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 October 31, 2017, the registrant had 62,693,709 shares of common stock,~~ ~~$47.32 par value per share,~~ ~~outstanding.~~

Securities registered pursuant to Section 12(b) of the Act: Common Stock, Par Value $0.01 Per Share; Common stock traded on the New York Stock Exchange; trading symbol UFS.

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). YES ☒ NO ☐

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

At April 30, 2020, 55,191,705 shares of the issuer’s common stock were outstanding.

	Three months ended			Three months ended			Nine months ended			Nine months ended		For the three months ended
	September 30,			September 30,			September 30,			September 30,		March 31,			March 31,
	2017			2016			2017			2016		2020			2019
	(Unaudited)											(Unaudited)
	$			$			$			$		$			$
Sales		1,292			1,270			3,820			3,824		1,278			1,376
Operating expenses
Cost of sales, excluding depreciation and amortization		1,012			969			3,055			3,032		1,083			1,052
Depreciation and amortization		80			87			239			263		72			73
Selling, general and administrative		118			107			337			314		102			123
Impairment of property, plant and equipment (NOTE 11)		—			5			—			29
Impairment of long-lived assets (NOTE 11)													—			10
Closure and restructuring costs (NOTE 11)		—			10			—			33		—			4
Other operating (income) loss, net (NOTE 6)		(7	)		—			(6	)		4
Other operating loss (income), net (NOTE 6)													2			(1	)
		1,203			1,178			3,625			3,675		1,259			1,261
Operating income		89			92			195			149		19			115
Interest expense, net		16			17			50			49		14			13
Earnings before income taxes		73			75			145			100
Non-service components of net periodic benefit cost (NOTE 5)													(4	)		(3	)
Earnings before income taxes and equity loss													9			105
Income tax expense (NOTE 7)		3			16			17			19		3			24
Equity loss, net of taxes													1			1
Net earnings		70			59			128			81		5			80
Per common share (in dollars) (NOTE 4)
Net earnings
Basic		1.12			0.94			2.04			1.29		0.09			1.27
Diluted		1.11			0.94			2.04			1.29		0.09			1.27
Weighted average number of common shares outstanding (millions)
Basic		62.7			62.6			62.6			62.6		56.1			63.0
Diluted		62.9			62.7			62.8			62.7		56.2			63.2
Cash dividends per common share		0.42			0.42			0.83			1.22		0.46			0.44

Net earnings		70			59			128			81		5			80
Other comprehensive income (NOTE 12):
Net derivative gains (losses) on cash flow hedges:
Net gains (losses) arising during the period, net of tax of $(6) and $(8), respectively (2016 – $4 and $(14), respectively)		9			(6	)		11			23
Less: Reclassification adjustment for (gains) losses included in net earnings, net of tax of $2 and $4, respectively (2016 – $(2) and $(10), respectively)		(2	)		1			(6	)		14
Other comprehensive (loss) income (NOTE 12):
Net derivative (losses) gains on cash flow hedges:
Net (losses) gains arising during the period, net of tax of $16 (2019 – $(4))													(49	)		11
Less: Reclassification adjustment for losses included in net earnings, net of tax of $(2) (2019 – nil)													7			1
Foreign currency translation adjustments		60			6			142			61		(74	)		2
Change in unrecognized gains and prior service cost related to pension and post-retirement benefit plans, net of tax of $(1) and $(3), respectively (2016 – nil and $(2), respectively)		2			2			7			5
Other comprehensive income		69			3			154			103
Comprehensive income		139			62			282			184
Change in unrecognized gains and prior service cost related to pension and post-retirement benefit plans, net of tax of $(1) (2019 – $(1))													1			3
Other comprehensive (loss) income													(115	)		17
Comprehensive (loss) income													(110	)		97

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

	At						At
	September 30,			December 31,			March 31,			December 31,
	2017			2016			2020			2019
	(Unaudited)						(Unaudited)
	$			$			$			$
Assets
Current assets
Cash and cash equivalents		143			125			152			61
Receivables, less allowances of $7 and $7		659			613
Receivables, less allowances of $10 and $6								600			577
Inventories (NOTE 8)		787			759			740			786
Prepaid expenses		47			40			32			33
Income and other taxes receivable		13			31			27			61
Total current assets		1,649			1,568			1,551			1,518
Property, plant and equipment, net		2,774			2,825			2,493			2,567
Goodwill (NOTE 9)		578			550
Operating lease right-of-use assets (NOTE 9)								77			81
Intangible assets, net (NOTE 10)		632			608			561			573
Other assets		151			129			151			164
Total assets		5,784			5,680			4,833			4,903
Liabilities and shareholders' equity
Current liabilities
Bank indebtedness		—			12			—			9
Trade and other payables		687			656			700			705
Income and other taxes payable		32			22			26			23
Operating lease liabilities due within one year (NOTE 9)								27			28
Long-term debt due within one year		1			63			1			1
Total current liabilities		720			753			754			766
Long-term debt		1,164			1,218			1,102			938
Operating lease liabilities (NOTE 9)								65			69
Deferred income taxes and other		681			675			457			479
Other liabilities and deferred credits		333			358			274			275
Commitments and contingencies (NOTE 14)
Shareholders' equity (NOTE 13)
Common stock $0.01 par value; authorized 2,000,000,000 shares; issued: 65,001,104 and 65,001,104 shares		1			1
Treasury stock $0.01 par value; 2,308,483 and 2,412,267 shares		—			—
Common stock $0.01 par value; authorized 2,000,000,000 shares; issued 65,001,104 and 65,001,104 shares								1			1
Treasury stock $0.01 par value; 9,810,777 and 8,120,194 shares								—			—
Additional paid-in capital		1,969			1,963			1,710			1,770
Retained earnings		1,261			1,211			978			998
Accumulated other comprehensive loss		(345	)		(499	)		(508	)		(393	)
Total shareholders' equity		2,886			2,676			2,181			2,376
Total liabilities and shareholders' equity		5,784			5,680			4,833			4,903

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

(Unaudited)

$

$

$

$

$

Balance at December 31, 2016

62.6

1

1,963

1,211

(499
)

2,676

Stock-based compensation, net of tax

0.1

—

6

—

—

6

Net earnings

—

—

—

128

—

128

Net derivative gains on cash flow hedges:

Net gains arising during the period, net of tax
   of $(8)

—

—

—

—

11

11

Less: Reclassification adjustments for gains
   included in net earnings, net of tax of $4

—

—

—

—

(6
)

(6
)
Foreign currency translation adjustments

—

—

—

—

142

142

Change in unrecognized gains and prior service cost
   related to pension and post-retirement benefit
   plans, net of tax of $(3)

—

—

—

—

7

7

Cash dividends declared

—

—

—

(78
)

—

(78
)
Balance at September 30, 2017

62.7

1

1,969

1,261

(345
)

2,886

	For the three months ended
	March 31, 2020
	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)
				$		$			$			$			$
Balance at December 31, 2019		56.9			1		1,770			998			(393	)		2,376
Stock-based compensation, net of tax		0.1			—		(1	)		—			—			(1	)
Net earnings		—			—		—			5			—			5
Net derivative losses on cash flow hedges:
Net losses arising during the period, net of tax of $16		—			—		—			—			(49	)		(49	)
Less: Reclassification adjustment for losses included in net earnings, net of tax of $(2)		—			—		—			—			7			7
Foreign currency translation adjustments		—			—		—			—			(74	)		(74	)
Change in unrecognized gains and prior service cost related to pension and post-retirement benefit plans, net of tax of $(1)		—			—		—			—			1			1
Stock repurchase		(1.8	)		—		(59	)		—			—			(59	)
Cash dividends declared		—			—		—			(25	)		—			(25	)
Balance at March 31, 2020		55.2			1		1,710			978			(508	)		2,181

	For the three months ended
	March 31, 2019
	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)
			$		$		$			$			$
Balance at December 31, 2018		62.9		1		1,981		1,023			(467	)		2,538
Stock-based compensation, net of tax		0.2		—		1		—			—			1
Net earnings		—		—		—		80			—			80
Net derivative gains on cash flow hedges:
Net gains arising during the period, net of tax of $(4)		—		—		—		—			11			11
Less: Reclassification adjustment for losses included in net earnings, net of tax of nil		—		—		—		—			1			1
Foreign currency translation adjustments		—		—		—		—			2			2
Change in unrecognized gains and prior service cost related to pension and post-retirement benefit plans, net of tax of $(1)		—		—		—		—			3			3
Cash dividends declared		—		—		—		(28	)		—			(28	)
Balance at March 31, 2019		63.1		1		1,982		1,075			(450	)		2,608

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

	For the nine months ended						For the three months ended
	September 30, 2017			September 30, 2016			March 31, 2020			March 31, 2019
	(Unaudited)						(Unaudited)
	$			$			$			$
Operating activities
Net earnings		128			81			5			80
Adjustments to reconcile net earnings to cash flows from operating activities
Depreciation and amortization		239			263			72			73
Deferred income taxes and tax uncertainties		(19	)		6			1			(3	)
Impairment of property, plant and equipment		—			29
Net gains on disposals of property, plant and equipment		(4	)		—
Impairment of long-lived assets								—			10
Stock-based compensation expense		6			5			1			2
Other		1			(3	)
Changes in assets and liabilities, excluding the effect of acquisition of business
Equity loss, net								1			1
Changes in assets and liabilities
Receivables		(28	)		19			(28	)		(30	)
Inventories		(10	)		6			28			(49	)
Prepaid expenses		(2	)		(5	)		(5	)		—
Trade and other payables		11			(53	)		(16	)		(69	)
Income and other taxes		30			(18	)		39			26
Difference between employer pension and other post-retirement contributions and pension and other post-retirement expense		(33	)		(16	)		(1	)		1
Other assets and other liabilities		5			(4	)		(9	)		13
Cash flows from operating activities		324			310			88			55
Investing activities
Additions to property, plant and equipment		(111	)		(302	)		(62	)		(46	)
Proceeds from disposals of property, plant and equipment		8			—
Acquisition of business, net of cash acquired		—			(1	)
Other		—			1
Cash flows used for investing activities		(103	)		(302	)		(62	)		(46	)
Financing activities
Dividend payments		(78	)		(76	)		(26	)		(27	)
Stock repurchase		—			(10	)		(59	)		—
Net change in bank indebtedness		(12	)		1			(10	)		3
Change in revolving credit facility		(50	)		60			140			—
Proceeds from receivables securitization facility		25			140			25			20
Repayments of receivables securitization facility		(35	)		(40	)		—			(20	)
Repayments of long-term debt		(63	)		(40	)
Other		1			(3	)		(3	)		(1	)
Cash flows (used for) provided from financing activities		(212	)		32
Net increase in cash and cash equivalents		9			40
Cash flows provided from (used for) financing activities								67			(25	)
Net increase (decrease) in cash and cash equivalents								93			(16	)
Impact of foreign exchange on cash		9			2			(2	)		(1	)
Cash and cash equivalents at beginning of period		125			126			61			111
Cash and cash equivalents at end of period		143			168			152			94
Supplemental cash flow information
Net cash payments for:
Net cash payments (refund) for:
Interest		49			50			17			16
Income taxes		18			37			(25	)		6

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

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, in the opinion of Management, include all adjustments that are necessary for the fair statement of Domtar Corporation’s (“the Company”) financial position, results of operations, and cash flows for the interim periods presented. Results for the first ~~nine~~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,~~2019, as filed with the Securities and Exchange Commission. The December 31, ~~2016~~2019 Consolidated Balance Sheet, presented for comparative purposes in this interim report, was derived from audited consolidated financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.

In ~~May 2014,~~August 2018, the FASB issued ~~ASU 2014-09,~~Accounting Standards Update (“ASU”) 2018-15, “~~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,~~Customer’s Accounting for Implementation Costs Incurred 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 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 the new revenue standard by restating all prior periods under the full retrospective approach following ASC 250 “Accounting Changes and Error Corrections”~~ ~~or entities can elect to use~~ a ~~modified retrospective approach.~~Cloud Computing Arrangement That Is a Service Contract”. Under the ~~modified retrospective~~guidance, implementation costs for cloud computing arrangements should be evaluated for capitalization using the same approach ~~entities will recognize~~as implementation costs associated with internal-use software and expensed over the ~~cumulative effect~~term of ~~initially applying~~ the ~~standard as an adjustment to the opening balance of retained earnings in the period of initial application~~hosting arrangement. The ASU also provides guidance on presentation and ~~comparative prior year periods would not be adjusted.~~disclosure.

The Company is currently finalizing its assessment of the impact that the guidance will have on the consolidated financial statements and related disclosures. The Company will adopt the new revenue standards in its first quarter of 2018 utilizing the full retrospective transition method. The Company has identified similar performance obligations underadopted the new guidance ~~as compared~~on January 1, 2020 with ~~deliverables previously identified. As a result, the Company expects the timing and amount of its revenue to remain substantially the same.~~

~~The Company does not expect this new guidance to have a material~~no significant impact on the consolidated financial ~~statements aside from the additional required disclosures.~~statements.

In ~~January~~June 2016, the FASB issued ASU ~~2016-01,~~2016-13, “~~Recognition~~Financial Instruments - Credit Losses”. This ASU added a new impairment model (known as the current expected credit loss (“CECL”) model) that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes an allowance for its estimate of expected credit losses and ~~Measurement~~applies to most debt instruments, trade receivables, lease receivables, financial guarantee contracts, and other loan commitments. The CECL model does not have a minimum threshold for recognition of ~~Financial Assets~~impairment losses and ~~Financial Liabilities,” which amends~~entities will need to measure expected credit losses on assets that have a low risk of loss.

The Company adopted the new guidance on January 1, 2020 with no significant impact on the ~~classification and measurement~~consolidated financial statements.

On March 12, 2020, the FASB issued ASU 2020-04, “Facilitation of ~~financial instruments. Although~~ the ~~ASU retains many current requirements, it significantly revises an entity’s accounting related to the classification and measurement~~Effects of ~~investments in equity securities and the presentation of certain fair value changes for financial liabilities measured at fair value.~~Reference Rate Reform on Financial Reporting”. The ASU ~~also amends~~provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain ~~disclosure requirements associated with the fair value of financial instruments.~~criteria, that reference LIBOR or another reference rate expected to be discontinued.

The amendments in ~~this update~~the ASU are ~~effective for fiscal years~~elective and ~~interim periods within those fiscal years beginning after December 15, 2017. To adopt~~apply to entities that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. An entity may elect to apply the amendments ~~companies will be required to make a cumulative-effect adjustment to beginning retained earnings as~~prospectively through December 31, 2022.

The Company has begun its impact assessment and while its evaluation of ~~the beginning of the fiscal year in which the~~this guidance is ~~effective. Early adoption is permitted.~~

~~The~~in the early stages, the Company does not expect the adoption of this ~~new~~ guidance to have a material impact on the consolidated financial statements.

~~In February~~ ~~2016, the FASB issued ASU 2016-02, “Leases,~~” which requires lessees to recognize a right-of-use asset and a lease liability for all of their leases with a lease term greater than 12 months while continuing to recognize expenses in the statement of earnings in a manner similar to current accounting standards. For lessors, the new standard modifies the classification criteria and the accounting for sales-type and direct financing leases.

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 has begun its impact assessment, including taking an inventory of its outstanding leases and analyzing all contracts that contain a lease. While the Company’s evaluation of this guidance is in the early stages, the Company currently expects the adoption of this guidance to have a material impact on its consolidated balance sheet.

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

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

~~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 new guidance to have a material impact on the consolidated financial statements.~~

~~In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment,”~~ which removes the requirement for an entity to calculate the implied fair value 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 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.

~~The Company expects to adopt this new guidance concurrently with its 2017 annual goodwill impairment test.~~

~~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 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) used 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 in the Consolidated Statement of Earnings and prospectively for the capitalization of the service cost component 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 its pension plans and other post-retirement benefit plans footnote.

~~While the Company is still evaluating the impact of adopting this new guidance, it does not expect this new guidance to have a material impact on the consolidated earnings.~~

~~In August 2017, the FASB issued ASU 2017-12, “Targeted Improvements to Accounting for Hedging Activities~~”, which amends the 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 hedging relationships with those risk management activities and (2) reduce the complexity of and simplify the application of hedge accounting by preparers.

This ASU is effective for fiscal years beginning after December 15, 2018, and interim periods therein. Entities are permitted to early adopt the new guidance in any interim or annual period after issuance of the ASU. If an entity early adopts the updated guidance in an interim period, any transition adjustments should be reflected as of the beginning of the fiscal year.

~~While the Company is still evaluating the impact of adopting this new guidance, it does not expect this new guidance to have a material impact on the consolidated financial statements.~~

The Company is exposed to market risk, such as changes in currency exchange rates, commodity prices, interest rates and ~~interest rates.~~prices of the Company’s common stock with regard to the Company’s stock-based compensation program. 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 accounts ~~receivables~~receivable from its customers. In order to reduce this risk, the Company reviews new customers’ credit history before granting credit and conducts regular reviews of existing customers’ credit performance. As of ~~September 30, 2017, one~~March 31, 2020, 1Pulp and Paper segment customer located in the U.S. represented 13% or $81 million of ~~Domtar’s~~the Company’s receivables (December 31, 2019 – 2 Pulp and Paper segment customers located in the U.S. represented ~~12%~~11% or ~~$82~~$66 million, ~~(2016 – 12%~~and 11% or ~~$74 million) of the Company’s receivables.~~$65 million, respectively).

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 changes in share prices with regard to its stock-based compensation program. The Company manages its exposure through the use of derivative instruments such as equity swap contracts. In March 2020, the Company entered into a total return swap agreement covering 500,000 common shares maturing on March 4, 2022.

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 5745 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 ~~September 30, 2017~~March 31, 2020 to hedge forecasted purchases:

The natural gas derivative contracts were ~~fully~~ effective as of September 30, 2017. There were no amounts reflected in the Consolidated Statements of Earnings and Comprehensive Income for the three and nine months ended September 30, 2017 resulting from hedge ineffectiveness (three and nine months ended September 30, 2016 – nil).March 31, 2020.

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 21 months and to hedge a portion of forecasted sales by its U.S. subsidiaries in British pounds over the next 3 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 1224 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 ~~September 30, 2017~~March 31, 2020 to hedge forecasted purchases and sales:

The foreign exchange derivative contracts were ~~fully~~ effective as of September 30, 2017. There were no amounts reflected in the Consolidated Statements of Earnings and Comprehensive Income for the three and nine months ended September 30, 2017 resulting from hedge ineffectiveness (three and nine months ended September 30, 2016 – nil).March 31, 2020.

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

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 ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016,~~2019, 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:	September 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, 2020		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		22		—		22		—	(a)	Prepaid expenses		1		—		1		—	(a)	Prepaid expenses
Natural gas swap contracts		2		—		2		—	(a)	Prepaid expenses
Currency derivatives		7		—		7		—	(a)	Other assets		1		—		1		—	(a)	Other assets
Natural gas swap contracts		1		—		1		—	(a)	Other assets
Total Assets		32		—		32		—				2		—		2		—

Liabilities derivatives
Currency derivatives		5		—		5		—	(a)	Trade and other payables		37		—		37		—	(a)	Trade and other payables
Natural gas swap contracts		1		—		1		—	(a)	Trade and other payables		7		—		7		—	(a)	Trade and other payables
Currency derivatives		1		—		1		—	(a)	Other liabilities and deferred credits		17		—		17		—	(a)	Other liabilities and deferred credits
Natural gas swap contracts		4		—		4		—	(a)	Other liabilities and deferred credits		7		—		7		—	(a)	Other liabilities and deferred credits
Total Liabilities		11		—		11		—				68		—		68		—

Other Instruments:
Other instruments:
Stock-based compensation - liability awards		6		6		—		—		Trade and other payables		2		2		—		—		Trade and other payables
Stock-based compensation - liability awards		16		16		—		—		Other liabilities and deferred credits		9		9		—		—		Other liabilities and deferred credits
Equity swap contracts												3		3		—		—		Other liabilities and deferred credits
Long-term debt		1,241		—		1,241		—	(b)	Long-term debt		1,082		—		1,082		—	(b)	Long-term debt

The net cumulative loss recorded in Accumulated other comprehensive loss relating to natural gas contracts is $2$14 million at ~~September 30, 2017,~~March 31, 2020, of which a ~~gain~~loss of $1$7 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 ~~September 30, 2017.~~March 31, 2020.

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

The net cumulative ~~gain~~loss recorded in Accumulated other comprehensive loss relating to currency options and forwards hedging forecasted purchases is ~~$23~~$52 million at ~~September 30, 2017,~~March 31, 2020, of which a ~~gain~~loss of ~~$17~~$36 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 ~~September 30, 2017.~~

~~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, 2019		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		4		—		4		—	(a)	Prepaid expenses
Natural gas swap contracts		6		—		6		—	(a)	Prepaid expenses
Currency derivatives		6		—		6		—	(a)	Other assets		4		—		4		—	(a)	Other assets
Natural gas swap contracts		2		—		2		—	(a)	Other assets
Total Assets		32		—		32		—				8		—		8		—

Liabilities derivatives
Currency derivatives		10		—		10		—	(a)	Trade and other payables		2		—		2		—	(a)	Trade and other payables
Natural gas swap contracts		1		—		1		—	(a)	Trade and other payables		9		—		9		—	(a)	Trade and other payables
Currency derivatives		6		—		6		—	(a)	Other liabilities and deferred credits
Natural gas swap contracts		4		—		4		—	(a)	Other liabilities and deferred credits		8		—		8		—	(a)	Other liabilities and deferred credits
Total Liabilities		21		—		21		—				19		—		19		—

Other Instruments:
Stock-based compensation - liability awards		2		2		—		—		Trade and other payables		7		7		—		—		Trade and other payables
Stock-based compensation - liability awards		17		17		—		—		Other liabilities and deferred credits		18		18		—		—		Other liabilities and deferred credits
Long-term debt		1,313		—		1,313		—	(b)	Long-term debt		1,030		—		1,030		—	(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 nine~~ months ended ~~September 30, 2017,~~March 31, 2020, the pension expense was $9$12 million ~~and $28 million, respectively (2016~~(2019 – ~~$11 million and $29 million, respectively)~~$14 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. that 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:

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 (Loss) Income.

For the three ~~and nine~~ months ended ~~September 30, 2017,~~March 31, 2020, the Company contributed ~~$38~~$2 million ~~and $44 million, respectively (2016~~(2019 – ~~$18 million and $27 million, respectively)~~$3 million) to the pension plans and ~~nil and $2~~$1 million ~~respectively (2016~~(2019 – $1 ~~million and $3 million, respectively)~~million) to the other post-retirement benefit plans.

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

For the three months ended

For the nine months ended

September 30,

September 30,

September 30,

September 30,

2017

2016

2017

2016

$

$

$

$

Gain on sale of property, plant and equipment

(4
)

—

(4
)

—

Reversal of contingent consideration

(2
)

—

(2
)

—

Bad debt expense

—

—

1

—

Environmental provision

—

—

2

—

Litigation settlement

—

—

—

2

Foreign exchange loss

—

1

1

5

Other

(1
)

(1
)

(4
)

(3
)
Other operating (income) loss, net

(7
)

—

(6
)

4

	For the three months ended
	March 31,			March 31,
	2020			2019
	$			$
Bad debt expense		4			—
Environmental provision		1			1
Foreign exchange (gain) loss		(2	)		1
Other		(1	)		(3	)
Other operating loss (income), net		2			(1	)

InFor the ~~third~~first quarter of ~~2017,~~2020, the Company’s income tax expense was $3 million, consisting of a$2 million of current income tax expense ~~of $10 million~~ and a deferred income tax ~~benefit~~expense of $7$1 million. This compares to an income tax expense of ~~$16~~$24 million in the ~~third~~first quarter of ~~2016,~~2019, consisting of a$27 million of current income tax expense ~~of $5 million~~ and a deferred income tax ~~expense~~benefit of ~~$11~~$3 million. The Company ~~made~~received refunds, net of income tax payments, ~~net~~ of ~~refunds, of $3~~$25 million during the ~~third~~first quarter of ~~2017.~~2020. The effective tax rate was 4%33% compared with an effective tax rate of ~~21%~~23% in the ~~third~~first quarter of ~~2016.~~2019. The effective tax rate for ~~the third quarter of 2017~~2020 was ~~favorably~~ impacted by an increase in the ~~recognition of previously unrecognized tax benefits due~~valuation allowance related to the ~~expiration~~expected realization of certain ~~statutes of limitations. The effective~~U.S. state tax rates for both the third quarter of 2017 and third quarter of 2016 were impacted by the finalization of certain estimates in connection with the filing of the Company’s 2016 and 2015 income tax returns, respectively.

In the first nine months of 2017, the Company’s income tax expense was $17 million, consisting of a current income tax expense of $36 million and a deferred income tax benefit of $19 million. This compares to an income tax expense of $19 million in the first nine months of 2016, consisting of a current income tax expense of $13 million and a deferred income tax expense of $6 million. The Company made income tax payments, net of refunds, of $18 million during the first nine months of 2017. The effective tax rate was 12% compared to an effective tax rate of 19% in the first nine months of 2016.credits. The effective tax rate for the first ~~nine months~~quarter of ~~2017~~2019 was impacted by the inclusion of additional forecasted tax expense for 2019 related to Global Intangible Low-Taxed Income and for forecasted withholding tax on unremitted foreign earnings. The effective tax rate for the first quarter of 2019 was also favorably impacted by the recognition of previously unrecognized tax benefits, due to the expiration of certain statutes of limitations as well as by various enacted law changes in several U.S. states. The effective tax rates for both the first nine months of 2017a $1 million research and 2016 were impacted by the finalization of certain estimates in connection with the filing of the Company’s 2016 and 2015 income tax returns, respectively. Additionally, the effective tax rate for the first nine months of 2016 was impacted by the approval of a state taxdevelopment credit in ~~the~~a U.S. state.

~~Changes in~~In the ~~carrying value~~normal course of ~~goodwill~~business, the Company enters into operating and finance leases mainly for manufacturing and warehousing facilities, corporate offices, motor vehicles, mobile equipment and manufacturing equipment.

While the Company’s lease payments are generally fixed over the lease term, some leases may include price escalation terms that are fixed at the lease commencement date.

The Company has remaining lease terms ranging from 1 year to 13 years, some of which may include options to extend the leases for up to 10 years, and some of which may include options to terminate the leases within 1 year.

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

			March 31,			December 31,
			2020			2019
			$			$
Operating leases
	Operating leases right-of-use assets			77			81

	Lease liabilities due within one year			27			28
	Operating lease liabilities			65			69
				92			97

Finance leases
	Property, plant and equipment			13			15
	Accumulated depreciation			(6	)		(7	)
				7			8

	Long-term debt due within one year			1			1
	Long-term debt			8			9
				9			10

	Weighted-average remaining lease term
		Operating leases	4.8 years			4.9 years
		Finance leases	9.8 years			10 years

	Weighted-average discount rate
		Operating leases		4.5	%		4.6	%
		Finance leases		6.7	%		6.7	%

		September 30, 2017							December 31, 2016								March 31, 2020							December 31, 2019
	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		389		(75	)		314		369		(60	)		309	10 – 40		376		(111	)		265		380		(108	)		272
Technology	7 – 20		8		(3	)		5		8		(3	)		5	7 – 20		8		(5	)		3		8		(5	)		3
Non-Compete	9		1		(1	)		—		1		—			1	9		1		(1	)		—		1		(1	)		—
License rights	12		29		(11	)		18		28		(8	)		20	12		28		(16	)		12		29		(16	)		13
			430		(91	)		339		409		(72	)		337			416		(134	)		282		421		(131	)		290
Indefinite-lived intangible assets not subject to amortization
Water rights			4		—			4		4		—			4			4		—			4		4		—			4
Trade names			243		—			243		225		—			225			231		—			231		235		—			235
License rights			6		—			6		6		—			6			6		—			6		6		—			6
Catalog rights			40		—			40		36		—			36			38		—			38		38		—			38
Total			723		(91	)		632		680		(72	)		608			695		(134	)		561		704		(131	)		573

Amortization expense related to intangible assets for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2020 was $4$5 million ~~and $14 million, respectively (2016~~(2019 – $5 ~~million and $14 million, respectively)~~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~~LONG-LIVED ASSETS

On ~~September 23, 2016,~~November 1, 2018, the Company announced a margin improvement plan ~~to optimize fluff pulp manufacturing at~~within the ~~Plymouth, North Carolina mill. The restructuring, which is expected to be completed in 2018, includes~~Personal Care Division. As part of this plan, the Board of Directors approved the permanent closure of ~~a pulp dryer~~its Waco, Texas Personal Care manufacturing and ~~idling~~distribution facility, the relocation of certain of its manufacturing assets ~~in addition to~~and a workforce reduction ~~of approximately 100 positions.~~across the division. The streamlining process will right-size the mill to an annualized production target of approximately 380,000 metric tons of fluff pulp. The Company recorded $5 million of severance and termination costs under Closure and restructuring costs during the third quarter of 2016.

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 commencedWaco, Texas facility ceased operations during the second quarter of ~~2016 and~~2019.

For 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 onthree months ended March 31, ~~2016.~~

~~The~~2019, the Company recorded $5$10 million ~~and $29 million for the three and nine months ended September 30, 2016, respectively,~~ of accelerated depreciation under Impairment of ~~property, plant and equipment~~long-lived assets on the Consolidated Statement of Earnings and Comprehensive (Loss) Income. The Company also recorded $5 million and $26 million of costs related to the fluff pulp conversion outage under Closure and restructuring costs for the three and nine months ended September 30, 2016. During the first quarter of 2016, the Company recorded $1$3 million of severance and termination costs and a $1 million write-down of inventory under Closure and restructuring costs.

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

The following table presents the changes in Accumulated other comprehensive loss by component⁽¹⁾ for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2020 and the year ended December 31, ~~2016:~~2019:

	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, 2018																	(24	)		(231	)		11			(223	)		(467	)
Natural gas swap contracts		4		N/A			N/A			N/A				4			(10	)	N/A			N/A			N/A				(10	)
Net investment hedge		(1	)	N/A			N/A			N/A				(1	)
Currency options		8		N/A			N/A			N/A				8			5		N/A			N/A			N/A				5
Foreign exchange forward contracts		16		N/A			N/A			N/A				16			16		N/A			N/A			N/A				16
Net gain	N/A				(38	)		(1	)	N/A				(39	)	N/A			1			1			N/A				2
Foreign currency items	N/A			N/A			N/A				(7	)		(7	)	N/A			N/A			N/A				21			21
Other comprehensive income (loss) before reclassifications		27			(38	)		(1	)		(7	)		(19	)
Other comprehensive income before reclassifications																	11			1			1			21			34
Amounts reclassified from Accumulated other comprehensive loss		14			7			—			—			21			8			33			(1	)		—			40
Net current period other comprehensive income (loss)		41			(31	)		(1	)		(7	)		2
Balance at December 31, 2016		11			(221	)		(11	)		(278	)		(499	)
Net current period other comprehensive income																	19			34			—			21			74
Balance at December 31, 2019																	(5	)		(197	)		11			(202	)		(393	)
Natural gas swap contracts		(3	)	N/A			N/A			N/A				(3	)		(2	)	N/A			N/A			N/A				(2	)
Currency options		13		N/A			N/A			N/A				13			(8	)	N/A			N/A			N/A				(8	)
Foreign exchange forward contracts		1		N/A			N/A			N/A				1			(39	)	N/A			N/A			N/A				(39	)
Foreign currency items	N/A			N/A			N/A				142			142		N/A			N/A			N/A				(74	)		(74	)
Other comprehensive income before reclassifications		11			—			—			142			153
Other comprehensive loss before reclassifications																	(49	)		—			—			(74	)		(123	)
Amounts reclassified from Accumulated other comprehensive loss		(6	)		7			—			—			1			7			1			—			—			8
Net current period other comprehensive income		5			7			—			142			154
Balance at September 30, 2017		16			(214	)		(11	)		(136	)		(345	)
Net current period other comprehensive (loss) income																	(42	)		1			—			(74	)		(115	)
Balance at March 31, 2020																	(47	)		(196	)		11			(276	)		(508	)

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

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

On February ~~21, 2017, May 3, 2017, and August 1, 2017,~~18, 2020, the Company’s Board of Directors approved a quarterly dividend of $0.42 per share, respectively, to be paid to holders of the Company’s common stock. Dividends of $26 million were paid on April 17, 2017, July 17, 2017 and October 16, 2017, respectively, to shareholders of record on April 3, 2017, July 3, 2017 and October 2, 2017, respectively.

~~On October 31, 2017, the Company’s Board of Directors approved a quarterly dividend of $0.42~~$0.455 per share, to be paid to holders of the Company’s common stock. ~~This dividend is to be~~Total dividends of approximately $25 million were paid on ~~January~~April 15, ~~2018,~~2020 to shareholders of record on ~~January~~April 2, ~~2018.~~2020.

The Company’s Board of Directors has authorized a stock repurchase program ~~(the “Program”~~(“the Program”) of up to $1.3 billion. On November 5, 2019, the Company’s Board of Directors approved an increase to the Program from $1.3 billion to $1.6 billion. 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 ~~nine months~~quarter of ~~2017, there were no shares repurchased under the Program.~~

~~During the first nine months of 2016,~~ 2020, the Company repurchased ~~304,915~~1,798,306 shares at an average price of ~~$32.21~~$33.05 for a total cost of ~~$10~~$59 million.

~~Since~~During the ~~inception~~first quarter of 2019, there were 0 shares repurchased under the ~~Program,~~Program.

Due to the unprecedented market conditions and uncertainty caused by COVID-19, the Company has ~~repurchased 24,853,827 shares at an average price~~suspended the payment of ~~$39.33 for a total cost~~its regular quarterly dividend and stock repurchase program in order to preserve cash and provide additional flexibility in the current environment. The Board of ~~$977 million. All shares repurchased are recorded as Treasury stock on~~Directors will continue to evaluate the ~~Consolidated Balance Sheets under the par value method at $0.01 per share.~~Company’s capital return program based upon customary considerations, including market conditions.

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.

In connection with 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. and the Company, in order to define and implement an action plan to address soil, sediment and groundwater issues. Construction began in January 2017 and was completed in the first quarter of 2019. The Company previously recorded an environmental reserve to address its estimated exposure.

A former owner of the Company’s Dryden, Ontario manufacturing site (the "Dryden Property") operated a chlor-alkali plant during the 1960s and 1970s, during which time, mercury and other pollutants were used or generated and discharged into the environment. In conjunction with the sale and redevelopment of the Dryden Property, the Province of Ontario (the “Province”) provided a broad indemnity (the "Indemnity") in 1985 to the then purchaser of the Dryden Property and its successors and assigns with respect to the discharge of any pollutants, including mercury, by the historical operators of the Dryden Property. This Indemnity subsequently was assigned to Domtar in connection with its 2007 purchase of the Dryden Property.

As the current owner of the Dryden Property, Domtar is actively engaged with the Province with respect to the management of the historical contamination.

The Province issued a Director's order under environmental laws to certain prior owners of the Dryden Property in connection with a nearby waste disposal site that never has been owned by Domtar. The Director's order required certain work to be conducted by those prior owners. The prior owners asserted that the Indemnity covered the work required by the Director’s order. Following extensive litigation, the Supreme Court of Canada found, among other things, that the Indemnity covered third-party claims, but not first-party claims, such as the Director's order.

In the future, the Province may challenge whether Domtar has the benefit of the Indemnity. In addition to the Indemnity, Domtar has other recourses relating to the historical contamination.

The situation involving the historical contamination is continuing to develop, and Domtar cannot predict its outcome. While Domtar currently does not believe that it will be required to incur costs that would have a material impact on its results of operations or financial condition, there is no certainty that this is in fact the case.

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

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

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 plan to address soil, sediment and groundwater issues. Construction began in January 2017 and is expected to be completed in 2019. The Company 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.26

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 former 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. EPA is also proposing to repeal~~repealed the Clean Power Plan ~~in accordance with President Trump’s Executive Order issued on March 28, 2017. The EPA has filed a motion~~and replaced it with the ~~D.C. Circuit~~“Affordable Clean Energy” (“ACE”) rule. Unlike the Clean Power Plan, which would have required significant changes across the entire power sector, ACE only requires states to ~~hold~~develop plans for efficiency improvements at coal-fired electric utility generating units. The rule has been challenged in the ~~case in abeyance while it reconsiders the rule, which~~U.S. Court of Appeals for the D.C. ~~Circuit granted in part to allow time for additional briefing on how and whether the litigation should proceed.~~Circuit. Regardless of the outcome for the ~~Clean Power Plan,~~ACE rule, 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~~province of ~~Canada is reviewing national policies to further reduce~~Quebec has a 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~~system 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 its facilities to be disproportionately affected by these measures compared to the other pulp and paper producers located in these provinces.

The Government of Canada has established a federal carbon pricing system in provinces that do not already impose a cost on carbon emissions. The Government of Canada has imposed its carbon pricing program for regulating GHG emissions in Ontario which took effect on January 1, 2019. To reduce GHG emissions and recognize the unique circumstances of the province’s diverse economy, Ontario finalized its own GHG Emission Performance Standards regulation. The Ontario Government is in discussions with the Canadian Government to replace the federal program in Ontario with its provincial program. Additional environmental costs may result from this effort which cannot be reasonably estimated at this time.

In the normal course of operations, the Company becomes involved in various legal actions mostly related to contract disputes, patent infringements, environmental and product warranty claims, and labor issues. While the final outcome with respect to actions outstanding or pending at ~~September 30, 2017~~March 31, 2020, 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 (income) 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 (income) 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 (income) 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 ~~September 30, 2017,~~March 31, 2020, 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, no0 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 ~~September 30, 2017,~~March 31, 2020 the Company has ~~not~~0t recorded a liability associated with these indemnifications, as it does not expect to make any payments pertaining to these indemnifications.

The Company’s ~~two~~2 reportable segments described below also represent its ~~two~~2 operating segments. Each reportable segment offers different products and services and requires different manufacturing processes, technology ~~and~~and/or marketing strategies. The following summary briefly describes the operations included in each of the Company’s reportable segments:

As a result of changes in Domtar’s organization structure, the Company has changed its segment reporting. Starting January 1, 2020, Domtar’s materials business, EAM Corporation, a manufacturer of high quality airlaid and ultrathin laminated cores, previously reported under its Personal Care segment is now presented under its Pulp and Paper – ~~consists of~~segment. Prior period segment results have been restated to the ~~design, manufacturing, marketing and distribution of communication, specialty and packaging papers, as well as softwood, fluff and hardwood market pulp.~~

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
SEGMENT DATA	March 31, 2020			March 31, 2019
	$			$
Sales by segment
Pulp and Paper		1,031			1,157
Personal Care		266			239
Total for reportable segments		1,297			1,396
Intersegment sales		(19	)		(20	)
Consolidated sales		1,278			1,376

Sales by product group
Communication papers		623			685
Specialty and packaging papers		150			169
Market pulp		231			275
Absorbent hygiene products		274			247
Consolidated sales		1,278			1,376

Depreciation and amortization
Pulp and Paper		58			58
Personal Care		14			15
Total for reportable segments		72			73
Impairment of long-lived assets - Personal Care		—			10
Consolidated depreciation and amortization and impairment of long-lived assets		72			83

Operating income (loss)
Pulp and Paper		4			144
Personal Care		20			(8	)
Corporate		(5	)		(21	)
Consolidated operating income		19			115
Interest expense, net		14			13
Non-service components of net periodic benefit cost		(4	)		(3	)
Earnings before income taxes and equity loss		9			105
Income tax expense		3			24
Equity loss, net of taxes		1			1
Net earnings		5			80

For the three months ended

For the nine months ended

September 30,

September 30,

September 30,

September 30,

SEGMENT DATA

2017

2016

2017

2016

$

$

$

$

Sales by segment

Pulp and Paper

1,054

1,054

3,126

3,193

Personal Care

253

231

743

675

Total for reportable segments

1,307

1,285

3,869

3,868

Intersegment sales

(15
)

(15
)

(49
)

(44
)
Consolidated sales

1,292

1,270

3,820

3,824

Sales by product group

Communication papers

597

638

1,798

1,952

Specialty and packaging papers

167

172

486

518

Market pulp

275

229

793

679

Absorbent hygiene products

253

231

743

675

Consolidated sales

1,292

1,270

3,820

3,824

Depreciation and amortization
   of property, plant and equipment

Pulp and Paper

63

71

190

216

Personal Care

17

16

49

47

Total for reportable segments

80

87

239

263

Impairment of property, plant and
   equipment - Pulp and Paper

—

5

—

29

Consolidated depreciation and amortization and impairment
   of property, plant and equipment

80

92

239

292

Operating income (loss)

Pulp and Paper

93

89

192

143

Personal Care

8

15

37

44

Corporate

(12
)

(12
)

(34
)

(38
)
Consolidated operating income

89

92

195

149

Interest expense, net

16

17

50

49

Earnings before income taxes

73

75

145

100

Income tax expense

3

16

17

19

Net earnings

70

59

128

81

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~~is 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~~A subsidiary’s guarantee may be released in certain customary circumstances, such as if the subsidiary is sold or sells all of its assets, if the subsidiary’s guarantee of the Credit Agreement is terminated or released and if the requirements for legal defeasance to discharge the indenture have been satisfied.

The following supplemental condensed consolidating financial information sets forth, on an unconsolidated basis, the Balance Sheets at ~~September 30, 2017~~March 31, 2020 and December 31, ~~2016,~~2019, the Statements of Earnings and Comprehensive (Loss) Income ~~for the three~~ and ~~nine months ended September 30, 2017 and 2016 and the Statements of~~ Cash Flows for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2020 and ~~2016~~2019 for Domtar Corporation (the “Parent”), and on a combined basis for the Guarantor Subsidiaries and, on a combined basis, the Non-Guarantor Subsidiaries. The supplemental condensed consolidating financial information reflects the investments of the Parent in the Guarantor Subsidiaries, as well as the investments of the Guarantor Subsidiaries in the Non-Guarantor Subsidiaries, using the equity method.

	For the three months ended															For the three months ended
	September 30, 2017															March 31, 2020
							Non-															Non-
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS				Guarantor			Guarantor			Consolidating									Guarantor			Guarantor			Consolidating
AND COMPREHENSIVE INCOME	Parent			Subsidiaries			Subsidiaries			Adjustments			Consolidated
AND COMPREHENSIVE LOSS																Parent			Subsidiaries			Subsidiaries			Adjustments			Consolidated
	$			$			$			$			$			$			$			$			$			$
Sales		—			1,059			522			(289	)		1,292			—			1,045			465			(232	)		1,278
Operating expenses
Cost of sales, excluding depreciation and amortization		—			901			400			(289	)		1,012			—			947			368			(232	)		1,083
Depreciation and amortization		—			58			22			—			80			—			51			21			—			72
Selling, general and administrative		4			37			77			—			118			2			26			74			—			102
Other operating income, net		—			—			(7	)		—			(7	)
Other operating loss (income), net																	—			4			(2	)		—			2
		4			996			492			(289	)		1,203			2			1,028			461			(232	)		1,259
Operating (loss) income		(4	)		63			30			—			89			(2	)		17			4			—			19
Interest expense (income), net		15			21			(20	)		—			16			16			19			(21	)		—			14
Non-service components of net periodic benefit cost																	—			(1	)		(3	)		—			(4	)
(Loss) earnings before income taxes		(19	)		42			50			—			73			(18	)		(1	)		28			—			9
Income tax (benefit) expense		(4	)		(4	)		11			—			3			(2	)		3			2			—			3
Equity loss, net of taxes																	—			1			—			—			1
Share in earnings of equity accounted investees		85			39			—			(124	)		—			21			26			—			(47	)		—
Net earnings		70			85			39			(124	)		70			5			21			26			(47	)		5
Other comprehensive income		69			69			61			(130	)		69
Comprehensive income		139			154			100			(254	)		139
Other comprehensive loss																	(115	)		(117	)		(73	)		190			(115	)
Comprehensive loss																	(110	)		(96	)		(47	)		143			(110	)

	For the nine months ended															For the three months ended
	September 30, 2017															March 31, 2019
							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		—			3,156			1,537			(873	)		3,820			—			1,126			531			(281	)		1,376
Operating expenses
Cost of sales, excluding depreciation and amortization		—			2,749			1,179			(873	)		3,055			—			930			403			(281	)		1,052
Depreciation and amortization		—			175			64			—			239			—			51			22			—			73
Selling, general and administrative		8			101			228			—			337			6			56			61			—			123
Other operating income, net		—			(2	)		(4	)		—			(6	)
Impairment of long-lived assets																	—			10			—			—			10
Closure and restructuring costs																	—			2			2			—			4
Other operating (income) loss, net																	—			(4	)		3			—			(1	)
		8			3,023			1,467			(873	)		3,625			6			1,045			491			(281	)		1,261
Operating (loss) income		(8	)		133			70			—			195			(6	)		81			40			—			115
Interest expense (income), net		48			63			(61	)		—			50			17			20			(24	)		—			13
Non-service components of net periodic benefit cost																	—			—			(3	)		—			(3	)
(Loss) earnings before income taxes		(56	)		70			131			—			145			(23	)		61			67			—			105
Income tax (benefit) expense		(13	)		1			29			—			17			(6	)		14			16			—			24
Equity loss, net of taxes																	—			—			1			—			1
Share in earnings of equity accounted investees		171			102			—			(273	)		—			97			50			—			(147	)		—
Net earnings		128			171			102			(273	)		128			80			97			50			(147	)		80
Other comprehensive income		154			163			146			(309	)		154			17			17			4			(21	)		17
Comprehensive income		282			334			248			(582	)		282			97			114			54			(168	)		97

For the three months ended

September 30, 2016

Non-

CONDENSED CONSOLIDATING STATEMENT OF

Guarantor

Guarantor

Consolidating

EARNINGS AND COMPREHENSIVE INCOME

Parent

Subsidiaries

Subsidiaries

Adjustments

Consolidated

$

$

$

$

$

Sales

—

1,044

516

(290
)

1,270

Operating expenses

Cost of sales, excluding depreciation and amortization

—

879

380

(290
)

969

Depreciation and amortization

—

65

22

—

87

Selling, general and administrative

3

28

76

—

107

Impairment of property, plant and equipment

—

5

—

—

5

Closure and restructuring costs

—

10

—

—

10

Other operating (income) loss, net

—

(1
)

1

—

—

3

986

479

(290
)

1,178

Operating (loss) income

(3
)

58

37

—

92

Interest expense (income), net

16

14

(13
)

—

17

(Loss) earnings before income taxes

(19
)

44

50

—

75

Income tax (benefit) expense

(4
)

(3
)

23

—

16

Share in earnings of equity accounted investees

74

27

—

(101
)

—

Net earnings

59

74

27

(101
)

59

Other comprehensive income

3

7

7

(14
)

3

Comprehensive income

62

81

34

(115
)

62

For the nine months ended

September 30, 2016

Non-

CONDENSED CONSOLIDATING STATEMENT OF EARNINGS

Guarantor

Guarantor

Consolidating

AND COMPREHENSIVE INCOME

Parent

Subsidiaries

Subsidiaries

Adjustments

Consolidated

$

$

$

$

$

Sales

—

3,150

1,535

(861
)

3,824

Operating expenses

Cost of sales, excluding depreciation and amortization

—

2,725

1,168

(861
)

3,032

Depreciation and amortization

—

193

70

—

263

Selling, general and administrative

13

80

221

—

314

Impairment of property, plant and equipment

—

29

—

—

29

Closure and restructuring costs

—

33

—

—

33

Other operating loss (income), net

1

(2
)

5

—

4

14

3,058

1,464

(861
)

3,675

Operating (loss) income

(14
)

92

71

—

149

Interest expense (income), net

48

30

(29
)

—

49

(Loss) earnings before income taxes

(62
)

62

100

—

100

Income tax (benefit) expense

(14
)

1

32

—

19

Share in earnings of equity accounted investees

129

68

—

(197
)

—

Net earnings

81

129

68

(197
)

81

Other comprehensive income

103

97

63

(160
)

103

Comprehensive income

184

226

131

(357
)

184

	March 31, 2020
					Non-
			Guarantor		Guarantor		Consolidating
CONDENSED CONSOLIDATING BALANCE SHEET	Parent		Subsidiaries		Subsidiaries		Adjustments			Consolidated
	$		$		$		$			$
Assets
Current assets
Cash and cash equivalents		87		2		63		—			152
Receivables		—		157		443		—			600
Inventories		—		503		237		—			740
Prepaid expenses		3		18		11		—			32
Income and other taxes receivable		36		2		18		(29	)		27
Intercompany accounts		652		671		300		(1,623	)		—
Total current assets		778		1,353		1,072		(1,652	)		1,551
Property, plant and equipment, net		—		1,684		809		—			2,493
Operating lease right-of-use assets		—		62		15		—			77
Intangible assets, net		—		242		319		—			561
Investments in affiliates		3,532		2,441		—		(5,973	)		—
Intercompany long-term advances		5		1		1,517		(1,523	)		—
Other assets		14		24		126		(13	)		151
Total assets		4,329		5,807		3,858		(9,161	)		4,833
Liabilities and shareholders' equity
Current liabilities
Trade and other payables		46		437		217		—			700
Intercompany accounts		473		361		789		(1,623	)		—
Income and other taxes payable		27		14		14		(29	)		26
Operating lease liabilities due within one year		—		21		6		—			27
Long-term debt due within one year		—		—		1		—			1
Total current liabilities		546		833		1,027		(1,652	)		754
Long-term debt		1,013		—		89		—			1,102
Operating lease liabilities		—		56		9		—			65
Intercompany long-term loans		561		961		1		(1,523	)		—
Deferred income taxes and other		1		311		158		(13	)		457
Other liabilities and deferred credits		27		114		133		—			274
Shareholders' equity		2,181		3,532		2,441		(5,973	)		2,181
Total liabilities and shareholders' equity		4,329		5,807		3,858		(9,161	)		4,833

	December 31, 2019
					Non-
			Guarantor		Guarantor		Consolidating
CONDENSED CONSOLIDATING BALANCE SHEET	Parent		Subsidiaries		Subsidiaries		Adjustments			Consolidated
	$		$		$		$			$
Assets
Current assets
Cash and cash equivalents		1		11		49		—			61
Receivables		—		146		431		—			577
Inventories		—		543		243		—			786
Prepaid expenses		5		17		11		—			33
Income and other taxes receivable		34		—		27		—			61
Intercompany accounts		538		547		237		(1,322	)		—
Total current assets		578		1,264		998		(1,322	)		1,518
Property, plant and equipment, net		—		1,689		878		—			2,567
Operating lease right-of-use assets		—		63		18		—			81
Intangible assets, net		—		245		328		—			573
Investments in affiliates		3,627		2,493		—		(6,120	)		—
Intercompany long-term advances		5		1		1,482		(1,488	)		—
Other assets		14		30		131		(11	)		164
Total assets		4,224		5,785		3,835		(8,941	)		4,903
Liabilities and shareholders' equity
Current liabilities
Bank indebtedness		—		9		—		—			9
Trade and other payables		57		390		258		—			705
Intercompany accounts		344		299		679		(1,322	)		—
Income and other taxes payable		1		12		10		—			23
Operating lease liabilities due within one year		—		21		7		—			28
Long-term debt due within one year		—		—		1		—			1
Total current liabilities		402		731		955		(1,322	)		766
Long-term debt		873		—		65		—			938
Operating lease liabilities		—		58		11		—			69
Intercompany long-term loans		541		946		1		(1,488	)		—
Deferred income taxes and other		—		324		166		(11	)		479
Other liabilities and deferred credits		32		99		144		—			275
Shareholders' equity		2,376		3,627		2,493		(6,120	)		2,376
Total liabilities and shareholders' equity		4,224		5,785		3,835		(8,941	)		4,903

September 30, 2017

Non-

Guarantor

Guarantor

Consolidating

CONDENSED CONSOLIDATING BALANCE SHEET

Parent

Subsidiaries

Subsidiaries

Adjustments

Consolidated

$

$

$

$

$

Assets

Current assets

Cash and cash equivalents

10

3

130

—

143

Receivables

—

335

324

—

659

Inventories

—

536

251

—

787

Prepaid expenses

11

27

9

—

47

Income and other taxes receivable

—

3

14

(4
)

13

Intercompany accounts

292

367

85

(744
)

—

Total current assets

313

1,271

813

(748
)

1,649

Property, plant and equipment, net

—

1,888

886

—

2,774

Goodwill

—

313

265

—

578

Intangible assets, net

—

270

362

—

632

Investments in affiliates

4,310

2,898

—

(7,208
)

—

Intercompany long-term advances

6

81

1,466

(1,553
)

—

Other assets

36

28

134

(47
)

151

Total assets

4,665

6,749

3,926

(9,556
)

5,784

Liabilities and shareholders' equity

Current liabilities

Trade and other payables

47

405

235

—

687

Intercompany accounts

299

97

348

(744
)

—

Income and other taxes payable

11

—

25

(4
)

32

Long-term debt due within one year

—

—

1

—

1

Total current liabilities

357

502

609

(748
)

720

Long-term debt

792

299

73

—

1,164

Intercompany long-term loans

610

942

1

(1,553
)

—

Deferred income taxes and other

—

558

170

(47
)

681

Other liabilities and deferred credits

20

138

175

—

333

Shareholders' equity

2,886

4,310

2,898

(7,208
)

2,886

Total liabilities and shareholders' equity

4,665

6,749

3,926

(9,556
)

5,784

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, 2020
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Consolidating Adjustments			Consolidated
	$			$			$			$			$
Operating activities
Net earnings		5			21			26			(47	)		5
Changes in operating and intercompany assets and liabilities and non-cash items, included in net earnings		7			40			(11	)		47			83
Cash flows from operating activities		12			61			15			—			88
Investing activities
Additions to property, plant and equipment		—			(38	)		(24	)		—			(62	)
Cash flows used for investing activities		—			(38	)		(24	)		—			(62	)
Financing activities
Dividend payments		(26	)		—			—			—			(26	)
Stock repurchase		(59	)		—			—			—			(59	)
Net change in bank indebtedness		—			(10	)		—			—			(10	)
Change in revolving credit facility		140			—			—			—			140
Proceeds from receivables securitization facility		—			—			25			—			25
Increase in long-term advances to related parties		—			(22	)		—			22			—
Decrease in long-term advances to related parties		22			—			—			(22	)		—
Other		(3	)		—			—			—			(3	)
Cash flows provided from (used for) financing activities		74			(32	)		25			—			67
Net increase (decrease) in cash and cash equivalents		86			(9	)		16			—			93
Impact of foreign exchange on cash		—			—			(2	)		—			(2	)
Cash and cash equivalents at beginning of period		1			11			49			—			61
Cash and cash equivalents at end of period		87			2			63			—			152

	For the three months ended
	March 31, 2019
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Consolidating Adjustments			Consolidated
	$			$			$			$			$
Operating activities
Net earnings		80			97			50			(147	)		80
Changes in operating and intercompany assets and liabilities and non-cash items, included in net earnings		(86	)		(86	)		—			147			(25	)
Cash flows (used for) provided from operating activities		(6	)		11			50			—			55
Investing activities
Additions to property, plant and equipment		—			(25	)		(21	)		—			(46	)
Cash flows used for investing activities		—			(25	)		(21	)		—			(46	)
Financing activities
Dividend payments		(27	)		—			—			—			(27	)
Net change in bank indebtedness		—			3			—			—			3
Proceeds from receivables securitization facility		—			—			20			—			20
Repayments of receivables securitization facility		—			—			(20	)		—			(20	)
Increase in long-term advances to related parties		—			—			(53	)		53			—
Decrease in long-term advances to related parties		36			17			—			(53	)		—
Other		(1	)		—			—			—			(1	)
Cash flows provided from (used for) financing activities		8			20			(53	)		—			(25	)
Net increase (decrease) in cash and cash equivalents		2			6			(24	)		—			(16	)
Impact of foreign exchange on cash		—			—			(1	)		—			(1	)
Cash and cash equivalents at beginning of period		—			—			111			—			111
Cash and cash equivalents at end of period		2			6			86			—			94

For the nine months ended

September 30, 2017

CONDENSED CONSOLIDATING STATEMENT OF
CASH FLOWS

Parent

Guarantor
Subsidiaries

Non-
Guarantor
Subsidiaries

Consolidating
Adjustments

Consolidated

$

$

$

$

$

Operating activities

Net earnings

128

171

102

(273
)

128

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

43

(176
)

56

273

196

Cash flows provided from (used for) operating activities

171

(5
)

158

—

324

Investing activities

Additions to property, plant and equipment

—

(61
)

(50
)

—

(111
)
Proceeds from disposals of property, plant and equipment

—

—

8

—

8

Cash flows used for investing activities

—

(61
)

(42
)

—

(103
)
Financing activities

Dividend payments

(78
)

—

—

—

(78
)
Net change in bank indebtedness

—

(12
)

—

—

(12
)
Change in revolving credit facility

(50
)

—

—

—

(50
)
Proceeds from receivables securitization facility

—

—

25

—

25

Repayments of receivables securitization facility

—

—

(35
)

—

(35
)
Repayments of long-term debt

(63
)

—

—

��

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

—

—

(79
)

79

—

Decrease in long-term advances to related parties

12

67

—

(79
)

—

Other

1

—

—

—

1

Cash flows (used for) provided from financing activities

(178
)

55

(89
)

—

(212
)
Net (decrease) increase in cash and cash equivalents

(7
)

(11
)

27

—

9

Impact of foreign exchange on cash

—

—

9

—

9

Cash and cash equivalents at beginning of period

17

14

94

—

125

Cash and cash equivalents at end of period

10

3

130

—

143

On April 6, 2020, Domtar announced the temporary idling of the operations of its Kingsport, Tennessee mill and the A62 paper machine at its Ashdown, Arkansas mill for three months in response to the unforeseeable business conditions created by the COVID-19 pandemic.

On April 27, 2020, Domtar further announced the temporary idling of the operations of its Hawesville, Kentucky mill beginning May 5^th, 2020. The Company expects to restart the H1 paper machine in June 2020, while the H2 paper machine will remain idle until July 2020.

The temporary shutdowns will reduce Domtar’s uncoated freesheet paper production capacity by approximately 227,000 short tons. As a result, the Company laid off approximately 304 employees at its Kingsport mill, 142 employees at its Ashdown mill and 400 employees at its Hawesville mill.

On February 14, 2020, Domtar entered into a purchase agreement with Appvion Operations, Inc. to acquire Appvion’s Point of Sale paper business. The transaction was completed on April 27, 2020. The asset purchase agreement includes the coater and related equipment located only at the West Carrollton, Ohio, facility as well as a license for all corresponding intellectual property.

On May 5, 2020, the Company entered into a $300 million Term Loan Agreement (the “Term Loan Agreement”) that matures on May 5, 2025. The Term Loan Agreement was fully drawn down at closing. The Company is using borrowings under the Term Loan Agreement to repay other debt, to pay related fees and expenses and to add to cash reserves. Borrowings under the Term Loan Agreement bear interest at LIBOR plus a margin of 2.5% and require principal repayments of $3 million each quarter. The Term Loan Agreement contains customary covenants, including two financial covenants: (i) an interest coverage ratio, as defined in the Term Loan Agreement, that must be maintained at a level of not less than 3 to 1 and (ii) a leverage ratio, as defined in the Term Loan Agreement that must be maintained at a level of not greater than 3.75 to 1. All borrowings under the Term Loan are unsecured. Certain domestic subsidiaries of the Company unconditionally guarantee any obligations from time to time arising under the Term Loan Agreement.

For the nine months ended

September 30, 2016

CONDENSED CONSOLIDATING STATEMENT OF
   CASH FLOWS

Parent

Guarantor
Subsidiaries

Non-
Guarantor
Subsidiaries

Consolidating
Adjustments

Consolidated

$

$

$

$

$

Operating activities

Net earnings

81

129

68

(197
)

81

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

(4,288
)

4,205

115

197

229

Cash flows (used for) provided from operating activities

(4,207
)

4,334

183

—

310

Investing activities

Additions to property, plant and equipment

—

(246
)

(56
)

—

(302
)
Acquisition of business, net of cash acquired

—

(1
)

—

—

(1
)
Other

—

—

1

—

1

Cash flows used for investing activities

—

(247
)

(55
)

—

(302
)
Financing activities

Dividend payments

(76
)

—

—

—

(76
)
Stock repurchase

(10
)

—

—

—

(10
)
Net change in bank indebtedness

—

1

—

—

1

Change in revolving credit facility

60

—

—

—

60

Proceeds from receivables securitization facility

—

—

140

—

140

Repayments of receivables securitization facility

—

—

(40
)

—

(40
)
Repayments of long-term debt

(38
)

(1
)

(1
)

—

(40
)
Increase in long-term advances to related parties

—

(4,089
)

(172
)

4,261

—

Decrease in long-term advances to related parties

4,261

—

—

(4,261
)

—

Other

(3
)

—

—

—

(3
)
Cash flows provided from (used for) financing
   activities

4,194

(4,089
)

(73
)

—

32

Net (decrease) increase in cash and cash equivalents

(13
)

(2
)

55

—

40

Impact of foreign exchange on cash

—

—

2

—

2

Cash and cash equivalents at beginning of period

49

2

75

—

126

Cash and cash equivalents at end of period

36

—

132

—

168

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

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with Domtar Corporation’s unaudited interim financial statements and notes thereto included in this Quarterly Report on Form 10-Q. 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,~~2019, filed with the Securities and Exchange Commission (“SEC”) on February ~~24, 2017.~~ 25, 2020. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those discussed in forward-looking statements. Factors that might cause a difference include, but are not limited to, those discussed below under “Forward-looking statements”, as well as in item 1A, risk factors, in this report.Throughout this MD&A, unless otherwise specified, “Domtar Corporation,” “the Company,” “Domtar,” “we,” “us” and “our” refers to Domtar Corporation and its subsidiaries. Domtar Corporation’s common stock is listed on the New York Stock Exchange and the Toronto Stock Exchange. Except where otherwise indicated, all financial information reflected herein is determined on the basis of accounting principles generally accepted in the United States.

The information contained on our website, www.domtar.com, is not incorporated by reference into this Form 10-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 the three month periods ended March 31, 2020 and ~~nine months ended September 30, 2017 and 2016.~~2019. The three ~~month and nine~~ month periods are also referred to as the ~~third~~first quarter of 2020 and ~~first nine months of 2017 and 2016.~~2019. 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 is intended to provide investors with an understanding of our recent performance, financial condition and outlook. Topics discussed and analyzed include:

We design, manufacture, market and distribute a wide variety of fiber-based products including communication papers, specialty and packaging papers and absorbent hygiene products. The foundation of our business is a network of wood fiber converting assets that produce paper grade, fluff and specialty pulp. More than 50% of our pulp production is consumed internally to manufacture paper and other consumer products, with the balance sold as market pulp. We are the largest integrated marketer of uncoated freesheet paper in North America serving a variety of customers, including merchants, retail outlets, stationers, printers, publishers, converters and end-users. We are also a marketer and producer of a broad line of incontinence care products as well as infant diapers. To learn more, visit www.domtar.com.

We 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~~and/or marketing strategies. The following summary briefly describes the operations included in each of our reportable segments.

Pulp and Paper: Our Pulp and Paper segment consists of the design, manufacturing, marketing and distribution of communication, specialty and packaging papers, as well as softwood, fluff and hardwood market pulp.

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

HIGHLIGHTS FOR THE THREE MONTH PERIOD ENDED ~~SEPTEMBER 30, 2017~~MARCH 31, 2020

		Three months ended										Nine months ended											Three months ended
						Variance										Variance											Variance
FINANCIAL HIGHLIGHTS		September 30, 2017		September 30, 2016		$			%			September 30, 2017		September 30, 2016		$			%				March 31, 2020		March 31, 2019		$			%
(In millions of dollars, unless otherwise noted)
Sales		$	1,292	$	1,270	$	22			2	%	$	3,820	$	3,824	$	(4	)		-	%		$	1,278	$	1,376		(98	)		-7	%
Operating income	Operating income		89		92		(3	)		(3	%)		195		149		46			31	%	Operating income		19		115		(96	)		-83	%
Net earnings			70		59		11			19	%		128		81		47			58	%			5		80		(75	)		-94	%
Net earnings per common share (in dollars)¹:
Basic		$	1.12	$	0.94	$	0.18			19	%	$	2.04	$	1.29	$	0.75			58	%		$	0.09	$	1.27		(1.18	)		-93	%
Diluted		$	1.11	$	0.94	$	0.17			18	%	$	2.04	$	1.29	$	0.75			58	%		$	0.09	$	1.27		(1.18	)		-93	%

																At September 30, 2017			At December 31, 2016								At March 31, 2020			At December 31, 2019
Total assets																$	5,784		$	5,680							$	4,833		$	4,903
Total long-term debt, including current portion																$	1,165		$	1,281							$	1,103		$	939

With the unprecedented and rapid spread of COVID-19 and social distancing measures implemented throughout the world due to the pandemic, we have seen the profound impact this virus is having on human health, the global economy and society in general. We are actively monitoring the impact of COVID-19 on all aspects of our business, including how it will impact our employees, operations, customers, suppliers, liquidity and capital resources.

Our operations are considered to be essential services in the jurisdictions where we operate. Certain of our paper products are used in the testing for COVID-19 as well as for personal protection medical gowns, and our personal care products are essential to the daily lives of consumers. All of our operating sites were in operation throughout the three months ended March 31, 2020. However, demand for our paper has declined significantly since the beginning of April, largely due to work-from-home rules and the overall economic slowdown. The length and severity of the reduction in paper demand is uncertain; at the current time, we expect the adverse impact to continue through the second quarter of 2020. Beyond the second quarter of 2020, paper demand will depend largely on when, and the extent to which, work-from-home reduces and on the timing of the return to normal global economic activities.

Effects from COVID-19 began for us at the end of the first quarter but were not material to the three-month’s results ended March 31, 2020. April shipments of paper were lower by approximately 35% when compared to the first quarter monthly average. Our April average selling price for paper decreased when compared to the average selling price for the first quarter of 2020. As a result of the decrease in demand, on April 6, 2020 we announced the temporary idling of 144,000 tons of capacity, and on April 27, 2020 we announced the temporary idling of a further 83,000 tons of capacity. These measures removed approximately 227,000 tons of our 2020 production capacity. At this point, these measures are expected to maintain inventory at appropriate levels. For more information on these announced temporary idlings, refer to Note 17 “Subsequent Events” of the financial statements in this Quarterly Report on Form 10-Q. We continue to monitor market demand and are prepared to further reduce capacity if necessary.

Our pulp shipments were steady in the three months ended March 31, 2020 despite some logistical challenges and a major shutdown of operations in China due to COVID-19. We experienced good demand from our North American consumer tissue customers, and we expect overall demand in the second quarter to remain strong, particularly in China as the Chinese government continues to reopen the economy. Although we are experiencing higher than normal demand, mostly due to tissue and towel sales, we do expect containment measures across Europe and North America to adversely impact certain end-use markets. April shipments of pulp were up when compared to the first quarter monthly average. Our average selling price was slightly up when compared to the average selling price for our first quarter of 2020.

Our Personal care business experienced minimal impacts due to COVID-19 during the three months ended March 31, 2020. At the end of our first quarter and in April, we experienced increased demand across substantially all our products, due to both new customer wins and consumer increases of home inventory levels in response to COVID-19. We expect to see continued strong demand for some of our products from higher usage and the impact from new customer wins, which may be followed later in the year by potential demand softness and volatility as consumers use existing home inventories and as demand returns to more normal levels. The ultimate timing and impact of this demand volatility will depend on the duration and scope of COVID-19, global economic conditions and consumer preferences.

Below we further describe specific impacts and the measures we have taken since March 2020.

The safety of our employees continues to be our primary focus. As COVID-19 has evolved, we have taken numerous steps to protect the health and safety of our employees, including: social distancing, providing personnel protection and thermal scanning, health monitoring, contact tracing and enhanced cleaning measures. In addition, we implemented global travel restrictions and work-from-home policies for employees who have the ability to work remotely.

We continue to operate in compliance with the orders and restrictions imposed by government authorities in each of our locations, and we are working with our customers to meet their specific shipment needs. We continue to place a priority on business continuity and contingency planning, including potential extended closures of any key facilities, whether because of government action or workforce disruption, or because of disruptions related to our key suppliers that might arise related to COVID-19. At this point we have experienced only minor disruptions. We actively monitor our supply chain, and we may experience disruptions in our supply chain as the pandemic continues. We cannot reasonably estimate the potential impact or timing of those events, nor can we reasonably estimate our ability to mitigate such impact.

We completed a review of all planned maintenance spending for 2020. We reduced or delayed spending where feasible, without compromising on safety or regulatory compliance. Our current expectation is to spend between $445 million and $455 million in 2020, a reduction of approximately $40 million compared to our original plan. We also have completed a review of other costs including selling, general and administrative costs. We have suspended virtually all travel and cut discretionary spending, instituted a hiring freeze for vacant positions and cut non-essential projects.

Subsequent to March 31, 2020, we have taken actions and may take other actions, intended to increase our cash position and preserve financial flexibility in ~~Pulp~~light of the current uncertainty in the global markets. On May 5, 2020, we entered into a five-year $300 million term loan. We also have suspended our dividend and ~~Paper. Paper is~~share buyback program until further notice. In addition, we completed a review of all planned capital expenditures for 2020 and reduced or delayed spending without compromising on safety or regulatory compliance. Our capital expenditures for 2020 are expected to be ~~negatively impacted~~between $140 million and $150 million, a decrease of approximately $100 million compared to our planned spending.

The U.S. and Canadian governments have launched several support programs to provide assistance to companies during this COVID-19 pandemic. We are reviewing the details of the various programs to see whether we might qualify.

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

This section presents a discussion and analysis of our ~~third~~first quarter of 2020 and ~~first nine months of 2017 and 2016~~2019 sales, operating income (loss) and other information relevant to the understanding of our results of operations.

ANALYSIS OF NET SALES
By Business Segment	Three months ended											Nine months ended											Three months ended
							Variance											Variance											Variance
	September 30, 2017			September 30, 2016			$			%		September 30, 2017			September 30, 2016			$			%		March 31, 2020			March 31, 2019			$			%
Pulp and Paper	$	1,054		$	1,054			-			-%	$	3,126		$	3,193			(67	)		-2%	$	1,031		$	1,157			(126	)	-11%
Personal Care		253			231			22			10%		743			675			68			10%		266			239			27		11%
Total for reportable segments		1,307			1,285			22			2%		3,869			3,868			1			-%		1,297			1,396			(99	)	-7%
Intersegment sales		(15	)		(15	)		-					(49	)		(44	)		(5	)				(19	)		(20	)		1
Consolidated		1,292			1,270			22			2%		3,820			3,824			(4	)		-%		1,278			1,376			(98	)	-7%

Shipments
Paper - manufactured (in thousands of ST)		722			744			(22	)		-3%		2,165			2,282			(117	)		-5%		679			736			(57	)	-8%
Communication papers		597			620			(23	)		-4%		1,801			1,904			(103	)		-5%
Specialty and Packaging papers		125			124			1			1%		364			378			(14	)		-4%
Communication Papers																								569			615			(46	)	-7%
Specialty and Packaging																								110			121			(11	)	-9%
Paper - sourced from third parties (in thousands of ST)		29			35			(6	)		-17%		84			96			(12	)		-13%		22			23			(1	)	-4%
Paper - total (in thousands of ST)		751			779			(28	)		-4%		2,249			2,378			(129	)		-5%		701			759			(58	)	-8%
Pulp (in thousands of ADMT)		424			369			55			15%		1,260			1,098			162			15%		389			349			40		11%

ANALYSIS OF CHANGES IN SALES
ANALYSIS OF OPERATING INCOME (LOSS)
	Third quarter of 2017 versus Third quarter of 2016													First nine months of 2017 versus First nine months of 2016													Three months ended
By Business Segment																																		Variance
	% Change in Net Sales due to													% Change in Sales due to													March 31, 2020			March 31, 2019			^(a)	$			%
	Net Price			Volume / Mix				Currency			Total			Net Price			Volume / Mix				Currency			Total
Operating income (loss)
Pulp and Paper		-	%		-	%			-	%		-	%		-1	%		-1	%			-	%		-2	%	$	4		$	144				(140	)		-97	%
Personal Care		-1	%		9	%	^(a)		2	%		10	%		-2	%		13	%	^(a)		-1	%		10	%		20			(8	)			28			350	%
Consolidated sales		-	%		2	%			-	%		2	%		-1	%		1	%			-	%		-	%
Corporate																												(5	)		(21	)			16			76	%
Consolidated operating income																												19			115				(96	)		-83	%

ANALYSIS OF OPERATING INCOME (LOSS)
First quarter of 2020 versus First quarter of 2019
	Three months ended												Nine months ended
By Business Segment							Variance												Variance
	September 30, 2017			September 30, 2016			$			%			September 30, 2017			September 30, 2016			$			%			$ Change in Segmented Operating Income (Loss) due to
Operating income (loss)
																									Volume/Mix			Net Price			Input Costs ^(a)		Operating Expenses^(b)			Currency			Depreciation/ Impairment ^(c)		Restructuring ^(d)		Other Income/ Expense ^(e)			Total
Pulp and Paper		93			89			4			4	%		192			143			49			34	%		(9	)		(87	)		18		(64	)		2			—		—		—			(140	)
Personal Care		8			15			(7	)		-47	%		37			44			(7	)		-16	%		6			—			9		(1	)		(1	)		11		4		—			28
Corporate		(12	)		(12	)		-			-	%		(34	)		(38	)		4			11	%		—			—			—		19			—			—		—		(3	)		16
Consolidated operating income (loss)		89			92			(3	)		-3	%		195			149			46			31	%		(3	)		(87	)		27		(46	)		1			11		4		(3	)		(96	)

Third quarter of 2017 versus Third quarter 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 Income/
Expense ^(f)

Total

Pulp and Paper

2

(4
)

3

(25
)

(1
)

14

10

5

4

Personal Care

—

^(a)

(3
)

(2
)

(1
)

(1
)

—

—

—

(7
)
Corporate

—

—

—

(2
)

—

—

—

2

—

Consolidated operating income (loss)

2

(7
)

1

(28
)

(2
)

14

10

7

(3
)

Commentary ~~–Third~~– First quarter of ~~2017~~2020 compared to ~~Third~~First quarter of ~~2016~~2019

We incurred ~~$16~~$14 million of net interest expense in the ~~third~~first quarter of ~~2017, a decrease of $1 million~~2020 compared to net interest expense of ~~$17~~$13 million in the ~~third~~first quarter of ~~2016. This decrease is mostly due to a decrease in~~2019. The net interest expense ~~as a result of the repayment at maturity of the 9.5% Notes due in August 2016 and of the 10.75% Notes due in June 2017 and a reduction in the amortization of debt issue costs. This decrease~~ was ~~partially offset~~impacted by ~~a reduction in capitalized interest and~~ an increase in ~~interest expense related to~~borrowings under the ~~Term Loan Agreement.~~revolving credit facility.

In the ~~third~~first quarter of ~~2017,~~2020, our income tax expense was $3 million, consisting of $2 million of current income tax expense ~~of $10 million~~ and a deferred income tax ~~benefit~~expense of $7$1 million. This compares to an income tax expense of ~~$16~~$24 million in the ~~third~~first quarter of ~~2016,~~2019, consisting of a$27 million of current income tax expense ~~of $5 million~~ and a deferred income tax ~~expense~~benefit of ~~$11~~$3 million. We ~~made~~received income tax refunds, net of income tax payments, ~~net~~ of ~~refunds, of $3~~$25 million during the ~~third~~first quarter of ~~2017. Our~~2020. The effective tax rate was 4%33% compared with an effective tax rate of ~~21%~~23% in the ~~third~~first quarter of ~~2016.~~2019. The effective tax rate for ~~the third quarter of 2017~~2020 was ~~favorably~~ impacted by the recognition of previously unrecognized tax benefits due to the expiration of certain statutes of limitations. The effective tax rates for both the third quarter of 2017 and third quarter of 2016 were impacted by the finalization of certain estimates in connection with the filing of our 2016 and 2015 income tax returns, respectively.

First nine months of 2017 versus First nine months 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 Income/
Expense ^(f)

Total

Pulp and Paper

(18
)

(32
)

14

(23
)

13

55

33

7

49

Personal Care

7

^(a)

(11
)

4

(4
)

(3
)

—

—

—

(7
)
Corporate

—

—

—

2

(1
)

—

—

3

4

Consolidated operating income (loss)

(11
)

(43
)

18

(25
)

9

55

33

10

46

~~Commentary – First nine months of 2017 compared to first nine months of 2016~~

We incurred $50 million of net interest expense in the first nine months of 2017, an increase of $1 million compared to net interest expense of $49 million in the first nine months of 2016. This increase was mostly due to a reduction in capitalized interest and an increase in ~~interest expense~~the valuation allowance related to the ~~Term Loan Agreement. This increase was partially offset by the repayment at maturity~~expected realization of ~~the 9.5% Notes due in August 2016 and of the maturity of the 10.75% Notes due in June 2017.~~

~~In the first nine months of 2017, our income~~certain U.S. state tax expense was $17 million, consisting of current income tax expense of $36 million and a deferred income tax benefit of $19 million. This compares to an income tax expense of $19 million in the first nine months of 2016, consisting of a current income tax expense of $13 million and a deferred income tax expense of $6 million. We made income tax payments, net of refunds, of $18 million during the first nine months of 2017. Our effective tax rate was 12% compared to an effective tax rate of 19% in the first nine months of 2016.credits. The effective tax rate for the first ~~nine months~~quarter of ~~2017~~2019 was impacted by the inclusion of additional forecasted tax expense for 2019 for Global Intangible Low-taxed Income and for forecasted withholding tax on unremitted foreign earnings. The effective tax rate for the first quarter of 2019 was also favorably impacted by the recognition of previously unrecognized tax benefits due to the expiration of certain statutes of limitations as well as by various enacted law changes in several U.S. states. The effective tax rates for both the first nine months of 2017a $1 million research and the first nine months of 2016 were impacted by the finalization of certain estimates in connection with the filing of our 2016 and 2015 income tax returns, respectively. Additionally, the effective tax rate for the first nine months of 2016 was impacted by the approval of a state taxdevelopment credit in ~~the~~a U.S. state.

EAM’s results of operations, previously reported under our Personal Care segment, are now presented under our Pulp and Paper segment with no significant impact on our segments results. Prior period segment results have been restated to the new segment presentation.

Sales in our Pulp and Paper segment remained relatively flat when compared to sales in the third quarter of 2016. Our net average selling price for paper decreased while our net average selling price for pulp increased. Paper sales volume decreased from the third quarter of 2016 while pulp sales volume increased from the third quarter of 2016.

Operating income in our Pulp and Paper segment amounted to $93 million in the third quarter of 2017, an increase of $4 million, when compared to operating income of $89 million in the third quarter of 2016. Our results were positively impacted by:

~~Sales in our Pulp and Paper~~ segment decreased by ~~$67~~$126 million, or 2%11%, when compared to sales in the first ~~nine months~~quarter of ~~2016.~~ 2019. This decrease in sales is mostly due to a decrease in net average selling prices for pulp and paper as well as a decrease in our paper sales volumes. This decrease was partially offset by an increase in our pulp sales ~~volumes and an increase in net average selling prices for pulp.~~volumes.

Operating income in our Pulp and Paper segment amounted to ~~$192~~$4 million in the first ~~nine months~~quarter of ~~2017, an increase~~2020, a decrease of ~~$49~~$140 million, when compared to operating income of ~~$143~~$144 million in the first ~~nine months~~quarter of ~~2016.~~2019. Our results were ~~positively~~negatively impacted by:

On February 14, 2020, we entered into an asset purchase agreement with Appvion Operations, Inc. to ~~accelerated depreciation~~acquire their Point of Sale paper business. The transaction was completed on April 27, 2020. The asset purchase agreement includes the coater and related toequipment located only at the West Carrollton, Ohio, facility as well as a license for all corresponding intellectual property.

On April 6, 2020, we announced the temporary idling of the operations of our ~~2014 decision to convert a~~Kingsport, Tennessee mill and the A62 paper machine at our Ashdown, ~~facility to a high quality fluff pulp line~~Arkansas mill for three months in ~~the first nine months of 2016 and lower depreciation charges due to certain assets being fully depreciated~~

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 are commodities ~~and~~that 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. We also compete on the basis of product quality, breadth of offering and service solutions. Further, we compete against 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. In addition, current global economic conditions are highly volatile due to the COVID-19 pandemic, resulting in both market size contractions in certain countries due to economic slowdowns and government restrictions on movement.

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

The high degree of uncertainty and volatility day-to-day and the longer term potential impacts of the economic lockdown remain unclear. In ~~the fourth quarter,~~Paper, we expect ~~higher maintenance costs. Paper is~~significantly lower demand in the second quarter. We expect demand for softwood and fluff pulp to remain strong in the near-term driven by accelerated growth in tissue and towel, while certain containment measures across Europe and North America are expected to ~~be negatively impacted by seasonally unfavorable mix while Pulp should continue~~weigh on certain end-use markets. Raw material costs are expected to ~~realize higher prices following recently announced price increases.~~remain stable.

Sales in our Personal Care segment increased by ~~$22~~$27 million, or ~~10%~~11%, when compared to sales in the ~~third~~first quarter of ~~2016.~~2019. This increase in sales was driven by higher ~~sales volume/~~volume and favorable mix ~~of 9%~~and partially offset by unfavorable foreign currency exchange, mostly due to the ~~acquisition of HDIS on October 1, 2016 and favorable foreign currency of 2%, net of our hedging program, mostly~~fluctuation between the ~~Euro~~U.S dollar and ~~U.S Dollar. This increase was partially offset by lower selling prices of 1%.~~the Euro.

Operating income ~~decreased~~increased by $7$28 million, or ~~47% in the third quarter of 2017 compared to the third quarter of 2016. Our results were negatively impacted by:~~

~~Sales in our Personal Care segment increased by $68 million, or 10% when compared to sales~~350%, in the first ~~nine months~~quarter of 2016. This increase in sales was driven by higher sales volume/mix of 13% mostly due to the acquisition of HDIS on October 1, 2016, partially offset by lower selling prices of 2% and unfavorable foreign currency rates of 1% due to fluctuations between European currencies.

~~Operating income decreased $7 million, or 16% in the first nine months of 2017 when~~2020 compared to the first ~~nine months~~quarter of ~~2016.~~

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 have grown significantly in recent years.

While we are expected to benefit from the overall increase in healthcare spending due to an aging population, ~~it is not clear how recent administrative changes in~~ the ~~various national governments~~pressures to limit spending on healthcare may ~~impact the source of the funding. 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 that were historically almost absent in our markets have increased their presence in such markets.

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

~~In the fourth quarter, we expect~~Personal Care will continue to benefit from higher ~~volume, favorable raw material~~usage and the impact from new customer wins, but we expect a portion of the demand increase from consumer stock-up may reverse later in the year.

On November 1, 2018, we announced a margin improvement plan within our Personal Care Division. As part of this plan, our Board of Directors approved the permanent closure of our Waco, Texas manufacturing and distribution facility, the relocation of certain of our manufacturing assets and a workforce reduction across the division. The Waco, Texas facility ceased operations during the second quarter of 2019.

For the three months ended March 31, 2019, we recorded $10 million of accelerated depreciation under Impairment of long-lived assets on the Consolidated Statement of Earnings and Comprehensive Income (Loss). We also recorded $3 million of severance and termination costs and ~~seasonally lower marketing expenses.~~$1 million of write-down of inventory under Closure and restructuring costs.

For the first ~~nine months~~quarter of ~~2017,~~2020, stock-based compensation ~~expense~~income recognized in our results of operations was ~~$15~~$3 million for all outstanding awards which includes the mark-to-market recovery related to liability awards of $7 million. This compares to a stock-based compensation expense of $16 million for all outstanding awards which includes the mark-to-market expense related to liability awards of ~~$1 million. This compares to a stock-based compensation expense of $11 million for all outstanding awards which includes the mark-to-market recovery related to liability awards of $2~~$12 million in the first ~~nine months~~quarter of ~~2016.~~2019. Compensation costs for performance awards are based on management’s best estimate of the final performance measurement.

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 ~~$700~~$480 million is currently undrawn and available, or through our $150 million receivables securitization facility, of which ~~$39~~$11 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,~~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 2017 and adjusted by $7 million in 2018. After completing our evaluation of the U.S. Tax Reform’s impact on the business operations, we have determined that we are ~~currently~~no longer indefinitely reinvested in these undistributed foreign ~~operations.~~earnings as well as foreign earnings after December 31, 2017. We ~~do not intend on repatriating those funds and no provision is made for income taxes that would be payable upon~~remain indefinitely reinvested in the ~~distribution~~outside basis differences of ~~earnings from~~our foreign ~~subsidiaries as computation of these amounts is not practical.~~subsidiaries.

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 ~~$324~~$88 million in the first ~~nine months~~quarter of ~~2017,~~2020, a ~~$14~~$33 million increase compared to cash flows from operating activities of ~~$310~~$55 million in the first ~~nine months~~quarter of ~~2016.~~2019. This increase in cash flows ~~provided~~ from operating activities is primarily due to a decrease in cash flow from working capital requirements, partially offset by a decrease in profitability in the first ~~nine months~~quarter of ~~2017~~2020 when compared to the first ~~nine months~~quarter of ~~2016 as well as an increase in profitability (excluding the non-cash impairment charge~~2019. We received income tax refunds, net of ~~$29~~payments, of $25 million induring the first ~~nine months~~quarter of ~~2016). We made income tax payments, net of refunds of $18 million in the first nine months of 2017~~2020 compared to income tax payments, net of refunds, of $37 million during the first nine months of 2016. We paid $33 million of employer pension and other post-retirement contribution in excess of pension and other post-retirement expense in the first nine months of 2017 compared to $16$6 million in the first ~~nine months~~quarter of ~~2016.~~2019.

Cash flows used for investing activities in the first ~~nine months~~quarter of ~~2017~~2020 amounted to ~~$103~~$62 million, a ~~$199~~$16 million ~~decrease~~increase compared to cash flows used for investing activities of ~~$302~~$46 million in the first ~~nine months~~quarter of ~~2016.~~2019.

The use of cash in the first ~~nine months~~quarter of ~~2017~~2020 was attributable to additions to property, plant and equipment of ~~$111 million, partially offset by proceeds from disposals of property, plant and equipment of $8~~$62 million.

The use of cash in the first ~~nine months~~quarter of ~~2016~~2019 was attributable to additions to property, plant and equipment of ~~$302 million.~~$46 million.

Our capital expenditures for ~~2017~~2020 are expected to be ~~approximately~~ between ~~$185~~$140 million and ~~$190~~$150 million.

Cash flows provided from financing activities totaled $67 million in the first quarter of 2020 compared to cash flows used for financing activities ~~totaled $212~~of $25 million in the first ~~nine months~~quarter of ~~2017 compared to cash flows provided from financing activities of $32 million in~~2019.

~~The use of cash in the first nine months of 2017 was primarily the result of dividend payments ($78 million), the net repayments of borrowings under~~2020, we increased our ~~credit facilities (revolver and receivable securitization) and long-term debt ($123 million) and a decrease in our bank indebtedness ($12 million).~~

~~The cash flows provided from financing activities in the first nine months of 2016 was primarily the result of~~ net proceeds from borrowings under our credit facilities (revolver and ~~receivable~~receivables securitization) ($~~120 million) and an increase in our bank indebtedness ($1~~165 million). ~~These were~~This was partially offset by ~~dividend payments ($76 million) and~~the use of cash primarily due to the repurchase of our common stock ($1059 million) and dividend payments ($26 million).

The use of cash in the first quarter of 2019 was primarily the result of dividend payments ($27 million).

Net indebtedness, consisting of ~~bank indebtedness and~~ long-term debt, net of cash and cash equivalents, was ~~$1,022~~$951 million as of ~~September 30, 2017~~March 31, 2020 comparedto ~~$1,168~~$887 million as of December 31, ~~2016.~~

~~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.~~

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 Company and certain significant domestic subsidiaries of the Company unconditionally guarantee any obligations from time to time arising 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 September 30, 2017, we were in compliance with these financial covenants.2019.

In August ~~2016,~~2018, we amended and restated our unsecured $700 million revolving credit facility (the “Credit Agreement”) with certain domestic and foreign banks, ~~increasing the amount available from $600 million to $700 million and~~ extending the Credit Agreement’s maturity date from ~~October 3, 2019~~August 18, 2021 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.22, 2023.

Borrowings by the Company under the Credit Agreement are guaranteed by our significant domestic subsidiaries. Borrowings by certain foreign ~~borrowers~~subsidiaries under the Credit Agreement are guaranteed by the Company, our significant domestic subsidiaries and certain of our significant 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 Financial Conduct Authority in the United Kingdom plans to phase out LIBOR by the end of 2021. We do not anticipate a significant impact to our financial position from the planned phase out of LIBOR.

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 ~~September 30, 2017,~~March 31, 2020 and March 31, 2019, we were in compliance with these financial ~~covenants.~~covenants, and borrowings under the Credit Agreement amounted to $220 million (March 31, 2019 – nil). At ~~September 30, 2017,~~March 31, 2020 and March 31, 2019, our interest coverage ratio was 9.3 and 14.8, respectively, and our leverage ratio was 2.1 and 1.1, respectively. At March 31, 2020 and March 31, 2019, we had ~~no borrowings (September 30, 2016 – $110 million) and~~ no outstanding letters of credit, ~~(September 30, 2016 – nil),~~ leaving ~~$700~~$480 million unused and available under this facility.

We have a $150 million receivables securitization facility that matures in ~~March 2019.~~November 2021 .

At ~~September 30, 2017,~~March 31, 2020, borrowings under the receivables securitization facility amounted to ~~$60~~$80 million, and ~~$51~~we had $50 million of letters of credit ~~were issued~~ under the program ~~(September 30, 2016~~(March 31, 2019 – ~~$100~~$50 million and ~~$48~~$53 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~~Credit Agreement or our failure to repay or satisfy material obligations. At ~~September 30, 2017,~~March 31, 2020, we had ~~$39~~$11 million unused and available under ~~this~~the receivable securitization facility.

On February ~~21, 2017, May 3, 2017 and August 1, 2017,~~18, 2020, our Board of Directors approved a quarterly dividend of $0.42 per share, respectively, to be paid to holders of our common stock. Dividends of $26 million were paid on April 17, 2017, July 17, 2017 and October 16, 2017, respectively, to shareholders of record on April 3, 2017, July 3, 2017 and October 2, 2017, respectively.

~~On October 31, 2017, our Board of Directors approved a quarterly dividend of $0.42~~$0.455 per share, to be paid to holders of our common stock. ~~This dividend is to be~~Total dividends of approximately $25 million were paid on ~~January~~April 15, ~~2018,~~2020 to shareholders of record on ~~January~~April 2, ~~2018.~~2020.

InSubsequent to March 31, 2020, we have taken actions and may continue to take actions intended to increase our cash position and preserve financial flexibility in light of current uncertainty in the ~~normal course~~global markets.

On May 5, 2020, we entered into a $300 million new Term Loan Agreement that matures on May 5, 2025. The Term Loan Agreement was fully drawn down at closing. 2020. We are using borrowings under the Term Loan Agreement to repay other debt, to pay related fees and expenses and to add to cash reserves. For more information, refer to Note 17 “Subsequent Events” of ~~business, we finance certain~~the financial statements in this Quarterly Report on Form 10-Q for more information on the new Term Loan Agreement.

We have suspended our capital return program; including the company’s stock repurchase program and the suspension of our ~~activities off balance sheet through operating leases.~~regular quarterly dividend. Our Board of Directors will continue to evaluate our capital return program based upon customary considerations, including market conditions.

In the normal course of business, we offer indemnifications relating to the sale of our businesses and real estate. In general, these indemnifications may relate to claims from past business operations, the failure to abide by covenants and the breach of representations and warranties included in sales agreements. Typically, such representations and warranties relate to taxation, environmental, product and employee matters. The terms of these indemnification agreements are generally for an unlimited period of time. At ~~September 30, 2017,~~March 31, 2020, 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.

We have indemnified and held harmless the trustees of our pension funds, and the respective officers, directors, employees and agents of such trustees, from any and all costs and expenses arising out of the performance of their obligations under the relevant trust agreements, including in respect of their reliance on authorized instructions from us or for failing to act in the absence of authorized instructions. These indemnifications survive the termination of such agreements. At ~~September 30, 2017,~~March 31, 2020, we have not recorded a liability associated with these indemnifications, as we do not expect to make any payments pertaining to these indemnifications.

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

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. 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.~~2019.

There has not been any material change to our policies since December 31, 2019. For more details, refer to Note 2 “Recent Accounting Pronouncements” of the financial statements in this Quarterly Report on Form 10-Q.

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, liquidity 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:

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.

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.~~ ~~There have~~2019. Except for the addition of “Equity Risk”, there has not been noany material ~~changes i~~nchange in our exposure to market risk since December 31, ~~2016.~~2019. 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.

We are exposed to changes in share price with regard to our stock-based compensation program. We manage our exposure through the use of derivative instruments such as equity swap contracts. In March 2020, we entered into a total return swap agreement covering 500,000 common shares maturing on March 4, 2022.

We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our reports under the Securities and Exchange Act of 1934, as amended (“Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. As of ~~September 30, 2017,~~March 31, 2019, an evaluation was performed by members of management, at the direction and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Exchange Act). Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of ~~September 30, 2017,~~March 31, 2019, our disclosure controls and procedures were effective.

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.

See Note 14 “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.~~2019.

Our Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2019, contains important risk factors that could cause our actual results to differ materially from those projected in any forward-looking statement. ~~There have been~~Except as stated below, there 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.~~2019.

A global pandemic (or any disease outbreak, including epidemics, pandemics, or similar widespread public health concerns such as the recent COVID-19 pandemic) could have a material adverse effect on the Company’s business operations, results of operations, cash flows and financial position

The Company’s business may be negatively impacted by the fear of exposure to or actual effects of a disease outbreak, epidemic, pandemic, or similar widespread public health concern, such as travel restrictions or recommendations or mandates from governmental authorities to avoid large gatherings or to self-quarantine. These impacts include, but are not limited to:

• Significant reductions in demand or significant volatility in demand for one or more of the Company’s products, which may be caused by, among other things: the temporary inability of consumers to purchase the Company’s products due to illness, quarantine or other travel restrictions, financial hardship, shifts in demand away from one or more of our more discretionary or higher priced products to lower priced products or use of alternatives, stockpiling or similar pantry-loading activity; if prolonged, such impacts can further increase the difficulty of planning for operations and may adversely impact the Company’s results;

• Inability to meet the Company’s customers’ needs and achieve cost targets due to disruptions in the Company’s manufacturing and supply arrangements caused by constrained workforce capacity or the loss or disruption of other essential manufacturing and supply elements such as raw materials or other finished product components, transportation, or other manufacturing and distribution capability;

• Failure of third parties on which the Company rely, including the Company’s suppliers, distributors, contractors or commercial banks, to meet their obligations to the Company, or significant disruptions in their ability to do so, which may be caused by their own financial or operational difficulties and may adversely impact the Company’s operations; or

• Significant changes in the political conditions in the markets in which the Company’s manufacture, sell or distribute its products, including quarantines, import/export restrictions, price controls, or governmental or regulatory actions, closures or other restrictions that limit or close the Company’s operating and manufacturing facilities, restrict the Company’s employees’ ability to travel or perform necessary business functions, or otherwise prevent the Company’s suppliers, or customers from sufficiently staffing operations, including operations necessary for the production, distribution and sale of the Company’s products, which could adversely impact the Company’s results.

Despite the Company’s efforts to manage and remedy these impacts to the Company, their ultimate impact also depends on factors beyond our knowledge or control, including the duration and severity of any such outbreak as well as third-party actions taken to contain its spread and mitigate its public health effects.

Share repurchase activity under our share repurchase program was as follows during the three-month period ended March 31, 2020:

During the ~~third~~first quarter ~~and the first nine months~~ of ~~2017,~~2020, we ~~did not repurchase any~~repurchased 1,798,306 shares at an average price of $33.05 per share, for a total cost of $59 million under our stock repurchase program (the “Program”). ~~We currently~~As of March 31, 2020, we have ~~$323~~$344 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 the first quarter of 2019, there were no shares repurchased under the Program.

Due to the unprecedented market conditions and uncertainty caused by the COVID-19 pandemic, we have suspended our capital return program; including the Company’s stock repurchase program, in order to preserve cash and provide additional flexibility in the current environment. Our Board of Directors will continue to evaluate our capital return program based upon customary considerations, including market conditions.

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.

~~DELAWARE~~	~~20-5901152~~
~~( State or other jurisdiction of~~ ~~incorporation or organization)~~	(I.R.S. Employer Identification No.)
~~234 Kingsley Park Drive~~ ~~Fort Mill, SC~~	~~29715~~
~~(Address of principal executive offices)~~	~~(Zip Code)~~

~~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~~	39

~~ITEM 3.~~	~~QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK~~	49

~~ITEM 4.~~	~~CONTROLS AND PROCEDURES~~	50

~~PART II~~	~~OTHER INFORMATION~~	50

~~ITEM 1.~~	~~LEGAL PROCEEDINGS~~	50

~~ITEM 1A.~~	~~RISK FACTORS~~	51

~~ITEM 2.~~	~~UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS~~	51

~~ITEM 3.~~	~~DEFAULT UPON SENIOR SECURITIES~~	51

~~ITEM 4.~~	~~MINE SAFETY DISCLOSURES~~	51

~~ITEM 5.~~	~~OTHER INFORMATION~~	51

~~ITEM 6.~~	~~EXHIBITS~~	52

PART I.	FINANCIAL INFORMATION	3

ITEM 1.	FINANCIAL STATEMENTS (UNAUDITED)	3

	CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE (LOSS) INCOME	3

	CONSOLIDATED BALANCE SHEETS	4

	CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY	5

	CONSOLIDATED STATEMENTS OF CASH FLOWS	6

	INDEX FOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	7

	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	8

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	37

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK	48

ITEM 4.	CONTROLS AND PROCEDURES	48

PART II	OTHER INFORMATION	48

ITEM 1.	LEGAL PROCEEDINGS	48

ITEM 1A.	RISK FACTORS	49

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	50

ITEM 3.	DEFAULT UPON SENIOR SECURITIES	50

ITEM 4.	MINE SAFETY DISCLOSURES	50

ITEM 5.	OTHER INFORMATION	50

ITEM 6.	EXHIBITS	51

NOTE 1	BASIS OF PRESENTATION	8

NOTE 2	RECENT ACCOUNTING PRONOUNCEMENTS	9

NOTE 3	DERIVATIVES AND HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENT	1210

NOTE 4	EARNINGS PER COMMON SHARE	1714

NOTE 5	PENSION PLANS AND OTHER POST-RETIREMENT BENEFIT PLANS	1815

NOTE 6	OTHER OPERATING ~~(INCOME)~~ LOSS (INCOME), NET	1916

NOTE 7	INCOME TAXES	2017

NOTE 8	INVENTORIES	2118

NOTE 9	~~GOODWILL~~LEASES	2219

NOTE 10	INTANGIBLE ASSETS	2321

NOTE 11	CLOSURE AND RESTRUCTURING COSTS AND ~~LIABILITY AND~~ IMPAIRMENT OF ~~PROPERTY, PLANT AND EQUIPMENT~~LONG-LIVED ASSETS	2422

NOTE 12	CHANGES IN ACCUMULATED OTHER COMPREHENSIVE LOSS BY COMPONENT	2523

NOTE 13	SHAREHOLDERS’ EQUITY	2725

NOTE 14	COMMITMENTS AND CONTINGENCIES	2826

NOTE 15	SEGMENT DISCLOSURES	3128

NOTE 16	SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION	3230

NOTE 17	SUBSEQUENT EVENTS	36

Commodity	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⁾		2,310,000		$	7		33%
2018		12,695,000		$	38		49%
2019		11,430,000		$	34		44%
2020		8,880,000		$	27		34%
2021		3,920,000		$	12		15%
2022		2,070,000		$	6		8%

	For the three months ended
	March 31, 2020
	Pension plans			Other post-retirement benefit plans
	$			$
Service cost		7			—
Interest expense		11			—
Expected return on plan assets		(17	)		—
Amortization of net actuarial loss		2			—
Net periodic benefit cost		3			—

	~~September 30, 2017~~
	$
~~Balance at December 31, 2016~~		~~550~~
~~Effect of foreign currency exchange rate change~~		28
~~Balance at end of period~~		~~578~~

Details about Accumulated other comprehensive loss components	Amounts reclassified from Accumulated other comprehensive loss⁽¹⁾
	For the three months ended
	September 30, 2017			September 30, 2016
	$			$
Net derivative (losses) gains on cash flow hedge
Natural gas swap contracts		1			2		⁽²⁾
Currency options and forwards		(5	)		1		⁽²⁾
Total before tax		(4	)		3
Tax benefit (expense)		2			(2	)
Net of tax		(2	)		1

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

	~~September 30, 2017~~March 31, 2020
	$
Balance at beginning of year		5035
Additions and other changes		31
Environmental spending		(61	)
Effect of foreign currency exchange rate change		3(2	)
Balance at end of period		5033

Period	(a) Total Number of Shares Purchased		(b) Average Price Paid per Share		(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		(d) Approximate Dollar Value of Shares that May Yet be Purchased under the Plans or Programs (in 000s)
January 1 through January 31, 2020		172,087	$	35.15		172,087	$	396,992
February 1 through February 29, 2020		1,490,376	$	33.14		1,490,376	$	347,601
March 1 through March 31, 2020		135,843	$	29.45		135,843	$	343,601
		1,798,306	$	33.05		1,798,306

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

~~12.1~~10.1		~~Computation~~Term Loan Agreement, dated as of ~~Ratio of Earnings to Fixed Charges~~May 5, 2020, among Domtar Corporation, as borrower, the lenders party thereto and Cobank, ACB, a farm credit bank, as agent
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 – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

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101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase

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104		Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

DOMTAR CORPORATION

Date: ~~November 3, 2017~~May 8, 2020

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

~~Large accelerated filer~~

~~Accelerated filer~~

~~Non-accelerated filer~~

☐ ~~(Do not check if a small reporting company)~~

~~Small reporting company~~

~~Emerging growth company~~