal Care segment.

Amortization expense related to intangible assets for the three and ~~nine~~six months ended ~~September~~June 30, ~~2015~~2016 was $5$4 million and ~~$14~~$9 million, respectively ~~(2014~~(2015 – $5$4 million and ~~$16~~$9 million, respectively).

Amortization expense for the next five years related to intangible assets is expected to be as follows:

CLOSURE AND RESTRUCTURING COSTS AND LIABILITY AND IMPAIRMENT ~~AND WRITE-DOWN~~ OF PROPERTY, PLANT AND EQUIPMENT

The Company regularly reviews its overall production capacity with the objective of aligning its production capacity with anticipated long-term demand, which in some cases could result in closure or impairment costs being recorded in earnings.

As a result of the Company’s previous withdrawal from its U.S. multiemployer plans, the total provision for the withdrawal liabilities is $59 million at September 30, 2015. Of the $59 million provision, $9 million is subject to limited measurement uncertainty as the Company remains exposed to potential additional withdrawal liabilities to the fund in the event of a mass withdrawal occurring before the end of 2015.

On December 10, 2014, the Company announced ~~that its Board of Directors approved~~ a ~~$160 million capital~~ project to convert a paper machine at the Ashdown, Arkansas mill to a high quality fluff pulp line used in absorbent applications such as baby diapers, feminine hygiene and adult incontinence products. The ~~planned~~ conversion work commenced during the second quarter of 2016. The fluff pulp line is ~~expected~~scheduled to ~~come online~~startup by the third quarter of 2016 and will allow for the production of up to 516,000 metric tons of fluff pulp per year once the machine is in full operation. The project ~~will also result~~resulted in the permanent reduction of 364,000 short tons of annual uncoated freesheet production capacity ~~in the second quarter of~~on March 31, 2016.

The conversion work is expected to commence during the second quarter of 2016 and the fluff pulp line is scheduled to startup by the third quarter of 2016. The cost of conversion will be approximately $160 million of which $40 million is expected to beCompany also invested ~~in 2015 and $120 million in 2016. The Company will also invest $40 million~~ in a pulp bale line that will provide flexibility to manufacture papergrade softwood pulp, contingent on market conditions.

The aggregate pre-tax earnings charge in connection with this conversion is estimated to be $120 million which includes an estimated $117 million in non-cash charges relating to accelerated depreciation of the carrying amounts of the manufacturing equipment as well as the write-off of related spare parts. Of the estimated pre-tax charge of $120 million,Company recorded $3 million ~~relates to estimated cash severance, employee benefits~~ and training. Of the estimated total pre-tax charge of $120 million, $113 million is expected to be incurred during 2015 and 2016. As a result of the 2014 fourth quarter decision to convert a paper machine to a fluff pulp line at its Ashdown, Arkansas mill, the Company recorded $20 million and $57$24 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2015,~~2016, respectively, of accelerated depreciation under Impairment ~~and write-down~~ of property, plant and equipment on the Consolidated Statement of Earnings and Comprehensive Income (Loss) ~~Income. For~~. The Company also recorded $21 million of costs related to the ~~three~~fluff pulp conversion outage under Closure and ~~nine months ended September 30, 2015,~~restructuring costs during the second quarter of 2016. During the first quarter of 2016, the Company recorded $1 million ~~and $2 million, respectively~~ of severance and termination ~~cost.~~costs under Closure and restructuring costs.

The Company recorded $18 million and $37 million for the three and six months ended June 30, 2015, respectively, of accelerated depreciation under Impairment of property, plant and equipment on the Consolidated Statement of Earnings and Comprehensive Income (Loss). The Company also recorded $1 million of severance and termination costs under Closure and restructuring costs during the second quarter of 2015.

For the three and ~~nine~~six months ended ~~September~~June 30, 2016, other costs related to previous and ongoing closures include nil and $1 million, respectively, of severance and termination costs related to Pulp and Paper.

For the three and six months ended June 30, 2015, other costs related to previous and ongoing closures include nil and $1 million, respectively, of severance and termination costs related to Personal Care.

~~For the three and nine months ended September~~At June 30, 2014, other costs related to previous and ongoing closures include $2 and $2 million, respectively of severance and termination costs related to Pulp and Paper and nil and $1 million respectively of severance and termination costs related to Personal Care.

~~At September 30, 2015,~~2016, the Company’s provision for closure and restructuring costs is $3 million. This provision is comprised of severance and termination costs, all related to Pulp and Paper.

The Company redeemed on August 20, 2015, (the redemption date), $55 million in aggregate principal amount of its 9.5% Notes due 2016, representing approximately 59% of the outstanding notes, and $215 million in aggregate principal amount of its 10.75% Notes due 2017, representing approximately 77% of the outstanding notes. The redemption price for the notes was equal to 100% of the principal amount of such notes, plus accrued and unpaid interest, plus a make-whole premium. Debt refinancing costs of $42 million were incurred in the third quarter of 2015.

~~In addition, the Company’s 7.125% notes, in the aggregate principal amount of $167 million matured on August 15, 2015.~~

The above-noted redemptions and repayment of notes were funded through a combination of cash on hand, borrowings under the Company’s credit facilities and proceeds from a new $300 million 10-year term loan agreement with a syndicate of bank lenders.

~~On July 20, 2015, a wholly owned subsidiary of Domtar entered into a $300 million Term Loan Agreement that matures on July 20, 2025. The facility was fully drawn down on August 19, 2015.~~

~~Borrowings under the Term Loan Agreement bear interest at LIBOR plus a margin of 1.875%.~~

The Term Loan Agreement contains customary covenants, including two financial covenants: (i) an interest coverage ratio, as defined in the Term Loan Agreement, that must be maintained at a level of not less than 3 to 1 and (ii) a leverage ratio, as defined in the Term Loan Agreement that must be maintained at a level of not greater than 3.75 to 1.

All borrowings under the Term Loan are unsecured. The Company and certain domestic subsidiaries of the Company unconditionally guarantee any obligations from time to time arising under the Term Loan Agreement.

The following table presents the changes in Accumulated other comprehensive loss by component⁽¹⁾ for the ~~nine months~~periods ended ~~September~~June 30, ~~2015~~2016 and ~~2014:~~December 31, 2015:

NOTE ~~14.~~12. CHANGES IN ACCUMULATED OTHER COMPREHENSIVE LOSS BY COMPONENT (CONTINUED)

The following ~~tables present~~table presents reclassifications out of Accumulated other comprehensive loss:

⁽²⁾

~~These amounts are included in the computation of net periodic benefit cost. Refer to Note 6~~

⁽²⁾ These amounts are included in the computation of net periodic benefit cost. Refer to Note 5 “Pension plans and other post-retirement benefit plans” for additional details.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~SEPTEMBER~~JUNE 30, ~~2015~~2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE ~~15.~~13.

_________________

SHAREHOLDERS’ EQUITY

On February ~~23, 2015,~~22, 2016 and May ~~5, 2015 and August 4, 2015,~~3, 2016, the Company’s Board of Directors approved a quarterly dividend of $0.40 and $0.415 per share, respectively, to be paid to holders of the Company’s common stock. Total dividends of approximately ~~$26 million,~~ $25 million and ~~$25~~$26 million, respectively, were paid on April 15, ~~2015,~~2016 and July 15, ~~2015 and October 15, 2015,~~2016, respectively, to shareholders of record on April ~~2, 2015,~~4, 2016 and July ~~2, 2015 and October 2, 2015,~~5, 2016, respectively.

On ~~November 3, 2015,~~August 2, 2016, the Company’s Board of Directors approved a quarterly dividend of ~~$0.40~~$0.415 per share to be paid to holders of the Company’s common stock. This dividend is to be paid on ~~January 15,~~October 17, 2016, to shareholders of record on ~~January 4,~~October 3, 2016.

STOCK REPURCHASE PROGRAM

The Company’s Board of Directors has authorized a stock repurchase program ~~(“the Program”~~(the “Program”) of up to $1.3 billion. 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 in the United States.~~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, from time to time, in part to reduce the dilutive effects of stock options and awards, and to improve shareholders’ returns.

The Company makes open market purchases of its common stock using general corporate funds. Additionally, the Company ~~enters~~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 ~~results~~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 the first ~~nine months~~half of ~~2015,~~2016, the Company repurchased ~~1,210,932~~304,915 shares at an average price of ~~$41.40~~$32.21 for a total cost of ~~$50~~$10 million.

During the first ~~nine months~~half of ~~2014,~~2015, the Company repurchased ~~530,780~~723,459 shares at an average price of ~~$36.62~~$41.65 for a total cost of ~~$19~~$30 million.

Since the inception of the Program, the Company has repurchased ~~24,548,912~~24,853,827 shares at an average price of ~~$39.42~~$39.33 for a total cost of ~~$968~~$977 million. All shares repurchased are recorded as Treasury stock on the Consolidated Balance Sheets under the par value method at $0.01 per share.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~SEPTEMBER~~JUNE 30, ~~2015~~2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE ~~16.~~14.

_________________

COMMITMENTS AND CONTINGENCIES

ENVIRONMENT

The Company is subject to environmental laws and regulations enacted by federal, provincial, state and local authorities.

An action was commenced by Seaspan International Ltd. (“Seaspan”) in the Supreme Court of British Columbia, on March 31, 1999 against the Company and others with respect to alleged contamination of Seaspan’s site bordering Burrard Inlet in North Vancouver, British Columbia, including contamination of sediments in Burrard Inlet, due to the presence of creosote and heavy metals. On February 16, 2010, the government of British Columbia issued a Remediation Order to Seaspan International Ltd. (“Seaspan”) and the Company, in order to define and implement an action plan to address soil, sediment and groundwater issues. Working with authorities, Seaspan and the Company selected a remedial plan and ~~applied to~~obtained permitting approval on May 14, 2015 from the Vancouver Fraser Port ~~Authority for permitting approval. On May 14, 2015, the Vancouver Fraser Port Authority issued the permit.~~Authority. It is anticipated that construction will begin in ~~2016.~~2017. The Company has recorded an environmental reserve to address its estimated exposure. The possible loss in excess of the reserve is not considered to be material for this matter.

The following table reflects changes in the reserve for environmental remediation and asset retirement obligations:

	~~September~~June 30, ~~2015~~2016
	$
Balance at beginning of period		6052
Additions		41
Environmental spending		(2	)
Effect of foreign currency exchange rate change		(62	)
Balance at end of period		5653

The U.S. Environmental Protection Agency (“EPA”) and/or various state agencies have notified the Company that it may be a potentially responsible party under the Comprehensive Environmental Response Compensation and Liability Act, commonly known as “Superfund,” and similar state laws with respect to other hazardous waste sites as to which no proceedings have been instituted against the Company. The Company continues to take remedial action under its Care and Control Program at its former wood preserving sites, and at a number of operating sites, due to possible soil, sediment or groundwater contamination.

Climate change regulation

Various national and local laws and regulations have been established or are emerging in jurisdictions where the Company currently has, or may have in the future, manufacturing facilities or investments. The Company does not expect to be disproportionately affected by these measures compared with other pulp and paper producers located in these jurisdictions.

~~Conference~~In the United States, EPA’s Clean Power Plan requires states to develop compliance plans to reduce greenhouse gases (“GHG”) emissions beginning in 2022 from existing electric utilities. The final rule is being litigated, with 45 of 50 states directly involved in the litigation. The Clean Power Plan requirements could result in significant changes to state energy resources and increase the cost of purchased energy in most states. On February 9, 2016, the U.S. Supreme Court stayed the implementation of the ~~Parties to~~Clean Power Plan until the ~~Kyoto Protocol~~litigation is ~~scheduled for December 2015. At this time it is not possible to predict the potential impacts of future international agreements~~resolved. Many states have stopped working on ~~the Company. However the~~their compliance plans, but a few states are continuing. The Company does not expect to be disproportionately affected compared with other pulp and paper ~~producers.~~

Inproducers located in the ~~United States,~~states where the EPA is utilizing existing Clean Air Act authorities to regulate GHG emissions. On August 3, 2015, the EPA finalized its proposed GHG performance standards for newly constructed, reconstructed and modified electric utilities and its “Clean Power Plan” emission guidelines for existing electric utilities. The Clean Power Plan requires states to develop plans to reduce

~~DOMTAR CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~SEPTEMBER 30, 2015~~

~~(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED~~)

~~(UNAUDITED)~~

~~NOTE 16. COMMITMENTS AND CONTINGENCIES (CONTINUED)~~

GHG emissions beginning in 2022 by making significant changes to energy resources within the state. Those state plans are due September 6, 2016, unless the state requests and receives an extension of that deadline to September 6, 2018. On August 3, 2015, the

EPA also proposed a Federal plan that will be implemented in states that do not submit a state plan, or do not submit an approvable state plan. When implemented, these regulations may increase the cost of purchased electricity in some jurisdictions.Company operates.

The EPA is also developing a biogenic carbon accounting framework to account for carbon dioxide emissions from biomass fuels for Clean Air Act permitting and other regulatory purposes. The Company does not expect to be disproportionately affected by any future EPA measures compared with other pulp and paper producers in the United States.

The Government of Canada has committed to developing a sector-by-sector approach to set performance standards to reduce ~~greenhouse gases.~~GHG. The pulp and paper sector is currently undergoing review. The Company does not expect its facilities to be disproportionately affected by these future measures compared with other pulp and paper producers in Canada.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 14. COMMITMENTS AND CONTINGENCIES (CONTINUED)

The province of Quebec ~~initiated~~has a GHG cap-and-trade system with reduction ~~targets becoming effective on January 1, 2013.~~targets. British Columbia ~~imposed~~has a carbon tax ~~in 2008, which~~that applies to the purchase of fossil fuels within the province. The ~~Province~~province of Ontario is also developing a cap-and-trade ~~system.~~system, with final rules expected this year and the first compliance period beginning in 2017. The Company does not expect ~~future compliance costs for these existing and emerging programs to have a material impact on the Company’s financial position, results of operations or cash flows.~~

~~Industrial Boiler Maximum Achievable Control Technology Standard (“MACT”) or Boiler MACT~~

The Company is developing plans to bring facilities affected by the EPA’s Boiler MACT rule into compliance by the January 2016 regulatory deadline. The Company expects the remaining capital costs required to comply with the Boiler MACT rule to be ~~approximately $15 million. The EPA is reconsidering a limited number of issues related~~disproportionately affected compared to the ~~Boiler MACT rule,~~other large pulp and ~~certain elements of~~paper producers located in the rule are being litigated. Since the consequences of these activities cannot be predicted, adjustments to compliance plans may be needed to accommodate any changes to the final rule. At this time it cannot be predicted if any of these changes could affect the current capital costs for compliance and/or future operating costs.province.

CONTINGENCIES

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. While the final outcome with respect to actions outstanding or pending at ~~September~~June 30, ~~2015,~~2016, cannot be predicted with certainty, it is management’s opinion that their resolution will not have a material adverse effect on the Company’s financial position, results of operations or cash flows.

Spanish Competition Investigation

In September 2014, following preliminary inquiries commenced in January 2014, Spain’s National Commission of Markets and Competition (“CNMC”) initiated a formal investigation of alleged violations of Spanish competition laws in the market for heavy adult incontinence products in Spain.

On October 15, 2015, the Competition Directorate of the CNMC filed a Statement of Objections against a number of industry participants alleging the existence of a series of agreements between manufacturers, distributors and pharmacists to fix prices and to allocate margins for heavy adult incontinence products within the pharmacy channel in Spain during the period from December 1996 through January 2014. Among the parties named in the Statement of Objections are Indas, which the Company acquired in January 2014, and two of its affiliates. ~~A decision is expected in May 2016.~~

On January 4, 2016, the Competition Directorate issued a proposed decision confirming the allegations of the Statement of Objections. The proposed decision recommended the imposition of fines on the parties without recommending the amount of any fines. The Company ~~estimates that~~recorded a €0.2 million ($0.2 million) provision in the ~~event~~fourth quarter of ~~an adverse determination by the CNMC, the penalties for Indas and its affiliates could range from €0 to €21 million ($23 million).~~ 2015 in Other operating loss, net.

~~As at September 30, 2015, no provision has been recorded as it is not possible to predict the decision of~~On May 26, 2016, the CNMC rendered its final decision, which declared that a number of manufacturers of adult heavy incontinence products, the sector association and ~~it is not possible to estimate an~~certain individuals participated in price fixing during the period from December 1996 through January 2014. Indas and one of its subsidiaries were fined a total of €13.5 million ($14.9 million) for their participation. A provision was recorded in the second quarter of 2016 in the amount of ~~penalty~~€13.3 million ($14.7 million) in ~~the event that Indas and its two affiliates were to be found liable.~~

~~DOMTAR CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~SEPTEMBER 30, 2015~~

~~(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED~~)

~~(UNAUDITED)~~

~~NOTE 16. COMMITMENTS AND CONTINGENCIES (CONTINUED)~~

Other operating loss, net.

On June 27, 2016, in light of the CNMC decision, the sellers, in terms of their indemnity obligations, have agreed to the appropriation by the Company of the retained purchase price and the release of the bank guarantees. Accordingly, a recovery of €12 million ($13.2 million) was recorded in the quarter and included in Other operating loss, net.

In July 2016, the fines were paid and Indas and two of its affiliates named in the final decision appealed the decision to the Spanish courts.

The Company purchased limited insurance coverage ~~for an additional €28.5~~with respect to the purchase agreement, and will seek to recover the remaining €1.5 million ($321.7 million). If the sellers were found to be in breach of the relevant representations and warranties, the €12 million ($13 million) attributable to the retained cash and bank guarantees would act as a deductible under the insurance policy. ~~The Company’s total~~Any recovery from the ~~retained purchase price,~~insurers would be recorded in the bank guarantees and the purchased insurance coverage is thus potentially up to €40.5 million ($45 million). In the event a penalty is assessed against Indas and its affiliates, there are customary risks associated with the assertion of the Company’s rights under the bank guarantees and insurance policy. In that event, the Company will assess this risk and potential impact which may result in recording liability for a penalty in one period ~~and only recording a recovery from guarantees and insurance~~ when the ~~Company has more certainty of recovery, which may be in a different period.~~proceeds are received.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 14. COMMITMENTS AND CONTINGENCIES (CONTINUED)

INDEMNIFICATIONS

In the normal course of business, the Company offers indemnifications relating to the sale of its businesses and real estate. In general, these indemnifications may relate to claims from past business operations, the failure to abide by covenants and the breach of representations and warranties included in the sales agreements. Typically, such representations and warranties relate to taxation, environmental, product and employee matters. The terms of these indemnification agreements are generally for an unlimited period of time. At ~~September~~June 30, ~~2015,~~2016, the Company is unable to estimate the potential maximum liabilities for these types of indemnification guarantees as the amounts are contingent upon the outcome of future events, the nature and likelihood of which cannot be reasonably estimated at this time. Accordingly, no provision has been recorded. These indemnifications have not yielded a significant expense in the past.

Pension Plans

The Company has indemnified and held harmless the trustees of its pension funds, and the respective officers, directors, employees and agents of such trustees, from any and all costs and expenses arising out of the performance of their obligations under the relevant trust agreements, including in respect of their reliance on authorized instructions from the Company or for failing to act in the absence of authorized instructions. These indemnifications survive the termination of such agreements. At ~~September~~June 30, ~~2015,~~2016, the Company has not recorded a liability associated with these indemnifications, as it does not expect to make any payments pertaining to these indemnifications.

3129

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~SEPTEMBER~~JUNE 30, ~~2015~~2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE ~~17.~~ 15.

_________________

SEGMENT DISCLOSURES

The Company operates in the two reportable segments described below. 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 the Company’s reportable segments:

·	Pulp and Paper ~~Segment~~ – ~~comprises~~consists of the design, manufacturing, marketing and distribution of communication, specialty and packaging papers, as well as softwood, fluff and hardwood market pulp.

·	Personal Care ~~Segment~~ – consists of the design, manufacturing, marketing and distribution of absorbent hygiene products.

An analysis and reconciliation of the Company’s ~~reportable~~business segment information to the respective information in the financial statements is as follows:

For the three months ended

For the nine months ended

September 30,

September 30,

September 30,

September 30,

SEGMENT DATA

2015

2014

2015

2014

$

$

$

$

Sales

Pulp and Paper

1,092

1,186

3,348

3,514

Personal Care

214

231

648

698

Total for reportable segments

1,306

1,417

3,996

4,212

Intersegment sales

(14
)

(12
)

(46
)

(28
)
Consolidated sales

1,292

1,405

3,950

4,184

Depreciation and amortization and impairment and
   write-down of property, plant and equipment

Pulp and Paper

75

79

224

241

Personal Care

14

17

46

50

Total for reportable segments

89

96

270

291

Impairment and write-down of property, plant and
   equipment - Pulp and Paper

20

—

57

—

Consolidated depreciation and amortization and impairment
   and write-down of property, plant and equipment

109

96

327

291

Operating income (loss)¹

Pulp and Paper

54

101

184

264

Personal Care

18

12

45

38

Corporate

(11
)

7

(35
)

(24
)
Consolidated operating income

61

120

194

278

Interest expense, net

64

25

115

76

(Loss) earnings before income taxes

(3
)

95

79

202

Income tax benefit

(14
)

(186
)

(6
)

(158
)
Net earnings

11

281

85

360

As a result of changes in the Company’s organization structure, the Company has changed the way it allocates certain Corporate general and administrative costs to the segments. Further, certain Corporate costs not related to segment activities, as well as the mark-to-market impact on stock-based compensation awards, will be presented on the Corporate line. As a result, the Company has revised its 2014 segment disclosures to conform to its 2015 presentation. (Previously reported numbers for Operating income (loss) for the three and nine months ended September 30, 2014 are as follows; Pulp and Paper $109 million and $247 million, respectively, Personal Care: $13 million and $42 million, respectively, Corporate: $(2) million and $(11) million, respectively).

	For the three months ended						For the six months ended
	June 30,			June 30,			June 30,			June 30,
SEGMENT DATA	2016			2015			2016			2015
	$			$			$			$
Sales
Pulp and Paper		1,054			1,110			2,139			2,256
Personal Care		228			216			444			434
Total for reportable segments		1,282			1,326			2,583			2,690
Intersegment sales		(15	)		(16	)		(29	)		(32	)
Consolidated sales		1,267			1,310			2,554			2,658

Depreciation and amortization and impairment of property, plant and equipment
Pulp and Paper		72			75			145			149
Personal Care		15			16			31			32
Total for reportable segments		87			91			176			181
Impairment of property, plant and equipment - Pulp and Paper		3			18			24			37
Consolidated depreciation and amortization and impairment of property, plant and equipment		90			109			200			218

Operating income (loss)
Pulp and Paper		35			55			54			130
Personal Care		15			17			29			27
Corporate		(11	)		(10	)		(26	)		(24	)
Consolidated operating income		39			62			57			133
Interest expense, net		15			25			32			51
Earnings before income taxes		24			37			25			82
Income tax expense (benefit)		6			(1	)		3			8
Net earnings		18			38			22			74

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~SEPTEMBER~~JUNE 30, ~~2015~~2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE ~~18.~~16.

_________________

SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION

The following information is presented as required under Rule 3-10 of Regulation S-X, in connection with the Company’s issuance of debt securities that are fully and unconditionally guaranteed by Domtar Paper Company, LLC, a 100% owned subsidiary of the Company, Domtar Industries LLC (and subsidiaries, excluding Domtar Funding LLC), Ariva Distribution Inc., Domtar Delaware Investments Inc., Domtar Delaware Holdings, LLC, Domtar A.W. LLC (and subsidiary), Domtar AI Inc., Attends Healthcare Products Inc., EAM Corporation, Domtar Personal Care Absorbent Hygiene Inc, and Associated Hygienic Products LLC., all 100% owned subsidiaries of the Company (“Guarantor Subsidiaries”), on a joint and several basis. The Guaranteed Debt will not be guaranteed by certain of Domtar’s own 100% owned subsidiaries; including Domtar Delaware Holdings Inc. and its foreign subsidiaries, including Attends Healthcare Limited, Domtar Inc. and Laboratorios Indas. S.A.U., (collectively the “Non-Guarantor Subsidiaries”). The subsidiary’s guarantee may be released in certain customary circumstances, such as if the subsidiary is sold or sells all of its assets, if the subsidiary’s guarantee of the Credit Agreement is terminated or released and if the requirements for legal defeasance to discharge the indenture have been satisfied.

The following supplemental condensed consolidating financial information sets forth, on an unconsolidated basis, the Balance Sheets at ~~September~~June 30, ~~2015~~2016 and December 31, ~~2014,~~2015, the Statements of Earnings and Comprehensive Income (Loss) ~~Income~~and Cash Flows for the three and ~~nine~~six months ended ~~September~~June 30, ~~2015~~2016 and ~~2014 and the Statements of Cash Flows for the nine months ended September 30,~~ 2015 ~~and 2014~~ for Domtar Corporation (the “Parent”), and on a combined basis for the Guarantor Subsidiaries and, on a combined basis, the Non-Guarantor Subsidiaries. The supplemental condensed consolidating financial information reflects the investments of the Parent in the Guarantor Subsidiaries, as well as the investments of the Guarantor Subsidiaries in the Non-Guarantor Subsidiaries, using the equity method.

	For the three months ended															For the three months ended
	September 30, 2015															June 30, 2016
							Non-															Non-
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS AND				Guarantor			Guarantor			Consolidating
COMPREHENSIVE LOSS	Parent			Subsidiaries			Subsidiaries			Adjustments			Consolidated
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS (LOSS)																			Guarantor			Guarantor			Consolidating
AND COMPREHENSIVE INCOME (LOSS)																Parent			Subsidiaries			Subsidiaries			Adjustments			Consolidated
	$			$			$			$			$			$			$			$			$			$
Sales		—			1,071			528			(307	)		1,292			—			1,040			498			(271	)		1,267
Operating expenses
Cost of sales, excluding depreciation and amortization		—			975			358			(307	)		1,026			—			874			410			(271	)		1,013
Depreciation and amortization		—			62			27			—			89			—			63			24			—			87
Selling, general and administrative		2			36			57			—			95			2			25			77			—			104
Impairment and write-down of property, plant and equipment		—			20			—			—			20
Impairment of property, plant and equipment																	—			3			—			—			3
Closure and restructuring costs		—			1			—			—			1			—			21			—			—			21
Other operating loss (income), net		3			1			(4	)		—			—			1			(1	)		—			—			—
		5			1,095			438			(307	)		1,231			3			985			511			(271	)		1,228
Operating (loss) income		(5	)		(24	)		90			—			61			(3	)		55			(13	)		—			39
Interest expense (income), net		64			7			(7	)		—			64			16			7			(8	)		—			15
(Loss) earnings before income taxes		(69	)		(31	)		97			—			(3	)		(19	)		48			(5	)		—			24
Income tax (benefit) expense		(14	)		(45	)		45			—			(14	)		(5	)		12			(1	)		—			6
Share in earnings of equity accounted investees		66			52			—			(118	)		—			32			(4	)		—			(28	)		—
Net earnings		11			66			52			(118	)		11
Net earnings (loss)																	18			32			(4	)		(28	)		18
Other comprehensive loss		(69	)		(67	)		(57	)		124			(69	)		(14	)		(25	)		(29	)		54			(14	)
Comprehensive loss		(58	)		(1	)		(5	)		6			(58	)
Comprehensive income (loss)																	4			7			(33	)		26			4

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~SEPTEMBER~~JUNE 30, ~~2015~~2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE ~~18.~~16. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)

	For the six months ended
	June 30, 2016
							Non-
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS AND				Guarantor			Guarantor			Consolidating
COMPREHENSIVE INCOME	Parent			Subsidiaries			Subsidiaries			Adjustments			Consolidated
	$			$			$			$			$
Sales		—			2,106			1,019			(571	)		2,554
Operating expenses
Cost of sales, excluding depreciation and amortization		—			1,846			788			(571	)		2,063
Depreciation and amortization		—			128			48			—			176
Selling, general and administrative		10			52			145			—			207
Impairment of property, plant and equipment		—			24			—			—			24
Closure and restructuring costs		—			23			—			—			23
Other operating loss (income), net		1			(1	)		4			—			4
		11			2,072			985			(571	)		2,497
Operating (loss) income		(11	)		34			34			—			57
Interest expense (income), net		32			16			(16	)		—			32
(Loss) earnings before income taxes		(43	)		18			50			—			25
Income tax (benefit) expense		(10	)		4			9			—			3
Share in earnings of equity accounted investees		55			41			—			(96	)		—
Net earnings		22			55			41			(96	)		22
Other comprehensive income		100			90			56			(146	)		100
Comprehensive income		122			145			97			(242	)		122

	For the nine months ended															For the three months ended
	September 30, 2015															June 30, 2015
							Non-															Non-
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS AND				Guarantor			Guarantor			Consolidating									Guarantor			Guarantor			Consolidating
COMPREHENSIVE LOSS	Parent			Subsidiaries			Subsidiaries			Adjustments			Consolidated
COMPREHENSIVE INCOME																Parent			Subsidiaries			Subsidiaries			Adjustments			Consolidated
	$			$			$			$			$			$			$			$			$			$
Sales		—			3,266			1,583			(899	)		3,950			—			1,079			522			(291	)		1,310
Operating expenses
Cost of sales, excluding depreciation and amortization		—			2,867			1,172			(899	)		3,140			—			916			427			(291	)		1,052
Depreciation and amortization		—			191			79			—			270			—			65			26			—			91
Selling, general and administrative		10			108			176			—			294			3			39			57			—			99
Impairment and write-down of property, plant and equipment		—			57			—			—			57
Impairment of property, plant and equipment																	—			18			—			—			18
Closure and restructuring costs		—			2			1			—			3			—			1			—			—			1
Other operating loss (income), net		4			—			(12	)		—			(8	)
Other operating income, net																	(1	)		(6	)		(6	)		—			(13	)
		14			3,225			1,416			(899	)		3,756			2			1,033			504			(291	)		1,248
Operating (loss) income		(14	)		41			167			—			194			(2	)		46			18			—			62
Interest expense (income), net		115			21			(21	)		—			115			25			7			(7	)		—			25
(Loss) earnings before income taxes		(129	)		20			188			—			79			(27	)		39			25			—			37
Income tax (benefit) expense		(30	)		(41	)		65			—			(6	)		(7	)		3			3			—			(1	)
Share in earnings of equity accounted investees		184			123			—			(307	)		—			58			22			—			(80	)		—
Net earnings		85			184			123			(307	)		85			38			58			22			(80	)		38
Other comprehensive loss		(194	)		(194	)		(179	)		373			(194	)
Comprehensive loss		(109	)		(10	)		(56	)		66			(109	)
Other comprehensive income																	53			53			44			(97	)		53
Comprehensive income																	91			111			66			(177	)		91

For the three months ended

September 30, 2014

Non-

CONDENSED CONSOLIDATING STATEMENT OF EARNINGS AND

Guarantor

Guarantor

Consolidating

COMPREHENSIVE INCOME (LOSS)

Parent

Subsidiaries

Subsidiaries

Adjustments

Consolidated

$

$

$

$

$

Sales

—

1,125

560

(280
)

1,405

Operating expenses

Cost of sales, excluding depreciation and amortization

—

961

424

(280
)

1,105

Depreciation and amortization

—

67

29

—

96

Selling, general and administrative

5

49

45

—

99

Closure and restructuring costs

—

—

2

—

2

Other operating loss (income), net

1

(18
)

—

—

(17
)

6

1,059

500

(280
)

1,285

Operating (loss) income

(6
)

66

60

—

120

Interest expense (income), net

25

7

(7
)

—

25

(Loss) earnings before income taxes

(31
)

59

67

—

95

Income tax (benefit) expense

(9
)

(198
)

21

—

(186
)
Share in earnings of equity accounted investees

303

46

—

(349
)

—

Net earnings

281

303

46

(349
)

281

Other comprehensive loss

—

(11
)

(116
)

—

(127
)
Comprehensive income (loss)

281

292

(70
)

(349
)

154

3432

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~SEPTEMBER~~JUNE 30, ~~2015~~2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE ~~18.~~16. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)

	For the six months ended
	June 30, 2015
							Non-
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS AND				Guarantor			Guarantor			Consolidating
COMPREHENSIVE LOSS	Parent			Subsidiaries			Subsidiaries			Adjustments			Consolidated
	$			$			$			$			$
Sales		—			2,195			1,055			(592	)		2,658
Operating expenses
Cost of sales, excluding depreciation and amortization		—			1,892			814			(592	)		2,114
Depreciation and amortization		—			129			52			—			181
Selling, general and administrative		8			72			119			—			199
Impairment of property, plant and equipment		—			37			—			—			37
Closure and restructuring costs		—			1			1			—			2
Other operating loss (income), net		1			(1	)		(8	)		—			(8	)
		9			2,130			978			(592	)		2,525
Operating (loss) income		(9	)		65			77			—			133
Interest expense (income), net		51			14			(14	)		—			51
(Loss) earnings before income taxes		(60	)		51			91			—			82
Income tax (benefit) expense		(16	)		4			20			—			8
Share in earnings of equity accounted investees		118			71			—			(189	)		—
Net earnings		74			118			71			(189	)		74
Other comprehensive loss		(125	)		(127	)		(122	)		249			(125	)
Comprehensive loss		(51	)		(9	)		(51	)		60			(51	)

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 16. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)

For the nine months ended

September 30, 2014

Non-

CONDENSED CONSOLIDATING STATEMENT OF EARNINGS AND

Guarantor

Guarantor

Consolidating

COMPREHENSIVE INCOME (LOSS)

Parent

Subsidiaries

Subsidiaries

Adjustments

Consolidated

$

$

$

$

$

Sales

—

3,325

1,684

(825
)

4,184

Operating expenses

Cost of sales, excluding depreciation and amortization

—

2,810

1,331

(825
)

3,316

Depreciation and amortization

—

200

91

—

291

Selling, general and administrative

23

164

126

—

313

Closure and restructuring costs

—

1

2

—

3

Other operating loss (income), net

1

(17
)

(1
)

—

(17
)

24

3,158

1,549

(825
)

3,906

Operating (loss) income

(24
)

167

135

—

278

Interest expense (income), net

75

19

(18
)

—

76

(Loss) earnings before income taxes

(99
)

148

153

—

202

Income tax (benefit) expense

(26
)

(175
)

43

—

(158
)
Share in earnings of equity accounted investees

433

110

—

(543
)

—

Net earnings

360

433

110

(543
)

360

Other comprehensive income (loss)

1

(3
)

(124
)

—

(126
)
Comprehensive income (loss)

361

430

(14
)

(543
)

234

	June 30, 2016
					Non-
			Guarantor		Guarantor		Consolidating
CONDENSED CONSOLIDATING BALANCE SHEET	Parent		Subsidiaries		Subsidiaries		Adjustments			Consolidated
	$		$		$		$			$
Assets
Current assets
Cash and cash equivalents		18		6		87		—			111
Receivables		—		257		351		—			608
Inventories		—		534		219		—			753
Prepaid expenses		20		24		11		—			55
Income and other taxes receivable		12		3		16		—			31
Intercompany accounts		983		5,149		289		(6,421	)		—
Total current assets		1,033		5,973		973		(6,421	)		1,558
Property, plant and equipment, net		—		2,061		845		—			2,906
Goodwill		—		296		247		—			543
Intangible assets, net		—		250		348		—			598
Investments in affiliates		8,177		2,137		—		(10,314	)		—
Intercompany long-term advances		6		93		638		(737	)		—
Other assets		7		25		131		—			163
Total assets		9,223		10,835		3,182		(17,472	)		5,768
Liabilities and shareholders' equity
Current liabilities
Bank indebtedness		—		1		—		—			1
Trade and other payables		53		411		229		—			693
Intercompany accounts		5,011		1,014		396		(6,421	)		—
Income and other taxes payable		—		14		10		—			24
Long-term debt due within one year		62		1		1		—			64
Total current liabilities		5,126		1,441		636		(6,421	)		782
Long-term debt		830		298		109		—			1,237
Intercompany long-term loans		533		204		—		(737	)		—
Deferred income taxes and other		3		536		142		—			681
Other liabilities and deferred credits		15		179		158		—			352
Shareholders' equity		2,716		8,177		2,137		(10,314	)		2,716
Total liabilities and shareholders' equity		9,223		10,835		3,182		(17,472	)		5,768

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 16. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)

	December 31, 2015
					Non-
			Guarantor		Guarantor		Consolidating
CONDENSED CONSOLIDATING BALANCE SHEET	Parent		Subsidiaries		Subsidiaries		Adjustments			Consolidated
	$		$		$		$			$
Assets
Current assets
Cash and cash equivalents		49		2		75		—			126
Receivables		—		384		243		—			627
Inventories		—		556		210		—			766
Prepaid expenses		8		7		6		—			21
Income and other taxes receivable		—		13		11		(10	)		14
Intercompany accounts		764		4,776		16		(5,556	)		—
Total current assets		821		5,738		561		(5,566	)		1,554
Property, plant and equipment, net		—		2,018		817		—			2,835
Goodwill		—		296		243		—			539
Intangible assets, net		—		254		347		—			601
Investments in affiliates		8,005		2,050		—		(10,055	)		-
Intercompany long-term advances		6		88		621		(715	)		-
Other assets		15		10		115		(15	)		125
Total assets		8,847		10,454		2,704		(16,351	)		5,654
Liabilities and shareholders' equity
Current liabilities
Trade and other payables		61		456		203		—			720
Intercompany accounts		4,685		722		149		(5,556	)		—
Income and other taxes payable		4		24		9		(10	)		27
Long-term debt due within one year		38		1		2		—			41
Total current liabilities		4,788		1,203		363		(5,566	)		788
Long-term debt		901		301		8		—			1,210
Intercompany long-term loans		490		225		—		(715	)		—
Deferred income taxes and other		—		535		131		(12	)		654
Other liabilities and deferred credits		16		185		152		(3	)		350
Shareholders' equity		2,652		8,005		2,050		(10,055	)		2,652
Total liabilities and shareholders' equity		8,847		10,454		2,704		(16,351	)		5,654

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~SEPTEMBER~~JUNE 30, ~~2015~~2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE ~~18.~~16. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)

September 30, 2015

Non-

Guarantor

Guarantor

Consolidating

CONDENSED CONSOLIDATING BALANCE SHEET

Parent

Subsidiaries

Subsidiaries

Adjustments

Consolidated

$

$

$

$

$

Assets

Current assets

Cash and cash equivalents

26

15

87

—

128

Receivables

—

377

240

—

617

Inventories

—

526

225

—

751

Prepaid expenses

10

5

10

—

25

Income and other taxes receivable

62

—

16

(61
)

17

Intercompany accounts

765

4,790

21

(5,576
)

—

Deferred income taxes

—

55

27

—

82

Total current assets

863

5,768

626

(5,637
)

1,620

Property, plant and equipment, at cost

—

6,250

2,464

—

8,714

Accumulated depreciation

—

(4,219
)

(1,623
)

—

(5,842
)
Net property, plant and equipment

—

2,031

841

—

2,872

Goodwill

—

296

250

—

546

Intangible assets, net of amortization

—

257

359

—

616

Investments in affiliates

8,005

2,092

—

(10,097
)

—

Intercompany long-term advances

6

84

568

(658
)

—

Other assets

48

9

127

(49
)

135

Total assets

8,922

10,537

2,771

(16,441
)

5,789

Liabilities and shareholders' equity

Current liabilities

Bank indebtedness

—

1

—

—

1

Trade and other payables

59

455

207

—

721

Intercompany accounts

4,787

717

72

(5,576
)

—

Income and other taxes payable

—

64

20

(61
)

23

Long-term debt due within one year

38

3

1

—

42

Total current liabilities

4,884

1,240

300

(5,637
)

787

Long-term debt

936

300

9

—

1,245

Intercompany long-term loans

418

240

—

(658
)

—

Deferred income taxes and other

8

577

208

(49
)

744

Other liabilities and deferred credits

17

175

162

—

354

Shareholders' equity

2,659

8,005

2,092

(10,097
)

2,659

Total liabilities and shareholders' equity

8,922

10,537

2,771

(16,441
)

5,789

	For the six months ended
	June 30, 2016
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Consolidating Adjustments			Consolidated
	$			$			$			$			$
Operating activities
Net earnings		22			55			41			(96	)		22
Changes in operating and intercompany assets and liabilities and non-cash items, included in net earnings		24			108			(35	)		96			193
Cash flows provided from operating activities		46			163			6			—			215
Investing activities
Additions to property, plant and equipment		—			(184	)		(35	)		—			(219	)
Acquisition of business, net of cash acquired		—			(1	)		—			—			(1	)
Cash flows used for investing activities		—			(185	)		(35	)		—			(220	)
Financing activities
Dividend payments		(50	)		—			—			—			(50	)
Stock repurchase		(10	)		—			—			—			(10	)
Net change in bank indebtedness		—			1			—			—			1
Change in revolving bank credit facility		—			(50	)		—			—			(50	)
Proceeds from receivables securitization facility		—			—			120			—			120
Repayments of receivables securitization facility		—			—			(20	)		—			(20	)
Repayments of long-term debt		—			(1	)		—			—			(1	)
Increase in long-term advances to related parties		(16	)		—			(60	)		76			—
Decrease in long-term advances to related parties		—			76			—			(76	)		—
Other		(1	)		—			—			—			(1	)
Cash flows (used for) provided from financing activities		(77	)		26			40			—			(11	)
Net (decrease) increase in cash and cash equivalents		(31	)		4			11			—			(16	)
Impact of foreign exchange on cash		—			—			1			—			1
Cash and cash equivalents at beginning of period		49			2			75			—			126
Cash and cash equivalents at end of period		18			6			87			—			111

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

~~SEPTEMBER~~JUNE 30, ~~2015~~2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE ~~18.~~16. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)

December 31, 2014

Non-

Guarantor

Guarantor

Consolidating

CONDENSED CONSOLIDATING BALANCE SHEET

Parent

Subsidiaries

Subsidiaries

Adjustments

Consolidated

$

$

$

$

$

Assets

Current assets

Cash and cash equivalents

79

18

77

—

174

Receivables

—

370

258

—

628

Inventories

—

495

219

—

714

Prepaid expenses

11

7

7

—

25

Income and other taxes receivable

37

—

17

—

54

Intercompany accounts

977

4,613

13

(5,603
)

—

Deferred income taxes

—

40

35

—

75

Total current assets

1,104

5,543

626

(5,603
)

1,670

Property, plant and equipment, at cost

—

6,119

2,790

—

8,909

Accumulated depreciation

—

(3,985
)

(1,793
)

—

(5,778
)
Net property, plant and equipment

—

2,134

997

—

3,131

Goodwill

—

296

271

—

567

Intangible assets, net of amortization

—

263

398

—

661

Investments in affiliates

8,015

2,153

—

(10,168
)

—

Intercompany long-term advances

6

80

434

(520
)

—

Other assets

31

11

135

(21
)

156

Total assets

9,156

10,480

2,861

(16,312
)

6,185

Liabilities and shareholders' equity

Current liabilities

Bank indebtedness

—

10

—

—

10

Trade and other payables

69

409

243

—

721

Intercompany accounts

4,582

925

96

(5,603
)

—

Income and other taxes payable

2

9

15

—

26

Long-term debt due within one year

166

2

1

—

169

Total current liabilities

4,819

1,355

355

(5,603
)

926

Long-term debt

1,168

2

11

—

1,181

Intercompany long-term loans

260

260

—

(520
)

—

Deferred income taxes and other

—

675

156

(21
)

810

Other liabilities and deferred credits

19

173

186

—

378

Shareholders' equity

2,890

8,015

2,153

(10,168
)

2,890

Total liabilities and shareholders' equity

9,156

10,480

2,861

(16,312
)

6,185

	For the six months ended
	June 30, 2015
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Consolidating Adjustments			Consolidated
	$			$			$			$			$
Operating activities
Net earnings		74			118			71			(189	)		74
Changes in operating and intercompany assets and liabilities and non-cash items, included in net earnings		(63	)		36			13			189			175
Cash flows provided from operating activities		11			154			84			—			249
Investing activities
Additions to property, plant and equipment		—			(93	)		(43	)		—			(136	)
Proceeds from disposals of property, plant and equipment		—			6			1			—			7
Other		—			—			9			—			9
Cash flows used for investing activities		—			(87	)		(33	)		—			(120	)
Financing activities
Dividend payments		(50	)		—			—			—			(50	)
Stock repurchase		(30	)		—			—			—			(30	)
Net change in bank indebtedness		—			(9	)		—			—			(9	)
Repayments of long-term debt		—			(1	)		(1	)		—			(2	)
Increase in long-term advances to related parties		—			(23	)		—			23			—
Decrease in long-term advances to related parties		8			—			15			(23	)		—
Other		1			—			—			—			1
Cash flows (used for) provided from financing activities		(71	)		(33	)		14			—			(90	)
Net (decrease) increase in cash and cash equivalents		(60	)		34			65			—			39
Impact of foreign exchange on cash		—			—			(6	)		—			(6	)
Cash and cash equivalents at beginning of period		79			18			77			—			174
Cash and cash equivalents at end of period		19			52			136			—			207

~~DOMTAR CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~SEPTEMBER 30, 2015~~

~~(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED~~)

~~(UNAUDITED)~~

~~NOTE 18. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)~~

For the nine months ended

September 30, 2015

Non-

Guarantor

Guarantor

Consolidating

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

Parent

Subsidiaries

Subsidiaries

Adjustments

Consolidated

$

$

$

$

$

Operating activities

Net earnings

85

184

123

(307
)

85

Changes in operating and intercompany assets and
liabilities and non-cash items, included in net earnings

231

(320
)

13

307

231

Cash flows provided from (used for) operating activities

316

(136
)

136

—

316

Investing activities

Additions to property, plant and equipment

—

(143
)

(59
)

—

(202
)
Proceeds from disposals of property, plant and equipment

—

7

28

—

35

Other

—

—

9

—

9

Cash flows used for investing activities

—

(136
)

(22
)

—

(158
)
Financing activities

Dividend payments

(75
)

—

—

—

(75
)
Stock repurchase

(50
)

—

—

—

(50
)
Net change in bank indebtedness

—

(9
)

—

—

(9
)
Change in revolving bank credit facility

75

—

—

—

75

Issuance of long-term debt

—

300

—

—

300

Repayment of long-term debt

(436
)

(2
)

(1
)

—

(439
)
Increase in long-term advances to related parties

—

(20
)

(96
)

116

—

Decrease in long-term advances to related parties

116

—

—

(116
)

—

Other

1

—

—

—

1

Cash flows (used for) provided from financing activities

(369
)

269

(97
)

—

(197
)
Net (decrease) increase in cash and cash equivalents

(53
)

(3
)

17

—

(39
)
Impact of foreign exchange on cash

—

—

(7
)

—

(7
)
Cash and cash equivalents at beginning of period

79

18

77

—

174

Cash and cash equivalents at end of period

26

15

87

—

128

~~DOMTAR CORPORATION~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~SEPTEMBER 30, 2015~~

~~(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED~~)

~~(UNAUDITED)~~

~~NOTE 18. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)~~

For the nine months ended

September 30, 2014

Non-

Guarantor

Guarantor

Consolidating

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

Parent

Subsidiaries

Subsidiaries

Adjustments

Consolidated

$

$

$

$

$

Operating activities

Net earnings

360

433

110

(543
)

360

Changes in operating and intercompany assets and
liabilities and non-cash items, included in net earnings

(183
)

(354
)

82

543

88

Cash flows provided from operating activities

177

79

192

—

448

Investing activities

Additions to property, plant and equipment

—

(116
)

(41
)

—

(157
)
Proceeds from disposals of property, plant and equipment

—

—

1

—

1

Acquisition of business, net of cash acquired

—

—

(546
)

—

(546
)
Other

—

—

5

—

5

Cash flows used for investing activities

—

(116
)

(581
)

—

(697
)
Financing activities

Dividend payments

(60
)

—

—

—

(60
)
Stock repurchase

(19
)

—

—

—

(19
)
Net change in bank indebtedness

(1
)

(11
)

(1
)

—

(13
)
Change in revolving bank credit facility

(160
)

—

—

—

(160
)
Proceeds from receivable securitization facilities

—

—

90

—

90

Payments on receivable securitization facilities

—

—

(108
)

—

(108
)
Repayment of long-term debt

—

(3
)

(1
)

—

(4
)
Increase in long-term advances to related parties

(352
)

—

—

352

—

Decrease in long-term advances to related parties

—

38

314

(352
)

—

Other

3

—

1

—

4

Cash flows (used for) provided from financing
activities

(589
)

24

295

—

(270
)
Net decrease in cash and cash equivalents

(412
)

(13
)

(94
)

—

(519
)
Imact of foreign exchange on cash

—

—

(2
)

—

(2
)
Cash and cash equivalents at beginning of period

439

22

194

—

655

Cash and cash equivalents at end of period

27

9

98

—

134

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management’s Discussion and Analysis (“MD&A”) of Financial Condition and Results of Operations should be read in conjunction with Domtar Corporation’s unaudited interim financial statements and notes thereto included in the Quarterly Report. The MD&A should also be read in conjunction with the historical financial information contained in our Annual Report on Form 10-K for the year ended December 31, ~~2014,~~2015, filed with the Securities and Exchange Commission (“SEC”) on February ~~27, 2015.~~26, 2016. 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 (“GAAP”).

The information contained on our website, www.Domtar.com, is not incorporated by reference into this Form 10-Q 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.

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 three and ~~nine~~six months ended ~~September~~June 30, ~~2015~~2016 and ~~2014.~~2015. The ~~three-month~~three month and ~~nine-month~~six month periods are also referred to as the ~~third~~second quarter and first ~~nine months~~half of ~~2015~~2016 and ~~2014.~~2015. Reference to notes refers to footnotes to the consolidated financial statements ~~and notes thereto~~ included in Item 1 of this Form 10-Q.

This MD&A of financial condition and results of operations is intended to provide investors with an understanding of our recent performance, financial condition and outlook. Topics discussed and analyzed include:

Overview

Highlights for the three month and ~~nine~~six month periods ended ~~September~~June 30, ~~2015~~2016

Outlook

Consolidated Results of Operations and Segment Review

~~Outlook~~

Liquidity and Capital Resources

OVERVIEW

~~Domtar Corporation designs, manufactures, markets~~We design, manufacture, market and ~~distributes~~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 ~~world-class~~ wood ~~fiber-converting~~fiber converting assets that produce ~~papergrade,~~paper grade, fluff and specialty pulp. The majority 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 ~~and manufacturer~~ of uncoated freesheet paper in North America ~~with recognized brands such as Cougar~~^®~~, Lynx~~^® ~~Opaque Ultra, Husky~~^® ~~Opaque Offset, First Choice~~^®~~, EarthChoice~~^®serving a variety of customers, including merchants, retail outlets, stationers, printers, publishers, converters and ~~Xerox~~^® ~~Paper and Specialty Media. Domtar is~~end-users. We are also a marketer and producer of a broad line of ~~absorbent hygiene~~incontinence care products, marketed primarily under the Attends^®, IncoPack^® and Indasec^® brand ~~names.~~names, as well as infant diapers. To learn more, visit www.Domtar.com.

We have two reportable segments as described below. 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.

Personal Care: Our Personal Care segment consists of the design, manufacturing, marketing and distribution of absorbent hygiene products.

As a result of changes in the Company’s organization structure, we have changed the way we allocate certain Corporate general and administrative costs to the segments. Further, certain Corporate costs not related to segment activities, as well as the mark-to-market impact on stock-based compensation awards, will be presented on the Corporate line. As a result, we have revised our 2014 segment disclosures to conform with our 2015 presentation.

HIGHLIGHTS FOR THE THREE MONTH PERIOD ENDED ~~SEPTEMBER~~JUNE 30, ~~2015~~2016

Operating income and net earnings decreased by ~~49%~~37% and ~~96%~~53%, respectively, from the ~~third~~second quarter of ~~2014~~2015

Sales decreased by 8%3% from the ~~third~~second quarter of ~~2014.~~2015. Net average selling prices for pulp and paper were down from the ~~third~~second quarter of ~~2014.~~2015. Our ~~pulp~~manufactured paper volumes were down while our ~~manufactured paper~~pulp volumes were ~~stable~~up when compared to the ~~third~~second quarter of ~~2014~~2015

Recognition of closure and restructuring costs of $21 million related to the conversion of a paper machine at our Ashdown mill to a high quality fluff pulp line

Recognition of accelerated depreciation of ~~$20~~$3 million related to our 2014 decision to convert a paper machine at our Ashdown mill to a high quality fluff pulp line

We paid $25 million in dividends

HIGHLIGHTS FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2016

Operating income and net earnings decreased by 57% and 70%, respectively, from the first half of 2015

Sales decreased by 4% from the first half of 2015. Net average selling prices for pulp and paper were down from the first half of 2015. Our manufactured paper volumes were down while our pulp volumes were up when compared to the first half of 2015

Recognition of closure and restructuring costs of $23 million, of which $22 million is related to the conversion of a paper machine at our Ashdown mill to a high quality fluff pulp line

Recognition of accelerated depreciation of $24 million related to our 2014 decision to convert a paper machine at our Ashdown mill to a high quality fluff pulp line

We repurchased ~~$20~~$10 million of our common stock and paid ~~$25 million in dividends~~

~~HIGHLIGHTS FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2015~~

~~Operating income and net earnings decreased by 30% and 76%, respectively from the first nine months of 2014~~

Sales decreased by 6% from the first nine months of 2014. Net average selling prices for pulp and paper were down from the first nine months of 2014. Our manufactured paper volumes and pulp volumes were stable when compared to the first nine months of 2014

~~Recognition of impairment and write-down of property, plant and equipment of $57 million related to our 2014 decision to convert a paper machine at our Ashdown mill to a high quality fluff pulp line~~

~~We repurchased~~ $50 ~~million of our common stock and paid $75~~ million in dividends

																							Three months ended										Six months ended
		Three months ended				Variance						Nine months ended				Variance											Variance										Variance
FINANCIAL HIGHLIGHTS		September 30, 2015		September 30, 2014		$			%			September 30, 2015		September 30, 2014		$			%				June 30, 2016		June 30, 2015		$			%			June 30, 2016		June 30, 2015		$			%
(In millions of dollars, unless otherwise noted)
Sales		$	1,292	$	1,405	$	(113	)		-8	%	$	3,950	$	4,184	$	(234	)		-6	%		$	1,267	$	1,310	$	(43	)		-3	%	$	2,554	$	2,658	$	(104	)		-4	%
Operating income	Operating income		61		120		(59	)		-49	%		194		278		(84	)		-30	%	Operating income		39		62		(23	)		-37	%		57		133		(76	)		-57	%
Net earnings			11		281		(270	)		-96	%		85		360		(275	)		-76	%			18		38		(20	)		-53	%		22		74		(52	)		-70	%
Net earnings per common share (in dollars)¹:
Basic		$	0.17	$	4.34	$	(4.17	)		-96	%	$	1.34	$	5.55	$	(4.21	)		-76	%		$	0.29	$	0.60	$	(0.31	)		-52	%	$	0.35	$	1.16	$	(0.81	)		-70	%
Diluted		$	0.17	$	4.33	$	(4.16	)		-96	%	$	1.34	$	5.54	$	(4.20	)		-76	%		$	0.29	$	0.60	$	(0.31	)		-52	%	$	0.35	$	1.16	$	(0.81	)		-70	%

												At September 30, 2015		At December 31, 2014																			At June 30, 2016		At December 31, 2015
Total assets												$	5,789	$	6,185																		$	5,768	$	5,654
Total long-term debt, including current portion												$	1,287	$	1,350																		$	1,301	$	1,251

¹	See Note 54 “Earnings per Common Share” of the financial statements in this Quarterly Report on Form 10-Q for more information on the calculation of net earnings per common share.

OUTLOOK

Our paper shipments are expected to trend with market demand in the second half of 2016. Our paper business should continue to benefit from recently announced price increases while we expect some short-term pricing volatility in pulp. Lower maintenance activity and better productivity should positively impact results in Pulp and Paper. Personal Care results are expected to benefit from the new customer wins, market growth and cost savings from the new manufacturing platform. Raw material unit costs are expected to moderately increase.

CONSOLIDATED RESULTS OF OPERATIONS AND SEGMENT REVIEW

This section presents a discussion and analysis of our ~~third~~second quarter and first ~~nine months~~half of ~~2015~~2016 and ~~2014 net~~2015 sales, operating income (loss) and other information relevant to the understanding of our results of operations.

Analysis of Net Sales
Analysis of Sales
By Business Segment	Three months ended						Variance					Nine months ended						Variance					Three months ended											Six months ended
																													Variance											Variance
	September 30, 2015			September 30, 2014			$			%		September 30, 2015			September 30, 2014			$			%		June 30, 2016			June 30, 2015			$			%		June 30, 2016			June 30, 2015			$			%
Pulp and Paper	$	1,092		$	1,186			(94	)		-8%	$	3,348		$	3,514			(166	)		-5%	$	1,054		$	1,110			(56	)		-5%	$	2,139		$	2,256			(117	)		-5%
Personal Care		214			231			(17	)		-7%		648			698			(50	)		-7%		228			216			12			6%		444			434			10			2%
Total for reportable segments		1,306			1,417			(111	)		-8%		3,996			4,212			(216	)		-5%		1,282			1,326			(44	)		-3%		2,583			2,690			(107	)		-4%
Intersegment sales		(14	)		(12	)		(2	)				(46	)		(28	)		(18	)				(15	)		(16	)		1					(29	)		(32	)		3
Consolidated		1,292			1,405			(113	)		-8%		3,950			4,184			(234	)		-6%		1,267			1,310			(43	)		-3%		2,554			2,658			(104	)		-4%

Shipments
Paper - manufactured (in thousands of ST)		779			777			2			-%		2,366			2,363			3			-%		752			783			(31	)		-4%		1,538			1,587			(49	)		-3%
Communication Papers		648			649			(1	)		-%		1,970			1,977			(7	)		-%		627			653			(26	)		-4%		1,284			1,322			(38	)		-3%
Specialty and Packaging		131			128			3			2%		396			386			10			3%		125			130			(5	)		-4%		254			265			(11	)		-4%
Paper - sourced from third parties (in thousands of ST)		35			46			(11	)		-24%		99			135			(36	)		-27%		29			29			-			-%		61			64			(3	)		-5%
Paper - total (in thousands of ST)		814			823			(9	)		-1%		2,465			2,498			(33	)		-1%		781			812			(31	)		-4%		1,599			1,651			(52	)		-3%
Pulp (in thousands of ADMT)		333			367			(34	)		-9%		1,028			1,021			7			1%		360			345			15			4%		729			695			34			5%

Analysis of Changes in Net Sales
Analysis of Changes in Sales
	Third quarter of 2015 versus Third quarter of 2014												First nine months of 2015 versus First nine months of 2014												Second quarter of 2016 versus Second quarter of 2015												First half of 2016 versus First half of 2015
	% Change in Net Sales due to												% Change in Net Sales due to												% Change in Sales due to												% Change in Net Sales due to
	Net Price			Volume / Mix			Currency			Total			Net Price			Volume / Mix			Currency			Total			Net Price			Volume / Mix			Currency			Total			Net Price			Volume / Mix			Currency			Total
Pulp and Paper		-5	%		-3	%		-	%		-8	%		-4	%		-1	%		-	%		-5	%		-3	%		-2	%		-	%		-5	%		-4	%		-1	%		-	%		-5	%
Personal Care		-	%		2	%		-9	%		-7	%		-1	%		3	%		-9	%		-7	%		-2	%		7	%		1	%		6	%		-2	%		4	%		-	%		2	%
Consolidated sales		-4	%		-2	%		-2	%		-8	%		-3	%		-1	%		-2	%		-6	%		-3	%		-	%		-	%		-3	%		-4	%		-	%		-	%		-4	%

Analysis of Operating Income (Loss)
By Business Segment	Three months ended					Variance						Nine months ended						Variance						Three months ended												Six months ended
																														Variance												Variance
	September 30, 2015			September 30, 2014		$			%			September 30, 2015			September 30, 2014			$			%			June 30, 2016			June 30, 2015			$			%			June 30, 2016			June 30, 2015			$			%
Operating income (loss)
Pulp and Paper		54			101		(47	)		-47	%		184			264			(80	)		-30	%		35			55			(20	)		-36	%		54			130			(76	)		-58	%
Personal Care		18			12		6			50	%		45			38			7			18	%		15			17			(2	)		-12	%		29			27			2			7	%
Corporate		(11	)		7		(18	)		-257	%		(35	)		(24	)		(11	)		-46	%		(11	)		(10	)		(1	)		10	%		(26	)		(24	)		(2	)		-8	%
Consolidated operating income (loss)		61			120		(59	)		-49	%		194			278			(84	)		-30	%		39			62			(23	)		-37	%		57			133			(76	)		-57	%

Third quarter of 2015 versus Third quarter of 2014
Second quarter of 2016 versus Second quarter of 2015

	$ Change in Segmented Operating Income (Loss) due to																									$ Change in Segmented Operating Income (Loss) due to
	Volume/Mix			Net Price			Input Costs ^(a)		Operating expenses^(b)			Currency, net of hedging			Depreciation/ impairment ^(c)			Restructuring ^(d)		Other Income/ expense ^(e)			Total			Volume/Mix			Net Price			Input Costs ^(a)		Operating expenses^(b)			Currency, net of hedging		Depreciation/ impairment ^(c)		Restructuring ^(d)			Other Income/ expense ^(e)			Total
Pulp and Paper		(8	)		(59	)		7		—			31			(19	)		1		—			(47	)		(8	)		(33	)		15		8			14		17		(20	)		(13	)		(20	)
Personal Care		1			(1	)		9		(4	)		(1	)		1			—		1			6			—			(5	)		9		(7	)		—		1		—			—			(2	)
Corporate		—			—			—		—			—			—			—		(18	)		(18	)		—			—			—		(1	)		—		—		—			—			(1	)
Consolidated operating income (loss)		(7	)		(60	)		16		(4	)		30			(18	)		1		(17	)		(59	)		(8	)		(38	)		24		—			14		18		(20	)		(13	)		(23	)

(a)	Includes raw materials ~~(fiber~~(such as fiber, chemicals, nonwovens and ~~chemicals)~~super absorbent polymers) and energy expenses.

(b)	Includes maintenance, freight costs, selling, general and administrative (“SG&A&A”) expenses and other costs.

(c)

In the ~~third~~second quarter of ~~2015,~~2016, we recorded ~~$20~~$3 million of accelerated depreciation related to the conversion of a paper machine to a high quality fluff pulp line at our Ashdown ~~mill. In~~mill, compared to $18 million recorded in the ~~third~~second quarter of ~~2014, we did not record any impairment charges.~~2015. Depreciation charges were lower by $2$3 million in the ~~third~~second quarter of ~~2015,~~2016, excluding foreign currency impact.

(d)	In the ~~third~~second quarter of ~~2015,~~2016, restructuring charges related to the conversion at Ashdown described above ($121 million). In the ~~third~~second quarter of ~~2014,~~2015, we incurred restructuring ~~related to previous closures ($2 million).~~charges of $1 million.

(e)


~~Third~~Second quarter of 2016 operating expenses/income includes:	Second quarter of 2015 operating ~~expenses / income includes:~~	~~Third quarter of 2014 operating expenses /~~ expenses/income includes:
- ~~Foreign currency gain on working capital items~~Litigation settlement ($32 million) - ~~Environmental provision~~Other income ($42 million) ~~- Bad debt expense recovery ($1 million)~~	~~- Alternative fuel tax credits received (“AFTC”) ($18 million)~~ ~~- Environmental provision ($1 million)~~ ~~- Foreign currency loss on working capital items ($1 million)~~
	- Gain on sale of property, plant and equipment ($14 million) - Other ~~income~~expense ($1 million)

Commentary ~~–Third~~– Second quarter of ~~2015~~2016 compared to ~~Third~~Second quarter of ~~2014~~2015

Interest Expense, net

We incurred ~~$64~~$15 million of net interest expense in the ~~third~~second quarter of ~~2015, an increase~~2016, a decrease of ~~$39~~$10 million compared to net interest expense of $25 million in the ~~third~~second quarter of ~~2014. The increase~~2015. This decrease was mostly due to ~~debt refinancing costs of $42 million in August 2015 on the~~ partial repayment of the 9.5% Notes due 2016 and of the 10.75% Notes due ~~2017.~~ 2017 in the third quarter of 2015. In addition, interest expense also decreased due to the repayment at maturity of the 7.125% Notes due in August 2015. This decrease was partially offset by interest expense related to the Term Loan Agreement entered in the third quarter of 2015.

Income Taxes

In the ~~third~~second quarter of ~~2015,~~2016, our income tax ~~benefit~~expense was ~~$14~~$6 million, consisting of a current income tax expense of $4$8 million and a deferred income tax benefit of ~~$18~~$2 million. This compares to an income tax benefit of ~~$186~~$1 million in the ~~third~~second quarter of ~~2014,~~2015, consisting of a current income tax expense of ~~$10~~$16 million and a deferred income tax benefit of ~~$196~~$17 million. We made income tax payments, net of refunds, of ~~$14~~$21 million during the ~~third~~second quarter of ~~2015.~~2016. Our effective tax rate was ~~467%~~25% compared with an effective tax rate of ~~-196%~~(3)% in the ~~third~~second quarter of 2014. The effective tax rates for both the third quarter of 2015 and the third quarter of 2014 were impacted by the recognition of additional tax benefits related to the finalization of certain estimates in connection with the filing of our 2014 and 2013 income tax returns, respectively. Additionally, the effective tax rate for the third quarter of 2015 was impacted by enacted law changes in several U.S. states and by the impairment and write-down of property, plant, and equipment charges occurring in a high-tax jurisdiction. Also, for the third quarter of 2014, the effective tax rate was impacted by the recognition of previously unrecognized tax benefits of approximately $204 million as a result of the closure of U.S. federal tax audits for tax years 2009 through 2011, as well as the impact of recognizing $18 million of AFTC income in the third quarter of 2014 with no related tax expense.

First nine months of 2015 versus First nine months of 2014

$ Change in Segmented Operating Income (Loss) due to

Volume/Mix

Net Price

Input Costs ^(a)

Operating
expenses^(b)

Currency,
net of
hedging

Depreciation/
impairment ^(c)

Restructuring ^(d)

Other Income/
expense ^(e)

Total

Pulp and Paper

(2
)

(139
)

27

(4
)

77

(47
)

—

8

(80
)
Personal Care

5

(6
)

25

(5
)

(10
)

(2
)

—

—

7

Corporate

—

—

—

3

^(f)

3

—

—

(17
)

(11
)
Consolidated operating income (loss)

3

(145
)

52

(6
)

70

(49
)

—

(9
)

(84
)

~~(a)~~

~~Includes raw materials (fiber and chemicals) and energy expenses.~~

~~(b)~~

~~Includes maintenance, freight costs, SG&A expenses and other costs.~~

(c)

In the first nine months of 2015, we recorded $57 million of accelerated depreciation related to the conversion of a paper machine to a high quality fluff pulp line at our Ashdown mill. In the first nine months of 2014, we did not record any impairment charges. Depreciation charges were lower by $8 million in the first nine months of 2015, excluding foreign currency impact due to accelerated depreciation charges in 2014 and certain assets reaching their useful lives.

~~(d)~~

In the first nine months of 2015, we recorded $3 million of restructuring charges mostly related to the conversion at Ashdown described above ($2 million). There was $3 million of restructuring charges in the first nine months of 2014.

~~(e)~~

~~First nine months of 2015 operating expenses / income includes:~~

~~First nine months of 2014 operating expenses / income includes:~~

~~- Gain on sale of property, plant and equipment ($15 million)~~

~~- Bad debt expense ($4 million)~~

~~- Environmental provision ($4 million)~~

~~- Foreign currency gain on working capital items ($3 million)~~

~~- Other expense ($2 million)~~

~~- AFTC received ($18 million)~~

~~- Environmental provision ($1 million)~~

(f)	~~Lower merger and acquisition costs and other recurring SG&A expenses. Partially offset by an increase in the mark-to-market impact on stock-based compensation.~~

~~Commentary – First nine months of 2015 compared to First nine months of 2014~~

~~Interest Expense, net~~

We incurred $115 million of net interest expense in the first nine months of 2015, an increase of $39 million compared to net interest expense of $76 million in the first nine months of 2014. The increase is mostly due to debt refinancing costs $42 million in August 2015 on the partial repayment of the 9.5% Notes due 2016 and of the 10.75% Notes due 2017.

~~Income Taxes~~

For the first nine months of 2015, our income tax benefit amounted to $6 million, consisting of a current tax expense of $44 million and a deferred tax benefit of $50 million. This compares to an income tax benefit of $158 million in the first nine months of 2014, consisting of a current tax expense of $44 million and a deferred tax benefit of $202 million. We made income tax payments, net of refunds, of $16 million during the first nine months of 2015. ~~Our effective tax rate was negative in the first nine months of both 2015 and 2014.~~ The effective tax rate for the ~~first nine months~~second quarter of 2015 was impacted ~~by the recognition of additional tax benefits related to the finalization of certain estimates in connection with the filing of our 2014 tax returns,~~ by the recognition of previously unrecognized tax benefits due to the expiration of certain statutes of limitations, by enacted law changes in several U.S. states, by the favorable tax treatment of certain gains on property dispositions and by the impairment and write-down of property, plant, and equipment charges occurring in a high-tax jurisdiction.

First half of 2016 versus First half of 2015

	$ Change in Segmented Operating Income (Loss) due to
	Volume/Mix			Net Price			Input Costs ^(a)		Operating expenses^(b)			Currency, net of hedging			Depreciation/ impairment ^(c)		Restructuring ^(d)			Other Income/ expense ^(e)			Total
Pulp and Paper		(9	)		(88	)		33		(22	)		29			15		(22	)		(12	)		(76	)
Personal Care		2			(10	)		19		(11	)		(1	)		1		1			1			2
Corporate		—			—			—		(3	)		2			—		—			(1	)		(2	)
Consolidated operating income (loss)		(7	)		(98	)		52		(36	)		30			16		(21	)		(12	)		(76	)

(a)	Includes raw materials (such as fiber, chemicals, nonwovens and super absorbent polymers) and energy expenses.

(b)	Includes maintenance, freight costs, selling, general and administrative (“SG&A”) expenses and other costs.

(c)

In the first half of 2016, we recorded $24 million of accelerated depreciation related to the conversion of a paper machine to a high quality fluff pulp line at our Ashdown mill, compared to $37 million recorded in the first half of 2015. Depreciation charges were lower by $3 million in the first half of 2016, excluding foreign currency impact.

(d)	In the first half of 2016, we incurred restructuring charges of $23 million mostly related to the conversion at Ashdown described above compared to restructuring charges of $2 million in the first half of 2015.

(e)

First half of 2016 operating expenses/income includes:

First half of 2015 operating expenses/income includes:

- Foreign currency loss on working capital items ($4 million)

- Litigation settlement ($2 million)

- Other income ($2 million)

- Gain on sale of property, plant and equipment ($15 million)

- Bad debt expense ($5 million)

- Other expense ($2 million)

Commentary – First half of 2016 compared to first half of 2015

Interest Expense, net

We incurred $32 million of net interest expense in the first half of 2016, a decrease of $19 million compared to net interest expense of $51 million in the first half of 2015. This decrease was mostly due to partial repayment of the 9.5% Notes due 2016 and of the 10.75% Notes due 2017 in the third quarter of 2015. In addition, interest expense also decreased due to the repayment at maturity of the 7.125% Notes due in August 2015. This decrease was partially offset by interest expense related to the Term Loan Agreement entered in the third quarter of 2015.

Income Taxes

In the first half of 2016, our income tax expense was $3 million, consisting of current income tax expense of $8 million and a deferred income tax benefit of $5 million. This compares to an income tax expense of $8 million in the first half of 2015, consisting of a current income tax expense of $40 million and a deferred income tax benefit of $32 million. We made income tax payments, net of refunds, of $27 million during the first half of 2016. Our effective tax rate was 12% compared to an effective tax rate of 10% in the first half of 2015. The effective tax rate for the first ~~nine months~~half of ~~2014~~2016 was impacted by the approval of a state tax credit in the U.S. The effective tax rate for the first half of 2015 was impacted by the recognition of previously unrecognized tax benefits due to the expiration of ~~approximately $204 million as~~certain statutes of limitations, by enacted law changes in several U.S. states, by the favorable tax treatment of certain gains on property dispositions and by the impairment and write-down of property, plant, and equipment charges occurring in a ~~result of the closure of U.S. federal tax audits for tax years 2009 through 2011, as well as the impact of recognizing $18 million of AFTC income with no related tax expense.~~high-tax jurisdiction.

Commentary – Segment Review

Pulp and Paper ~~segment~~Segment

Sales in our Pulp and Paper segment decreased by ~~$94~~$56 million, or 8%5% when compared to sales in the ~~third~~second quarter of ~~2014.~~2015. This decrease in sales is mostly due to a 5%3% decrease in net average selling prices for pulp and paper as well as a decrease in our ~~pulp and~~ paper sales volumes.

Operating income in our Pulp and Paper segment amounted to ~~$54~~$35 million in the ~~third~~second quarter of ~~2015,~~2016, a decrease of ~~$47~~$20 million, when compared to operating income of ~~$101~~$55 million in the ~~third~~second quarter of ~~2014.~~2015. Our results were negatively impacted by lower average selling prices for pulp and paper, higher ~~accelerated depreciation~~restructuring charges related to the Ashdown conversion, a decrease in our paper sales volume, higher maintenance costs due mostly to the timing of maintenance outages and ~~higher fiber costs.~~the gain on sale of property, plant and equipment in Q2 2015. This decrease was partially offset by lower accelerated depreciation charges, favorable currency rates, lower raw materials costs and lower ~~energy and chemicals~~freight costs.

Sales ~~in the first nine months of 2015~~ in our Pulp and Paper segment decreased by ~~$166~~$117 million, or 5% when compared to sales in the first ~~nine months~~half of ~~2014.~~2015. This decrease in sales is mostly due to a 4% decrease in net average selling prices for pulp and ~~paper.~~paper as well as a decrease in our paper sales volumes.

Operating income ~~in the first nine months of 2015~~ in our Pulp and Paper segment amounted to ~~$184~~$54 million in the first half of 2016, a decrease of ~~$80~~$76 million, when compared to operating income of ~~$264~~$130 million in the first ~~nine months~~half of ~~2014.~~2015. Our results were negatively impacted by lower average selling prices for pulp and paper, higher ~~accelerated depreciation and~~maintenance costs due mostly to the timing of maintenance outages, higher ~~fiber costs, partially offset by favorable currency rates, lower energy and chemicals costs mostly~~restructuring charges related to ~~extreme cold weather~~the Ashdown conversion, a decrease in ~~2014~~our paper sales volume, lower productivity in pulp and the gain on sale ~~from~~of property, plant and equipment in ~~the second quarter of~~Q2 2015. This decrease was partially offset by lower raw materials costs, favorable currency rates, lower freight costs and lower accelerated depreciation charges.

Personal Care ~~segment~~Segment

Sales in our Personal Care segment ~~decreased~~increased by ~~$17~~$12 million, or 7%6% when compared to sales in the ~~third~~second quarter of ~~2014.~~2015. This ~~decrease~~increase in sales iswas driven by ~~unfavorable~~higher sales volume/mix of 7% and favorable foreign currency rates of approximately ~~9%,~~1% due to the fluctuation between ~~the U.S. dollar and the Euro.~~European currencies. This ~~decrease~~increase was partially offset by lower selling prices of approximately 2%.

Operating income decreased by $2 million or 12% in the second quarter of 2016 compared to the second quarter of 2015. Our results were negatively impacted by higher SG&A costs (mostly due to increased advertising spend and salary increases) and lower selling prices. This was partially offset by favorable input costs, mostly due to favorable negotiated procurement savings as well as favorable raw material pricing related to indices.

Sales in our Personal Care segment increased by $10 million, or 2% when compared to sales in the first half of 2015. This increase in sales was driven by higher sales volume/mix of 4% and was partially offset by lower selling prices of approximately 2%.

Operating income increased by $6$2 million or ~~50%~~7% in the ~~third quarter~~first half of ~~2015~~2016 compared to the ~~third quarter~~first half of ~~2014.~~2015. Our results were positively impacted by favorable input costs, ~~and insourcing initiatives.~~mostly due to favorable negotiated procurement savings as well as favorable raw material pricing related to indices. This was partially offset by higher SG&A costs ~~and unfavorable foreign currency rates between the U.S. dollar and the Euro.~~

Sales in our Personal Care segment decreased by $50 million, or 7% when compared to sales in the first nine months of 2014. This decrease in sales is driven by unfavorable foreign currency rates of approximately 9%, due to the fluctuation between the U.S. dollar and the Euro and lower net selling prices of approximately 1%, partially offset by higher sales volume/mix of approximately 3%.

Operating income increased by $7 million or 18% in the first nine months of 2015 compared to the first nine months of 2014. Our results were positively impacted by favorable input costs and insourcing initiatives. This was partially offset by unfavorable foreign currency rates between the U.S. dollar and the Euro and higher SG&A costs.

~~OUTLOOK~~

Paper should be impacted by seasonality and mix in the fourth quarter while prices for pulp are still expected to remain under pressure. We remain cautious on the short-term pulp outlook due to the strong U.S. dollar. The fourth quarter should benefit from lower maintenance activities in our network while we expect higher input costs(mostly due to increased ~~raw material~~advertising spend and ~~energy usage due to colder weather. Personal Care results are expected to continue to benefit from market growth~~salary increases) and ~~cost savings from its new manufacturing platform.~~lower selling prices.

STOCK-BASED COMPENSATION EXPENSE

For the first ~~nine months~~half of ~~2015,~~2016, stock-based compensation expense recognized in our results of operations was $9$6 million for all outstanding awards which includes the mark-to-market recovery related to liability awards ~~($3 million).~~of $3 million. This compares to a stock-based compensation expense of $5$9 million for all outstanding awards which includes the mark-to-market ~~recovery~~expense related to liability awards ~~($6 million)~~of $1 million in the first ~~nine months~~half of ~~2014.~~2015. Compensation costs for performance awards are based on management’s best estimate of the final performance measurement.

LIQUIDITY AND CAPITAL RESOURCES

Our principal cash requirements are for ongoing operating costs, pension contributions, working capital and capital expenditures, as well as principal and interest payments on our debt. We expect to fund our liquidity needs primarily with internally generated funds from our operations and, to the extent necessary, through borrowings under our contractually committed $600 million credit facility, of which

~~$600 million~~ is currently undrawn and available, or through our $150 million receivables securitization facility, of which ~~$71~~$12 million is currently undrawn and available. Under adverse market conditions, there can be no assurance that these agreements would be available or sufficient. See “Capital Resources” below.

Our ability to make payments on the requirements mentioned above will depend on our ability to generate cash in the future, which is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. Our credit and receivable securitization facilities and debt indentures impose various restrictions and covenants on us that could limit our ability to respond to market conditions, to provide for unanticipated capital investments or to take advantage of business opportunities.

A portion of our cash is held outside the U.S. by foreign subsidiaries. The earnings of the foreign subsidiaries, which reflect full provision for local income taxes, are currently indefinitely reinvested in foreign operations. We do not intend on repatriating those funds and no provision is made for income taxes that would be payable upon the distribution of earnings from foreign subsidiaries as computation of these amounts is not practicable.

The June 23, 2016 referendum by British voters to exit the European Union (“Brexit”) adversely impacted global markets, including currencies, and resulted in a sharp decline in the value of the British pound, as compared to the U.S. dollar and other currencies. Volatility in exchange rates is expected to continue in the short term as the United Kingdom (U.K.) negotiates its exit from the European Union. A weaker British pound compared to the U.S. dollar during a reporting period causes local currency results of our U.K. sales to be translated into fewer U.S. dollars. For the year ended December 31, 2015, net sales in the U.K. constituted 1% of our consolidated net sales (for the six months period ended June 30, 2016, net sales in the U.K. constituted 2% or our consolidated sales).

In the longer term, any impact from Brexit on our U.K. sales will depend, in part, on the outcome of tariff, trade, regulatory, and other negotiations. The macroeconomic impact on our results of operations from this vote remains unknown. To date, the foreign exchange impact has been negligible since we currently hedge a portion of our British Pound Sterling exposure through the second quarter of fiscal 2018, thus reducing our currency risk.

Operating Activities

Our operating cash flow requirements are primarily for salaries and benefits, the purchase of fiber, energy and raw materials and other expenses such as property taxes.

Cash flows provided from operating activities totaled ~~$316~~$215 million in the first ~~nine months~~half of ~~2015,~~2016, a ~~$132~~$34 million decrease compared to cash flows provided from operating activities of ~~$448~~$249 million in the first ~~nine months~~half of ~~2014.~~2015. This decrease in cash flows provided from operating activities is primarily due to lower profitability, ~~and an increase~~partially offset by a decrease in working capital requirements in the first ~~nine months~~half of ~~2015~~2016 when compared to the first ~~nine months~~half of ~~2014, in part due to inventory build-up.~~2015. We ~~received cash~~made income tax payments; net of ~~$34~~refunds of $27 million in the first ~~quarter 2014 due~~half of 2016 compared to ~~the impact of the Spanish government supplier payment plan on past due receivables, paid make-whole premiums of $40 million in the third quarter of 2015 and made~~ income tax payments, net of refunds of ~~$16~~$2 million during the first ~~nine months~~half of ~~2015.~~2015 and received cash of €9 million (approximately $10 million) in the second quarter of 2016 from the release of bank guarantees related to the fine imposed by the CNMC (see Note 14 “Commitments and Contingencies” of the financial statements in this Quarterly Report on Form 10-Q for more information).

Investing Activities

Cash flows used for investing activities in the first ~~nine months~~half of ~~2015~~2016 amounted to ~~$158~~$220 million, a ~~$539~~$100 million decrease compared to cash flows used for investing activities of ~~$697~~$120 million in the first ~~nine months~~half of ~~2014.~~2015.

The use of cash in the first ~~nine months~~half of 2016 was attributable to additions to property, plant and equipment of $219 million.

The use of cash in the first half of 2015 was attributable to additions to property, plant and equipment of ~~$202~~$136 million. The use of cash was partially offset by the proceeds from the disposal of assets, totaling ~~$35~~$7 million. During the ~~second quarter of 2015,~~first half, we sold $9 million of asset-backed notes. ~~On July 3, 2015, we received proceeds of $26 million (CDN $32 million) from the sale of Gatineau assets.~~

~~The use of cash in the first nine months of 2014 was attributable to the acquisition of Indas of $546 million (€399 million) and additions to property, plant and equipment of $157 million.~~

Our capital expenditures for ~~2015~~2016 are expected to be approximately between ~~$310~~$330 million and ~~$330~~$350 million.

Financing Activities

Cash flows used for financing activities totaled ~~$197~~$11 million in the first ~~nine months~~half of ~~2015~~2016 compared to cash flows used for financing activities of ~~$270~~$90 million in the first ~~nine months~~half of ~~2014.~~2015.

The use of cash in the first ~~nine months~~half of 2016 was primarily the result of dividend payments ($50 million), the repurchase of our common stock ($10 million) and the repayment of long-term debt ($1 million). These were partially offset by the net proceeds from borrowings under our credit facilities (revolver and receivable securitization) ($50 million) and an increase in our bank indebtedness ($1 million).

The use of cash in the first half of 2015 was primarily the result of dividend payments ($~~75 million), a net repayment of our long-term debt ($64~~50 million), the repurchase of our common stock ($5030 million) ~~and a reduction in~~, the net repayment of our bank indebtedness ($9 million).

~~The use~~ and the net repayment of ~~cash~~long-term debt ($2 million) in the first ~~nine months~~half of 2014 was primarily the result of a net repayment of our revolving bank credit facility and other borrowings ($178 million), dividend payments ($60 million), the repurchase of our common stock ($19 million) and a reduction in our bank indebtedness ($13 million). In addition, we repaid $4 million of capital leases relating to land and buildings in the first nine months of 2014.2015.

Capital Resources

Net indebtedness, consisting of bank indebtedness and long-term debt, net of cash and cash equivalents, was ~~$1,160~~$1,191 million as of ~~September~~June 30, ~~2015~~2016 compared to ~~$1,186~~$1,125 million as of December 31, ~~2014.~~2015.

Notes Redemption

WeIn the third quarter of 2015, we redeemed ~~on August 20, 2015, (the redemption date),~~ $55 million in aggregate principal amount of our 9.5% Notes due 2016, representing approximately 59% of the outstanding notes, and $215 million in aggregate principal amount of our 10.75% Notes due 2017, representing approximately 77% of the outstanding notes. The redemption price was equal to 100% of the principal amount of such notes, plus accrued and unpaid interest, plus the applicable make-whole premium. ~~Debt refinancing costs of $42 million were incurred in the third quarter of 2015.~~

In addition, our 7.125% notes in the aggregate principal amount of $167 million matured on August 15, 2015.

The above-noted redemptions and repayment of notes were funded through a combination of cash on hand, borrowings under our credit facilities and proceeds from a new $300 million 10-year term loan agreement with a syndicate of bank lenders.

Term ~~loan~~Loan

~~On July 20,~~In the third quarter of 2015, a wholly owned subsidiary of Domtar entered into a $300 million Term Loan Agreement that matures on July 20, 2025. The facility was fully drawn down on August 19, 2015. Borrowings under the Term Loan Agreement bear interest at LIBOR plus a margin of 1.875%. The Term Loan Agreement contains customary covenants, including two financial covenants: (i) an interest coverage ratio, as defined in the Term Loan Agreement, that must be maintained at a level of not less than 3 to 1 and (ii) a leverage ratio, as defined in the Term Loan Agreement that must be maintained at a level of not greater than 3.75 to 1. At ~~September~~June 30, ~~2015,~~2016, we were in compliance with ~~our~~these financial covenants.

All borrowings under the Term Loan Agreement are unsecured. The Company and certain domestic subsidiaries of the Company unconditionally guarantee any obligations from time to time arising under the Term Loan Agreement.

Bank Facility

~~On October 3,~~In 2014, we entered into a $600 million amended and restated Credit Agreement, that matures on October 3, 2019. The Credit Agreement provides for a revolving credit facility (including a letter of credit sub-facility and a swingline sub-facility), which may be borrowed in U.S. Dollars, Canadian Dollars (in an amount up to the Canadian Dollar equivalent of $150 million) and Euros (in an amount up to the Euro equivalent of $200 million). We may increase the maximum aggregate amount of availability under the Credit Agreement by up to $400 million, borrow this increased amount as a term loan, and extend the final maturity of the Credit Agreement by one year, subject to the agreement of applicable lenders.

Borrowings under the Credit Agreement bear interest at the LIBOR, EURIBOR or the Canadian bankers’ acceptance or prime rates as applicable, plus a margin linked to our credit rating at the time of borrowing. In addition, we pay facility fees quarterly at rates dependent on our credit ratings.

The Credit Agreement contains customary covenants, including two financial covenants: (i) an interest coverage ratio, as defined in the Credit Agreement, that must be maintained at a level of not less than 3 to 1 and (ii) a leverage ratio, as defined in the Credit Agreement that must be maintained at a level of not greater than 3.75 to 1. At ~~September~~June 30, ~~2015,~~2016, we were in compliance with ~~our~~these financial covenants, and ~~borrowing~~no amounts were borrowed under the Credit Agreement ~~amounted to $75 million (September~~(June 30, ~~2014–~~2015 – nil). At ~~September~~June 30, ~~2015,~~2016, we had no outstanding letters of credit under this credit facility ~~(September~~(June 30, ~~2014–~~2015 – nil). We had $600 million available under ~~our contractually committed~~this credit facility at ~~September~~June 30, ~~2015.~~2016.

All borrowings under the Credit Agreement are unsecured. The Company and certain domestic subsidiaries of the Company unconditionally guarantee any obligations from time to time arising under the Credit Agreement.

Receivables Securitization

We have a $150 million receivables securitization facility that matures in March ~~2016, with a current utilization limit for borrowings or letters of credit of $115 million at September 30, 2015.~~2019.

At ~~September~~June 30, ~~2015, we had no~~2016, borrowings under the receivables securitization facility amounted to $100 million and ~~$44~~$38 million of letters of credit under the program ~~(September~~(June 30, ~~2014– $20 million~~2015 – nil and ~~$46~~$47 million, respectively). The program contains certain termination events, which include, but are not limited to, matters related to receivable performance, certain defaults occurring under the credit facility or our failure to repay or satisfy material obligations. At ~~September~~June 30, ~~2015,~~2016, we had ~~$71~~$12 million unused and available under the accounts receivable securitization facility.

Common Stock

On February ~~23, 2015,~~22, 2016 and May ~~5, 2015 and August 4, 2015,~~3, 2016, our Board of Directors approved a quarterly dividend of $0.40 and $0.415 per share, respectively, to be paid to holders of our common stock. Total dividends of approximately ~~$26 million,~~ $25 million and ~~$25~~$26 million, respectively, were paid on April 15, ~~2015,~~2016 and July 15, ~~2015 and October 15, 2015,~~2016, respectively, to shareholders of record on April ~~2, 2015,~~4, 2016 and July ~~2, 2015 and October 2, 2015,~~5, 2016, respectively.

On ~~November 3, 2015,~~August 2, 2016, our Board of Directors approved a quarterly dividend of ~~$0.40~~$0.415 per share to be paid to holders of our common stock. This dividend is to be paid on ~~January 15,~~October 17, 2016, to shareholders of record on ~~January 4,~~October 3, 2016.

OFF BALANCE SHEET ARRANGEMENTS

In the normal course of business, we finance certain of our activities off balance sheet through operating leases.

GUARANTEES

Indemnifications

In the normal course of business, we offer indemnifications relating to the sale of our businesses and real estate. In general, these indemnifications may relate to claims from past business operations, the failure to abide by covenants and the breach of representations and warranties included in sales agreements. Typically, such representations and warranties relate to taxation, environmental, product and employee matters. The terms of these indemnification agreements are generally for an unlimited period of time. At ~~September~~June 30, ~~2015,~~2016, we were unable to estimate the potential maximum liabilities for these types of indemnification guarantees as the amounts are contingent upon the outcome of future events, the nature and likelihood of which cannot be reasonably estimated at this time. Accordingly, no provision has been recorded. These indemnifications have not yielded significant expenses in the past.

Pension Plans

We have indemnified and held harmless the trustees of our pension funds, and the respective officers, directors, employees and agents of such trustees, from any and all costs and expenses arising out of the performance of their obligations under the relevant trust agreements, including in respect of their reliance on authorized instructions from us or for failing to act in the absence of authorized instructions. These indemnifications survive the termination of such agreements. At ~~September~~June 30, ~~2015,~~2016, we have not recorded a liability associated with these indemnifications, as we do not expect to make any payments pertaining to these indemnifications.

RECENT ACCOUNTING PRONOUNCEMENTS

Refer to Note 2 “Recent Accounting Pronouncements,” of the financial statements in this Quarterly Report on Form 10-Q.

CRITICAL ACCOUNTING ESTIMATES AND POLICIES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates, assumptions and choices amongst acceptable accounting methods that affect our reported results of operations and financial position. Critical accounting estimates pertain to matters that contain a significant level of management estimates about future events, encompass the most complex and subjective judgments and are subject to a fair degree of measurement uncertainty. On an ongoing basis, management reviews its estimates, including those related to environmental matters and asset retirement obligations, impairment ~~of property, plant~~ and ~~equipment and definite-lived intangible assets,~~ useful lives of long-lived assets, closure and restructuring costs, ~~impairment of goodwill, impairment of indefinite-lived assets,~~ pension and other post-retirement benefit plans, income taxes, business combinations and ~~business combinations.~~contingencies. These critical accounting estimates and policies have been reviewed with the Audit Committee of our Board of Directors. We believe these accounting policies, and others, should be reviewed as they are essential to understanding our results of operations, cash flows and financial condition. Actual results could differ from those estimates.

There has not been any material change to our policies since December 31, ~~2014.~~2015. For more details on critical accounting policies, refer to our Annual Report on Form 10-K for the year ended December 31, ~~2014.~~2015.

FORWARD-LOOKING STATEMENTS

The information included in this Quarterly Report on Form 10-Q, ~~may contain~~including the “Outlook” section above, 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 occurs, what effect they will have on Domtar Corporation’s 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 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 Domtar Corporation’s manufacturing operations, including unexpected maintenance requirements;

the level of competition from domestic and foreign producers;

the effect of, or change in, forestry, land use, environmental and other governmental regulations (including taxation), 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 ~~write-downs~~impairment of property, plant and equipment, inventory, accounts receivable or other assets for impairment or other reasons;

changes in currency 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”, in item 1A of our Annual Report on Form 10-K, for the year ended December 31, ~~2014.~~2015.

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 Quarterly Report on Form 10-Q. Unless specifically required by law, Domtar Corporation ~~assumes no~~disclaims any obligation to update or revise these forward-looking statements to reflect new events or circumstances.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Information relating to quantitative and qualitative disclosure about market risk is contained in our Annual Report on Form 10-K for the year ended December 31, ~~2014. There has not~~2015. Except as presented below, there have been ~~any~~no material ~~change in~~changes in our exposure to market risk since December 31, ~~2014.~~2015. A full discussion on Quantitative and Qualitative Disclosure about Market Risk, is found in Note 43 “Derivatives and Hedging Activities and Fair Value Measurement,” of the financial statements in this Quarterly Report on Form 10-Q.

FOREIGN CURRENCY RISK

Cash flow hedges

We have manufacturing operations in the United States, Canada and Europe. As a result, we are 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. Accordingly, our earnings are affected by increases or decreases in the value of the Canadian dollar and European currencies. Our European subsidiaries are also exposed to movements in foreign currency exchange rates on transactions denominated in a currency other than their Euro functional currency. Additionally, there has been, and may continue to be, volatility in currency exchange rates as a result of the United Kingdom's June 23, 2016 referendum in which voters approved the United Kingdom's exit from the European Union, commonly referred to as “Brexit.” Our risk management policy allows us to hedge a significant portion of the exposure to fluctuations in foreign currency exchange rates for periods up to three years. We may use derivative financial instruments (currency options and foreign exchange forward contracts) to mitigate our exposure to fluctuations in foreign currency exchange rates.

Derivatives are used to hedge a portion of forecasted purchases in Canadian dollars by our Canadian subsidiary over the next 24 months. Derivatives are also used to hedge a portion of forecasted sales by our U.S. subsidiaries in Euros and in British pounds over

the next 12 months as well as to hedge a portion of forecasted sales in British pounds and Norwegian krone and a portion of forecasted purchases in U.S. dollars and Swedish krona by our European subsidiaries over a periods of between 12 to 24 months. Such derivatives are designated as cash flow hedges. The changes in the fair value on qualifying instruments are included in Accumulated other comprehensive loss to the extent effective, and reclassified into Sales or Cost of sales in the period during which the hedged transaction affects earnings.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our reports under the Securities and Exchange Act of 1934, as amended (“Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. As of ~~September~~June 30, ~~2015,~~2016, an evaluation was performed by members of management, at the direction and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Exchange Act). Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of ~~September~~June 30, ~~2015,~~2016, our disclosure controls and procedures were effective.

Change in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect our internal control over financial reporting during the period covered by this report.

P~~PART~~ART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See Note 1614 “Commitments and Contingencies” of the financial statements in this Quarterly Report on Form 10-Q for the discussion regarding legal proceedings.

~~There have been no material developments in legal proceedings.~~ For a description of previously reported legal proceedings refer to Part I, Item 3, “Legal Proceedings,” of our Annual Report on Form 10-K for the year ended December 31, ~~2014.~~2015.

ITEM 1A. RISK FACTORS

Our Annual Report on Form 10-K for the year ended December 31, ~~2014,~~2015, contains important risk factors that could cause our actual results to differ materially from those projected in any forward-looking statement. ~~There were~~Except as presented below, there have been no material changes tofrom the risk factors described in our Annual Report on Form 10-K for the year ended December 31, ~~2014, except for revisions~~2015.

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. While the ~~following risk factor:~~

~~Spanish Competition Investigation~~

Company has not realized any significant losses to date, 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 ~~September 2014, following preliminary inquiries commenced~~addition, the Company’s customers and suppliers may be adversely affected by severe economic conditions. This could result in ~~January 2014, Spain’s National Commission of Markets and Competition (“CNMC”) initiated~~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 crises in individual countries or regions, including sovereign risk related to a ~~formal investigation of alleged violations of Spanish competition laws~~default by or deterioration in the credit worthiness of local governments.

For example, on June 23, 2016, the United Kingdom held a referendum in which a majority of voters voted to exit the European Union (“Brexit”). The effects of Brexit will depend on any agreements the United Kingdom makes to retain access to European Union

markets either during a transitional period or more permanently. Brexit could adversely affect European and global economic or market conditions and could contribute to instability in global financial markets. Any of these effects of Brexit, 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 ~~heavy~~adult incontinence products. The governments of these countries may decide to no longer reimburse part or all of the costs of adult incontinence products, ~~in Spain.~~

~~On October 15, 2015,~~and this may have a negative impact on the CNMC filed a Statement of Objections against a number of industry participants alleging the existence of a series of agreements between manufacturers, distributors and pharmacists to fix prices and to allocate margins for heavy adult incontinence products within the pharmacy channel in Spain during the period from December 1996 through January 2014. Among the parties namedCompany’s profitability in the ~~Statement of Objections are Indas, which the Company acquired in January 2014, and two of its affiliates. A decision is expected in May 2016.~~ future.

The Company ~~estimates that~~is affected by changes in currency exchange rates.

The Company has manufacturing operations in the ~~event~~United States, 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 ~~an adverse determination by~~ the ~~CNMC,~~Canadian dollar and of other European currencies relative to the ~~penalties for Indas and~~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 its ~~affiliates could range from €0 to €21 million ($23 million).~~

~~As at September 30, 2015, no provision~~Euro functional currency. Additionally, there has been, ~~recorded~~and may continue to be, volatility in currency exchange rates as ~~it is not possible to predict the decision~~a result of the ~~CNMC and~~United Kingdom's June 23, 2016 referendum in which voters approved the United Kingdom's exit from the European Union. The Company’s risk management policy allows it ~~is not possible~~ to ~~estimate an amount~~hedge a significant portion of ~~penalty~~its exposure to fluctuations in ~~the event that Indas and its two affiliates were~~foreign currency exchange rates for periods up to ~~be found liable.~~

The sellers of Indas made representations and warranties to the Company in the purchase agreement regarding, among other things, Indas’ and its subsidiary’s compliance with competition laws. The liability retained by the sellers is backed by a retained purchase price of €3 million ($3 million) and bank guarantees of €9 million ($10 million).three years. The Company ~~purchased limited insurance coverage~~may use derivative instruments (currency options and foreign exchange forward contracts) to mitigate its exposure to fluctuations in foreign currency exchange rates or to designate them as hedging instruments in order to hedge the subsidiary’s cash flow risk for ~~an additional €28.5 million ($32 million). If the sellers were found to be in breach~~purposes of the relevant representations and warranties, the €12 million ($13 million) attributable to the retained cash and bank guarantees would act as a deductible under the insurance policy. The Company’s total recovery from the retained purchase price, the bank guarantees and the purchased insurance coverage is

thus potentially up to €40.5 million ($45 million). In the event a penalty is assessed against Indas and its affiliates, there are customary risks associated with the assertion of the Company’s rights under the bank guarantees and insurance policy. InConsolidated Financial Statements. There can be no assurance that ~~event,~~ the Company will ~~assess this risk and potential impact which may result in recording liability for a penalty in one period and only recording a recovery from guarantees and insurance when~~be protected against substantial foreign currency fluctuations. This factor could adversely affect the ~~Company has more certainty of recovery, which may be in a different period.~~Company’s financial results.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Share repurchase activity under our share repurchase program was as follows during the three-month period ended ~~September~~June 30, ~~2015:~~2016:

Period

(a) Total Number of
Shares Purchased

(b) Average Price Paid
per Share

(c) Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs

(d) Approximate
Dollar Value of Shares
that May Yet be
Purchased under the
Plans or Programs
(in 000s)

July 1 through July 31, 2015

487,473

$
41.03

487,473

$
332,392

August 1 through August 31, 2015

—

$
—

—

$
332,392

September 1 through September 30, 2015

—

$
—

—

$
332,392

487,473

$
41.03

487,473

Period	(a) Total Number of Shares Purchased		(b) Average Price Paid per Share		(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		(d) Approximate Dollar Value of Shares that May Yet be Purchased under the Plans or Programs (in 000s)
April 1 through April 30, 2016		—	$	—		—	$	322,572
May 1 through May 31, 2016		—	$	—		—	$	322,572
June 1 through June 30, 2016		—	$	—		—	$	322,572
		—	$	—		—

⁽¹⁾During the ~~third~~second quarter of ~~2015,~~2016, we ~~repurchased 487,473~~did not repurchase any shares ~~at an average price of $41.03 per share, for a total cost of $20 million~~ under our stock repurchase program (the “Program”) ~~approved by the Board of Directors in May 2010 and amended in May 2011, December 2011 and February 2015.~~. We currently have ~~$332~~$323 million of remaining availability under our ~~Program, including an increase of $300 million approved by the Board of Directors in February 2015.~~Program. The Program may be suspended, modified or discontinued at any time and we have no obligation to repurchase any amount of our common stock under the Program. The Program has no set expiration date. We repurchase our common stock, from time to time, in part to reduce the dilutive effects of our stock options and awards and to improve shareholders’ returns. The timing and amount of stock repurchases will depend on a variety of factors, including market conditions, availability under the program as well as corporate and regulatory considerations. All shares repurchased are recorded as Treasury stock on the Consolidated Balance Sheets under the par value method at $0.01 per share.

ITEM 3. DEFAULT UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

ITEM ~~5. OTHER INFORMATION~~6. EXHIBITS

~~Not applicable.~~

~~ITEM 6.~~ ~~EXHIBITS~~

					Incorporated by reference to:
Exhibit Number		Exhibit Description			Form	Exhibit	Filing Date
12.1				Computation of Ratio of Earnings to Fixed Charges
31.1
~~Exhibit 31.1~~				Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

~~Exhibit~~ 31.2				Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

~~Exhibit~~ 32.1				Certification of the Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

~~Exhibit~~ 32.2				Certification of the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

~~Exhibit~~ 101.INS				XBRL Instance Document

~~Exhibit~~ 101.SCH				XBRL Taxonomy Extension Schema

~~Exhibit~~ 101.CAL				XBRL Taxonomy Extension Calculation Linkbase

~~Exhibit~~ 101.DEF				XBRL Taxonomy Extension Definition Linkbase

~~Exhibit~~ 101.LAB				XBRL Taxonomy Extension Label Linkbase

~~Exhibit~~ 101.PRE			~~XBRL Taxonomy Extension Presentation Linkbase~~
	XBRL Extension Presentation Linkbase

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized.

DOMTAR CORPORATION

Date: ~~November 6, 2015~~August 4, 2016

By:	/s/ Daniel Buron
	Daniel Buron
	Senior Vice-President and Chief Financial Officer

By:	/s/ Razvan L. Theodoru
	Razvan L. Theodoru
	Vice-President, Corporate Law and Secretary

5351

Large accelerated filer x	Accelerated filer ¨	Non-accelerated filer ¨	Smaller reporting company ¨
		(do not check if a smaller reporting company)

NOTE 1	BASIS OF PRESENTATION	8

NOTE 2	RECENT ACCOUNTING PRONOUNCEMENTS	9

NOTE 3	~~ACQUISITION OF BUSINESS~~	10

~~NOTE 4~~	DERIVATIVES AND HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENT	11

NOTE 54	EARNINGS PER COMMON SHARE	16

NOTE 65	PENSION PLANS AND OTHER POST-RETIREMENT BENEFIT PLANS	17

NOTE 76	OTHER OPERATING LOSS (INCOME), NET	18

NOTE 7	INCOME TAXES	19

NOTE 8	~~INCOME TAXES~~INVENTORIES	20

NOTE 9	~~INVENTORIES~~GOODWILL	21

NOTE 10	~~GOODWILL~~INTANGIBLE ASSETS	22

NOTE 11	~~INTANGIBLE ASSETS~~	23

~~NOTE 12~~	CLOSURE AND RESTRUCTURING COSTS AND LIABILITY AND IMPAIRMENT ~~AND WRITE-DOWN~~ OF PROPERTY, PLANT AND EQUIPMENT	2423
NOTE 13	~~LONG-TERM DEBT~~	25
~~NOTE 14~~12	CHANGES IN ACCUMULATED OTHER COMPREHENSIVE LOSS BY COMPONENT	24

NOTE 13	SHAREHOLDERS’ EQUITY	26

NOTE 14	COMMITMENTS AND CONTINGENCIES	27

NOTE 15	~~SHAREHOLDERS’ EQUITY~~SEGMENT DISCLOSURES	2830

NOTE 16	~~COMMITMENTS AND CONTINGENCIES~~SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION	2931

~~NOTE 17~~	~~SEGMENT DISCLOSURES~~	32

~~NOTE 18~~	~~SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION~~	33

Commodity	Notional contractual quantity under derivative contracts			Notional contractual value under derivative contracts (in millions of dollars)		Percentage of forecasted purchases under derivative contracts		Notional contractual quantity under derivative contracts MMBTU⁽²⁾	Notional contractual value under derivative contracts (in millions of dollars)			Percentage of forecasted purchases under derivative contracts
Natural Gas
2015 ⁽¹⁾		2,490,000	MMBTU ⁽²⁾	$	10		56%
2016		9,300,000	MMBTU ⁽²⁾	$	37		45%
2016 ⁽¹⁾								8,535,000		$	27		80%
2017		3,015,000	MMBTU ⁽²⁾	$	12		15%	8,980,000		$	28		34%
2018								4,275,000		$	13		16%
2019								3,375,000		$	10		13%
2020								3,375,000		$	11		13%
2021								2,060,000		$	7		15%

	~~September~~June 30, ~~2015~~2016
	$
Balance at December 31, ~~2014~~2015		~~567~~539
Effect of foreign currency exchange rate change		~~(21~~4	)
Balance at end of period		~~546~~543

	Net derivative gains (losses) on cash flow hedges			Pension items⁽²⁾			Post-retirement benefit items⁽²⁾			Foreign currency items			Total			Net derivative (losses) gains on cash flow hedges			Pension items⁽²⁾			Post-retirement benefit items⁽²⁾			Foreign currency items			Total
	$			$			$			$			$			$			$			$			$			$
Balance at December 31, 2014		(15	)		(192	)		(13	)		(48	)		(268	)		(15	)		(192	)		(13	)		(48	)		(268	)
Natural gas swap contracts		(6	)	N/A			N/A			N/A				(6	)		(8	)	N/A			N/A			N/A				(8	)
Currency options		(33	)	N/A			N/A			N/A				(33	)		(40	)	N/A			N/A			N/A				(40	)
Forward contracts		4		N/A			N/A			N/A				4
Forward exchange forward contracts																	7		N/A			N/A			N/A				7
Net (gain) loss																N/A				(5	)		3		N/A				(2	)
Foreign currency items	N/A			N/A			N/A				(182	)		(182	)	N/A			N/A			N/A				(223	)		(223	)
Net gain	N/A				—			—		N/A				—
Other comprehensive loss before reclassifications		(35	)		—			—			(182	)		(217	)
Other comprehensive (loss) income before reclassifications																	(41	)		(5	)		3			(223	)		(266	)
Amounts reclassified from Accumulated other comprehensive loss		18			5			—			—			23			26			7			—			—			33
Net current period other comprehensive (loss) income		(17	)		5			—			(182	)		(194	)		(15	)		2			3			(223	)		(233	)
Balance at September 30, 2015		(32	)		(187	)		(13	)		(230	)		(462	)

Balance at December 31, 2013		—			(210	)		(7	)		152			(65	)
Balance at December 31, 2015																	(30	)		(190	)		(10	)		(271	)		(501	)
Natural gas swap contracts		1		N/A			N/A			N/A				1			4		N/A			N/A			N/A				4
Net investment hedge																	(1	)	N/A			N/A			N/A				(1	)
Currency options		(7	)	N/A			N/A			N/A				(7	)		13		N/A			N/A			N/A				13
Forward contracts		1		N/A			N/A			N/A				1
Forward exchange forward contracts																	13		N/A			N/A			N/A				13
Foreign currency items	N/A			N/A			N/A				(130	)		(130	)	N/A			N/A			N/A				55			55
Remeasurement of pension plan obligation	N/A				(3	)	N/A			N/A				(3	)
Other comprehensive loss before reclassifications		(5	)		(3	)		—			(130	)		(138	)
Other comprehensive income before reclassifications																	29			—			—			55			84
Amounts reclassified from Accumulated other comprehensive loss		5			7			—			—			12			13			3			—			—			16
Net current period other comprehensive income (loss)		—			4			—			(130	)		(126	)
Balance at September 30, 2014		—			(206	)		(7	)		22			(191	)
Net current period other comprehensive income																	42			3			—			55			100
Balance at June 30, 2016																	12			(187	)		(10	)		(216	)		(401	)

PART I.	FINANCIAL INFORMATION	3

ITEM 1.	FINANCIAL STATEMENTS (UNAUDITED)	3

	CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME (LOSS) ~~INCOME~~	3

	CONSOLIDATED BALANCE SHEETS	4

	CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY	5

	CONSOLIDATED STATEMENTS OF CASH FLOWS	6

	INDEX FOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	7

	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	8

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	4038

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK	4947

ITEM 4.	CONTROLS AND PROCEDURES	5048

PART II	OTHER INFORMATION	5048

ITEM 1.	LEGAL PROCEEDINGS	5048

ITEM 1A.	RISK FACTORS	5048

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	5149

ITEM 3.	DEFAULT UPON SENIOR SECURITIES	5149

ITEM 4.	MINE SAFETY DISCLOSURES	5149

ITEM 5.	OTHER INFORMATION	5150

ITEM 6.	EXHIBITS	5250

	At						At
	September 30,			December 31,			June 30,			December 31,
	2015			2014			2016			2015
	(Unaudited)						(Unaudited)
	$			$			$			$
Assets
Current assets
Cash and cash equivalents		128			174			111			126
Receivables, less allowances of $10 and $6		617			628
Inventories (NOTE 9)		751			714
Receivables, less allowances of $6 and $6								608			627
Inventories (NOTE 8)								753			766
Prepaid expenses		25			25			55			21
Income and other taxes receivable		17			54			31			14
Deferred income taxes		82			75
Total current assets		1,620			1,670			1,558			1,554
Property, plant and equipment, at cost		8,714			8,909
Accumulated depreciation		(5,842	)		(5,778	)
Net property, plant and equipment		2,872			3,131
Goodwill (NOTE 10)		546			567
Intangible assets, net of amortization (NOTE 11)		616			661
Property, plant and equipment, net								2,906			2,835
Goodwill (NOTE 9)								543			539
Intangible assets, net (NOTE 10)								598			601
Other assets		135			156			163			125
Total assets		5,789			6,185			5,768			5,654
Liabilities and shareholders' equity
Current liabilities
Bank indebtedness		1			10			1			—
Trade and other payables		721			721			693			720
Income and other taxes payable		23			26			24			27
Long-term debt due within one year		42			169			64			41
Total current liabilities		787			926			782			788
Long-term debt		1,245			1,181			1,237			1,210
Deferred income taxes and other		744			810			681			654
Other liabilities and deferred credits		354			378			352			350
Commitments and contingencies (NOTE 16)
Shareholders' equity
Commitments and contingencies (NOTE 14)
Shareholders' equity (NOTE 13)
Common stock $0.01 par value; authorized 2,000,000,000 shares; issued: 65,001,104 shares		1			1			1			1
Treasury stock (NOTE 15) $0.01 par value; 2,153,170 and 991,017 shares		—			—
Treasury stock $0.01 par value; 2,415,767 and 2,151,168 shares								—			—
Additional paid-in capital		1,966			2,012			1,959			1,966
Retained earnings		1,154			1,145			1,157			1,186
Accumulated other comprehensive loss		(462	)		(268	)		(401	)		(501	)
Total shareholders' equity		2,659			2,890			2,716			2,652
Total liabilities and shareholders' equity		5,789			6,185			5,768			5,654

	Issued and outstanding common shares (millions of shares)			Common stock, at par		Additional paid-in capital			Retained earnings			Accumulated other comprehensive loss			Total shareholders' equity			Issued and outstanding common shares (millions of shares)			Common stock, at par		Additional paid-in capital			Retained earnings			Accumulated other comprehensive loss			Total shareholders' equity
	(Unaudited)																	(Unaudited)
				$		$			$			$			$						$		$			$			$			$
Balance at December 31, 2014		64.0			1		2,012			1,145			(268	)		2,890
Balance at December 31, 2015																			62.8			1		1,966			1,186			(501	)		2,652
Stock-based compensation, net of tax		—			—		4			—			—			4			0.1			—		3			—			—			3
Net earnings		—			—		—			85			—			85			—			—		—			22			—			22
Net derivative losses on cash flow hedges:
Net losses arising during the period, net of tax of $(24)		—			—		—			—			(35	)		(35	)
Less: Reclassification adjustments for losses included in net earnings, net of tax of $(13)		—			—		—			—			18			18
Net derivative gains on cash flow hedges:
Net gains arising during the period, net of tax of $(18)																			—			—		—			—			29			29
Less: Reclassification adjustments for losses included in net earnings, net of tax of $(8)																			—			—		—			—			13			13
Foreign currency translation adjustments		—			—		—			—			(182	)		(182	)		—			—		—			—			55			55
Change in unrecognized gains and prior service cost related to pension and post-retirement benefit plans, net of tax of $(2)		—			—		—			—			5			5			—			—		—			—			3			3
Stock repurchase		(1.2	)		—		(50	)		—			—			(50	)		(0.3	)		—		(10	)		—			—			(10	)
Cash dividends declared		—			—		—			(76	)		—			(76	)		—			—		—			(51	)		—			(51	)
Balance at September 30, 2015		62.8			1		1,966			1,154			(462	)		2,659
Balance at June 30, 2016																			62.6			1		1,959			1,157			(401	)		2,716

Fair value of net assets acquired at the date of acquisition
Receivables		$	101
Inventory			28
Income and other taxes receivable			3
Property, plant and equipment			72
Intangible assets
Customer relationships ⁽¹⁾	142
Trade names ⁽²⁾	140
Catalog rights ⁽²⁾	46
			328
Goodwill			234
Deferred income tax assets			16
Total assets			782

Less: Liabilities
Trade and other payables			71
Income and other taxes payable			3
Long-term debt (including short-term portion)			42
Deferred income tax liabilities			119
Other liabilities and deferred credits			1
Total liabilities			236
Fair value of net assets acquired at the date of acquisition			546

Fair Value of financial instruments at:	September 30, 2015		Quoted prices in active markets for identical assets (Level 1)		Significant observable inputs (Level 2)		Significant unobservable inputs (Level 3)			Balance sheet classification	June 30, 2016		Quoted prices in active markets for identical assets (Level 1)		Significant observable inputs (Level 2)		Significant unobservable inputs (Level 3)			Balance sheet classification
	$		$		$		$				$		$		$		$
Derivatives designated under the Derivatives and Hedging Topic of FASB ASC:
Derivatives designated as hedging instruments:
Asset derivatives
Currency derivatives		5		—		5		—	(a)	Prepaid expenses		21		—		21		—	(a)	Prepaid expenses
Natural gas swap contracts												5		—		5		—	(a)	Prepaid expenses
Currency derivatives		2		—		2		—	(a)	Other assets		12		—		12		—	(a)	Other assets
Natural gas swap contracts												3		—		3		—	(a)	Other assets
Total Assets		7		—		7		—				41		—		41		—

Liabilities derivatives
Currency derivatives		37		—		37		—	(a)	Trade and other payables		15		—		15		—	(a)	Trade and other payables
Natural gas swap contracts												6		—		6		—	(a)	Trade and other payables
Currency derivatives		12		—		12		—	(a)	Other liabilities and deferred credits		5		—		5		—	(a)	Other liabilities and deferred credits
Natural gas swap contracts		12		—		12		—	(a)	Trade and other payables
Natural gas swap contracts		5		—		5		—	(a)	Other liabilities and deferred credits		2		—		2		—	(a)	Other liabilities and deferred credits
Total Liabilities		66		—		66		—				28		—		28		—

Other Instruments:
Asset backed notes ("ABN")		1		—		—		1	(b)	Other assets		1		—		—		1	(b)	Other assets
Long-term debt		1,301		—		1,301		—	(c)	Long-term debt		1,369		—		1,369		—	(c)	Long-term debt

Fair Value of financial instruments at:	December 31, 2014		Quoted prices in active markets for identical assets (Level 1)		Significant observable inputs (Level 2)		Significant unobservable inputs (Level 3)			Balance sheet classification	December 31, 2015		Quoted prices in active markets for identical assets (Level 1)		Significant observable inputs (Level 2)		Significant unobservable inputs (Level 3)			Balance sheet classification
	$		$		$		$				$		$		$		$
Derivatives designated under the Derivatives and Hedging Topic of FASB ASC:
Derivatives designated as hedging instruments:
Asset derivatives
Currency derivatives		7		—		7		—	(a)	Prepaid expenses		6		—		6		—	(a)	Prepaid expenses
Natural gas swap contracts												1		—		1		—	(a)	Prepaid expenses
Currency derivatives		3		—		3		—	(a)	Other assets		2		—		2		—	(a)	Other assets
Natural gas swap contracts												1		—		1		—	(a)	Other assets
Total Assets		10		—		10		—				10		—		10		—

Liabilities derivatives
Currency derivatives		14		—		14		—	(a)	Trade and other payables		39		—		39		—	(a)	Trade and other payables
Natural gas swap contracts												14		—		14		—	(a)	Trade and other payables
Currency derivatives		9		—		9		—	(a)	Other liabilities and deferred credits		10		—		10		—	(a)	Other liabilities and deferred credits
Natural gas swap contracts		13		—		13		—	(a)	Trade and other payables
Natural gas swap contracts		6		—		6		—	(a)	Other liabilities and deferred credits		4		—		4		—	(a)	Other liabilities and deferred credits
Total Liabilities		42		—		42		—				67		—		67		—

Other Instruments:
Asset backed notes		11		—		10		1	(b)	Other assets		1		—		—		1	(b)	Other assets
Long-term debt		1,475		—		1,475		—	(c)	Long-term debt		1,261		—		1,261		—	(c)	Long-term debt

Details about Accumulated other comprehensive loss components	Amount reclassified from Accumulated other comprehensive loss							Amount reclassified from Accumulated other comprehensive loss
	For the three months ended							For the three months ended
	September 30, 2015			September 30, 2014				June 30, 2016			June 30, 2015
Net derivative gains on cash flow hedges
Natural gas swap contracts		2			—		⁽¹⁾		5			5		⁽¹⁾
Currency options and forwards		10			2		⁽¹⁾		3			5		⁽¹⁾
Total before tax		12			2				8			10
Tax expense		(5	)		—				(3	)		(4	)
Net of tax		7			2				5			6

Amortization of defined benefit pension items
Amortization of net actuarial loss and prior year service cost		2			4		⁽²⁾		3			2		⁽²⁾
Tax expense		(1	)		(2	)			(1	)		—
Net of tax		1			2				2			2