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 ☒ 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 ☒ NO ☐

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒

At ~~July 31, 2017, 62,654,157~~April 30, 2018, 62,831,161 shares of the issuer’s common stock were outstanding.

	Three months ended			Three months ended			Six months ended			Six months ended		Three months ended			Three months ended
	June 30,			June 30,			June 30,			June 30,		March 31,			March 31,
	2017			2016			2017			2016		2018			2017
	(Unaudited)											(Unaudited)
	$			$			$			$		$			$
Sales		1,224			1,267			2,528			2,554		1,345			1,302
Operating expenses
Cost of sales, excluding depreciation and amortization		968			1,013			2,043			2,063		1,084			1,079
Depreciation and amortization		79			87			159			176		79			80
Selling, general and administrative		111			104			219			207		110			106
Impairment of property, plant and equipment (NOTE 11)		—			3			—			24
Closure and restructuring costs (NOTE 11)		—			21			—			23
Other operating loss, net (NOTE 6)		2			—			1			4
Other operating income, net (NOTE 6)													(5	)		(1	)
		1,160			1,228			2,422			2,497		1,268			1,264
Operating income		64			39			106			57		77			38
Interest expense, net		17			15			34			32		16			17
Non-service components of net periodic benefit cost (NOTE 5)													(4	)		(4	)
Earnings before income taxes		47			24			72			25		65			25
Income tax expense (NOTE 7)		9			6			14			3		11			5
Net earnings		38			18			58			22		54			20
Per common share (in dollars) (NOTE 4)
Net earnings
Basic		0.61			0.29			0.93			0.35		0.86			0.32
Diluted		0.61			0.29			0.93			0.35		0.86			0.32
Weighted average number of common shares outstanding (millions)
Basic		62.6			62.6			62.6			62.7		62.7			62.6
Diluted		62.7			62.7			62.7			62.8		62.9			62.8
Cash dividends per common share		0.415			0.40			0.83			0.80		0.44			0.42

Net earnings		38			18			58			22		54			20
Other comprehensive income (loss) (NOTE 12):
Net derivative gains (losses) on cash flow hedges:
Net gains arising during the period, net of tax of $(2) and $(2), respectively (2016 – $(5) and $(18), respectively)		2			9			2			29
Less: Reclassification adjustment for (gains) losses included in net earnings, net of tax of nil and $2, respectively (2016 – $(3) and $(8), respectively)		(1	)		5			(4	)		13
Other comprehensive (loss) income (NOTE 10):
Net derivative losses on cash flow hedges:
Net losses arising during the period, net of tax of $3 (2017 – nil)													(9	)		—
Less: Reclassification adjustment for gains included in net earnings, net of tax of $1 (2017 – $2)													(2	)		(3	)
Foreign currency translation adjustments		67			(30	)		82			55		(11	)		15
Change in unrecognized gains and prior service cost related to pension and post-retirement benefit plans, net of tax of $(1) and $(2), respectively (2016 – $(1) and $(2), respectively)		3			2			5			3
Other comprehensive income (loss)		71			(14	)		85			100
Change in unrecognized gains and prior service cost related to pension and post-retirement benefit plans, net of tax of $(1) (2017 – $(1))													2			2
Other comprehensive (loss) income													(20	)		14
Comprehensive income		109			4			143			122		34			34

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

	At						At
	June 30,			December 31,			March 31,			December 31,
	2017			2016			2018			2017
	(Unaudited)						(Unaudited)
	$			$			$			$
Assets
Current assets
Cash and cash equivalents		124			125			152			139
Receivables, less allowances of $7 and $7		613			613
Receivables, less allowances of $6 and $7								704			704
Inventories (NOTE 8)		759			759			766			757
Prepaid expenses		41			40			27			33
Income and other taxes receivable		18			31			16			24
Total current assets		1,555			1,568			1,665			1,657
Property, plant and equipment, net		2,779			2,825			2,694			2,765
Goodwill (NOTE 9)		569			550
Intangible assets, net (NOTE 10)		625			608
Intangible assets, net (NOTE 9)								637			633
Other assets		139			129			155			157
Total assets		5,667			5,680			5,151			5,212
Liabilities and shareholders' equity
Current liabilities
Bank indebtedness		—			12
Trade and other payables		627			656			682			716
Income and other taxes payable		28			22			30			24
Long-term debt due within one year		1			63			1			1
Total current liabilities		656			753			713			741
Long-term debt		1,203			1,218			1,103			1,129
Deferred income taxes and other		677			675			486			491
Other liabilities and deferred credits		361			358			356			368
Commitments and contingencies (NOTE 14)
Shareholders' equity (NOTE 13)
Commitments and contingencies (NOTE 12)
Shareholders' equity (NOTE 11)
Common stock $0.01 par value; authorized 2,000,000,000 shares; issued: 65,001,104 and 65,001,104 shares		1			1			1			1
Treasury stock $0.01 par value; 2,346,947 and 2,412,267 shares		—			—
Treasury stock $0.01 par value; 2,169,943 and 2,305,419 shares								—			—
Additional paid-in capital		1,966			1,963			1,972			1,969
Retained earnings		1,217			1,211			876			849
Accumulated other comprehensive loss		(414	)		(499	)		(356	)		(336	)
Total shareholders' equity		2,770			2,676			2,493			2,483
Total liabilities and shareholders' equity		5,667			5,680			5,151			5,212

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

	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, 2016		62.6		1		1,963		1,211			(499	)		2,676
Balance at December 31, 2017																	62.7		1		1,969		849			(336	)		2,483
Stock-based compensation, net of tax		0.1		—		3		—			—			3			0.1		—		3		—			—			3
Net earnings		—		—		—		58			—			58			—		—		—		54			—			54
Net derivative losses on cash flow hedges:
Net gains arising during the period, net of tax of $(2)		—		—		—		—			2			2
Less: Reclassification adjustments for gains included in net earnings, net of tax of $2		—		—		—		—			(4	)		(4	)
Net losses arising during the period, net of tax of $3																	—		—		—		—			(9	)		(9	)
Less: Reclassification adjustments for gains included in net earnings, net of tax of $1																	—		—		—		—			(2	)		(2	)
Foreign currency translation adjustments		—		—		—		—			82			82			—		—		—		—			(11	)		(11	)
Change in unrecognized gains and prior service cost related to pension and post-retirement benefit plans, net of tax of $~~(2)~~(1)		—		—		—		—			5			5			—		—		—		—			2			2
Cash dividends declared		—		—		—		(52	)		—			(52	)		—		—		—		(27	)		—			(27	)
Balance at June 30, 2017		62.7		1		1,966		1,217			(414	)		2,770
Balance at March 31, 2018																	62.8		1		1,972		876			(356	)		2,493

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

	For the six months ended						For the three months ended
	June 30, 2017			June 30, 2016			March 31, 2018			March 31, 2017
	(Unaudited)						(Unaudited)
	$			$			$			$
Operating activities
Net earnings		58			22			54			20
Adjustments to reconcile net earnings to cash flows from operating activities
Depreciation and amortization		159			176			79			80
Deferred income taxes and tax uncertainties		(12	)		(5	)		(3	)		(4	)
Impairment of property, plant and equipment		—			24
Net gains on disposals of property, plant and equipment								(1	)		—
Stock-based compensation expense		3			3			3			1
Other		—			(4	)		(1	)		—
Changes in assets and liabilities, excluding the effect of acquisition of business
Changes in assets and liabilities
Receivables		11			25			(2	)		(47	)
Inventories		10			18			(13	)		39
Prepaid expenses		(4	)		(13	)		(2	)		1
Trade and other payables		(35	)		(8	)		(37	)		(19	)
Income and other taxes		21			(16	)		16			21
Difference between employer pension and other post-retirement contributions and pension and other post-retirement expense		—			(3	)
Other assets and other liabilities		1			(4	)		(3	)		(1	)
Cash flows from operating activities		212			215			90			91
Investing activities
Additions to property, plant and equipment		(71	)		(219	)		(25	)		(34	)
Acquisition of business, net of cash acquired		—			(1	)
Proceeds from disposals of property, plant and equipment								1			—
Other								(4	)		—
Cash flows used for investing activities		(71	)		(220	)		(28	)		(34	)
Financing activities
Dividend payments		(52	)		(50	)		(26	)		(26	)
Stock repurchase		—			(10	)
Net change in bank indebtedness		(12	)		1			—			(11	)
Change in revolving credit facility		(30	)		(50	)		—			(20	)
Proceeds from receivables securitization facility		25			120
Repayments of receivables securitization facility		(15	)		(20	)		(25	)		(15	)
Repayments of long-term debt		(63	)		(1	)
Other		(1	)		(1	)
Cash flows used for financing activities		(148	)		(11	)		(51	)		(72	)
Net decrease in cash and cash equivalents		(7	)		(16	)
Net increase (decrease) in cash and cash equivalents								11			(15	)
Impact of foreign exchange on cash		6			1			2			1
Cash and cash equivalents at beginning of period		125			126			139			125
Cash and cash equivalents at end of period		124			111			152			111
Supplemental cash flow information
Net cash payments for:
Net cash payments (refunds) for:
Interest		31			32			19			19
Income taxes		15			27			4			(8	)

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 ~~six~~three 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, ~~2016,~~2017, as filed with the Securities and Exchange Commission. The December 31, ~~2016~~2017 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.

On January 1, 2018, upon the adoption of ASU 2014-09, as issued by FASB, “Revenue from Contracts with Customers”, the Company’s accounting policy related to revenue recognition is as follows:

The Company’s revenue is generated from the sale of finished goods to customers. Revenue is recognized at a single point in time when the performance obligation is satisfied which occurs when the control over the goods is transferred to customers. For shipping and handling activities performed after customers obtain control of the goods, the Company elected to account for these activities as fulfillment activities rather than assessing such activities as separate performance obligations. Accordingly, the sale of goods to customers represents a single performance obligation to which the entire transaction price is allocated.

The point in time when the control of goods is transferred to customers is largely dependent on delivery terms. Revenue is recorded at the time of shipment for delivery terms designated free on board (“f.o.b.”) shipping point. For sales transactions designated f.o.b. destination, revenue is recorded when the product is delivered to the customer’s delivery site.

Revenue is measured as the amount of consideration the Company expects to receive in exchange for goods transferred to customers. Revenue is recognized net of variable consideration in the form of rebates, discounts and other commercial incentives extended to customers. Variable consideration is recognized using the most likely amounts which are based on an analysis of historical experience and current period expectations. The Company includes estimated amounts of variable consideration in revenue to the extent that it is probable that there will not be a significant reversal of recognized revenue when the uncertainty related to that variable consideration is resolved.

For all the Company’s contracts, customer payments are made in less than one year. Accordingly, the Company does not adjust the amount of revenue recognized for the effects of a significant financing component.

Byproduct related revenues, such as sales of excess power, waste paper and other wood related byproducts are recorded as a reduction of manufacturing costs as they are incidental to the main revenue-generating activities of the Company.

Sales taxes, and other similar taxes, collected from customers are excluded from revenue.

~~In July 2015, the FASB issued Accounting Standard Update (“ASU”) 2015-11, “Simplifying the Measurement of Inventory,~~” which simplifies the measurement of inventories valued under FIFO – first-in, first-out – and moving average methods. Under this new guidance, inventories valued under these methods would be valued at the lower of cost or net realizable value. Net realizable value is defined as the estimated selling prices less reasonable costs to sell the inventory. This ASU does not change the measurement principles for inventories valued under the LIFO – last-in, first-out – method.

~~The Company adopted the new guidance on January 1, 2017 with no impact on the consolidated financial statements.~~

~~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.

~~The Company adopted the new guidance on January 1, 2017 with no significant impact on the consolidated financial statements.~~

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers.” The core principal of this guidance 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. This new guidance ~~will supersede~~supersedes the revenue recognition requirements found in topic 605.

ASU 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.

~~Entities are permitted to adopt~~On January 1, 2018, the ~~new revenue~~Company adopted the standard ~~by restating all prior periods under~~using the full retrospective ~~approach following ASC 250 “Accounting Changes~~method which resulted in a reclassification in the Company’s Consolidated Statement of Earnings and ~~Error Corrections”~~ ~~or entities can elect to use a modified retrospective approach. Under~~Comprehensive Income for the ~~modified retrospective approach, entities will recognize the cumulative effect of initially applying the standard as an adjustment~~three months ended March 31, 2017. The previously reported amounts for Sales and Selling, General and Administrative expenses were decreased by $2 million in relation to the ~~opening balance~~reclassification of ~~retained earnings in the period~~certain payments made to customers classified as a reduction of ~~initial application and comparative prior year periods would not be adjusted.~~

The Company is assessing the impact that the guidance will have on the consolidated financial statements and related disclosures. The Company currently expects to adopt the new revenue standards in its first quarter of 2018 utilizing the full retrospective transition method. Further, the Company expects to identify similar performance obligationsSales under the new ~~guidance~~standard. These reclassifications are exclusively contained within the Company’s Consolidated Statement of Earnings and Comprehensive Income and do not have a cumulative effect on retained earnings or other components of equity or net assets in the Company’s Consolidated Balance Sheet as ~~compared~~of January 1, 2017.

No practical expedients were used in the transition to the new standard as they were not applicable.

In March 2017, the FASB issued ASU 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,” which requires an entity to present the service cost component of the net periodic benefit cost with ~~deliverables previously identified. As a result,~~other employee compensation costs in operating income. Only the service cost components will be eligible for capitalization in assets. The other components of the net periodic benefit cost (i.e. interest expense, expected return on plan assets, amortization of actuarial gains or losses and amortization of prior year service costs) will be presented outside of any subtotal of operating income.

On January 1, 2018, the Company ~~expects~~adopted the ~~timing~~guidance of this accounting standard update which resulted in a reclassification in the Company’s Consolidated Statement of Earnings and Comprehensive Income for the three months ended March 31, 2017. The previously reported amount of ~~its revenue to remain substantially the same.~~

Cost of sales was increased by $4 million, with a corresponding impact in Non-service components of net periodic benefit cost. The Company ~~does not expect this new guidance to have~~utilized a ~~material impact on the consolidated financial statements aside from the additional required disclosures related to revenue~~practical expedient included in the ~~notes thereto.~~accounting standard update which allowed the Company to use amounts previously disclosed in its pension plans and other post-retirement benefits plans note for the prior periods as the estimation basis for applying the required retrospective presentation requirements. In addition, these required retrospective reclassifications resulted in adjustments to the previously reported Operating income within the Company’s reportable operating segment disclosures for the three months ended March 31, 2017.

	Three months ended March 31, 2017

	As Reported			Impact of ASU 2014-09			Impact of ASU 2017-07			As Adjusted
	(Unaudited)
	$			$			$			$
Sales		1,304			(2	)		—			1,302
Operating expenses
Cost of sales, excluding depreciation and amortization		1,075			—			4			1,079
Depreciation and amortization		80			—			—			80
Selling, general and administrative		108			(2	)		—			106
Other operating income, net		(1	)		—			—			(1	)
		1,262			(2	)		4			1,264
Operating income (loss)		42			—			(4	)		38
Interest expense, net		17			—			—			17
Non-service components of net periodic benefit cost		—			—			(4	)		(4	)
Earnings before income taxes		25			—			—			25
Income tax expense		5			—			—			5
Net earnings		20			—			—			20

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~~Company adopted the amendments, companies 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~~on January 1, 2018 with no 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.

As a lessee, Domtar’s various leases under existing guidance are classified as operating leases that are not recorded on the balance sheet but are recorded in the statement of earnings as expense is incurred. Upon adoption of the new guidance, the Company will be required to record substantially all leases on the Consolidated Balance Sheets as a right-of-use asset and a lease liability. The timing of expense recognition and classification in the Consolidated Statements of Earnings and Comprehensive Income could change based on the classification of leases as either operating or financing.

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.

The Company will adopt the ASU on January 1, 2019 using the modified retrospective approach required by the guidance. The Company is currently evaluating the impact of this guidance on the consolidated financial statements, including analyzing all contracts that contain a lease.

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~~adopted the new guidance ~~to have a material~~on January 1, 2018 with no impact on the consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows,” which amends ASC 230 to add or clarify guidance on the classification of certain cash receipts and payments in the statement of cash flows. The new guidance is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. This ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The guidance must be applied retrospectively to all periods presented but it may be applied prospectively if retrospective application would be impracticable. Early adoption is permitted.

The Company ~~does not expect this~~adopted the new guidance ~~to have a material~~on January 1, 2018 with no impact on the consolidated financial statements.

In ~~January~~August 2017, the FASB issued ASU ~~2017-04,~~2017-12, “~~Simplifying~~Targeted Improvements to Accounting for Hedging Activities”, which amends the ~~Test~~hedge accounting recognition and presentation requirements in ASC 815. The objectives of the ASU are to (1) improve the transparency and understandability of information conveyed to financial statement users about an entity’s risk management activities by better aligning the entity’s financial reporting for ~~Goodwill Impairment,”~~ ~~which removes~~hedging relationships with those risk management activities and (2) reduce the ~~requirement for an entity to calculate~~complexity of and simplify the ~~implied fair value~~application of ~~goodwill in measuring a goodwill impairment loss, referred to as the Step II test. As a result, an entity should perform its annual, or interim, goodwill impairment test~~hedge accounting by comparing the fair value of a reporting unit with its carrying amount and should recognize an impairment charge for the amount for which the carrying value exceeds the reporting unit’s fair value. The impairment loss recognized should be recorded against goodwill and should not exceed the total amount of goodwill allocated to that reporting unit. This ASU is effective for annual or any interim goodwill impairment tests performed in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests with measurement dates after January 1, 2017.preparers.

The Company ~~expects to adopt this~~early adopted the new guidance ~~concurrently~~on January 1, 2018 with ~~its 2017 annual goodwill impairment test.~~no impact on the consolidated financial statements.

In ~~March 2017,~~February 2016, the FASB issued ASU ~~2017-07,~~2016-02, “~~Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,~~Leases,” which requires ~~an entity~~lessees to ~~present the service cost component~~recognize a right-of-use asset and a lease liability for all of ~~the net periodic benefit cost~~their leases with other employee compensation costs in operating income. Only the service cost components will be eligible for capitalization in assets. The other components of the net periodic benefit cost (i.e., interest expense, expected return on plan assets, amortization of actuarial gains or losses and amortization of prior year service costs) will be presented outside of any subtotal of operating income. An appropriate disclosure of the line(s) useda lease term greater than 12 months while continuing to present other components of net periodic benefit costs is required if the components are not presented separately in the statement of earnings. This ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted as of the beginning of an annual period for which financial statements have not been issued or made available for issuance.

~~The Company will adopt the ASU on January 1, 2018 using a retrospective approach for the presentation of the service cost component and the other components of net periodic benefit costs~~recognize expenses in the Consolidated Statement of Earnings and ~~prospectively~~Comprehensive Income in a manner similar to current accounting standards. The accounting for lessors remains largely unchanged from existing guidance. Enhanced disclosures will also be required to give financial statement users the ~~capitalization~~ability to assess the amount, timing and uncertainty of cash flows arising from leases.

As a lessee, Domtar’s various leases under existing guidance are classified as operating leases that are not recorded on the balance sheet but are recorded in the statement of earnings as expense is incurred. Upon adoption of the ~~service cost component~~new guidance, lease expense will generally be recognized on a straight-line basis over the lease term and the Company will be required to record substantially all leases on the Consolidated Balance Sheets as a right-of-use asset and a lease liability.

The Company is currently in the process of ~~net periodic benefit costs in assets. The guidance includes a practical expedient that permits an entity to estimate amounts for comparative periods using the information previously disclosed in~~evaluating its ~~pension plans and other post-retirement benefit plans footnote.~~

existing lease portfolio. While the ~~Company~~precise amount of the right-of-use asset and lease liability will not be known until closer to the adoption date, management estimates the amount to be less than 5% of both total assets and total liabilities. This estimate is ~~still evaluating~~based on the ~~impact~~Company’s Consolidated Balance Sheet and lease portfolio, both as of ~~adopting this new~~March 31, 2018. The adoption of the guidance ~~it does not expect this new guidance to~~will likely have ~~a material~~an insignificant impact on the ~~consolidated earnings.~~Company’s Consolidated Statements of Earnings and Comprehensive Income.

The Company will adopt this ASU on January 1, 2019. The FASB has recently proposed guidance that would allow adoption of the standard as of the effective date without restating prior periods.

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 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 ~~June 30, 2017,~~March 31, 2018, one of Domtar’s Pulp and Paper segment customers located in the U.S. represented ~~12%~~13% or ~~$74~~$95 million ~~(2016~~(December 31, 2017 – 12% or ~~$74~~$83 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 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, revolving credit facility and securitization, term loan 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.

The Company is exposed to price volatility for raw materials and energy used in its manufacturing process. The Company manages its exposure to cost risk primarily through the use of supplier contracts. 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 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 6051 months.

NOTE 3. 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 ~~June 30, 2017~~March 31, 2018 to hedge forecasted purchases:

The natural gas derivative contracts were fully effective as of ~~June 30, 2017.~~March 31, 2018. There were no amounts reflected in the Consolidated Statements of Earnings and Comprehensive Income for the three ~~and six~~ months ended ~~June 30, 2017~~March 31, 2018 resulting from hedge ineffectiveness (three ~~and six~~ months ended ~~June 30, 2016~~March 31, 2017 – 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. 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 the Company’s Canadian subsidiary over the next 24 months and to hedge a portion of forecasted sales by its U.S. subsidiaries in British pounds over the next 63 months. Derivatives are also currently used 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 its European subsidiaries over the next 1211 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 3. DERIVATIVES AND HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENT (CONTINUED)

The following table presents the currency values under significant currency positions pursuant to currency derivatives outstanding as of ~~June 30, 2017~~March 31, 2018 to hedge forecasted purchases and sales:

The foreign exchange derivative contracts were fully effective as of ~~June 30, 2017.~~March 31, 2018. There were no amounts reflected in the Consolidated Statements of Earnings and Comprehensive Income for the three ~~and six~~ months ended ~~June 30, 2017~~March 31, 2018 resulting from hedge ineffectiveness (three ~~and six~~ months ended ~~June 30, 2016~~March 31, 2017 – 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 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 (b) below) at ~~June 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, 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.

Fair Value of financial instruments at:	June 30, 2017		Quoted prices in active markets for identical assets (Level 1)		Significant observable inputs (Level 2)		Significant unobservable inputs (Level 3)			Balance sheet classification	March 31, 2018		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 as hedging instruments:
Asset derivatives
Currency derivatives		13		—		13		—	(a)	Prepaid expenses		7		—		7		—	(a)	Prepaid expenses
Natural gas swap contracts		3		—		3		—	(a)	Prepaid expenses		—		—		—		—	(a)	Prepaid expenses
Currency derivatives		6		—		6		—	(a)	Other assets		2		—		2		—	(a)	Other assets
Natural gas swap contracts												—		—		—		—	(a)	Other assets
Total Assets		22		—		22		—				9		—		9		—

Liabilities derivatives
Currency derivatives		3		—		3		—	(a)	Trade and other payables		8		—		8		—	(a)	Trade and other payables
Natural gas swap contracts		2		—		2		—	(a)	Trade and other payables		1		—		1		—	(a)	Trade and other payables
Currency derivatives		3		—		3		—	(a)	Other liabilities and deferred credits		1		—		1		—	(a)	Other liabilities and deferred credits
Natural gas swap contracts		4		—		4		—	(a)	Other liabilities and deferred credits		5		—		5		—	(a)	Other liabilities and deferred credits
Total Liabilities		12		—		12		—				15		—		15		—

Other Instruments:
Stock-based compensation - liability awards		2		2		—		—		Trade and other payables		5		5		—		—		Trade and other payables
Stock-based compensation - liability awards		15		15		—		—		Other liabilities and deferred credits		14		14		—		—		Other liabilities and deferred credits
Long-term debt		1,272		—		1,272		—	(b)	Long-term debt		1,165		—		1,165		—	(b)	Long-term debt

The net cumulative loss recorded in Accumulated other comprehensive loss relating to natural gas contracts is $3$6 million at ~~June 30, 2017,~~March 31, 2018, of which a ~~gain~~loss of $1 million will be recognized in Cost of sales upon maturity of the derivatives over the next 12 months at the then prevailing values, which may be different from those at ~~June 30, 2017.~~March 31, 2018.

The net cumulative gain or loss recorded in Accumulated other comprehensive loss relating to currency options and forwards hedging forecasted purchases is ~~$13 million~~nil at ~~June 30, 2017,~~March 31, 2018. A loss of ~~which a gain of $10~~$1 million will be recognized in Cost of sales or Sales upon maturity of the derivatives over the next 12 months at the then prevailing values, which may be different from those at ~~June 30, 2017.~~March 31, 2018.

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

Fair Value of financial instruments at:	December 31, 2016		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, 2017		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 as hedging instruments:
Asset derivatives
Currency derivatives		18		—		18		—	(a)	Prepaid expenses		16		—		16		—	(a)	Prepaid expenses
Natural gas swap contracts		6		—		6		—	(a)	Prepaid expenses		—		—		—		—	(a)	Prepaid expenses
Currency derivatives		6		—		6		—	(a)	Other assets		4		—		4		—	(a)	Other assets
Natural gas swap contracts		2		—		2		—	(a)	Other assets		1		—		1		—	(a)	Other assets
Total Assets		32		—		32		—				21		—		21		—

Liabilities derivatives
Currency derivatives		10		—		10		—	(a)	Trade and other payables		5		—		5		—	(a)	Trade and other payables
Natural gas swap contracts		1		—		1		—	(a)	Trade and other payables		2		—		2		—	(a)	Trade and other payables
Currency derivatives		6		—		6		—	(a)	Other liabilities and deferred credits		—		—		—		—	(a)	Other liabilities and deferred credits
Natural gas swap contracts		4		—		4		—	(a)	Other liabilities and deferred credits		5		—		5		—	(a)	Other liabilities and deferred credits
Total Liabilities		21		—		21		—				12		—		12		—

Other Instruments:
Stock-based compensation - liability awards		2		2		—		—		Trade and other payables		6		6		—		—		Trade and other payables
Stock-based compensation - liability awards		17		17		—		—		Other liabilities and deferred credits		20		20		—		—		Other liabilities and deferred credits
Long-term debt		1,313		—		1,313		—	(b)	Long-term debt		1,216		—		1,216		—	(b)	Long-term debt

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 multiemployer plans. The pension expense under these plans is equal to the Company’s contribution. For the three ~~and six~~ months ended ~~June 30, 2017,~~March 31, 2018, the pension expense was $8$13 million ~~and $19 million, respectively (2016~~(2017 – ~~$8 million and $18 million, respectively)~~$12 million).

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 January 1, 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. Unionized and non-union hourly employees in the U.S. 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 months ended

For the six months ended

June 30, 2017

June 30, 2017

Pension plans

Other post-retirement benefit plans

Pension plans

Other post-retirement benefit plans

$

$

$

$

Service cost

7

1

15

1

Interest expense

13

1

25

2

Expected return on plan assets

(20
)

—

(40
)

—

Amortization of net actuarial loss

2

—

4

—

Amortization of prior year service costs

2

—

3

—

Net periodic benefit cost

4

2

7

3

	For the three months ended
	March 31, 2018
	Pension plans			Other post-retirement benefit plans
	$			$
Service cost		8			—
Interest expense		14			—
Expected return on plan assets		(21	)		—
Amortization of net actuarial loss		2			—
Amortization of prior year service costs		1			—
Net periodic benefit cost		4			—

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

The components of net periodic benefit cost for pension plans and other post-retirement benefits plans, other than the service cost, are presented in Non-service components of net periodic benefit cost on the Consolidated Statements of Earnings and Comprehensive Income.

For the three ~~and six~~ months ended ~~June 30, 2017,~~March 31, 2018, the Company contributed $3 million ~~and $6 million, respectively (2016~~(2017 – ~~$5 million and $9 million, respectively)~~$3 million) to the pension plans and $1 million ~~and $2 million, respectively (2016~~(2017 – $1 ~~million and $2 million, respectively)~~million) to the other post-retirement benefit plans.

Other operating ~~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 ~~loss,~~income, net includes the following:

For the ~~second~~first quarter of ~~2017,~~2018, the Company’s income tax expense was $9$11 million, consisting of a$14 million of current income tax expense ~~of $17 million~~ and a deferred income tax benefit of $8$3 million. This compares to an income tax expense of $6$5 million in the ~~second~~first quarter of ~~2016,~~2017, consisting of a$9 million of current income tax expense ~~of $8 million~~ and a deferred income tax benefit of $2$4 million. The Company made tax payments, net of tax refunds, of $4 million during the first quarter of 2018. The effective tax rate was ~~19%~~17% compared with an effective tax rate of 25% in the second quarter of 2016. The effective tax rate for the second quarter of 2017 was favorably impacted by enacted law changes in several U.S. states and by the recognition of additional tax credits associated with the filing of certain 2016 income tax returns.

For the first half of 2017, the Company’s income tax expense amounted to $14 million, consisting of a current income tax expense of $26 million and a deferred income tax benefit of $12 million. This compares to an income tax expense of $3 million20% in the first ~~half~~quarter of 2016, consisting of a current income tax expense of $8 million and a deferred income tax benefit of $5 million. The effective tax rate was 19% compared to an effective tax rate of 12% in the first half of 2016.2017. The effective tax rate for the first ~~half~~quarter of ~~2017~~2018 was favorably impacted by the income tax effects of the U.S. Tax Cuts and Jobs Act (the “U.S. Tax Reform”) as well as by the recognition of $1 million of previously unrecognized tax benefits due to a statute expiration in a foreign jurisdiction. The effective tax rate for the first quarter of 2017 was also favorably impacted by the recognition of $1 million of previously unrecognized tax benefits due to a statute expiration in a foreign jurisdiction and ~~also~~ a U.S. state tax audit ~~finalization, enacted law changes~~finalization.

On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application in ~~several~~situations where a registrant does not have the necessary information available, prepared, or analyzed in reasonable detail to complete the accounting for certain income tax effects of the U.S. ~~states,~~Tax Reform. SAB 118 provides guidance which allows companies to use a measurement period, similar to that used in business combinations, to account for the impacts of the U.S. Tax Reform. The U.S. Tax Reform provides for a mandatory one-time deemed repatriation tax on the Company’s undistributed foreign earnings and profits. The Company recorded a provisional repatriation tax amount of $46 million in its consolidated financial statements as of December 31, 2017. The Company continues to analyze various factors, including the ~~recognition~~impact of ~~additional~~foreign tax credits ~~associated with~~available to offset the ~~filing of certain 2016 income~~ tax, ~~returns. The effective tax rate~~and to gather additional information and monitor for further interpretive guidance in order to finalize its calculations and complete its accounting for the ~~first half of 2016 was impacted by the approval of a state~~repatriation tax ~~credit in the U.S.~~liability.

~~The goodwill at June 30, 2017 is entirely related to the Personal Care segment.~~

		June 30, 2017							December 31, 2016								March 31, 2018							December 31, 2017
	Estimated useful lives (in years)	Gross carrying amount		Accumulated amortization			Net		Gross carrying amount		Accumulated amortization			Net		Estimated useful lives (in years)	Gross carrying amount		Accumulated amortization			Net		Gross carrying amount		Accumulated amortization			Net
		$		$			$		$		$			$			$		$			$		$		$			$
Definite-lived intangible assets subject to amortization
Water rights	40		3		(1	)		2		3		(1	)		2	40		3		(1	)		2		3		(1	)		2
Customer relationships	10 – 40		383		(70	)		313		369		(60	)		309	10 – 40		397		(85	)		312		392		(79	)		313
Technology	7 – 20		8		(3	)		5		8		(3	)		5	7 – 20		8		(4	)		4		8		(4	)		4
Non-Compete	9		1		(1	)		—		1		—			1	9		1		(1	)		—		1		(1	)		—
License rights	12		29		(10	)		19		28		(8	)		20	12		28		(11	)		17		29		(11	)		18
			424		(85	)		339		409		(72	)		337			437		(102	)		335		433		(96	)		337
Indefinite-lived intangible assets not subject to amortization
Water rights			4		—			4		4		—			4			4		—			4		4		—			4
Trade names			237		—			237		225		—			225			250		—			250		245		—			245
License rights			6		—			6		6		—			6			6		—			6		6		—			6
Catalog rights			39		—			39		36		—			36			42		—			42		41		—			41
Total			710		(85	)		625		680		(72	)		608			739		(102	)		637		729		(96	)		633

Amortization expense related to intangible assets for the three ~~and six~~ months ended ~~June 30, 2017~~March 31, 2018 was $5 million ~~and $10 million, respectively (2016~~(2017 – ~~$4 million and $9 million, respectively)~~$5 million).

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 OF PROPERTY, PLANT AND EQUIPMENT~~

On December 10, 2014, the Company announced a project to convert a paper machine at its 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 Company also invested in a pulp bale line that will provide flexibility to manufacture papergrade softwood pulp, contingent on market conditions. The conversion work commenced during the second quarter of 2016 and the production of bale softwood pulp began in the third quarter of 2016. The fluff pulp line 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 resulted in the permanent reduction of 364,000 short tons of annual uncoated freesheet production capacity on MarchMARCH 31, ~~2016.~~

The Company recorded $3 million and $24 million for the three and six months ended June 30, 2016, respectively, of accelerated depreciation under Impairment of property, plant and equipment on the Consolidated Statement of Earnings and Comprehensive Income. The Company also recorded $21 million of costs related to the fluff pulp conversion outage under Closure and restructuring costs during the second quarter of 2016. During the first quarter of 2016, the Company recorded $1 million of severance and termination costs under Closure and restructuring costs.

For the three and six months ended 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.

The following table presents the changes in Accumulated other comprehensive loss by component⁽¹⁾ for the ~~six~~three months ended ~~June 30, 2017~~March 31, 2018 and the year ended December 31, ~~2016:~~2017:

	Net derivative (losses) gains on cash flow hedges			Pension items⁽²⁾			Post-retirement benefit items⁽²⁾			Foreign currency items			Total			Net derivative gains (losses) on cash flow hedges			Pension items⁽²⁾			Post-retirement benefit items⁽²⁾			Foreign currency items			Total
	$			$			$			$			$			$			$			$			$			$
Balance at December 31, 2015		(30	)		(190	)		(10	)		(271	)		(501	)
Balance at December 31, 2016																	11			(221	)		(11	)		(278	)		(499	)
Natural gas swap contracts		4		N/A			N/A			N/A				4			(5	)	N/A			N/A			N/A				(5	)
Net investment hedge		(1	)	N/A			N/A			N/A				(1	)
Currency options		8		N/A			N/A			N/A				8			11		N/A			N/A			N/A				11
Foreign exchange forward contracts		16		N/A			N/A			N/A				16
Net gain	N/A				(38	)		(1	)	N/A				(39	)
Net (gain) loss																N/A				(6	)		17		N/A				11
Foreign currency items	N/A			N/A			N/A				(7	)		(7	)	N/A			N/A			N/A				146			146
Other comprehensive income (loss) before reclassifications		27			(38	)		(1	)		(7	)		(19	)		6			(6	)		17			146			163
Amounts reclassified from Accumulated other comprehensive loss		14			7			—			—			21			(9	)		9			—			—			—
Net current period other comprehensive income (loss)		41			(31	)		(1	)		(7	)		2
Balance at December 31, 2016		11			(221	)		(11	)		(278	)		(499	)
Natural gas swap contracts		(4	)	N/A			N/A			N/A				(4	)
Net current period other comprehensive (loss) income																	(3	)		3			17			146			163
Balance at December 31, 2017																	8			(218	)		6			(132	)		(336	)
Currency options		6		N/A			N/A			N/A				6			(6	)	N/A			N/A			N/A				(6	)
Foreign exchange forward contracts																	(3	)	N/A			N/A			N/A				(3	)
Foreign currency items	N/A			N/A			N/A				82			82		N/A			N/A			N/A				(11	)		(11	)
Other comprehensive income before reclassifications		2			—			—			82			84
Other comprehensive loss before reclassifications																	(9	)		—			—			(11	)		(20	)
Amounts reclassified from Accumulated other comprehensive loss		(4	)		5			—			—			1			(2	)		2			—			—			—
Net current period other comprehensive (loss) income		(2	)		5			—			82			85			(11	)		2			—			(11	)		(20	)
Balance at June 30, 2017		9			(216	)		(11	)		(196	)		(414	)
Balance at March 31, 2018																	(3	)		(216	)		6			(143	)		(356	)

NOTE ~~12.~~10. CHANGES IN ACCUMULATED OTHER COMPREHENSIVE LOSS BY COMPONENT (CONTINUED)

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

Details about Accumulated other comprehensive loss components	Amounts reclassified from Accumulated other comprehensive loss⁽¹⁾							Amounts reclassified from Accumulated other comprehensive loss⁽¹⁾
	For the six months ended							For the three months ended
	June 30, 2017			June 30, 2016				March 31, 2018			March 31, 2017
	$			$				$			$
Net derivative (losses) gains on cash flow hedges
Net derivative losses on cash flow hedge
Natural gas swap contracts		(1	)		10		⁽²⁾		(1	)		(1	)	⁽²⁾
Currency options and forwards		(5	)		11		⁽²⁾		(2	)		(4	)	⁽²⁾
Total before tax		(6	)		21				(3	)		(5	)
Tax benefit (expense)		2			(8	)
Tax benefit									1			2
Net of tax		(4	)		13				(2	)		(3	)

Amortization of defined benefit pension items
Amortization of net actuarial loss and prior year service cost		7			5		⁽³⁾
Amortization of net actuarial loss									2			2		⁽³⁾
Amortization of prior year service cost									1			1		⁽³⁾
Total before tax									3			3
Tax expense		(2	)		(2	)			(1	)		(1	)
Net of tax		5			3				2			2

On ~~February 21, 2017 and May 3, 2017,~~January 29, 2018, the Company’s Board of Directors approved a quarterly dividend of ~~$0.415~~$0.435 per share, ~~respectively,~~an increase of $0.02 or 4.8%, to be paid to holders of the Company’s common stock. ~~Dividends~~Total dividends of ~~$26~~approximately $27 million were paid on April ~~17, 2017 and July 17, 2017, respectively,~~16, 2018 to shareholders of record on April ~~3, 2017 and July 3, 2017, respectively.~~2, 2018.

On ~~August 1, 2017,~~May 8, 2018, the Company’s Board of Directors approved a quarterly dividend of ~~$0.415~~$0.435 per share to be paid to holders of the Company’s common stock. This dividend is to be paid on ~~October~~July 16, ~~2017,~~2018, to shareholders of record on ~~October 2, 2017.~~July 3, 2018.

The Company’s Board of Directors has authorized a stock repurchase 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. The timing and amount of stock repurchases will depend on a variety of factors, including the market conditions as well as corporate and regulatory considerations. The Program may be suspended, modified or discontinued at any time, and the Company has no obligation to repurchase any amount of its common stock under the Program. The Program has no set expiration date. The Company repurchases its common stock in part to reduce the dilutive effects of 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 may enter into structured stock repurchase agreements with large financial institutions using general corporate funds in order to lower the average cost to acquire shares. The agreements would require the Company to make up-front payments to the counterparty financial institutions, which would result in either the receipt of stock at the beginning of the term of the agreements followed by a share adjustment at the maturity of the agreements, or the receipt of either stock or cash at the maturity of the agreements, depending upon the price of the stock.

During the first ~~half~~quarter of 2018 and 2017, there were no shares repurchased under the Program.

~~During the first half of 2016, the Company repurchased 304,915 shares at an average price of $32.21 for a total cost of $10 million.~~

Since the inception of the Program, the Company has repurchased 24,853,827 shares at an average price of $39.33 for a total cost of $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.

The Company is subject to environmental laws and regulations enacted by federal, provincial, state and local authorities.The Company may also incur substantial costs in relation to enforcement actions (including orders requiring corrective measures, installation of pollution control equipment or other remedial actions) as a result of violations of, or liabilities under, environmental laws and regulations applicable to its past and present properties. The Company’s ongoing efforts to identify potential environmental concerns that may be associated with such properties may result in additional environmental costs and liabilities which cannot be reasonably estimated at this time.

OnIn connection with alleged contamination of a site bordering Burrard Inlet in North Vancouver, 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 ~~a remediation~~an action plan to address soil, sediment and groundwater issues. Construction began in January ~~2017.~~2017 and is expected to be completed in 2019. The Company ~~has~~ previously recorded an environmental reserve to address its estimated exposure. The possible cost 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:

The U.S. Environmental Protection Agency ~~(“EPA”~~(the “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.

Various national and local laws and regulations relating to climate change 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.

The ~~United States~~ EPA Clean Power Plan regulation is being litigated and has been stayed. ~~President Trump issued an Executive Order on March 28, 2017, directing his Administration~~The EPA has proposed to ~~review and then suspend, revise, or rescind~~repeal the Clean Power Plan ~~as appropriate and~~in accordance with President Trump’s Executive Order issued on March 28, 2017. Separately, the EPA has also requested comment on whether to replace the Clean Power Plan with another rule consistent with ~~law. As a result,~~ the new Administration’s interpretation of the Clean Air Act. The EPA has filed a motion with the D.C. Circuit to hold the case in abeyance while it reconsiders the rule, which the D.C. Circuit ~~granted in part to allow time for additional briefing on how and whether the litigation should proceed.~~granted. Regardless of the outcome offor the ~~litigation and/or the Executive Order,~~Clean Power Plan, the Company does not expect to be disproportionately affected compared with other pulp and paper producers located in the states where the Company operates.

The Government of Canada is reviewing national policies to further reduce greenhouse gases (“GHG”) and has announced its intent to impose a cost on carbon emissions. The Company does not expect its facilities to be disproportionately affected by these measures compared with other pulp and paper producers in Canada.

The provinces of Quebec and Ontario have GHG cap-and-trade systems with reduction targets. British Columbia has a carbon tax that applies to the purchase of fossil fuels within the province. The Company does not expect to be disproportionately affected compared ~~to the~~with other pulp and paper producers located in these provinces.

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 ~~June 30, 2017,~~March 31, 2018, 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.

On October 15, 2015, the Competition Directorate of Spain’s National Commission of Markets and Competition (“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 was Indas, which the Company acquired in January 2014, and two of its affiliates.

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 recorded a €0.2 million ($0.2 million) provision in the fourth quarter of 2015 in Other operating loss, net.

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 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 €13.3 million ($14.7 million) in Other operating loss, net.

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 was backed by a retained purchase price of €3 million ($3.3 million) and bank guarantees of €9 million ($9.9 million).

On June 27, 2016, in light of the CNMC decision, the sellers, in terms of their indemnity obligations, 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 second quarter of 2016 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 with respect to the purchase agreement, and is seeking to recover the remaining €1.5 million ($1.7 million) under the insurance policy. Any recovery from the insurers would be recorded in the period when the proceeds are received.

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 ~~June 30, 2017,~~March 31, 2018, 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.

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 ~~June 30, 2017,~~March 31, 2018 the Company has not recorded a liability associated with these indemnifications, as it does not expect to make any payments pertaining to these indemnifications.

The Company’s two reportable segments described below also represent its two operating segments. Each reportable segment offers different products and services and requires different manufacturing processes, technology and/or marketing strategies. The following summary briefly describes the operations included in each of the Company’s reportable segments:

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

	For the three months ended						For the six months ended						For the three months ended
	June 30,			June 30,			June 30,			June 30,			March 31,			March 31,
SEGMENT DATA	2017			2016			2017			2016			2018			2017
	$			$			$			$			$			$
Sales by segment(1)
Pulp and Paper		999			1,054			2,072			2,139			1,100			1,073
Personal Care		241			228			490			444			262			247
Total for reportable segments		1,240			1,282			2,562			2,583			1,362			1,320
Intersegment sales		(16	)		(15	)		(34	)		(29	)		(17	)		(18	)
Consolidated sales		1,224			1,267			2,528			2,554			1,345			1,302

Sales by product group
Paper		734			816			1,520			1,660
Communication papers														631			623
Specialty and packaging papers														174			163
Market pulp		249			223			518			450			278			269
Absorbent hygiene products		241			228			490			444			262			247
Consolidated sales		1,224			1,267			2,528			2,554			1,345			1,302

Depreciation and amortization of property, plant and equipment
Depreciation and amortization
Pulp and Paper		63			72			127			145			61			64
Personal Care		16			15			32			31			18			16
Total for reportable segments		79			87			159			176
Impairment of property, plant and equipment - Pulp and Paper		—			3			—			24
Consolidated depreciation and amortization and impairment of property, plant and equipment		79			90			159			200
Consolidated depreciation and amortization														79			80

Operating income (loss)
Operating income (loss)⁽²⁾
Pulp and Paper		65			35			99			54			76			30
Personal Care		13			15			29			29			8			16
Corporate		(14	)		(11	)		(22	)		(26	)		(7	)		(8	)
Consolidated operating income		64			39			106			57			77			38
Interest expense, net		17			15			34			32			16			17
Non-service components of net periodic benefit cost														(4	)		(4	)
Earnings before income taxes		47			24			72			25			65			25
Income tax expense		9			6			14			3			11			5
Net earnings		38			18			58			22			54			20

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’s significant 100% owned domestic subsidiaries, including Domtar Paper Company, LLC, ~~a 100% owned subsidiary of the Company,~~ Domtar Industries LLC (and subsidiaries, excluding Domtar Funding LLC), Domtar A.W. LLC, Attends Healthcare Products Inc., EAM Corporation, Associated Hygienic Products LLC and Home Delivery Incontinent Supplies Co., ~~all 100% owned subsidiaries of the Company~~ (“Guarantor Subsidiaries”), on a joint and several basis. ~~Pursuant to the amendment and restatement of the 2016 Credit Agreement on August 18, 2016, the~~The Guaranteed Debt will not be guaranteed by certain of Domtar’s foreign and non-significant domestic subsidiaries, all 100% owned, subsidiaries; including Domtar Delaware Holdings Inc. and its foreign subsidiaries, including Attends Healthcare Limited, Domtar Inc. and Laboratorios Indas. S.A.U.. Also excluded are Ariva Distribution Inc., Domtar Delaware Investments Inc., Domtar Delaware Holdings LLC, Domtar AI Inc., Domtar Personal Care Absorbent Hygiene Inc., Domtar Wisconsin Dam Corp. and Palmetto Enterprises LLC, (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 ~~June 30, 2017~~March 31, 2018 and December 31, ~~2016,~~2017, the Statements of Earnings and Comprehensive Income ~~for the three~~ and ~~six months ended June 30, 2017 and 2016 and the Statements of~~ Cash Flows for the ~~six~~three months ended ~~June 30,~~March 31, 2018 and 2017 ~~and 2016~~ 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
	June 30, 2017													March 31, 2018
						Non-														Non-
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS				Guarantor		Guarantor			Consolidating								Guarantor			Guarantor			Consolidating
AND COMPREHENSIVE INCOME	Parent			Subsidiaries		Subsidiaries			Adjustments			Consolidated		Parent			Subsidiaries			Subsidiaries			Adjustments			Consolidated
	$			$		$			$			$		$			$			$			$			$
Sales		—			1,011		499			(286	)		1,224		—			1,083			548			(286	)		1,345
Operating expenses
Cost of sales, excluding depreciation and amortization		—			878		376			(286	)		968		—			943			427			(286	)		1,084
Depreciation and amortization		—			58		21			—			79		—			56			23			—			79
Selling, general and administrative		2			31		78			—			111		4			45			61			—			110
Other operating loss, net		—			—		2			—			2
Other operating income, net															—			(2	)		(3	)		—			(5	)
		2			967		477			(286	)		1,160		4			1,042			508			(286	)		1,268
Operating (loss) income		(2	)		44		22			—			64		(4	)		41			40			—			77
Interest expense (income), net		16			22		(21	)		—			17		16			22			(22	)		—			16
Non-service components of net periodic benefit cost															—			1			(5	)		—			(4	)
(Loss) earnings before income taxes		(18	)		22		43			—			47		(20	)		18			67			—			65
Income tax (benefit) expense		(5	)		3		11			—			9		(4	)		4			11			—			11
Share in earnings of equity accounted investees		51			32		—			(83	)		—		70			56			—			(126	)		—
Net earnings		38			51		32			(83	)		38		54			70			56			(126	)		54
Other comprehensive income		71			76		69			(145	)		71
Other comprehensive loss															(20	)		(18	)		(10	)		28			(20	)
Comprehensive income		109			127		101			(228	)		109		34			52			46			(98	)		34

	For the six months ended														For the three months ended
	June 30, 2017														March 31, 2017
							Non-														Non-
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS				Guarantor			Guarantor			Consolidating								Guarantor			Guarantor			Consolidating
AND COMPREHENSIVE INCOME	Parent			Subsidiaries			Subsidiaries			Adjustments			Consolidated		Parent			Subsidiaries			Subsidiaries			Adjustments			Consolidated
	$			$			$			$			$		$			$			$			$			$
Sales		—			2,097			1,015			(584	)		2,528		—			1,086			514			(298	)		1,302
Operating expenses
Cost of sales, excluding depreciation and amortization		—			1,848			779			(584	)		2,043		—			970			407			(298	)		1,079
Depreciation and amortization		—			117			42			—			159		—			59			21			—			80
Selling, general and administrative		4			64			151			—			219		2			33			71			—			106
Other operating (income) loss, net		—			(2	)		3			—			1		—			(2	)		1			—			(1	)
		4			2,027			975			(584	)		2,422		2			1,060			500			(298	)		1,264
Operating (loss) income		(4	)		70			40			—			106		(2	)		26			14			—			38
Interest expense (income), net		33			42			(41	)		—			34		17			20			(20	)		—			17
Non-service components of net periodic benefit cost																—			—			(4	)		—			(4	)
(Loss) earnings before income taxes		(37	)		28			81			—			72		(19	)		6			38			—			25
Income tax (benefit) expense		(9	)		5			18			—			14		(4	)		2			7			—			5
Share in earnings of equity accounted investees		86			63			—			(149	)		—		35			31			—			(66	)		—
Net earnings		58			86			63			(149	)		58		20			35			31			(66	)		20
Other comprehensive income		85			94			85			(179	)		85		14			18			16			(34	)		14
Comprehensive income		143			180			148			(328	)		143		34			53			47			(100	)		34

For the three months ended

June 30, 2016

Non-

CONDENSED CONSOLIDATING STATEMENT OF

Guarantor

Guarantor

Consolidating

EARNINGS (LOSS) AND COMPREHENSIVE INCOME (LOSS)

Parent

Subsidiaries

Subsidiaries

Adjustments

Consolidated

$

$

$

$

$

Sales

—

1,040

498

(271
)

1,267

Operating expenses

Cost of sales, excluding depreciation and amortization

—

874

410

(271
)

1,013

Depreciation and amortization

—

63

24

—

87

Selling, general and administrative

2

25

77

—

104

Impairment of property, plant and equipment

—

3

—

—

3

Closure and restructuring costs

—

21

—

—

21

Other operating loss (income), net

1

(1
)

—

—

—

3

985

511

(271
)

1,228

Operating (loss) income

(3
)

55

(13
)

—

39

Interest expense (income), net

16

7

(8
)

—

15

(Loss) earnings before income taxes

(19
)

48

(5
)

—

24

Income tax (benefit) expense

(5
)

12

(1
)

—

6

Share in earnings of equity accounted investees

32

(4
)

—

(28
)

—

Net earnings (loss)

18

32

(4
)

(28
)

18

Other comprehensive loss

(14
)

(25
)

(29
)

54

(14
)
Comprehensive income (loss)

4

7

(33
)

26

4

For the six months ended

June 30, 2016

Non-

CONDENSED CONSOLIDATING STATEMENT OF EARNINGS

Guarantor

Guarantor

Consolidating

AND 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

	March 31, 2018
					Non-
			Guarantor		Guarantor		Consolidating
CONDENSED CONSOLIDATING BALANCE SHEET	Parent		Subsidiaries		Subsidiaries		Adjustments			Consolidated
	$		$		$		$			$
Assets
Current assets
Cash and cash equivalents		2		15		135		—			152
Receivables		—		428		276		—			704
Inventories		—		514		252		—			766
Prepaid expenses		3		18		6		—			27
Income and other taxes receivable		11		2		11		(8	)		16
Intercompany accounts		372		345		55		(772	)		—
Total current assets		388		1,322		735		(780	)		1,665
Property, plant and equipment, net		—		1,829		865		—			2,694
Intangible assets, net		—		264		373		—			637
Investments in affiliates		3,945		2,656		—		(6,601	)		—
Intercompany long-term advances		6		81		1,537		(1,624	)		—
Other assets		22		18		133		(18	)		155
Total assets		4,361		6,170		3,643		(9,023	)		5,151
Liabilities and shareholders' equity
Current liabilities
Trade and other payables		51		396		235		—			682
Intercompany accounts		274		74		424		(772	)		—
Income and other taxes payable		2		22		14		(8	)		30
Long-term debt due within one year		—		—		1		—			1
Total current liabilities		327		492		674		(780	)		713
Long-term debt		792		299		12		—			1,103
Intercompany long-term loans		689		934		1		(1,624	)		—
Deferred income taxes and other		—		347		157		(18	)		486
Other liabilities and deferred credits		60		153		143		—			356
Shareholders' equity		2,493		3,945		2,656		(6,601	)		2,493
Total liabilities and shareholders' equity		4,361		6,170		3,643		(9,023	)		5,151

	December 31, 2017
					Non-
			Guarantor		Guarantor		Consolidating
CONDENSED CONSOLIDATING BALANCE SHEET	Parent		Subsidiaries		Subsidiaries		Adjustments			Consolidated
	$		$		$		$			$
Assets
Current assets
Cash and cash equivalents		3		14		122		—			139
Receivables		—		402		302		—			704
Inventories		—		522		235		—			757
Prepaid expenses		5		22		6		—			33
Income and other taxes receivable		7		1		16		—			24
Intercompany accounts		380		314		45		(739	)		—
Total current assets		395		1,275		726		(739	)		1,657
Property, plant and equipment, net		—		1,870		895		—			2,765
Intangible assets, net		—		268		365		—			633
Investments in affiliates		3,892		2,609		—		(6,501	)		—
Intercompany long-term advances		6		81		1,513		(1,600	)		—
Other assets		22		24		129		(18	)		157
Total assets		4,315		6,127		3,628		(8,858	)		5,212
Liabilities and shareholders' equity
Current liabilities
Trade and other payables		55		424		237		—			716
Intercompany accounts		244		63		432		(739	)		—
Income and other taxes payable		1		14		9		—			24
Long-term debt due within one year		—		—		1		—			1
Total current liabilities		300		501		679		(739	)		741
Long-term debt		792		300		37		—			1,129
Intercompany long-term loans		674		925		1		(1,600	)		—
Deferred income taxes and other		—		356		153		(18	)		491
Other liabilities and deferred credits		66		153		149		—			368
Shareholders' equity		2,483		3,892		2,609		(6,501	)		2,483
Total liabilities and shareholders' equity		4,315		6,127		3,628		(8,858	)		5,212

June 30, 2017

Non-

Guarantor

Guarantor

Consolidating

CONDENSED CONSOLIDATING BALANCE SHEET

Parent

Subsidiaries

Subsidiaries

Adjustments

Consolidated

$

$

$

$

$

Assets

Current assets

Cash and cash equivalents

1

8

115

—

124

Receivables

—

280

333

—

613

Inventories

—

521

238

—

759

Prepaid expenses

9

20

12

—

41

Income and other taxes receivable

—

10

14

(6
)

18

Intercompany accounts

281

289

42

(612
)

—

Total current assets

291

1,128

754

(618
)

1,555

Property, plant and equipment, net

—

1,920

859

—

2,779

Goodwill

—

313

256

—

569

Intangible assets, net

—

273

352

—

625

Investments in affiliates

4,156

2,798

—

(6,954
)

—

Intercompany long-term advances

6

81

1,444

(1,531
)

—

Other assets

36

—

126

(23
)

139

Total assets

4,489

6,513

3,791

(9,126
)

5,667

Liabilities and shareholders' equity

Current liabilities

Trade and other payables

48

350

229

—

627

Intercompany accounts

235

55

322

(612
)

—

Income and other taxes payable

17

—

17

(6
)

28

Long-term debt due within one year

—

—

1

—

1

Total current liabilities

300

405

569

(618
)

656

Long-term debt

812

298

93

—

1,203

Intercompany long-term loans

588

942

1

(1,531
)

—

Deferred income taxes and other

—

540

160

(23
)

677

Other liabilities and deferred credits

19

172

170

—

361

Shareholders' equity

2,770

4,156

2,798

(6,954
)

2,770

Total liabilities and shareholders' equity

4,489

6,513

3,791

(9,126
)

5,667

December 31, 2016

Non-

Guarantor

Guarantor

Consolidating

CONDENSED CONSOLIDATING BALANCE SHEET

Parent

Subsidiaries

Subsidiaries

Adjustments

Consolidated

$

$

$

$

$

Assets

Current assets

Cash and cash equivalents

17

14

94

—

125

Receivables

—

305

308

—

613

Inventories

—

548

211

—

759

Prepaid expenses

15

19

6

—

40

Income and other taxes receivable

—

16

15

—

31

Intercompany accounts

331

184

47

(562
)

—

Total current assets

363

1,086

681

(562
)

1,568

Property, plant and equipment, net

—

2,000

825

—

2,825

Goodwill

—

313

237

—

550

Intangible assets, net

—

279

329

—

608

Investments in affiliates

3,976

2,678

—

(6,654
)

—

Intercompany long-term advances

6

80

1,411

(1,497
)

—

Other assets

15

18

103

(7
)

129

Total assets

4,360

6,454

3,586

(8,720
)

5,680

Liabilities and shareholders' equity

Current liabilities

Bank indebtedness

—

12

—

—

12

Trade and other payables

48

391

217

—

656

Intercompany accounts

136

115

311

(562
)

—

Income and other taxes payable

16

—

6

—

22

Long-term debt due within one year

63

—

—

—

63

Total current liabilities

263

518

534

(562
)

753

Long-term debt

841

299

78

—

1,218

Intercompany long-term loans

560

937

—

(1,497
)

—

Deferred income taxes and other

—

556

126

(7
)

675

Other liabilities and deferred credits

20

168

170

—

358

Shareholders' equity

2,676

3,976

2,678

(6,654
)

2,676

Total liabilities and shareholders' equity

4,360

6,454

3,586

(8,720
)

5,680

	For the three months ended
	March 31, 2018
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Consolidating Adjustments			Consolidated
	$			$			$			$			$
Operating activities
Net earnings		54			70			56			(126	)		54
Changes in operating and intercompany assets and liabilities and non-cash items, included in net earnings		(36	)		(66	)		12			126			36
Cash flows from operating activities		18			4			68			—			90
Investing activities
Additions to property, plant and equipment		—			(13	)		(12	)		—			(25	)
Proceeds from disposals of property, plant and equipment		—			—			1			—			1
Other		—			—			(4	)		—			(4	)
Cash flows used for investing activities		—			(13	)		(15	)		—			(28	)
Financing activities
Dividend payments		(26	)		—			—			—			(26	)
Repayments of receivables securitization facility		—			—			(25	)		—			(25	)
Increase in long-term advances to related parties		—			—			(17	)		17			—
Decrease in long-term advances to related parties		7			10			—			(17	)		—
Cash flows (used for) provided from financing activities		(19	)		10			(42	)		—			(51	)
Net (decrease) increase in cash and cash equivalents		(1	)		1			11			—			11
Impact of foreign exchange on cash		—			—			2			—			2
Cash and cash equivalents at beginning of period		3			14			122			—			139
Cash and cash equivalents at end of period		2			15			135			—			152

	For the three months ended
	March 31, 2017
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Consolidating Adjustments			Consolidated
	$			$			$			$			$
Operating activities
Net earnings		20			35			31			(66	)		20
Changes in operating and intercompany assets and liabilities and non-cash items, included in net earnings		—			(20	)		25			66			71
Cash flows from operating activities		20			15			56			—			91
Investing activities
Additions to property, plant and equipment		—			(15	)		(19	)		—			(34	)
Cash flows used for investing activities		—			(15	)		(19	)		—			(34	)
Financing activities
Dividend payments		(26	)		—			—			—			(26	)
Net change in bank indebtedness		—			(10	)		(1	)		—			(11	)
Change in revolving credit facility		(20	)		—			—			—			(20	)
Repayments of receivables securitization facility		—			—			(15	)		—			(15	)
Increase in long-term advances to related parties		—			—			(17	)		17			—
Decrease in long-term advances to related parties		16			1			—			(17	)		—
Cash flows used for financing activities		(30	)		(9	)		(33	)		—			(72	)
Net (decrease) increase in cash and cash equivalents		(10	)		(9	)		4			—			(15	)
Impact of foreign exchange on cash		—			—			1			—			1
Cash and cash equivalents at beginning of period		17			14			94			—			125
Cash and cash equivalents at end of period		7			5			99			—			111

For the six months ended

June 30, 2017

CONDENSED CONSOLIDATING STATEMENT OF
CASH FLOWS

Parent

Guarantor
Subsidiaries

Non-
Guarantor
Subsidiaries

Consolidating
Adjustments

Consolidated

$

$

$

$

$

Operating activities

Net earnings

58

86

63

(149
)

58

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

77

(107
)

35

149

154

Cash flows provided from (used for) operating activities

135

(21
)

98

—

212

Investing activities

Additions to property, plant and equipment

—

(39
)

(32
)

—

(71
)
Cash flows used for investing activities

—

(39
)

(32
)

—

(71
)
Financing activities

Dividend payments

(52
)

—

—

—

(52
)
Net change in bank indebtedness

—

(12
)

—

—

(12
)
Change in revolving credit facility

(30
)

—

—

—

(30
)
Proceeds from receivables securitization facility

—

—

25

—

25

Repayments of receivables securitization facility

—

—

(15
)

—

(15
)
Repayments of long-term debt

(63
)

—

—

—

(63
)
Increase in long-term advances to related parties

(5
)

—

(61
)

66

—

Decrease in long-term advances to related parties

—

66

—

(66
)

—

Other

(1
)

—

—

—

(1
)
Cash flows (used for) provided from financing activities

(151
)

54

(51
)

—

(148
)
Net (decrease) increase in cash and cash equivalents

(16
)

(6
)

15

—

(7
)
Impact of foreign exchange on cash

—

—

6

—

6

Cash and cash equivalents at beginning of period

17

14

94

—

125

Cash and cash equivalents at end of period

1

8

115

—

124

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 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 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

—

—

(60
)

60

—

Decrease in long-term advances to related parties

34

26

—

(60
)

—

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

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 (“MD&A”) should be read in conjunction with Domtar Corporation’s unaudited interim financial statements and notes thereto included in ~~the~~this Quarterly Report on Form 10-Q. ~~The~~This 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, ~~2016,~~2017, filed with the Securities and Exchange Commission (“SEC”) on February ~~24, 2017.~~23, 2018. Throughout this MD&A, unless otherwise specified, “Domtar Corporation,” “the Company,” “Domtar,” ~~��we,~~“we,” “us” and “our” refers to Domtar Corporation and its subsidiaries. Domtar Corporation’s common stock is listed on the New York Stock Exchange and the Toronto Stock Exchange. Except where otherwise indicated, all financial information reflected herein is determined on the basis of accounting principles generally accepted in the United States.

The information contained on our website, www.domtar.com, is not incorporated by reference into this Form 10-Q and should in no way be construed as a part of this or any other report that we file with or furnish to the SEC.

In accordance with industry practice, in this report, the term “ton” or the symbol “ST” refers to a short ton, an imperial unit of measurement equal to 0.9072 metric tons. The term “metric ton” or the symbol “ADMT” refers to an air dry metric ton. In this report, unless otherwise indicated, all dollar amounts are expressed in U.S. dollars, and the term “dollars” and the symbol “$” refer to U.S. dollars. In the following discussion, unless otherwise noted, references to increases or decreases in income and expense items, prices, contribution to net earnings (loss), and shipment volumes are based on three month periods ended March 31, 2018 and ~~six months ended June 30, 2017 and 2016.~~2017. The three ~~month and six month~~months periods are also referred to as the ~~second~~first quarter of 2018 and ~~first half of 2017 and 2016.~~2017. 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:

On January 1, 2018, we adopted the new accounting standard on revenue from contracts with customers using the full retrospective method, which resulted in a reclassification to the Company’s Consolidated Statement of Earnings and Comprehensive Income for the three months ended March 31, 2017. The previously reported amounts for Sales and Selling, general and administrative expenses were decreased by $2 million as a result of the reclassification of certain payments made to customers classified as a reduction of Sales under the new standard. These reclassifications are exclusively contained within the Company’s Consolidated Statement of Earnings and Comprehensive Income and do not have a cumulative effect on retained earnings or other components of equity or net assets in the Company’s Consolidated Balance Sheet as of January 1, 2017.

On January 1, 2018, we adopted the new accounting guidance on improving the presentation of net periodic pension cost and net periodic postretirement benefit costs, which resulted in a reclassification in the Company’s Consolidated Statement of Earnings and Comprehensive Income for the three months ended March 31, 2 017. The previously reported amount of Cost of sales was increased by $4 million, with a corresponding impact in Non-service components of net periodic benefit cost. We utilized a practical expedient included in the accounting standard update which allowed us to use amounts previously disclosed in our pension and other postretirement benefits plans note for the prior periods as the estimation basis for applying the required retrospective presentation requirements. In addition, these required retrospective r eclassifications resulted in adjustments to the previously reported Operating income within the Company’s reportable operating segment disclosures for the three months ended March 31, 2017.

For more details, refer to Note 2 “Recent Accounting Pronouncements” of the financial statements in this Form 10-Q.

We design, manufacture, market and distribute a wide variety of fiber-based products, including communication papers, specialty and packaging papers, and absorbent hygiene products. The foundation of our business is a network of wood fiber converting assets that produce paper grade, fluff and specialty pulp. More than 50% of our pulp production is consumed internally to manufacture paper and

other consumer products with the balance sold as market pulp. We are the largest integrated marketer of uncoated freesheet paper in North America serving a variety of customers, including merchants, retail outlets, stationers, printers, publishers, converters and end-users. We are also a marketer and producer of a broad line of incontinence care products as well as infant diapers. To learn more, visit ~~www.domtar.com~~www.domtar.com..

We have two reportable segments as described below, which also represent our two operating segments. Each reportable segment offers different products and services and requires different manufacturing processes, technology ~~and/or~~and 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.

		Three months ended										Six months ended											Three months ended
						Variance										Variance											Variance
FINANCIAL HIGHLIGHTS		June 30, 2017		June 30, 2016		$			%			June 30, 2017		June 30, 2016		$			%				March 31, 2018		March 31, 2017		$		%
(In millions of dollars, unless otherwise noted)
Sales		$	1,224	$	1,267	$	(43	)		-3	%	$	2,528	$	2,554	$	(26	)		-1	%		$	1,345	$	1,302	$	43		3	%
Operating income	Operating income		64		39		25			64	%		106		57		49			86	%	Operating income		77		38		39		103	%
Net earnings			38		18		20			111	%		58		22		36			164	%			54		20		34		170	%
Net earnings per common share (in dollars)¹:
Basic		$	0.61	$	0.29	$	0.32			110	%	$	0.93	$	0.35	$	0.58			166	%		$	0.86	$	0.32	$	0.54		169	%
Diluted		$	0.61	$	0.29	$	0.32			110	%	$	0.93	$	0.35	$	0.58			166	%		$	0.86	$	0.32	$	0.54		169	%

																At June 30, 2017			At December 31, 2016								At March 31, 2018		At December 31, 2017
Total assets																$	5,667		$	5,680							$	5,151	$	5,212
Total long-term debt, including current portion																$	1,204		$	1,281							$	1,104	$	1,130

For the remainder of the year, ~~we expect~~ our paper shipments should benefit from the announced industry capacity closures, and we expect to benefit from recently announced pulp and paper price increases. The second quarter will be affected by seasonally higher maintenance activity in our Pulp and Paper business as we move into the annual shutdowns at some of our major facilities. Personal Care is expected to be ~~in-line with market demand. Our pulp shipments should be~~negatively impacted by higher due to the ramp-up of the Ashdown fluff pulp line, while mix should continue to improve as we convert more volume to fluff pulp. In Personal Care, investments in advertising and promotion in addition to new customer wins should drive higher sales, while raw material costs ~~are expected to increase marginally.~~and an unfavorable tender balance.

This section presents a discussion and analysis of our ~~second~~first quarter of 2018 and ~~first half of~~ 2017 ~~and 2016~~ sales, operating income (loss) and other information relevant to the understanding of our results of operations.

As a result of adopting the new accounting standard “Revenue from Contracts with Customers,” we have revised our 2017 segment disclosures to conform to the new guideline. (Previously reported numbers for Sales were as follows: $1,073 million for Pulp and Paper, $249 million for Personal Care, and $(18) million for Intersegment sales.)

As a result of adopting the new accounting guideline “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,” we have revised our 2017 segment disclosures to conform to the new guideline. (Previously reported numbers for Operating income (loss) were as follows: $34 million for Pulp and Paper, $16 million for Personal Care, and $(8) million for Corporate.)

ANALYSIS OF SALES
ANALYSIS OF NET SALES
By Business Segment	Three months ended											Six months ended											Three months ended
							Variance											Variance											Variance
	June 30, 2017			June 30, 2016			$			%		June 30, 2017			June 30, 2016			$			%		March 31, 2018			March 31, 2017			$			%
Pulp and Paper	$	999		$	1,054			(55	)		-5%	$	2,072		$	2,139			(67	)		-3%	$	1,100		$	1,073			27		3%
Personal Care		241			228			13			6%		490			444			46			10%		262			247			15		6%
Total for reportable segments		1,240			1,282			(42	)		-3%		2,562			2,583			(21	)		-1%		1,362			1,320			42		3%
Intersegment sales		(16	)		(15	)		(1	)				(34	)		(29	)		(5	)				(17	)		(18	)		1
Consolidated		1,224			1,267			(43	)		-3%		2,528			2,554			(26	)		-1%		1,345			1,302			43		3%

Shipments
Paper - manufactured (in thousands of ST)		698			752			(54	)		-7%		1,443			1,538			(95	)		-6%		769			745			24		3%
Communication Papers		582			627			(45	)		-7%		1,204			1,284			(80	)		-6%		640			622			18		3%
Specialty and Packaging		116			125			(9	)		-7%		239			254			(15	)		-6%		129			123			6		5%
Paper - sourced from third parties (in thousands of ST)		26			29			(3	)		-10%		55			61			(6	)		-10%		28			29			(1	)	-3%
Paper - total (in thousands of ST)		724			781			(57	)		-7%		1,498			1,599			(101	)		-6%		797			774			23		3%
Pulp (in thousands of ADMT)		383			360			23			6%		836			729			107			15%		374			453			(79	)	-17%

ANALYSIS OF OPERATING INCOME (LOSS)

Three months ended

Six months ended

By Business Segment

Variance

Variance

June 30, 2017

June 30, 2016

$

%

June 30, 2017

June 30, 2016

$

%

Operating income (loss)

Pulp and Paper

65

35

30

86
%

99

54

45

83
%
Personal Care

13

15

(2
)

-13
%

29

29

-

-
%
Corporate

(14
)

(11
)

(3
)

-27
%

(22
)

(26
)

4

15
%
Consolidated operating income (loss)

64

39

25

64
%

106

57

49

86
%

Second quarter of 2017 versus Second quarter of 2016
First quarter of 2018 versus First quarter of 2017

	$ Change in Segmented Operating Income (Loss) due to																								$ Change in Segmented Operating Income (Loss) due to
	Volume/Mix				Net Price			Input Costs ^(b)		Operating Expenses^(c)			Currency		Depreciation/ Impairment ^(d)		Restructuring ^(e)		Other Operating Income/ Expense ^(f)			Total			Volume/Mix		Net Price			Input Costs ^(a)			Operating Expenses^(b)			Currency			Depreciation/ Impairment ^(c)			Restructuring ^(d)		Other Income/ Expense ^(e)			Total
Pulp and Paper		(10	)			(10	)		8		—			11		11		21		(1	)		30			3		58			(24	)		9			(9	)		4			—		5			46
Personal Care		2		^(a)		(4	)		2		(2	)		—		—		—		—			(2	)		2		(2	)		(6	)		(3	)		3			(2	)		—		—			(8	)
Corporate		—				—			—		(2	)		—		—		—		(1	)		(3	)		—		—			—			1			1			—			—		(1	)		1
Consolidated operating income (loss)		(8	)			(14	)		10		(4	)		11		11		21		(2	)		25			5		56			(30	)		7			(5	)		2			—		4			39

We incurred $17 million of net interest expense in the second quarter of 2017, an increase of $2 million compared to net interest expense of $15 million in the second quarter of 2016. This increase was mostly due to a reduction in capitalized interest and an increase in interest expense related to the Term Loan Agreement and was partially offset by the maturity of the 9.5% Notes due in August 2016 and of the 10.75% Notes due in June 2017.

In the second quarter of 2017, our income tax expense was $9 million, consisting of current income tax expense of $17 million and a deferred income tax benefit of $8 million. This compares to an income tax expense of $6 million in the second quarter of 2016, consisting of a current income tax expense of $8 million and a deferred income tax benefit of $2 million. We made income tax payments, net of refunds, of $23 million during the second quarter of 2017. Our effective tax rate was 19% compared with an effective tax rate of 25% in the second quarter of 2016. The effective tax rate for the second quarter of 2017 was favorably impacted by enacted law changes in several U.S. states and by the recognition of additional tax credits associated with the filing of certain 2016 income tax returns.

First half of 2017 versus First half of 2016

$ Change in Segmented Operating Income (Loss) due to

Volume/Mix

Net Price

Input Costs ^(b)

Operating
Expenses^(c)

Currency

Depreciation/
Impairment ^(d)

Restructuring ^(e)

Other Operating Income/
Expense ^(f)

Total

Pulp and Paper

(19
)

(32
)

14

(1
)

16

42

23

2

45

Personal Care

7

^(a)

(7
)

7

(5
)

(2
)

—

—

—

—

Corporate

—

—

—

3

—

—

—

1

4

Consolidated operating income (loss)

(12
)

(39
)

21

(3
)

14

42

23

3

49

Commentary – First ~~half~~quarter of ~~2017~~2018 compared to ~~first half~~First quarter of ~~2016~~2017

We incurred ~~$34~~$16 million of net interest expense in the first ~~half~~quarter of ~~2017, an increase of $2 million~~2018 compared to net interest expense of ~~$32~~$17 million in the first ~~half~~quarter of ~~2016. This increase was mostly due to a reduction in capitalized interest and an increase in~~2017. The net interest expense ~~related to the Term Loan Agreement. This increase~~ was ~~partially offset~~impacted by the repayment at maturity ~~of the 9.5% Notes due~~ in ~~August 2016 and of the maturity~~June 2017, of the 10.75% ~~Notes due in June 2017.~~Notes.

In the first ~~half~~quarter of ~~2017,~~2018, our income tax expense was $11 million, consisting of $14 million ~~consisting~~ of current income tax expense ~~of $26 million~~ and a deferred income tax benefit of ~~$12~~$3 million. This compares to an income tax expense of $3$5 million in the first ~~half~~quarter of ~~2016,~~2017, consisting of a $9 million current income tax expense ~~of $8 million~~ and a deferred income tax benefit of $5$4 million. We made income tax payments, net of refunds, of ~~$15~~$4 million during the first ~~half~~quarter of ~~2017. Our~~2018. The effective tax rate was ~~19%~~17% compared towith an effective tax rate of ~~12%~~20% in the first ~~half~~quarter of ~~2016.~~2017. The effective tax rate for the first ~~half~~quarter of ~~2017~~2018 was favorably impacted by the income tax effects of the U.S. Tax Cuts and Jobs Act (the “U.S. Tax Reform”) as well as by the recognition of $1 million of previously unrecognized tax benefits due to a statute expiration in a foreign jurisdiction. The effective tax rate for the first quarter of 2017 was also favorably impacted by the recognition of $1 million of previously unrecognized tax benefits due to a statute expiration in a foreign jurisdiction and ~~also~~ a U.S. state tax audit ~~finalization, enacted law changes~~finalization.

On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118 to address the application in ~~several~~situations where a registrant does not have the necessary information available, prepared, or analyzed in reasonable detail to complete the accounting for certain income tax effects of the U.S. ~~states,~~Tax Reform. The U.S. Tax Reform provides for a mandatory one-time deemed repatriation tax on our undistributed foreign earnings and profits. We recorded a provisional repatriation tax amount of $46 million in our consolidated financial statements as of December 31, 2017. We continue to analyze various factors, including the ~~recognition~~impact of ~~additional~~foreign tax credits ~~associated with~~available to offset the ~~filing of certain 2016 income~~ tax, ~~returns. The effective tax rate~~and to gather additional information and monitor for further interpretive guidance in order to finalize our calculations and complete our accounting for the ~~first half of 2016 was impacted by the approval of a state~~repatriation tax ~~credit in the U.S.~~liability.

Sales in our Pulp and Paper segment ~~decreased~~increased by ~~$55~~$27 million, or 5%3% when compared to sales in the ~~second~~first quarter of ~~2016.~~2017. This ~~decrease~~increase in sales is mostly due to ~~a 1% decrease~~an increase in net average selling prices ~~mostly due to a decrease in our net average selling price~~ for pulp and paper as well as ~~a decrease~~an increase in our paper sales volumes. This ~~decrease~~increase was partially offset by ~~an increase~~a decrease in our pulp sales ~~volume.~~volumes in part due to weather related issues in the first quarter of 2018.

Operating income in our Pulp and Paper segment amounted to ~~$65~~$76 million in the ~~second~~first quarter of ~~2017,~~2018, an increase of ~~$30~~$46 million, when compared to operating income of ~~$35~~$30 million in the ~~second~~first quarter of ~~2016.~~2017. Our results were positively impacted by:

Higher input costs ($24 million) mostly related to higher costs of fiber, chemicals and energy, in ~~our Pulp and Paper segment decreased by $67 million, or 3% when compared to sales in the first half of 2016. This decrease in sales is mostly~~part due to ~~a 1% decrease in net average selling prices for paper as well as a decrease in our paper sales volumes. This decrease was partially offset by an increase in our pulp sales volumes.~~

Operating income in our Pulp and Paper segment amounted to $99 million in the first half of 2017, an increase of $45 million, when compared to operating income of $54 million in the first half of 2016. Our results were positively impacted by:

Lower depreciation charges ($42 million) due to accelerated depreciation related to our 2014 decision to convert a paper machine at our Ashdown facility to a high quality fluff pulp line in the first half of 2016 and lower depreciation charges due to certain assets being fully depreciatedsevere weather conditions

~~Lower restructuring costs mostly related to the conversion~~Negative impact of a ~~paper machine to a high quality fluff pulp line at our Ashdown mill, recorded in the second quarter of 2016 ($23 million)~~

~~Positive impact of our hedging program as well as a weaker~~stronger Canadian dollar on our Canadian dollar denominated expenses, ~~($16 million)~~

~~Lower input costs ($14 million) mostly related to lower fiber costs as a result~~net of ~~improved yields and better weather and lower energy costs, partially offset by higher chemicals costs~~

~~Lower other operating income/expense~~our hedging program ($~~2 million)~~

~~This increase was partially offset by:~~

~~Lower average selling prices for paper while average selling prices for pulp were stable ($32 million)~~

~~Lower volume/ mix ($19 million) mostly related to lower volume of paper, partially offset by higher volume of pulp~~

~~Higher operating expenses ($1~~9 million)

The markets in which our pulp and paper business operate are highly competitive with well-established domestic and foreign manufacturers. In uncoated freesheet, we compete primarily on the basis of product quality, breadth of offering, service solutions and competitively priced paper products. We also compete with electronic transmission and document storage alternatives. As a result of such competition, we are experiencing ongoing decreasing demand for most of our existing paper products. Most of our products ~~offering~~ are commodities ~~that~~and are widely available from other producers as well. Because commodity products have few distinguishing qualities from producer to producer, competition for these products is based primarily on price, which is determined by supply relative to demand.

The pulp market is highly fragmented with many manufacturers competing worldwide. Competition is primarily on the basis of access to low-cost wood fiber, product quality and competitively priced pulp products.

For the remainder of the year, ~~we expect~~ our paper shipments should benefit from the announced industry capacity closures, and we expect to benefit from recently announced pulp and paper price increases. The second quarter will be ~~in-line with market demand. Our pulp shipments should be~~affected by seasonally higher ~~due to the ramp-up of the Ashdown fluff pulp line, while mix should continue to improve~~maintenance activity in our Pulp and Paper business as we ~~convert more volume to fluff pulp.~~move into the annual shutdowns at some of our major facilities.

Personal Care Segment

Sales in our Personal Care segment increased by ~~$13~~$15 million, or 6% when compared to sales in the ~~second~~first quarter of ~~2016.~~2017. This increase ~~in sales~~ was driven by ~~higher sales volume/mix of 9%~~favorable foreign exchange, mostly due to the ~~acquisition of HDIS on October 1, 2016.~~fluctuation between the U.S dollar and the Euro, as well as higher volume partially offset by unfavorable mix. This increase was partially offset by lower selling ~~prices of 1% and unfavorable foreign currency rates of 2% due to the fluctuation between European currencies.~~prices.

Operating income decreased by $2$8 million or ~~13%~~50% in the ~~second~~first quarter of ~~2017~~2018 compared to the ~~second~~first quarter of ~~2016.~~2017. Our results were negatively impacted by:

~~Unfavorable average net selling~~Higher input costs ($6 million) in part due to unfavorable nonwoven prices ~~($4 million)~~

Higher operating expenses ($23 million) mostly due to higher ~~salaries~~SG&A and ~~wages and higher selling, general and administrative expenses~~freight costs

~~This decrease was partially offset by:~~

~~Higher sales volume and mix ($2 million) in part due to the inclusion of HDIS as a result of the acquisition on October 1, 2016~~

~~Lower input costs ($2 million) mostly due to favorable pricing as a result of lower negotiated contract pricing as well as insourcing initiatives~~

Sales in our Personal Care segment increased by $46 million, or 10% when compared to sales in the first half of 2016. This increase in sales was driven by higher sales volume/mix of 14%, partially offset by lower selling prices of 2% and unfavorable foreign currency rates of 2% due to fluctuations between European currencies.

~~Operating income remained stable in the first half of 2017 when compared to the first half of 2016.~~

~~Our results were negatively impacted by:~~

Unfavorable average net selling prices ($72 million)

Higher ~~operating expenses~~depreciation charges ($52 million) ~~mostly due to higher salaries and wages and higher selling, general and administrative expenses~~

These decreases were partially offset by:

~~Unfavorable~~Favorable foreign exchange mostly between ~~the GBP and the Euro and~~ the U.S. Dollar and Euro, net of our hedging program ($23 million)

~~This decrease was offset by:~~40

Higher sales volume ~~and~~partially offset by unfavorable mix ($72 million)

~~Lower input costs ($7 million) mostly due to favorable pricing as a result of lower negotiated contract pricing as well as insourcing initiatives~~

In our absorbent hygiene products business, we compete in an industry with fundamental drivers for long-term ~~growth.~~ growth; however, competitive market pressures in the healthcare and retail markets grew significantly in the last year. Although the impact of such pressures presents some uncertainties, we expect them to result in lower than previously anticipated sales and operating margins.

While we ~~are expected to benefit from the~~expect an overall increase in healthcare spending due to an aging population, it is not clear how ~~recent~~pressures to limit this spending brought forth through administrative changes ~~in the~~by various national governments may impact the source of the funding. ~~Changes~~Additional changes in the balance of public versus private funding may be forthcoming and these could impact overall consumption or the channels in which consumption occurs. Additionally, excess industry capacity has increased pricing pressure in all markets and instigated a shift in the infant and adult private label retail space as competitors historically almost absent in our markets have increased their presence in such markets.

The principal methods and elements of competition ~~include~~remain brand recognition and loyalty, product innovation, quality and performance, price and marketing and distribution capabilities.

For the remainder of the year, we expect ~~investments in advertising and promotion. New customer wins should drive~~to be negatively impacted by higher ~~sales, while~~ raw material costs ~~are expected to increase marginally.~~and an unfavorable tender balance.

STOCK-BASED COMPENSATION EXPENSE

For the first ~~half~~quarter of ~~2017,~~2018, stock-based compensation expense recognized in our results of operations was $7$1 million for all outstanding awards which includes the mark-to-market recovery related to liability awards of $2$3 million. This compares to a stock-based compensation expense of $6$2 million for all outstanding awards which includes the mark-to-market recovery related to liability awards of $3 million in the first ~~half~~quarter of ~~2016.~~2017. 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 and income tax payments. 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 $700 million credit facility, of which ~~$680~~$700 million is currently undrawn and available, or through our $150 million receivables securitization facility, of which ~~$11~~$99 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~~taxes. The U.S. Tax Reform includes a mandatory one-time tax on accumulated earnings of foreign subsidiaries for which we recorded a provisional repatriation tax amount of $46 million in the fourth quarter of 2017, which we elected to pay over 8 years. We continue to assess the impact of the U.S. Tax Reform with respect to our current strategy of reinvesting profits of foreign subsidiaries back into those foreign operations. We dohave not ~~intend on repatriating those~~

~~funds~~completed our analysis of the impact of the U.S. Tax Reform and ~~no provision is made for income taxes that would be payable upon~~how changes will impact operational decisions around the ~~distribution~~utilization of ~~earnings from~~cash residing in the foreign subsidiaries ~~as computation of these amounts is not practical.~~and there have been no material changes to our estimated amounts.

Operating Activities

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

Cash flows from operating activities totaled ~~$212~~$90 million in the first ~~half~~quarter of ~~2017,~~2018, a $3$1 million decrease compared to cash flows from operating activities of ~~$215~~$91 million in the first ~~half~~quarter of ~~2016.~~2017. This decrease in cash flows ~~provided~~ from operating activities is primarily due to an increase in working capital requirements in the first ~~half~~quarter of ~~2017~~2018 when compared to the first ~~half~~quarter of ~~2016, partially~~2017 offset by an increase in ~~profitability (excluding the non-cash impairment charge of $24 million in the first half of 2016).~~profitability. We made income tax payments, net of refunds, of ~~$15~~$4 million during the first quarter of 2018 compared to income tax refunds, net of payments, of $8 million in the first ~~half~~quarter of ~~2017 compared to income tax payments, net of refunds of $27 million during the first half of 2016.~~2017.

Investing Activities

Cash flows used for investing activities in the first ~~half~~quarter of ~~2017~~2018 amounted to ~~$71~~$28 million, a ~~$149~~$6 million decrease compared to cash flows used for investing activities of ~~$220~~$34 million in the first ~~half~~quarter of ~~2016.~~2017.

The use of cash in the first ~~half~~quarter of 2018 was attributable to additions to property, plant and equipment of $25 million and additions to a joint venture investment of $4 million, partially offset by proceeds of disposals of property, plant and equipment of $1 million.

The use of cash in the first quarter of 2017 was attributable to additions to property, plant and equipment of ~~$71 million.~~

~~The use of cash in the first half of 2016 was attributable to additions to property, plant and equipment of $219~~$34 million.

Our capital expenditures for ~~2017~~2018 are expected to be ~~approximately~~ between ~~$210~~$200 million and ~~$230~~$220 million.

Financing Activities

Cash flows used for financing activities totaled ~~$148~~$51 million in the first ~~half~~quarter of ~~2017~~2018 compared to cash flows used for financing activities of ~~$11~~$72 million in the first ~~half~~quarter of ~~2016.~~2017.

The use of cash in the first ~~half~~quarter of 2018 was primarily the result of dividend payments ($26 million) and net repayments of borrowings under our credit facilities (revolver and receivables securitization) ($25 million).

The use of cash in the first quarter of 2017 was primarily the result of dividend payments ($5226 million), and the net repayments of borrowings under our credit facilities (revolver and ~~receivable~~receivables securitization) ~~and long-term debt~~ ($8335 million) and a decrease in our bank indebtedness ($~~12 million).~~

The use of cash in the first 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 ($111 million).

Capital Resources

Net indebtedness, consisting of bank indebtedness and long-term debt, net of cash and cash equivalents, was ~~$1,080~~$952 million as of ~~June 30, 2017~~March 31, 2018 compared to ~~$1,168~~$991 million as of December 31, ~~2016.~~2017.

Notes Maturity

~~Our 9.5% Notes, in aggregate principal amount of $39 million, matured on August 1, 2016.~~

Our 10.75% Notes, in aggregate principal amount of $63 million, matured on June 1, 2017.

Term Loan

In the third quarter of 2015, a wholly owned subsidiary of Domtar borrowed $300 million under an unsecured 10-year Term Loan Agreement that matures on July 20, 2025, with certain domestic banks. The ~~facility was fully drawn down on August 19, 2015. The~~ Company and certain significant domestic subsidiaries of the Company unconditionally guarantee ~~any obligations from time to time arising~~the borrowing under the Term Loan Agreement. On August 18, 2016, Domtar entered into an amendment to its Term Loan Agreement, pursuant to which, among other things, certain insignificant subsidiaries were released from their guarantees of the borrower’s obligations under the Term Loan Agreement.

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 ~~June 30, 2017,~~March 31, 2018, we were in compliance with these financial covenants.

Revolving Credit Facility

In August 2016, we amended and restated our unsecured revolving credit facility (the “Credit Agreement”) with certain domestic and foreign banks, increasing the amount available from $600 million to $700 million, and ~~extending~~extended the Credit Agreement’s maturity date from October 3, 2019 to August 18, 2021. The amendment also allows certain foreign subsidiaries to be borrowers under the facility. The maturity date of the facility may be extended by one year and the lender commitments may be increased by up to $400 million, subject to lender approval and customary requirements.

Borrowings by the Company under the Credit Agreement are guaranteed by our significant domestic subsidiaries. Borrowings by foreign borrowers under the Credit Agreement are guaranteed by the Company, our significant domestic subsidiaries and certain of our foreign significant subsidiaries. ~~The amendment allowed certain insignificant domestic subsidiaries that were previously guarantors, to be released from their guarantees of any obligations under the credit facility.~~

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

The Credit Agreement contains customary covenants and events of default for transactions of this type, 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 (or 4.00 to 1 upon the occurrence of certain qualifying material acquisitions). At ~~June 30, 2017,~~March 31, 2018, we were in compliance with these financial ~~covenants.~~covenants, and had no borrowings (March 31, 2017 – $30 million). At ~~June 30, 2017,~~March 31, 2018, we had ~~$20 million of borrowing (June 30, 2016– nil) and~~ no outstanding letters of credit ~~(June 30, 2016~~(March 31, 2017 – nil), leaving ~~$680~~$700 million unused and available under this facility.

Receivables Securitization

We have a $150 million receivables securitization facility that matures in March 2019.

At ~~June 30, 2017,~~March 31, 2018, we had no borrowings under the receivables securitization facility ~~amounted to $80 million~~ and ~~$59~~we had $51 million of letters of credit ~~were issued~~ under the program ~~(June 30, 2016~~(March 31, 2017 – ~~$100~~$55 million and ~~$38~~$48 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~~2016 Credit Agreement or our failure to repay or satisfy material obligations. At ~~June 30, 2017,~~March 31, 2018, we had ~~$11~~$99 million unused and available under ~~this~~the receivable securitization facility.

Common Stock

On ~~February 21, 2017 and May 3, 2017,~~January 29, 2018, our Board of Directors approved a quarterly dividend of ~~$0.415~~$0.435 per share, ~~respectively,~~an increase of $0.02 or 4.8%, to be paid to holders of our common stock. ~~Dividends~~Total dividends of ~~$26~~approximately $27 million were paid on April ~~17, 2017 and July 17, 2017, respectively,~~16, 2018 to shareholders of record on April ~~3, 2017 and July 3, 2017, respectively.~~2, 2018.

On ~~August 1, 2017,~~May 8, 2018, our Board of Directors approved a quarterly dividend of ~~$0.415~~$0.435 per share to be paid to holders of our common stock. This dividend is to be paid on ~~October~~July 16, ~~2017,~~2018, to shareholders of record on ~~October 2, 2017.~~July 3, 2018.

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 ~~June 30, 2017,~~March 31, 2018, 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 ~~June 30, 2017,~~March 31, 2018, 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 and useful lives of long-lived assets, closure and restructuring costs, ~~goodwill and~~ intangible assets impairment, pension and other post-retirement benefit plans, income taxes, business combinations and contingencies related to legal claims. 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.~~position. Actual results could differ from those estimates.

~~There has not been any material change to our policies since December 31, 2016.~~ For more details on critical accounting policies, refer to our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2017.

There has not been any material change to our policies since December 31, 2017 except for the adoption of ASU 2014-09, “Revenue from Contracts with Customers” on January 1, 2018. For more details, refer to Note 2 “Recent Accounting Pronouncements” of the financial statements in this Quarterly Report on Form 10-Q.

FORWARD-LOOKING STATEMENTS

The information included in this Quarterly Report on Form 10-Q 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;

cyberattack or other security breaches;

the effect of, or change in, forestry, land use, environmental and other governmental regulations (including ~~tax)~~tax positions and estimates of the impact of the U.S. Tax Reform on our future results), and accounting regulations;

the effect of weather and the risk of loss from fires, floods, windstorms, hurricanes and other natural disasters;

transportation costs;

the loss of current customers or the inability to obtain new customers;

legal proceedings;

changes in asset valuations, including impairment of property, plant and equipment, inventory, accounts receivable or other assets for impairment or other reasons;

changes in currency exchange rates, particularly the relative value of the U.S. dollar to the Canadian dollar and European currencies;

the effect of timing of retirements and changes in the market price of Domtar Corporation’s common stock on charges for stock-based compensation;

performance of pension fund investments and related derivatives, if any; and

the other factors described under “Risk Factors”, in item 1A of our Annual Report on Form 10-K, for the year ended December 31, ~~2016.~~2017.

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 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, ~~2016.~~ 2017. There ~~have~~has not been noany material ~~changes i~~nchange in our exposure to market risk since December 31, ~~2016.~~2017. A full discussion on Quantitative and Qualitative Disclosure about Market Risk, is found in Note 3 “Derivatives and Hedging Activities and Fair Value Measurement,” of the financial statements in this Quarterly Report on Form 10-Q.

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 ~~June 30, 2017,~~March 31, 2018, 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 ~~June 30, 2017,~~March 31, 2018, 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~~ART~~PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See Note 1412 “Commitments and Contingencies” of the financial statements in this Quarterly Report on Form 10-Q for the discussion regarding 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, ~~2016.~~2017.

ITEM 1A. RISKRISK FACTORS

Our Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2017, contains important risk factors that could cause our actual results to differ materially from those projected in any forward-looking statement. There ~~have been~~were no material changes ~~from~~to the risk factors described in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~

2017.

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

During the ~~second~~first quarter ~~and the first half~~ of ~~2017,~~2018, we did not repurchase any shares under our stock repurchase program (the “Program”). We currently have $323 million of remaining availability under our 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.

During 2017, there were no shares repurchased under the Program. As of December 31, 2017, the approximate dollar value of shares that may yet be purchased under the Program was $323 million.

ITEM ~~ITEM~~ 3. DEFAULT ~~UPON~~UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 6. EXHIBITS

				Incorporated by reference to:
Exhibit Number	Exhibit Description			Form	Exhibit	Filing Date

10.1*		~~Amended and Restated DB SERP for Management Committee Members of Domtar~~

10.2*		~~Amended and Restated DC SERP for Designated Executives of Domtar~~

10.3*		~~Amended and Restated Supplementary Pension Plan for Designated Managers of Domtar Inc.~~

10.4*		~~Amended and Restated DC SERP for Designated Executives of Domtar Personal Care~~

10.5*		~~Amended and Restated Domtar Corporation 2007 Omnibus Incentive Plan~~	~~DEF14A~~		~~Annex B~~		~~03/31/2017~~


10.6*		~~Domtar Corporation Annual Incentive Plan for Members of the Management Committee~~	~~DEF14A~~		~~Annex A~~		~~03/31/2017~~

12.1		Computation of Ratio of Earnings to Fixed Charges
31.1		Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

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

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

32.2		Certification of the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema

101.CAL		XBRL Taxonomy Extension Calculation Linkbase

101.DEF		XBRL Taxonomy Extension Definition Linkbase

101.LAB		XBRL Taxonomy Extension Label Linkbase

101.PRE		XBRL Extension Presentation Linkbase

* Indicates management contract of compensatory arrangement

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: ~~August 4, 2017~~May 9, 2018

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

5247

Commodity	Notional contractual quantity under derivative contracts MMBTU⁽³⁾		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
2017 ⁽¹⁾		4,255,000		$	13		35%
2018		12,695,000		$	38		50%
Natural gas
2018 ⁽¹⁾									8,955,000		$	27	51%
2019		9,175,000		$	28		36%		11,430,000		$	34	45%
2020		5,750,000		$	18		23%		8,880,000		$	27	35%
2021		3,920,000		$	12		15%		3,920,000		$	12	16%
2022 ⁽²⁾		2,070,000		$	6		15%
2022									2,070,000		$	6	8%

	~~June 30, 2017~~
	$
~~Balance at December 31, 2016~~		~~550~~
~~Effect of foreign currency exchange rate change~~		19
~~Balance at end of period~~		~~569~~

	~~June 30, 2017~~March 31, 2018
	$
Balance at beginning of year		50
~~Additions~~		244
Environmental spending		(3	)
Effect of foreign currency exchange rate change		(1	)
Balance at end of period		5040

PART I.	FINANCIAL INFORMATION	3

ITEM 1.	FINANCIAL STATEMENTS (UNAUDITED)	3

	CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE 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	3936

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK	4945

ITEM 4.	CONTROLS AND PROCEDURES	4945

PART II	OTHER INFORMATION	4945

ITEM 1.	LEGAL PROCEEDINGS	4945

ITEM 1A.	RISK FACTORS	5045

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	5045

ITEM 3.	DEFAULT UPON SENIOR SECURITIES	5046

ITEM 4.	MINE SAFETY DISCLOSURES	5046

ITEM 5.	OTHER INFORMATION	5046

ITEM 6.	EXHIBITS	5146

NOTE 1	BASIS OF PRESENTATION	8

NOTE 2	RECENT ACCOUNTING PRONOUNCEMENTS	9

NOTE 3	DERIVATIVES AND HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENT	12

NOTE 4	EARNINGS PER COMMON SHARE	17

NOTE 5	PENSION PLANS AND OTHER POST-RETIREMENT BENEFIT PLANS	18

NOTE 6	OTHER OPERATING ~~LOSS,~~INCOME, NET	19

NOTE 7	INCOME TAXES	20

NOTE 8	INVENTORIES	21

NOTE 9	~~GOODWILL~~INTANGIBLE ASSETS	22

NOTE 10	~~INTANGIBLE ASSETS~~CHANGES IN ACCUMULATED OTHER COMPREHENSIVE LOSS BY COMPONENT	23

NOTE 11	~~CLOSURE AND RESTRUCTURING COSTS AND LIABILITY AND IMPAIRMENT OF PROPERTY, PLANT AND EQUIPMENT~~SHAREHOLDERS’ EQUITY	2425

NOTE 12	~~CHANGES IN ACCUMULATED OTHER COMPREHENSIVE LOSS BY COMPONENT~~COMMITMENTS AND CONTINGENCIES	2526

NOTE 13	~~SHAREHOLDERS’ EQUITY~~SEGMENT DISCLOSURES	2728

NOTE 14	~~COMMITMENTS AND CONTINGENCIES~~	28

~~NOTE 15~~	~~SEGMENT DISCLOSURES~~	31

~~NOTE 16~~	SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION	32

		30

ANALYSIS OF CHANGES IN SALES
	Second quarter of 2017 versus Second quarter of 2016													First half of 2017 versus First half of 2016													First quarter of 2018 versus First quarter of 2017
	% Change in 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
Pulp and Paper		-1	%		-4	%			-	%		-5	%		-1	%		-2	%			-	%		-3	%		6	%		-3	%		-	%		3	%
Personal Care		-1	%		9	%	^(a)		-2	%		6	%		-2	%		14	%	^(a)		-2	%		10	%		-1	%		1	%		6	%		6	%
Consolidated sales		-1	%		-2	%			-	%		-3	%		-2	%		1	%			-	%		-1	%		4	%		-2	%		1	%		3	%

ANALYSIS OF OPERATING INCOME (LOSS)
	Three months ended
By Business Segment							Variance
	March 31, 2018			March 31, 2017			$			%
Operating income (loss)
Pulp and Paper		76			30			46			153	%
Personal Care		8			16			(8	)		-50	%
Corporate		(7	)		(8	)		1			13	%
Consolidated operating income		77			38			39			103	%

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