Domtar CORP (Form: 10-Q, Received: 08/04/2017 07:04:46)

Large accelerated filer

Accelerated filer

Non-accelerated filer

☐ (Do not check if a small reporting company)

Small reporting company

Emerging growth company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2017

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________to_______

COMMISSION FILE NUMBER 001-33164

DOMTAR CORPORATION

(Exact name of registrant as specified in its charter)

D elaware

20-5901152

(State of Incorporation)

(I.R.S. Employer

Identification No.)

234 Kingsley Park Drive, Fort Mill, SC 29715

(Address of principal executive offices)

(zip code)

(803) 802-7500

(Registrant’s telephone number)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES ☒ NO ☐

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

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

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

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

At July 31, 2017, 62,654,157 shares of the issuer’s common stock were outstanding.

DOMTAR CORPORATION

FORM 10-Q

For the Quarterly Period Ended June 30, 2017

INDEX

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	49

PART II	OTHER INFORMATION	49

ITEM 1.	LEGAL PROCEEDINGS	49

ITEM 1A.	RISK FACTORS	50

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

PART I: FINANCI AL INFORMATION

ITEM 1: FINANCIAL STATEMENTS (UNAUDITED)

DOMTAR CORPORATION

CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

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

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

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

DOMTAR CORPORATION

CONSOLIDATED BALANCE SHEETS

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

	At
	June 30,			December 31,
	2017			2016
	(Unaudited)
	$			$
Assets
Current assets
Cash and cash equivalents		124			125
Receivables, less allowances of $7 and $7		613			613
Inventories (NOTE 8)		759			759
Prepaid expenses		41			40
Income and other taxes receivable		18			31
Total current assets		1,555			1,568
Property, plant and equipment, net		2,779			2,825
Goodwill (NOTE 9)		569			550
Intangible assets, net (NOTE 10)		625			608
Other assets		139			129
Total assets		5,667			5,680
Liabilities and shareholders' equity
Current liabilities
Bank indebtedness		—			12
Trade and other payables		627			656
Income and other taxes payable		28			22
Long-term debt due within one year		1			63
Total current liabilities		656			753
Long-term debt		1,203			1,218
Deferred income taxes and other		677			675
Other liabilities and deferred credits		361			358
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; 2,346,947 and 2,412,267 shares		—			—
Additional paid-in capital		1,966			1,963
Retained earnings		1,217			1,211
Accumulated other comprehensive loss		(414	)		(499	)
Total shareholders' equity		2,770			2,676
Total liabilities and shareholders' equity		5,667			5,680

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

DOMTAR CORPORATION

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

	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		—		3		—			—			3
Net earnings		—		—		—		58			—			58
Net derivative losses on cash flow hedges:
Net gains arising during the period, net of tax of $(2)		—		—		—		—			2			2
Less: Reclassification adjustments for gains included in net earnings, net of tax of $2		—		—		—		—			(4	)		(4	)
Foreign currency translation adjustments		—		—		—		—			82			82
Change in unrecognized gains and prior service cost related to pension and post-retirement benefit plans, net of tax of $(2)		—		—		—		—			5			5
Cash dividends declared		—		—		—		(52	)		—			(52	)
Balance at June 30, 2017		62.7		1		1,966		1,217			(414	)		2,770

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

DOMTAR CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN MILLIONS OF DOLLARS)

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

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

INDEX FOR NOTES TO CONSOLID ATED FINANCIAL STATEMENTS

NOTE 1	BASIS OF PRESENTATION	8

NOTE 2	RECENT ACCOUNTING PRONOUNCEMENTS	9

NOTE 3	DERIVATIVES AND HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENT	12

NOTE 4	EARNINGS PER COMMON SHARE	17

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

NOTE 6	OTHER OPERATING LOSS, NET	19

NOTE 7	INCOME TAXES	20

NOTE 8	INVENTORIES	21

NOTE 9	GOODWILL	22

NOTE 10	INTANGIBLE ASSETS	23

NOTE 11	CLOSURE AND RESTRUCTURING COSTS AND LIABILITY AND IMPAIRMENT OF PROPERTY, PLANT AND EQUIPMENT	24
NOTE 12	CHANGES IN ACCUMULATED OTHER COMPREHENSIVE LOSS BY COMPONENT	25

NOTE 13	SHAREHOLDERS’ EQUITY	27

NOTE 14	COMMITMENTS AND CONTINGENCIES	28

NOTE 15	SEGMENT DISCLOSURES	31

NOTE 16	SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION	32

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2017

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED )

(UNAUDITED)

NOTE 1.

_________________

BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, in the opinion of Management, include all adjustments that are necessary for the fair statement of Domtar Corporation’s (“the Company”) financial position, results of operations, and cash flows for the interim periods presented. Results for the first six 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, as filed with the Securities and Exchange Commission. The December 31, 2016 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.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2017

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED )

(UNAUDITED)

NOTE 2 .

_________________

RECENT ACCOUNTING PRONOUNCEMENTS

ACCOUNTING CHANGES IMPLEMENTED

INVENTORY

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

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

SHARE-BASED PAYMENTS

In March 2016, the FASB issued ASU 2016-09, “ Improvements to Employee Share-Based Payment Accounting, ” which simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows.

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

FUTURE ACCOUNTING CHANGES

REVENUE FROM CONTRACTS WITH CUSTOMERS

In May 2014, the FASB issued ASU 2014-09, “ Revenue from Contracts with Customers. ” The core principal of this guidance is that an entity should recognize revenue, to depict the transfer of promised goods or services to customers, in an amount that reflects the consideration for which the entity is entitled to, in exchange for those goods and services. This new guidance will supersede 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. Under the modified retrospective approach, entities will recognize the cumulative effect of initially applying the standard as an adjustment to the opening balance of retained earnings in the period of initial application and comparative prior year periods would not be adjusted.

The Company is assessing the impact that the guidance will have on the consolidated financial statements and related disclosures. The Company currently expects to adopt the new revenue standards in its first quarter of 2018 utilizing the full retrospective transition method. Further, the Company expects to identify similar performance obligations under the new guidance as compared 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 impact on the consolidated financial statements aside from the additional required disclosures related to revenue in the notes thereto.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2017

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED )

(UNAUDITED)

NOTE 2 – RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)

FINANCIAL INSTRUMENTS

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

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

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

LEASES

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

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

This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted as of the beginning of an interim or annual reporting period.

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

DERIVATIVES AND HEDGING

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.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2017

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED )

(UNAUDITED)

NOTE 2 – RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)

CLASSIFICATION OF CASH FLOWS

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.

GOODWILL IMPAIRMENT

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.

RETIREMENT BENEFITS

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.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2017

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED )

(UNAUDITED)

NOTE 3.

_________________

DERIVATIVES AND HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENT

HEDGING PROGRAMS

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

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

CREDIT RISK

The Company is exposed to credit risk on the accounts receivable from its customers. In order to reduce this risk, the Company reviews new customers’ credit history before granting credit and conducts regular reviews of existing customers’ credit performance. As of June 30, 2017, one of Domtar’s Pulp and Paper segment customers located in the U.S. represented 12% or $74 million (2016 – 12% or $74 million) of the Company’s receivables.

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

INTEREST RATE RISK

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 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.

COST RISK

Cash flow hedges:

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 60 months.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2017

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED )

(UNAUDITED)

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

The following table presents the volumes under derivative financial instruments for natural gas contracts outstanding as of June 30, 2017 to hedge forecasted purchases:

Commodity	Notional contractual quantity under derivative contracts MMBTU ⁽³⁾		Notional contractual value under derivative contracts (in millions of dollars)			Percentage of forecasted purchases under derivative contracts
Natural Gas
2017 ⁽¹⁾		4,255,000		$	13		35%
2018		12,695,000		$	38		50%
2019		9,175,000		$	28		36%
2020		5,750,000		$	18		23%
2021		3,920,000		$	12		15%
2022 ⁽²⁾		2,070,000		$	6		15%

⁽¹⁾	Represents the remaining six months of 2017

⁽²⁾	Represents the first six months of 2022

⁽³⁾	MMBTU: Millions of British thermal units

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

FOREIGN CURRENCY RISK

Cash flow hedges:

The Company has manufacturing operations in the United States, Canada and Europe. As a result, it is exposed to movements in foreign currency exchange rates in Canada and Europe. Moreover, certain assets and liabilities are denominated in currencies other than the U.S. dollar and are exposed to foreign currency movements. Accordingly, the Company’s earnings are affected by increases or decreases in the value of the Canadian dollar and the European currencies. The Company’s European subsidiaries are also exposed to movements in foreign currency exchange rates on transactions denominated in a currency other than their Euro functional currency. The Company’s risk management policy allows it to hedge a significant portion of its exposure to fluctuations in foreign currency exchange rates for periods up to three years. The Company may use derivative financial instruments (currency options and foreign exchange forward contracts) to mitigate its exposure to fluctuations in foreign currency exchange rates.

Derivatives are used to hedge forecasted purchases in Canadian dollars by the Company’s Canadian subsidiary over the next 24 months and to hedge a portion of forecasted sales by its U.S. subsidiaries in British pounds over the next 6 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 12 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.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2017

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED )

(UNAUDITED)

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

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

Currency exposure hedged

Business Segment

Year of

maturity

Notional

contractual value

Percentage of

forecasted net

exposures under

contracts

Average

Protection rate

Average

Obligation rate

2017 ⁽¹⁾

CDN/USD

Pulp and Paper

254 CDN

66%

1 USD = 1.3200

1 USD = 1.3712

USD/Euro

Personal Care

27 USD

77%

1 Euro = 1.1345

2018

CDN/USD

Pulp and Paper

374 CDN

48%

1 USD = 1.3026

1 USD = 1.3547

USD/Euro

Personal Care

26 USD

36%

1 Euro = 1.1218

2019

CDN/USD

Pulp and Paper

101 CDN

13%

1 USD = 1.2897

1 USD = 1.3471

⁽¹⁾ Represents the remaining six months of 2017

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

FAIR VALUE MEASUREMENT

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.

Level 1

Quoted prices in active markets for identical assets or liabilities.

Level 2

Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3

Inputs that are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2017

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED )

(UNAUDITED)

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

The following tables present information about the Company’s f inancial assets and financial liabilities measured at fair value on a recurring basis (except Long-term debt, see (b) below) at June 30, 2017 and December 31, 2016, in accordance with the accounting standards for fair value measurements and disclosures and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value.

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

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

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

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

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

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2017

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED )

(UNAUDITED)

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
	$		$		$		$
Derivatives designated as hedging instruments:
Asset derivatives
Currency derivatives		18		—		18		—	(a)	Prepaid expenses
Natural gas swap contracts		6		—		6		—	(a)	Prepaid expenses
Currency derivatives		6		—		6		—	(a)	Other assets
Natural gas swap contracts		2		—		2		—	(a)	Other assets
Total Assets		32		—		32		—

Liabilities derivatives
Currency derivatives		10		—		10		—	(a)	Trade and other payables
Natural gas swap contracts		1		—		1		—	(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
Total Liabilities		21		—		21		—

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

(a)	Fair value of the Company’s derivatives are classified under Level 2 (inputs that are observable; directly or indirectly) as it is measured as follows:

For currency derivatives: Fair value is measured using techniques derived from the Black-Scholes pricing model. Interest rates, forward market rates and volatility are used as inputs for such valuation techniques.

For natural gas contracts: Fair value is measured using the discounted difference between contractual rates and quoted market future rates.

(b)

Fair value of the Company’s long-term debt is measured by comparison to market prices of its debt. The Company’s long-term debt is not carried at fair value on the Consolidated Balance Sheets at June 30, 2017 and December 31, 2016. However, fair value disclosure is required. The carrying value of the Company’s long-term debt is $1,204 million and $1,281 million at June 30, 2017 and December 31, 2016, respectively.

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.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2017

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED )

(UNAUDITED)

NOTE 4 .

_________________

EARNINGS PER COMMON SHARE

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

	For the three months ended				For the six months ended
	June 30,		June 30,		June 30,		June 30,
	2017		2016		2017		2016
Net earnings	$	38	$	18	$	58	$	22
Weighted average number of common shares outstanding (millions)		62.6		62.6		62.6		62.7
Effect of dilutive securities (millions)		0.1		0.1		0.1		0.1
Weighted average number of diluted common shares outstanding (millions)		62.7		62.7		62.7		62.8

Basic net earnings per common share (in dollars)	$	0.61	$	0.29	$	0.93	$	0.35
Diluted net earnings per common share (in dollars)	$	0.61	$	0.29	$	0.93	$	0.35

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:

	For the three months ended				For the six months ended
	June 30,		June 30,		June 30,		June 30,
	2017		2016		2017		2016
Options		517,246		314,287		419,161		412,372

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2017

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED )

(UNAUDITED)

NOTE 5.

_________________

PENSION PLANS AND OTHER POST-RETIREMENT BENEFIT PLANS

DEFINED CONTRIBUTION PLANS

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

DEFINED BENEFIT PLANS AND OTHER POST-RETIREMENT BENEFIT PLANS

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

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

	For the three months ended					For the six months ended
	June 30, 2017					June 30, 2017
	Pension plans			Other post-retirement benefit plans		Pension plans			Other post-retirement benefit plans
	$			$		$			$
Service cost		7			1		15			1
Interest expense		13			1		25			2
Expected return on plan assets		(20	)		—		(40	)		—
Amortization of net actuarial loss		2			—		4			—
Amortization of prior year service costs		2			—		3			—
Net periodic benefit cost		4			2		7			3

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

	For the three months ended					For the six months ended
	June 30, 2016					June 30, 2016
	Pension plans			Other post-retirement benefit plans		Pension plans			Other post-retirement benefit plans
	$			$		$			$
Service cost		8			1		16			1
Interest expense		13			1		25			2
Expected return on plan assets		(20	)		—		(39	)		—
Amortization of net actuarial loss		1			—		2			—
Amortization of prior year service costs		1			—		2			—
Net periodic benefit cost		3			2		6			3

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

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2017

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED )

(UNAUDITED)

NOTE 6.

_________________

OTHER OPERATING LOSS, NET

Other operating 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, net includes the following:

	For the three months ended						For the six months ended
	June 30,			June 30,			June 30,			June 30,
	2017			2016			2017			2016
	$			$			$			$
Bad debt expense		1			—			1			—
Environmental provision		2			—			2			—
Litigation settlement		—			2			—			2
Foreign exchange loss		—			—			1			4
Other		(1	)		(2	)		(3	)		(2	)
Other operating loss, net		2			—			1			4

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2017

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED )

(UNAUDITED)

NOTE 7.

_________________

INCOME TAXES

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

For the first half of 2017, the Company’s income tax expense amounted to $14 million, consisting of a current income tax expense of $26 million and a deferred income tax benefit of $12 million. This compares to an income tax expense of $3 million in the first half of 2016, consisting of a current income tax expense of $8 million and a deferred income tax benefit of $5 million. The effective tax rate was 19% compared to an effective tax rate of 12% in the first half of 2016. The effective tax rate for the first half of 2017 was favorably impacted by the recognition of previously unrecognized tax benefits due to a statute expiration in a foreign jurisdiction and also a U.S. state tax audit finalization, enacted law changes in several U.S. states, and the recognition of additional tax credits associated with the filing of certain 2016 income tax returns. The effective tax rate for the first half of 2016 was impacted by the approval of a state tax credit in the U.S.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2017

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED )

(UNAUDITED)

NOTE 8.

_________________

INVENTORIES

The following table presents the components of inventories:

	June 30,		December 31,
	2017		2016
	$		$
Work in process and finished goods		405	413
Raw materials		135	132
Operating and maintenance supplies		219	214
		759	759

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2017

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED )

(UNAUDITED)

NOTE 9.

_________________

GOODWILL

Changes in the carrying value of goodwill are as follows:

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

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

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2017

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED )

(UNAUDITED)

NOTE 10.

_________________

INTANGIBLE ASSETS

The following table presents the components of intangible assets:

		June 30, 2017							December 31, 2016
	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
Customer relationships	10 – 40		383		(70	)		313		369		(60	)		309
Technology	7 – 20		8		(3	)		5		8		(3	)		5
Non-Compete	9		1		(1	)		—		1		—			1
License rights	12		29		(10	)		19		28		(8	)		20
			424		(85	)		339		409		(72	)		337
Indefinite-lived intangible assets not subject to amortization
Water rights			4		—			4		4		—			4
Trade names			237		—			237		225		—			225
License rights			6		—			6		6		—			6
Catalog rights			39		—			39		36		—			36
Total			710		(85	)		625		680		(72	)		608

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

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

	2017		2018		2019		2020		2021
	$		$		$		$		$
Amortization expense related to intangible assets		21		21		21		21		20

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2017

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED )

(UNAUDITED)

NOTE 11.

_________________

CLOSURE AND RESTRUCTURING COSTS AND LIABILITY AND IMPAIRMENT OF PROPERTY, PLANT AND EQUIPMENT

Ashdown, Arkansas mill

On December 10, 2014, the Company announced a project to convert a paper machine at its Ashdown, Arkansas mill to a high quality fluff pulp line used in absorbent applications such as baby diapers, feminine hygiene and adult incontinence products. The Company also invested in a pulp bale line that will provide flexibility to manufacture papergrade softwood pulp, contingent on market conditions. The conversion work commenced during the second quarter of 2016 and the production of bale softwood pulp began in the third quarter of 2016. The fluff pulp line will allow for the production of up to 516,000 metric tons of fluff pulp per year once the machine is in full operation. The project resulted in the permanent reduction of 364,000 short tons of annual uncoated freesheet production capacity on March 31, 2016.

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

Other costs

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

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2017

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED )

(UNAUDITED)

NOTE 12.

_________________

CHANGES IN ACCUMULATED OTHER COMPREHENSIVE LOSS BY COMPONENT

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

	Net derivative (losses) gains 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	)
Natural gas swap contracts		4		N/A			N/A			N/A				4
Net investment hedge		(1	)	N/A			N/A			N/A				(1	)
Currency options		8		N/A			N/A			N/A				8
Foreign exchange forward contracts		16		N/A			N/A			N/A				16
Net gain	N/A				(38	)		(1	)	N/A				(39	)
Foreign currency items	N/A			N/A			N/A				(7	)		(7	)
Other comprehensive income (loss) before reclassifications		27			(38	)		(1	)		(7	)		(19	)
Amounts reclassified from Accumulated other comprehensive loss		14			7			—			—			21
Net current period other comprehensive income (loss)		41			(31	)		(1	)		(7	)		2
Balance at December 31, 2016		11			(221	)		(11	)		(278	)		(499	)
Natural gas swap contracts		(4	)	N/A			N/A			N/A				(4	)
Currency options		6		N/A			N/A			N/A				6
Foreign currency items	N/A			N/A			N/A				82			82
Other comprehensive income before reclassifications		2			—			—			82			84
Amounts reclassified from Accumulated other comprehensive loss		(4	)		5			—			—			1
Net current period other comprehensive (loss) income		(2	)		5			—			82			85
Balance at June 30, 2017		9			(216	)		(11	)		(196	)		(414	)

⁽¹⁾	All amounts are after tax. Amounts in parenthesis indicate losses.

⁽²⁾	The accrued benefit obligation is actuarially determined on an annual basis as of December 31.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2017

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED )

(UNAUDITED)

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

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

Details about Accumulated other comprehensive loss components	Amounts reclassified from Accumulated other comprehensive loss ⁽¹⁾
	For the three months ended
	June 30, 2017			June 30, 2016
	$			$
Net derivative (losses) gains on cash flow hedge
Natural gas swap contracts		—			5		⁽²⁾
Currency options and forwards		(1	)		3		⁽²⁾
Total before tax		(1	)		8
Tax expense		—			(3	)
Net of tax		(1	)		5

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

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

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

⁽¹⁾	Amounts in parentheses indicate losses.

⁽²⁾	These amounts are included in Cost of Sales in the Consolidated Statements of Earnings and Comprehensive Income.

⁽³⁾	These amounts are included in the computation of net periodic benefit cost (see Note 5 “Pension Plans and Other Post-Retirement Benefit Plans” for more details).

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2017

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED )

(UNAUDITED)

NOTE 13.

_________________

SHAREHOLDERS’ EQUITY

On February 21, 2017 and May 3, 2017, the Company’s Board of Directors approved a quarterly dividend of $0.415 per share, respectively, to be paid to holders of the Company’s common stock. Dividends of $26 million were paid on April 17, 2017 and July 17, 2017, respectively, to shareholders of record on April 3, 2017 and July 3, 2017, respectively.

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

STOCK REPURCHASE PROGRAM

The Company’s Board of Directors has authorized a stock repurchase program (the “Program”) of up to $1.3 billion. Under the Program, the Company is authorized to repurchase, from time to time, shares of its outstanding common stock on the open market or in privately negotiated transactions. The timing and amount of stock repurchases will depend on a variety of factors, including the market conditions as well as corporate and regulatory considerations. The Program may be suspended, modified or discontinued at any time, and the Company has no obligation to repurchase any amount of its common stock under the Program. The Program has no set expiration date. The Company repurchases its common stock in part to reduce the dilutive effects of stock options and awards, and to improve shareholders’ returns.

The Company makes open market purchases of its common stock using general corporate funds. Additionally, the Company may enter into structured stock repurchase agreements with large financial institutions using general corporate funds in order to lower the average cost to acquire shares. The agreements would require the Company to make up-front payments to the counterparty financial institutions, which would result in either the receipt of stock at the beginning of the term of the agreements followed by a share adjustment at the maturity of the agreements, or the receipt of either stock or cash at the maturity of the agreements, depending upon the price of the stock.

During the first half of 2017, there were no shares repurchased under the Program.

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

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

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2017

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED )

(UNAUDITED)

NOTE 1 4 .

_________________

COMMITMENTS AND CONTINGENCIES

ENVIRONMENT

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. The Company has previously recorded an environmental reserve to address its estimated exposure. The possible cost in excess of the reserve is not considered to be material for this matter.

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

	June 30, 2017
	$
Balance at beginning of year		50
Additions		2
Environmental spending		(3	)
Effect of foreign currency exchange rate change		1
Balance at end of period		50

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

Climate change regulation

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

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

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

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2017

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED )

(UNAUDITED)

NOTE 14. COMMITMENTS AND CONTINGENCIES (CONTINUED)

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

CONTINGENCIES

In the normal course of operations, the Company becomes involved in various legal actions mostly related to contract disputes, patent infringements, environmental and product warranty claims, and labor issues. While the final outcome with respect to actions outstanding or pending at June 30, 2017, cannot be predicted with certainty, it is management’s opinion that their resolution will not have a material adverse effect on the Company’s financial position, results of operations or cash flows.

Spanish Competition Investigation

On October 15, 2015, the Competition Directorate of Spain’s National Commission of Markets and Competition (“CNMC”) filed a Statement of Objections against a number of industry participants alleging the existence of a series of agreements between manufacturers, distributors and pharmacists to fix prices and to allocate margins for heavy adult incontinence products within the pharmacy channel in Spain during the period from December 1996 through January 2014. Among the parties named in the Statement of Objections was Indas, which the Company acquired in January 2014, and two of its affiliates.

On January 4, 2016, the Competition Directorate issued a proposed decision confirming the allegations of the Statement of Objections. The proposed decision recommended the imposition of fines on the parties without recommending the amount of any fines. The Company recorded a €0.2 million ($0.2 million) provision in the fourth quarter of 2015 in Other operating loss, net.

On May 26, 2016, the CNMC rendered its final decision, which declared that a number of manufacturers of adult heavy incontinence products, the sector association and certain individuals participated in price fixing during the period from December 1996 through January 2014. Indas and one of its subsidiaries were fined a total of €13.5 million ($14.9 million) for their participation. A provision was recorded in the second quarter of 2016 in the amount of €13.3 million ($14.7 million) in Other operating loss, net.

The sellers of Indas made representations and warranties to the Company in the purchase agreement regarding, among other things, Indas’ and its subsidiary’s compliance with competition laws. The liability retained by the sellers was backed by a retained purchase price of €3 million ($3.3 million) and bank guarantees of €9 million ($9.9 million).

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

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

The Company purchased limited insurance coverage with respect to the purchase agreement, and is seeking to recover the remaining €1.5 million ($1.7 million) under the insurance policy. Any recovery from the insurers would be recorded in the period when the proceeds are received.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2017

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED )

(UNAUDITED)

NOTE 14. COMMITMENTS AND CONTINGENCIES (CONTINUED)

INDEMNIFICATIONS

In the normal course of business, the Company offers indemnifications relating to the sale of its businesses and real estate. In general, these indemnifications may relate to claims from past business operations, the failure to abide by covenants and the breach of representations and warranties included in the sales agreements. Typically, such representations and warranties relate to taxation, environmental, product and employee matters. The terms of these indemnification agreements are generally for an unlimited period of time. At June 30, 2017, the Company is unable to estimate the potential maximum liabilities for these types of indemnification guarantees as the amounts are contingent upon the outcome of future events, the nature and likelihood of which cannot be reasonably estimated at this time. Accordingly, no provision has been recorded. These indemnifications have not yielded a significant expense in the past.

Pension Plans

The Company has indemnified and held harmless the trustees of its pension funds, and the respective officers, directors, employees and agents of such trustees, from any and all costs and expenses arising out of the performance of their obligations under the relevant trust agreements, including in respect of their reliance on authorized instructions from the Company or for failing to act in the absence of authorized instructions. These indemnifications survive the termination of such agreements. At June 30, 2017, the Company has not recorded a liability associated with these indemnifications, as it does not expect to make any payments pertaining to these indemnifications.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2017

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED )

(UNAUDITED)

NOTE 15.

_________________

SEGMENT DISCLOSURES

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

•	Pulp and Paper – 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 – consists of the design, manufacturing, marketing and distribution of absorbent hygiene products.

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

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

Sales by product group
Paper		734			816			1,520			1,660
Market pulp		249			223			518			450
Absorbent hygiene products		241			228			490			444
Consolidated sales		1,224			1,267			2,528			2,554

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

Operating income (loss)
Pulp and Paper		65			35			99			54
Personal Care		13			15			29			29
Corporate		(14	)		(11	)		(22	)		(26	)
Consolidated operating income		64			39			106			57
Interest expense, net		17			15			34			32
Earnings before income taxes		47			24			72			25
Income tax expense		9			6			14			3
Net earnings		38			18			58			22

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2017

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED )

(UNAUDITED)

NOTE 16.

_________________

SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION

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

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

	For the three months ended
	June 30, 2017
						Non-
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS				Guarantor		Guarantor			Consolidating
AND COMPREHENSIVE INCOME	Parent			Subsidiaries		Subsidiaries			Adjustments			Consolidated
	$			$		$			$			$
Sales		—			1,011		499			(286	)		1,224
Operating expenses
Cost of sales, excluding depreciation and amortization		—			878		376			(286	)		968
Depreciation and amortization		—			58		21			—			79
Selling, general and administrative		2			31		78			—			111
Other operating loss, net		—			—		2			—			2
		2			967		477			(286	)		1,160
Operating (loss) income		(2	)		44		22			—			64
Interest expense (income), net		16			22		(21	)		—			17
(Loss) earnings before income taxes		(18	)		22		43			—			47
Income tax (benefit) expense		(5	)		3		11			—			9
Share in earnings of equity accounted investees		51			32		—			(83	)		—
Net earnings		38			51		32			(83	)		38
Other comprehensive income		71			76		69			(145	)		71
Comprehensive income		109			127		101			(228	)		109

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2017

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED )

(UNAUDITED)

NOTE 16. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)

	For the six months ended
	June 30, 2017
							Non-
CONDENSED CONSOLIDATING STATEMENT OF EARNINGS				Guarantor			Guarantor			Consolidating
AND COMPREHENSIVE INCOME	Parent			Subsidiaries			Subsidiaries			Adjustments			Consolidated
	$			$			$			$			$
Sales		—			2,097			1,015			(584	)		2,528
Operating expenses
Cost of sales, excluding depreciation and amortization		—			1,848			779			(584	)		2,043
Depreciation and amortization		—			117			42			—			159
Selling, general and administrative		4			64			151			—			219
Other operating (income) loss, net		—			(2	)		3			—			1
		4			2,027			975			(584	)		2,422
Operating (loss) income		(4	)		70			40			—			106
Interest expense (income), net		33			42			(41	)		—			34
(Loss) earnings before income taxes		(37	)		28			81			—			72
Income tax (benefit) expense		(9	)		5			18			—			14
Share in earnings of equity accounted investees		86			63			—			(149	)		—
Net earnings		58			86			63			(149	)		58
Other comprehensive income		85			94			85			(179	)		85
Comprehensive income		143			180			148			(328	)		143

	For the three months ended
	June 30, 2016
							Non-
CONDENSED CONSOLIDATING STATEMENT OF				Guarantor			Guarantor			Consolidating
EARNINGS (LOSS) AND COMPREHENSIVE INCOME (LOSS)	Parent			Subsidiaries			Subsidiaries			Adjustments			Consolidated
	$			$			$			$			$
Sales		—			1,040			498			(271	)		1,267
Operating expenses
Cost of sales, excluding depreciation and amortization		—			874			410			(271	)		1,013
Depreciation and amortization		—			63			24			—			87
Selling, general and administrative		2			25			77			—			104
Impairment of property, plant and equipment		—			3			—			—			3
Closure and restructuring costs		—			21			—			—			21
Other operating loss (income), net		1			(1	)		—			—			—
		3			985			511			(271	)		1,228
Operating (loss) income		(3	)		55			(13	)		—			39
Interest expense (income), net		16			7			(8	)		—			15
(Loss) earnings before income taxes		(19	)		48			(5	)		—			24
Income tax (benefit) expense		(5	)		12			(1	)		—			6
Share in earnings of equity accounted investees		32			(4	)		—			(28	)		—
Net earnings (loss)		18			32			(4	)		(28	)		18
Other comprehensive loss		(14	)		(25	)		(29	)		54			(14	)
Comprehensive income (loss)		4			7			(33	)		26			4

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2017

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED )

(UNAUDITED)

NOTE 16. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)

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

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2017

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED )

(UNAUDITED)

NOTE 16. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)

	June 30, 2017
					Non-
			Guarantor		Guarantor		Consolidating
CONDENSED CONSOLIDATING BALANCE SHEET	Parent		Subsidiaries		Subsidiaries		Adjustments			Consolidated
	$		$		$		$			$
Assets
Current assets
Cash and cash equivalents		1		8		115		—			124
Receivables		—		280		333		—			613
Inventories		—		521		238		—			759
Prepaid expenses		9		20		12		—			41
Income and other taxes receivable		—		10		14		(6	)		18
Intercompany accounts		281		289		42		(612	)		—
Total current assets		291		1,128		754		(618	)		1,555
Property, plant and equipment, net		—		1,920		859		—			2,779
Goodwill		—		313		256		—			569
Intangible assets, net		—		273		352		—			625
Investments in affiliates		4,156		2,798		—		(6,954	)		—
Intercompany long-term advances		6		81		1,444		(1,531	)		—
Other assets		36		—		126		(23	)		139
Total assets		4,489		6,513		3,791		(9,126	)		5,667
Liabilities and shareholders' equity
Current liabilities
Trade and other payables		48		350		229		—			627
Intercompany accounts		235		55		322		(612	)		—
Income and other taxes payable		17		—		17		(6	)		28
Long-term debt due within one year		—		—		1		—			1
Total current liabilities		300		405		569		(618	)		656
Long-term debt		812		298		93		—			1,203
Intercompany long-term loans		588		942		1		(1,531	)		—
Deferred income taxes and other		—		540		160		(23	)		677
Other liabilities and deferred credits		19		172		170		—			361
Shareholders' equity		2,770		4,156		2,798		(6,954	)		2,770
Total liabilities and shareholders' equity		4,489		6,513		3,791		(9,126	)		5,667

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2017

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED )

(UNAUDITED)

NOTE 16. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)

	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

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2017

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED )

(UNAUDITED)

NOTE 16. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)

	For the six months ended
	June 30, 2017
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Consolidating Adjustments			Consolidated
	$			$			$			$			$
Operating activities
Net earnings		58			86			63			(149	)		58
Changes in operating and intercompany assets and liabilities and non-cash items, included in net earnings		77			(107	)		35			149			154
Cash flows provided from (used for) operating activities		135			(21	)		98			—			212
Investing activities
Additions to property, plant and equipment		—			(39	)		(32	)		—			(71	)
Cash flows used for investing activities		—			(39	)		(32	)		—			(71	)
Financing activities
Dividend payments		(52	)		—			—			—			(52	)
Net change in bank indebtedness		—			(12	)		—			—			(12	)
Change in revolving credit facility		(30	)		—			—			—			(30	)
Proceeds from receivables securitization facility		—			—			25			—			25
Repayments of receivables securitization facility		—			—			(15	)		—			(15	)
Repayments of long-term debt		(63	)		—			—			—			(63	)
Increase in long-term advances to related parties		(5	)		—			(61	)		66			—
Decrease in long-term advances to related parties		—			66			—			(66	)		—
Other		(1	)		—			—			—			(1	)
Cash flows (used for) provided from financing activities		(151	)		54			(51	)		—			(148	)
Net (decrease) increase in cash and cash equivalents		(16	)		(6	)		15			—			(7	)
Impact of foreign exchange on cash		—			—			6			—			6
Cash and cash equivalents at beginning of period		17			14			94			—			125
Cash and cash equivalents at end of period		1			8			115			—			124

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2017

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED )

(UNAUDITED)

NOTE 16. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)

	For the six months ended
	June 30, 2016
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS	Parent			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Consolidating Adjustments			Consolidated
	$			$			$			$			$
Operating activities
Net earnings		22			55			41			(96	)		22
Changes in operating and intercompany assets and liabilities and non-cash items, included in net earnings		24			108			(35	)		96			193
Cash flows from operating activities		46			163			6			—			215
Investing activities
Additions to property, plant and equipment		—			(184	)		(35	)		—			(219	)
Acquisition of business, net of cash acquired		—			(1	)		—			—			(1	)
Cash flows used for investing activities		—			(185	)		(35	)		—			(220	)
Financing activities
Dividend payments		(50	)		—			—			—			(50	)
Stock repurchase		(10	)		—			—			—			(10	)
Net change in bank indebtedness		—			1			—			—			1
Change in revolving credit facility		(50	)		—			—			—			(50	)
Proceeds from receivables securitization facility		—			—			120			—			120
Repayments of receivables securitization facility		—			—			(20	)		—			(20	)
Repayments of long-term debt		—			(1	)		—			—			(1	)
Increase in long-term advances to related parties		—			—			(60	)		60			—
Decrease in long-term advances to related parties		34			26			—			(60	)		—
Other		(1	)		—			—			—			(1	)
Cash flows (used for) provided from financing activities		(77	)		26			40			—			(11	)
Net (decrease) increase in cash and cash equivalents		(31	)		4			11			—			(16	)
Impact of foreign exchange on cash		—			—			1			—			1
Cash and cash equivalents at beginning of period		49			2			75			—			126
Cash and cash equivalents at end of period		18			6			87			—			111

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

This Management’s Discussion and Analysis (“MD&A”) of Financial Condition and Results of Operations should be read in conjunction with Domtar Corporation’s unaudited interim financial statements and notes thereto included in the Quarterly Report on Form 10-Q. The MD&A should also be read in conjunction with the historical financial information contained in our Annual Report on Form 10-K for the year ended December 31, 2016, filed with the Securities and Exchange Commission (“SEC”) on February 24, 2017. 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 three and six months ended June 30, 2017 and 2016. The three month and six month periods are also referred to as the second quarter and first half of 2017 and 2016. Reference to notes refers to footnotes to the consolidated financial statements and notes thereto included in Item 1 of this Form 10-Q.

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

•

Overview

•

Highlights for the three month and six month periods ended June 30, 2017

•

Outlook

•

Consolidated Results of Operations and Segment Review

•

Liquidity and Capital Resources

OVERVIEW

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/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 JUNE 30, 2017

•

Operating income and net earnings increased by 64% and 111%, respectively, from the second quarter of 2016

•

Sales decreased by 3% from the second quarter of 2016. Net average selling prices for paper were down from the second quarter of 2016 while net average selling prices for pulp were up. Our manufactured paper volumes were down while our pulp volumes were up when compared to the second quarter of 2016.

•

We paid $26 million in dividends

HIGHLIGHTS FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2017

•

Operating income and net earnings increased by 86% and 164%, respectively, from the first half of 2016

•

Sales decreased by 1% from the first half of 2016. Net average selling prices for paper were down from the first half of 2016 while net average selling prices for pulp were flat. Our manufactured paper volumes were down while our pulp volumes were up when compared to the first half of 2016. Our Personal Care volumes were up, in part due to the acquisition of Home Delivery Incontinent Supplies (“HDIS”) on October 1, 2016

•

A mechanical failure on the largest turbine generator at our Kamloops mill in the first quarter of 2017 negatively impacted our results by approximately $3 million, net of insurance proceeds, in the first half of 2017

•

We paid $52 million in dividends

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

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

¹	See Note 4 “Earnings per Common Share” of the financial statements in this Quarterly Report on Form 10-Q for more information on the calculation of net earnings per common share.

OUTLOOK

For the remainder of the year, we expect our paper shipments to be in-line with market demand. Our pulp shipments should be higher due to the ramp-up of the Ashdown fluff pulp line, while mix should continue to improve as we convert more volume to fluff pulp. In Personal Care, investments in advertising and promotion in addition to new customer wins should drive higher sales, while raw material costs are expected to increase marginally.

CONSOLIDATED RESULTS OF OPERATIONS AND SEGMENT REVIEW

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

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

Shipments
Paper - manufactured (in thousands of ST)		698			752			(54	)		-7%		1,443			1,538			(95	)		-6%
Communication Papers		582			627			(45	)		-7%		1,204			1,284			(80	)		-6%
Specialty and Packaging		116			125			(9	)		-7%		239			254			(15	)		-6%
Paper - sourced from third parties (in thousands of ST)		26			29			(3	)		-10%		55			61			(6	)		-10%
Paper - total (in thousands of ST)		724			781			(57	)		-7%		1,498			1,599			(101	)		-6%
Pulp (in thousands of ADMT)		383			360			23			6%		836			729			107			15%

ANALYSIS OF CHANGES IN SALES
	Second quarter of 2017 versus Second quarter of 2016													First half of 2017 versus First half of 2016
	% Change in Sales due to													% Change in Sales due to
	Net Price			Volume / Mix				Currency			Total			Net Price			Volume / Mix				Currency			Total
Pulp and Paper		-1	%		-4	%			-	%		-5	%		-1	%		-2	%			-	%		-3	%
Personal Care		-1	%		9	%	^(a)		-2	%		6	%		-2	%		14	%	^(a)		-2	%		10	%
Consolidated sales		-1	%		-2	%			-	%		-3	%		-2	%		1	%			-	%		-1	%

Commentary:

(a)

Includes sales of HDIS acquired on October 1, 2016.

ANALYSIS OF OPERATING INCOME (LOSS)
	Three months ended												Six months ended
By Business Segment							Variance												Variance
	June 30, 2017			June 30, 2016			$			%			June 30, 2017			June 30, 2016			$		%
Operating income (loss)
Pulp and Paper		65			35			30			86	%		99			54			45		83	%
Personal Care		13			15			(2	)		-13	%		29			29			-		-	%
Corporate		(14	)		(11	)		(3	)		-27	%		(22	)		(26	)		4		15	%
Consolidated operating income (loss)		64			39			25			64	%		106			57			49		86	%

Second quarter of 2017 versus Second quarter of 2016

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

(a)	Includes results of HDIS acquired on October 1, 2016.

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

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

(d)

In the second quarter of 2017, we did not record any accelerated depreciation compared to $3 million of accelerated depreciation related to the conversion of a paper machine to a high quality fluff pulp line at our Ashdown mill, in the second quarter of 2016. Depreciation charges were lower by $8 million in the second quarter of 2017, excluding foreign currency impact.

(e)	In the second quarter of 2017, there were no restructuring charges. In the second quarter of 2016, we incurred restructuring charges of $21 million related to the conversion at Ashdown described above.

(f)

Second quarter of 2017 other operating income/

expense includes:

Second quarter of 2016 other operating income/

expense includes:

- Environmental provision ($2 million)

- Bad debt expense ($1 million)

- Other income ($1 million)

- Litigation settlement ($2 million)

- Other income ($2 million)

Commentary – Second quarter of 2017 compared to Second quarter of 2016

Interest Expense, net

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

Income Taxes

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

First half of 2017 versus First half of 2016

	$ Change in Segmented Operating Income (Loss) due to
	Volume/Mix				Net Price			Input Costs ^(b)		Operating Expenses ^(c)			Currency			Depreciation/ Impairment ^(d)		Restructuring ^(e)		Other Operating Income/ Expense ^(f)		Total
Pulp and Paper		(19	)			(32	)		14		(1	)		16			42		23		2		45
Personal Care		7		^(a)		(7	)		7		(5	)		(2	)		—		—		—		—
Corporate		—				—			—		3			—			—		—		1		4
Consolidated operating income (loss)		(12	)			(39	)		21		(3	)		14			42		23		3		49

(a)	Includes results of HDIS acquired on October 1, 2016.

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

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

(d)

In the first half of 2017, we did not record any accelerated depreciation compared to $24 million of accelerated depreciation related to the conversion of a paper machine to a high quality fluff pulp line at our Ashdown mill, recorded in the first half of 2016. Depreciation charges were lower by $18 million in the first half of 2017, excluding foreign currency impact.

(e)	In the first half of 2017, there were no restructuring charges. In the first half of 2016, we incurred restructuring charges of $23 million mostly related to the conversion at Ashdown described above.

(f)

First half of 2017 other operating income/

expense includes:

First half of 2016 other operating income/

expense includes:

- Environmental provision ($2 million)

- Foreign currency loss on working capital items

($1 million)

- Bad debt expense ($1 million)

- Other income ($3 million)

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

- Litigation settlement ($2 million)

- Other income ($2 million)

Commentary – First half of 2017 compared to first half of 2016

Interest Expense, net

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

Income Taxes

In the first half of 2017, our income tax expense was $14 million, consisting of current income tax expense of $26 million and a deferred income tax benefit of $12 million. This compares to an income tax expense of $3 million in the first half of 2016, consisting of a current income tax expense of $8 million and a deferred income tax benefit of $5 million. We made income tax payments, net of refunds, of $15 million during the first half of 2017. Our effective tax rate was 19% compared to an effective tax rate of 12% in the first half of 2016. The effective tax rate for the first half of 2017 was favorably impacted by the recognition of previously unrecognized tax benefits due to a statute expiration in a foreign jurisdiction and also a U.S. state tax audit finalization, enacted law changes in several U.S. states, and the recognition of additional tax credits associated with the filing of certain 2016 income tax returns. The effective tax rate for the first half of 2016 was impacted by the approval of a state tax credit in the U.S.

Commentary – Segment Review

Pulp and Paper Segment

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

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

•	Lower restructuring costs mostly related to the conversion of a paper machine to a high quality fluff pulp line at our Ashdown mill, recorded in the second quarter of 2016 ($21 million)

•	Lower depreciation charges ($11 million) due to accelerated depreciation related to our 2014 decision to convert a paper machine at our Ashdown facility to a high quality fluff pulp line in the second quarter of 2016 and lower depreciation charges due to certain assets being fully depreciated

•	Positive impact of a weaker Canadian dollar on our Canadian denominated expenses as well as from our hedging program ($11 million)

•	Lower input costs ($8 million) mostly related to lower fiber costs as a result of improved yields and lower energy costs, partially offset by higher chemicals costs

This increase was partially offset by:

•	Lower average selling prices for paper partially offset by higher average selling prices for pulp ($10 million)

•	Lower volume/ mix ($10 million) mostly related to lower volume of paper, partially offset by higher volume of pulp

•	Higher other operating income/expense ($1 million)

Sales in our Pulp and Paper segment decreased by $67 million, or 3% when compared to sales in the first half of 2016. This decrease in sales is mostly due to a 1% decrease in net average selling prices for paper as well as a decrease in our paper sales volumes. This decrease was partially offset by an increase in our pulp sales volumes.

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

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

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

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

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

•	Lower other operating income/expense ($2 million)

This increase was partially offset by:

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

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

•	Higher operating expenses ($1 million)

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

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

Personal Care Segment

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

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

•	Unfavorable average net selling prices ($4 million)

•	Higher operating expenses ($2 million) mostly due to higher salaries and wages and higher selling, general and administrative expenses

This decrease was partially offset by:

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

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

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

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

Our results were negatively impacted by:

•	Unfavorable average net selling prices ($7 million)

•	Higher operating expenses ($5 million) mostly due to higher salaries and wages and higher selling, general and administrative expenses

•	Unfavorable foreign exchange mostly between the GBP and the Euro and the U.S. Dollar and Euro, net of our hedging program ($2 million)

This decrease was offset by:

•	Higher sales volume and mix ($7 million)

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

In our absorbent hygiene products business, we compete in an industry with fundamental drivers for long-term growth. 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 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. The principal methods and elements of competition include brand recognition and loyalty, product innovation, quality and performance, price and marketing and distribution capabilities.

For the remainder of the year, we expect investments in advertising and promotion. New customer wins should drive higher sales, while raw material costs are expected to increase marginally.

STOCK-BASED COMPENSATION EXPENSE

For the first half of 2017, stock-based compensation expense recognized in our results of operations was $7 million for all outstanding awards which includes the mark-to-market recovery related to liability awards of $2 million. This compares to a stock-based compensation expense of $6 million for all outstanding awards which includes the mark-to-market recovery related to liability awards of $3 million in the first half of 2016. Compensation costs for performance awards are based on management’s best estimate of the final performance measurement.

LIQUIDITY AND CAPITAL RESOURCES

Our principal cash requirements are for ongoing operating costs, pension contributions, working capital and capital expenditures, as well as principal and interest payments on our debt and income tax payments. We expect to fund our liquidity needs primarily with internally generated funds from our operations and, to the extent necessary, through borrowings under our contractually committed $700 million credit facility, of which $680 million is currently undrawn and available, or through our $150 million receivables securitization facility, of which $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, are currently indefinitely reinvested in foreign operations. We do not intend on repatriating those

funds and no provision is made for income taxes that would be payable upon the distribution of ear nings from foreign subsidiaries as computation of these amounts is not practical.

Operating Activities

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

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

Investing Activities

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

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

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

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

Financing Activities

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

The use of cash in the first half of 2017 was primarily the result of dividend payments ($52 million), the net repayments of borrowings under our credit facilities (revolver and receivable securitization) and long-term debt ($83 million) and a decrease in our bank indebtedness ($12 million).

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

Capital Resources

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

Notes Maturity

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

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

Term Loan

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

Borrowings under the Term Loan Agreement bear interest at LIBOR plus a margin of 1.875%. The Term Loan Agreement contains customary covenants, including two financial covenants: (i) an interest coverage ratio, as defined in the Term Loan Agreement, that

must be maintained at a level of not less than 3 to 1 and (ii) a leverage ratio, as defined in the Term Loan Agreement that must be maintained at a level of not greater than 3.75 to 1. At June 30, 2017, we were in compliance with these financial coven ants.

Revolving Credit Facility

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

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

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

The Credit Agreement contains customary covenants and events of default for transactions of this type, including two financial covenants: (i) an interest coverage ratio, as defined in the Credit Agreement, that must be maintained at a level of not less than 3 to 1 and (ii) a leverage ratio, as defined in the Credit Agreement that must be maintained at a level of not greater than 3.75 to 1 (or 4.00 to 1 upon the occurrence of certain qualifying material acquisitions). At June 30, 2017, we were in compliance with these financial covenants. At June 30, 2017, we had $20 million of borrowing (June 30, 2016– nil) and no outstanding letters of credit (June 30, 2016 – nil), leaving $680 million unused and available under this facility.

Receivables Securitization

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

At June 30, 2017, borrowings under the receivables securitization facility amounted to $80 million and $59 million of letters of credit were issued under the program (June 30, 2016 – $100 million and $38 million, respectively). The program contains certain termination events, which include, but are not limited to, matters related to receivable performance, certain defaults occurring under the credit facility or our failure to repay or satisfy material obligations. At June 30, 2017, we had $11 million unused and available under this facility.

Common Stock

On February 21, 2017 and May 3, 2017, our Board of Directors approved a quarterly dividend of $0.415 per share, respectively, to be paid to holders of our common stock. Dividends of $26 million were paid on April 17, 2017 and July 17, 2017, respectively, to shareholders of record on April 3, 2017 and July 3, 2017, respectively.

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

OFF BALANCE SHEET ARRANGEMENTS

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

GUARANTEES

Indemnifications

In the normal course of business, we offer indemnifications relating to the sale of our businesses and real estate. In general, these indemnifications may relate to claims from past business operations, the failure to abide by covenants and the breach of representations and warranties included in sales agreements. Typically, such representations and warranties relate to taxation, environmental, product and employee matters. The terms of these indemnification agreements are generally for an unlimited period of time. At June 30, 2017, we were unable to estimate the potential maximum liabilities for these types of indemnification guarantees as the amounts are contingent upon the outcome of future events, the nature and likelihood of which cannot be reasonably estimated at this time. Accordingly, no provision has been recorded. These indemnifications have not yielded significant expenses in the past.

Pension Plans

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

RECENT ACCOUNTING PRONOUNCEMENTS

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

CRITICAL ACCOUNTING ESTIMATES AND POLICIES

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

FORWARD-LOOKING STATEMENTS

The information included in this Quarterly Report on Form 10-Q, contains forward-looking statements relating to trends in, or representing management’s beliefs about, Domtar Corporation’s future growth, results of operations, performance and business prospects and opportunities. These forward-looking statements are generally denoted by the use of words such as “anticipate”, “believe”, “expect”, “intend”, “aim”, “target”, “plan”, “continue”, “estimate”, “project”, “may”, “will”, “should” and similar expressions. These statements reflect management’s current beliefs and are based on information currently available to management. Forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable by management, are inherently subject to known and unknown risks and uncertainties and other factors that could cause actual results to differ materially from historical results or those anticipated. Accordingly, no assurances can be given that any of the events anticipated by the forward-looking statements will occur, or if any occurs, what effect they will have on Domtar Corporation’s results of operations or financial condition. These factors include, but are not limited to:

•

continued decline in usage of fine paper products in our core North American market;

•

our ability to implement our business diversification initiatives, including strategic acquisitions;

•

product selling prices;

•

raw material prices, including fiber, chemical and energy;

•

conditions in the global capital and credit markets, and the economy generally, particularly in the U.S., Canada and Europe;

•

performance of Domtar Corporation’s manufacturing operations, including unexpected maintenance requirements;

•

the level of competition from domestic and foreign producers;

•

the effect of, or change in, forestry, land use, environmental and other governmental regulations (including tax), and accounting regulations;

•

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

•

transportation costs;

•

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

•

legal proceedings;

•

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

•

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

•

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

•

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

•

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

You are cautioned not to unduly rely on such forward-looking statements, which speak only as of the date made, when evaluating the information presented in this Quarterly Report on Form 10-Q. Unless specifically required by law, Domtar Corporation disclaims any obligation to update or revise these forward-looking statements to reflect new events or circumstances.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Information relating to quantitative and qualitative disclosure about market risk is contained in our Annual Report on Form 10-K for the year ended December 31, 2016. There have been no material changes i n our exposure to market risk since December 31, 2016. A full discussion on Quantitative and Qualitative Disclosure about Market Risk, is found in Note 3 “Derivatives and Hedging Activities and Fair Value Measurement,” of the financial statements in this Quarterly Report on Form 10-Q.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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

Change in Internal Control over Financial Reporting

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

P ART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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.

ITEM 1A. RI SK FACTORS

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

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

During the second quarter and the first half of 2017, we did not repurchase any shares under our stock repurchase program (the “Program”). We currently have $323 million of remaining availability under our Program. The Program may be suspended, modified or discontinued at any time and we have no obligation to repurchase any amount of our common stock under the Program. The Program has no set expiration date. We repurchase our common stock, from time to time, in part to reduce the dilutive effects of our stock options and awards and to improve shareholders’ returns. The timing and amount of stock repurchases will depend on a variety of factors, including market conditions, availability under the program as well as corporate and regulatory considerations. All shares repurchased are recorded as Treasury stock on the Consolidated Balance Sheets under the par value method at $0.01 per share.

ITE M 3. DEFAULT UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 6. EXHIBITS

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

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

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

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

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

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


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

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

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

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

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

101.SCH		XBRL Taxonomy Extension Schema

101.CAL		XBRL Taxonomy Extension Calculation Linkbase

101.DEF		XBRL Taxonomy Extension Definition Linkbase

101.LAB		XBRL Taxonomy Extension Label Linkbase

101.PRE		XBRL Extension Presentation Linkbase

* Indicates management contract of compensatory arrangement

SIGNATURE

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

DOMTAR CORPORATION

Date: August 4, 2017

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

Exhibit 10.1

Amended and Restated
DB SERP for Management
Committee Members of Domtar

As in effect on March 7, 2007, amended and restated on October 1, 2012, July 30, 2013, January 1 ^st , 2015 and further on December 7, 2016

Table of Contents

1. Introduction 1

2. Definitions 1

3. Normal Retirement 6

4. Early Retirement 7

5. Deferral of Early Retirement Pension 8

6. Non-Vested Termination of Employment 8

7. Vested Termination 8

8. Normal Form of Pension 9

9. Optional Forms of Pension 9

10. Death Before Commencement of Pension Payments 10

11. Death After Commencement of Pension Payments 10

12. Disability 10

13. Administration 11

14. Funding 11

15. Non-Alienation of Benefits 14

16. Conflicts or Inconsistencies 14

17. Amendments 15

18. General Provisions 15

Appendix

1.	Introduction

1.1	The present document constitutes the DB SERP for Management Committee Members of Domtar, hereinafter called the “DB SERP”.

1.2	The purpose of the DB SERP is to provide members of the Management Committee of the Company with additional retirement benefits in excess of those that may be payable in accordance with the provisions of the Base Plans and of the DC SERP, as defined below.

2.	Definitions

2.1	Accrued Pension : at any date, the lesser of (a) and (b) defined below:

two percent (2%) of the Best Average Earnings on such date multiplied by the number of years of Credited Service on such date;

fifty percent (50%) of the Best Average Earnings on such date.

2.2	Actuarial Equivalent :

For a Member employed in Canada: Actuarial Equivalent Value as defined under the Base Canadian Pension Plan;

For a Member employed in the United States: Actuarial Equivalent as defined under the Base U.S. Pension Plan.

For a Member employed in both Canada and the United States: subject to Section 2.28, with respect to benefits or deemed benefits under the Base Canadian Pension Plan, Actuarial Equivalent Value as defined in the Base Canadian Pension Plan and with respect to benefits or deemed benefits under the Base U.S. Pension Plan, Actuarial Equivalent as defined in the Base U.S. Pension Plan

2.3	Base Canadian Pension Plan : the Domtar Pension Plan for Non-Negotiated Employees, as may be amended from time to time.

2.4	Base Plans : subject to Section 2.28,

For a Member employed in Canada: the Base Canadian Pension Plan;

For a Member employed in the United States: the Base U.S. Pension Plan and the Base U.S. Savings Plan.

2.5	Base U.S. Pension Plan : the Domtar U.S. Salaried Pension Plan, as may be amended from time to time.

DB SERP for Management Committee Members of Domtar 1
As in effect on March 7, 2007, amended and restated on October 1, 2012, July 30, 2013, January 1, 2015 and further on December 7, 2016

2.6	Base U.S. Savings Plan : the Domtar U.S. Salaried 401(k) Plan and the Domtar Personal Care 401(k) Plan, as may be amended from time to time.

2.7

Best Average Earnings : shall mean the highest annualized average Earnings of the Member during any 60 consecutive months of membership in the Base Plans during the 120 months of membership in the Base Plans prior to the date of Separation from Service. In the event that there are less than 60 consecutive months, Best Average Earnings shall be calculated by dividing the total Earnings of the Member during the period of membership in the Base Plans by the number of months during such period in respect of any part of which he shall have had Earnings and multiplying the result by 12.

For the purpose of this Section 2.7, for a Member employed both in Canada and in the United States, consecutive periods of membership under the Base Canadian Pension Plan, the Base U.S. Pension Plan and the Base U.S. Savings Plan, and any periods in which a Member is deemed to have Credited Service under Section 2.11, shall be deemed consecutive membership in the Base Plans. To the extent necessary, earnings shall be converted to the currency to be used for payment pursuant to Section 18.1 based on the average exchange rate for the year or shorter period earned.

For the purpose of this Section 2.7, bonuses are attributed to the month during which they are actually paid. Notwithstanding, should the timing of bonus payments differ from year to year, the number of bonus payments recognized shall not exceed the number of years included in the averaging period, as determined by the HR Committee. In addition, Earnings for a given month (other than bonuses) are deemed to be equal to the Earnings for the corresponding calendar year (other than bonuses) divided by the number of months of membership in the Base Plans during the said calendar year.

2.8	Board : the Board of Directors of Domtar Corporation.

2.9	Code : the U.S. Internal Revenue Code of 1986, as amended.

2.10	Company : means Domtar Corporation and any of its subsidiaries or affiliated companies.

2.11

Credited Service : shall mean the period of service with the Company, before the executive’s Separation from Service, that starts with the date the executive becomes a Member of the DB SERP and ends on the later of October 1, 2012 and the date the executive ceases to be a member of the DB SERP, as defined in Section 2.18, during which:

For a Member employed in Canada: the Member is accruing credited service under the DB Option of the Base Canadian Pension Plan or the Company is contributing on behalf of the Member under the DC Option of the Base Canadian Pension Plan, or would be contributing if it were not for the tax limits;

DB SERP for Management Committee Members of Domtar 2
As in effect on March 7, 2007, amended and restated on October 1, 2012, July 30, 2013, January 1, 2015 and further on December 7, 2016

For a Member employed in the United States: the Company is contributing on behalf of the Member under the Base U.S. Savings Plan, or would be contributing if it were not for applicable Code limits and assuming the Member elected to contribute to the Base U.S. Savings Plan.

For a Member with periods of employment in both Canada and the United States: subject to Section 2.28, during the period the Member is employed in Canada, the Member is accruing credited service as provided in paragraph (a) of this Section 2.11 and, during the period the Member is employed in the United States, the Company is contributing on behalf of the Member as provided in paragraph (b) of this Section 2.11, provided that, unless Section 2.23(e) of the DC SERP for Designated Executives of Domtar applies to the Member for a particular calendar year during which such Member transitions from one country to another, the accruals or contributions, as applicable, at the commencement of the particular calendar year shall be deemed to continue in the same Base Plan for the remainder of the particular calendar year (or, if earlier, until a Separation from Service) without duplication and without a break in service other than as a result of a Separation from Service.

2.12	DC SERP : the DC SERP for Designated Executives of Domtar and the DC SERP for Designated Executives of Domtar Personal Care, as may be amended from time to time .

2.13	Deemed Account Balance :

With respect to a defined contribution provision of the Base Plans, subject to Section 2.28, the account balance, for the same period as used to determine the Credited Service with reference to the applicable Base Plan, calculated on the following basis:

Deemed contributions are determined assuming the Member has elected to contribute at the maximum rate allowed under the applicable Base Plans, with the matching of Company contributions in accordance with the respective Base Plans provisions;

ii)

Deemed credited interest is calculated on the Deemed Account Balance at the beginning of the calendar year and on the deemed Company contributions during the calendar year, assuming such deemed contributions, as applicable, are made in the middle of the year, at the same rate of return as credited under the DC SERP.

With respect to the DC SERP, the actual notional account balance of the Member.

2.14	Default : shall have the meaning given to it in the Trust Agreement.

2.15	Earnings : subject to Section 2.28,

DB SERP for Management Committee Members of Domtar 3
As in effect on March 7, 2007, amended and restated on October 1, 2012, July 30, 2013, January 1, 2015 and further on December 7, 2016

For a Member employed in Canada: Earnings as defined under the Base Canadian Pension Plan;

For a Member employed in the United States: Compensation as defined under the Base U.S. Savings Plan;

With the exception that bonuses recognized in a) or b) above in a given year will not exceed the lesser of:

The actual target bonus, as determined from time to time by the Company for the Member; and

A target bonus of 50% of the previous year’s salary.

For the period of disability recognized pursuant to Section 12 of the DB SERP, Earnings are deemed to be equal to the Member’s salary rate on the day his disability begins.

2.16	HR Committee : the Human Resources Committee of the Board.

2.17	Management Committee : the Management Committee of the Company as appointed by the Board upon recommendation of the Chief Executive Officer of the Company.

2.18

Member :

An executive of the Company from the date he is designated as a member of the Management Committee and who is entitled to benefits under the DB SERP; or

Any former members of the Management Committee as recommended by the Company’s Chief Executive Officer; or

Any other executive of the Company as recommended by the HR Committee.

Notwithstanding the above, a member of the Management Committee covered under a grandfathered SERP arrangement would not be a Member of the DB SERP . For convenience, a list of such members of the Management Committee covered under a grandfathered SERP arrangement as at March 7, 2007 is included in the Appendix.

2.19	Normal Retirement Date : with respect to a Member, the first day of the month coinciding with or immediately following the Member’s sixty-fifth (65th) birthday.

2.20	Refundable Tax : shall have the meaning given to it in the Trust Agreement .

2.21	Section 409A : section 409A of the Code and the rules, regulations and guidance promulgated thereunder.

DB SERP for Management Committee Members of Domtar 4
As in effect on March 7, 2007, amended and restated on October 1, 2012, July 30, 2013, January 1, 2015 and further on December 7, 2016

2.22	Separation from Service : occurs (or a Member Separates from Service) when

For a U.S. Taxpayer: the Member ceases to be employed by the Company and all entities considered a single employer with the Company under Code Sections 414(b) and (c) as a result of the Member’s death, retirement, or other termination of employment. Whether a Separation from Service takes place is based on all the relevant facts and circumstances and determined in accordance with Section 409A .

For a Member other than a U.S. Taxpayer: the Member ceases to be employed by the Company as a result of the Member’s death, retirement, or other termination of employment.

2.23	Trust Agreement : the agreement between the Company or a subsidiary or affiliated company and a Trustee, as may be entered into in accordance with Section 14.1 or Section 14.2 of the DB SERP, as applicable.

2.24	Trust Fund : shall have the meaning given to it in the Trust Agreement.

2.25	Trustee : the trustee party to the Trust Agreement.

2.26	U.S. Taxpayer : a Member who

Is a U.S. citizen; or

Is a foreign national/U.S. permanent resident (“green card” holder); or

Is a foreign national who meets the “substantial physical presence” test during an applicable calendar year;

Is a “dual status” individual and either

Who declares that he is a U.S. Taxpayer (under (a), (b), or (c) above); or

ii)

Who the Company determines is a U.S. Taxpayer (under (a), (b), or (c) above);

Is subject to U.S. federal income tax under the terms of the Canada-United States Tax Convention (1980) and the Protocols in effect thereunder; or

Whose benefits under this DB SERP are otherwise subject to taxation in the U.S.

Notwithstanding the foreign Member declaration of U.S. Taxpayer status, and unless proven otherwise, if the Company’s payroll, human resources, or other records indicate that the Member is a U.S. Taxpayer, then the member shall be deemed to be a U.S. Taxpayer for the purposes of the DB SERP.

DB SERP for Management Committee Members of Domtar 5
As in effect on March 7, 2007, amended and restated on October 1, 2012, July 30, 2013, January 1, 2015 and further on December 7, 2016

2.27	For the purposes of the present document, the terms and expressions listed below shall have the meaning given to them in the Base Plans:

Base Canadian Pension Plan:

•

Balanced Fund

•

DB Option

•

DC Option

Base U.S. Savings Plan

•

Balanced Index Fund

2.28	For the purposes of the present document:

If a Member has periods of employment in both Canada and the United States, then, except as expressly provided otherwise, the provisions of the present document with respect to Members employed in Canada shall apply with respect to such periods as the Member is employed in Canada and the provisions of the present document with respect to Members employed in the United States shall apply with respect to such periods as the Member is employed in the United States;

A Member shall be considered to be employed in the country of the Member’s primary payroll location unless the Member and the Company agree otherwise;

In no event shall a Member be deemed to be employed in two locations simultaneously; and

Unless Section 2.23e) of the DC SERP for Designated Executives of Domtar applies to a Member for the applicable calendar year, deemed Member contributions and deemed Company contributions shall be deemed to be made to only one country’s Base Plans in a single calendar year, with the deemed contributions based on the Base Plans of the country of the Member’s primary payroll location at the commencement of the applicable calendar year.

3.	Normal Retirement

A Member who Separates from Service, for a reason other than death, on or beyond his Normal Retirement Date, shall receive from the Company, in accordance with the DB SERP, a monthly pension of one twelfth of the excess of (a) over (b) below:

a)	His Accrued Pension, determined on his date of Separation from Service;

b)	With respect to the same years of service recognized as Credited Service under the DB SERP, the sum of the annual amount of the lifetime pension to which the Member is entitled on his date of Separation from Service in accordance with:

DB SERP for Management Committee Members of Domtar 6
As in effect on March 7, 2007, amended and restated on October 1, 2012, July 30, 2013, January 1, 2015 and further on December 7, 2016

For a Member employed in Canada: the DB Option and/or the DC Optio n of the Base Canadian Pension Plan and the DC SERP. For the purposes of this paragraph, the annual amount of lifetime pension to which the Member is entitled under the DC Option of the Base Canadian Pension Plan and under the DC SERP is equal to the Actua rial Equivalent of the Deemed Account Balance of the Member in each of these plans;

ii)

For a Member employed in the United States: the Base U.S. Pension Plan, the Base U.S. Savings Plan and the DC SERP. For the purposes of this paragraph, the annual amount of pension to which the Member is entitled under the Base U.S. Savings Plan and under the DC SERP is equal to the Actuarial Equivalent of the Deemed Account Balance of the Member in each of these plans.

iii)

For a Member with periods of employment in both Canada and the United States, subject to Section 2.28, with respect to periods the Member was employed in Canada, the amount determined in accordance with clause (i) of this paragraph (b), plus, with respect to the periods the Member was employed in the United States, the amount determined in accordance with clause (ii) of this paragraph (b), provided that, unless Section 2.23e) of the DC SERP for Designated Executives of Domtar applies to such Member in the applicable year, with respect to a calendar year in which the Member transitioned from one country to another, whichever of clause (i) or (ii) applies at the beginning of such calendar year shall apply for the remainder of such calendar year. The amount determined in accordance with either clause (i) or clause (ii) of this paragraph (b) which is in a currency other than the currency used for payment shall be converted to the currency to be used for payment using the exchange rate at the date of Separation from Service.

For the purposes of this paragraph (b), any amount of pension shall be determined disregarding any credit splitting resulting from a marriage breakdown.

Notwithstanding anything in this Section 3 to the contrary, any pension provided to a U.S. Taxpayer pursuant to this DB SERP, except as otherwise provided in Section 10, shall be paid in accordance with Section 9.3.

4.	Early Retirement

A Member who Separates from Service, for a reason other than death after completing two (2) years of service as a Member before his Normal Retirement Date but on or after age 55, shall receive from the Company, in accordance with the DB SERP, a monthly pension determined as in Section 3 above, except that the Accrued Pension determined in accordance with paragraph (a) of Section 3 shall be reduced by one half of one percent (0.5%) for each calendar month his early retirement date precedes the date of his sixty second (62 ^nd ) birthday.

DB SERP for Management Committee Members of Domtar 7
As in effect on March 7, 2007, amended and restated on October 1, 2012, July 30, 2013, January 1, 2015 and further on December 7, 2016

Notwithstanding anything in this Section 4 to the contrary, any pension provided to a U.S. Taxpayer pursuant to this DB SERP, except as other wise provided in Section 10, shall be paid in accordance with Section 9.3.

5.	Deferral of Early Retirement Pension

A Member, other than a U.S. Taxpayer, who Separates from Service, for a reason other than death, before his Normal Retirement Date but on or after age 55 and who is entitled to a pension from the DB SERP under Section 4 above, may elect to defer the commencement of this pension until the first day of any calendar month preceding or coinciding with his Normal Retirement Date.

In such event, the amount of pension to which he is entitled in accordance with the DB SERP shall be calculated as provided in Sections 3 and 4, adjusted to reflect the pension commencement date in the applicable calculations.

For more certainty, this Section 5 does not apply to a U.S. Taxpayer.

6.	Non-Vested Termination of Employment

A Member who Separates from Service, for a reason other than death, before completing two (2) years of service as a Member is not entitled to any benefit under the DB SERP.

7.	Vested Termination

7.1	A Member who Separates from Service, for a reason other than death, after completing two (2) years of service as a Member shall receive from the Company, in accordance with the DB SERP, a monthly pension determined as in Section 3 above, payable from his Normal Retirement Date.

Any increase in pension under the DB Option of the Base Canadian Pension Plan after Separation from Service and before payments commence shall have no impact on the pension payable from the DB SERP.

7.2

If the Member elects to receive the pension to which he is entitled in accordance with the Base Plans before his Normal Retirement Date, he will be assumed to have elected the same option for the pension due in accordance with Section 7.1 of the DB SERP. In this event, the pension due in accordance with the DB SERP shall be the Actuarial Equivalent of the pension payable from his Normal Retirement Date and shall commence on the same date as will the pension due in accordance with the Base Plans.

7.3	Upon his Separation from Service prior to age 55, instead of the pension described in paragraphs 7.1 and 7.2 above, the Member may elect to receive a single lump sum payment equal to the Actuarial Equivalent of the pension described in paragraph 7.1 above.

DB SERP for Management Committee Members of Domtar 8
As in effect on March 7, 2007, amended and restated on October 1, 2012, July 30, 2013, January 1, 2015 and further on December 7, 2016

7.4

Notwithstanding anything to the contrary in t his Section 7, a U.S. Taxpayer is only entitled to the single lump sum payment described in paragraph 7.3. For a U.S. Taxpayer, such payment shall be made in accordance with the provisions of Section 9.3. For more certainty, a U.S. Taxpayer is not entitled to the monthly pension payments described in paragraphs 7.1 and 7.2 and paragraph 9.1.

8.	Normal Form of Pension

Subject to paragraphs 7.4 and 9.3 for a U.S. Taxpayer, the normal form of pension payable under the DB SERP shall consist of monthly benefits payable in equal amounts starting on the first day of the month in which the Member commences retirement, and on the first day of every subsequent month for the life of the Member. If the Member dies before 60 monthly payments have been made, payments under the DB SERP shall continue to his estate until 60 monthly payments have been made.

For the purposes of Sections 3, 4, 5 and 7 of the DB SERP, the pension amount due in accordance with the Base Plans and the DC SERP shall be that which corresponds to the normal form of pension of the DB SERP and shall exclude the additional pension resulting from excess contributions of the Base Plans, if any.

9.	Optional Forms of Pension

9.1	The same optional forms of payment as under the DB Option of the Base Canadian Pension Plan are offered to a Member, other than a U.S. Taxpayer, who Separates from Service on or after age 55, in accordance with the DB SERP.

In this event, the payment of the pension due in accordance with the DB SERP shall be the Actuarial Equivalent of the pension under the normal form of payment described in Section 8. However, if the Member elects a form of pension under the DB Option of the Base Canadian Pension Plan that has an Actuarial Equivalent value greater than the Actuarial Equivalent value of the pension under the normal form of payment under the DB SERP, the DB SERP pension shall be reduced by the Actuarial Equivalent of such additional value under the Base Canadian Pension Plan.

9.2

Notwithstanding paragraph 9.1 above, with the consent of the HR Committee, instead of the pension described in Section 8 or in paragraph 9.1 above, the Member may elect to receive a single lump sum payment. For the purposes of this paragraph, the lump sum payment to which the Member is entitled is equal to the Actuarial Equivalent of the pension payable under the normal form of payment described in Section 8 above.

DB SERP for Management Committee Members of Domtar 9
As in effect on March 7, 2007, amended and restated on October 1, 2012, July 30, 2013, January 1, 2015 and further on December 7, 2016

9.3

Notwithstanding anything to the contrary in Section 8 or in paragraphs 9.1 or 9.2 above, a U.S. Taxpayer is only entitled to the single lump sum benefit describ ed in paragraphs 7.4 and 9.2 above. For a U.S. Taxpayer, such payment shall be made within 90 days following the six (6) month anniversary of the date of Separation from Service and on the same day that benefits under the DC SERP are paid to the U.S. Taxpa yer. For more certainty, a U.S. Taxpayer is not entitled to the monthly pension payments described in Sections 3, 4 and 5, paragraphs 7.1, and 7.2, Section 8 and paragraph 9.1 or elect any other time or form of payment. The time of payment of benefits to U .S. Taxpayers under the DB SERP shall be the same as under this DC SERP.

10.	Death Before Commencement of Pension Payments

If a Member Separates from Service by reason of death before the commencement of his pension payments, his estate shall receive a single lump sum payment equal to the Actuarial Equivalent of the benefits to which he would have been entitled under the DB SERP had he Separated from Service for a reason other than death on the day of his death. Any such payment shall be made within 90 days of the date of the Member’s death.

11.	Death After Commencement of Pension Payments

If a Member, other than a U.S. Taxpayer, dies after payment of his pension, determined in accordance with Articles 3, 4, 5 or paragraph 7.1 or 7.2, as applicable, has commenced, the death benefits shall be determined in accordance with the normal form of payment as described in Section 8, or the optional form of payment selected pursuant to paragraph 9.1, as applicable.

12.	Disability

Despite the definition of Credited Service in Section 2.11 of the DB SERP, a Member who is considered disabled under the Base Plans, and who continues, on that basis, to accrue credited service, pension credits, or company contributions under such Base Plans, as the case may be, shall continue to accrue Credited Service for the purposes of the DB SERP while disabled, but only if the Member became so disabled while a member of the Management Committee.

Benefits will only be paid from the DB SERP upon the Member’s actual Separation from Service, as described in Sections 3, 4, 5, 6 or 7 and, in the case of a U.S. Taxpayer, 9.3 above, as applicable.

For the purposes of Section 14 of the DB SERP, a disabled Member, other than a U.S. Taxpayer, who became disabled while a member of the Management Committee is deemed to be a member of the Management Committee until the date of his Separation from Service. Provided he is at least age 55 upon Separation from Service, the DB SERP benefits of such a disabled Member will start to be funded in accordance with Section 14 from the earlier of his Separation from Service and his attainment of age 60.

DB SERP for Management Committee Members of Domtar 10
As in effect on March 7, 2007, amended and restated on October 1, 2012, July 30, 2013, January 1, 2015 and further on December 7, 2016

13.	Administration

The HR Committee is responsible for the administration of the DB SERP, the supervision of its application and the interpretation of its provisions. With respect to Members who are not U.S. Taxpayers, the HR Committee may, at its discretion, approve other settlement options of benefits payable under this Plan.

14.

Funding

This Section 14 does not apply to U.S. Taxpayers.

14.1	Funding from age 60 onward

This Section 14.1 is subject to Section 14.2.

Within 12 months of the date a Member, other than a U.S. Taxpayer, turns 60, and provided he is a member of the Management Committee on that date, the Company shall fund the benefits payable under the DB SERP by means of the Trust Fund contemplated in the Trust Agreement.

The Company may, at its discretion, fund a Member’s benefit in a Trust Fund in which the Member is the only beneficiary or in a Trust Fund that includes multiple Members as beneficiaries.

Funding shall be effected by amortizing, over a five (5) year period, the cost of the benefits of the DB SERP for participation prior to age 60 and by paying, annually, the current service cost. The Base Canadian Pension Plan’s actuary will determine the payments on account of amortization and current service using the actuarial assumptions and methods described in the Trust Agreement.

The Member’s interest in the assets held under the Trust Agreement will vest only if:

he dies in active service after age 60;

he retires on or after the Normal Retirement Date and is a member of the Management Committee at the time of his retirement; or

he is terminated by the Company within 12 months of a change of control of the Company as defined in the Trust Agreement.

DB SERP for Management Committee Members of Domtar 11
As in effect on March 7, 2007, amended and restated on October 1, 2012, July 30, 2013, January 1, 2015 and further on December 7, 2016

The Trustee shall pay t he benefits under the DB SERP to the Member from that point onward unless the Company notifies the Trustee that it intends to pay the benefits directly. Any amount remaining in the Trust Fund after all benefits required to be paid by the DB SERP have been paid, including any refundable tax balance, shall be returned to the Company. Any surplus assets in the Trust Fund, based on the last filed actuarial report, may be returned to the Company while the Trust Fund continues to exist. If the Member Separates fr om Service or ceases to be a member of the Management Committee prior to the Normal Retirement Date and the Trust Fund is intended to provide benefits in respect of only the applicable Member, the Trust Fund, including refundable tax, shall be returned to the Company and the Trust Agreement shall terminate.

14.2	Letters of Credit

The Company shall arrange for the issuance of a new Letter of Credit, or the renewal of an existing Letter of Credit, in accordance with this Section 14.2, and in accordance with the Trust Agreement, in respect of benefits payable under the DB SERP on behalf of persons who were Members and were actively employed by the Company on the effective date of the Trust Agreement or who become Members thereafter, provided such persons or their survivors who are entitled to benefits under the DB SERP are not U.S. Taxpayers. On the effective date of the Trust Agreement, the DB SERP shall become a retirement compensation arrangement within the meaning of the Income Tax Act.

Coverage in respect of benefits under the DB SERP by the Letter of Credit shall cease once all benefits payable under the DB SERP on behalf of a person have been paid. Coverage in respect of benefits under the DB SERP by the Letter of Credit shall also cease with respect to all benefits when a Member becomes a U.S. Taxpayer.

The amount of the Letter of Credit shall be determined in accordance with an actuarial valuation performed in accordance with the Trust Agreement.

Coverage by the Letter of Credit for benefits payable under the DB SERP may be combined with coverage for benefits payable under the DC SERP for Designated Executives of Domtar and the Supplementary Pension Plan for Designated Managers of Domtar Inc.

DB SERP for Management Committee Members of Domtar 12
As in effect on March 7, 2007, amended and restated on October 1, 2012, July 30, 2013, January 1, 2015 and further on December 7, 2016

If an event of Default occurs, benefits covered by the Letter of Credit shall be settled in a lump sum amount. Subject to the terms and assumptions specified in the Trust Agreement, in the case of Members covered by the Letter of Credit who are age 55 or over or on behalf of whom a pension is in payment, such lump s um amount shall be determined in a manner allowing the purchase of a prescribed annuity providing an after-tax pension amount reasonably similar to what would have been provided under the DB SERP if retirement had occurred on the date of Default if it had not already occurred; and such lump sum amount shall be used to purchase an annuity on behalf of the Member. Also, subject to the terms and assumptions specified in the Trust Agreement, in the case of Members covered by the Letter of Credit who are aged le ss than 55, such lump sum amount shall be determined in a manner allowing to accumulate on an after-tax return basis to an amount that could be used by the Member to purchase a prescribed annuity at Normal Retirement Date that would provide an after-tax pe nsion amount reasonably similar to the deferred pension that would have been provided under the DB SERP if Separation from Service had occurred on the date of Default. For greater certainty, the lump sum amount shall be nil if Separation from Service or ea rly retirement was deemed to occur prior to attainment of two years of service as a Member.

In the event that the conditions listed in Section 14.1 apply to a person, the Company may choose to fund benefits payable under this DB SERP in accordance with Section 14.1 using a separate Trust Fund or to maintain coverage under the Letter of Credit on behalf of this person in an amount at least equal to the amount of funding required under Section 14.1. Coverage in respect of benefits under the DB SERP by the Letter of Credit shall be reduced by the amount of any funding provided in a separate Trust Fund for the benefit of the Member in accordance with Section 14.1.

Where a Letter of Credit is issued or renewed in accordance with this Section 14.2, the Company shall arrange with the issuer thereof to issue or renew, as the case may be, the Letter of Credit in the name of the Trustee, to be held by the Trustee as part of the Trust Fund.

To secure the issuance or renewal of a Letter of Credit, the Company shall contribute to the Trust Fund the amount that, after withholding and payment of the Refundable Tax therefrom, is required by the issuer of the Letter of Credit for the issuance or renewal of the Letter of Credit, as the case may be.

On or before the Renewal Date of a particular Letter of Credit held by the Trustee, the Company shall either:

cause the issuer of the particular Letter of Credit to renew it on the same terms and conditions as applied before the renewal;

ii)

substitute for the particular Letter of Credit another Letter of Credit on the same terms and conditions as the particular Letter of Credit; or

DB SERP for Management Committee Members of Domtar 13
As in effect on March 7, 2007, amended and restated on October 1, 2012, July 30, 2013, January 1, 2015 and further on December 7, 2016

iii)

contribute to the Trust Fund the face amount of the Letter of Credit or such other amount required in accordance with the last actuar ial valuation report.

Where the Company does not comply with paragraph (e) of this Section 14.2 or where there occurs a Default, the Trustee shall forthwith demand payment under the Letter of Credit.

In this Section 14.2,

“Letter of Credit” means, subject to paragraph b) of this Section 14.2, an irrevocable, standby, unsecured letter of credit obtained from a Schedule 1 Canadian Bank or other lender with a term of one year which names the Trustee as beneficiary permitted to draw down (an amount up to the face amount) on the Letter of Credit on the occurrence of a Default or a failure by the Company to comply with paragraph (e) of this Section 14.2, and which shall require the issuing bank or lender to withhold and remit to the Receiver General the appropriate amount of Refundable Tax (provided that, notwithstanding the foregoing, the first Letter of Credit issued in connection with this DB SERP may have a term of less than one year);

“Renewal Date”, in relation to a Letter of Credit, means the date that is thirty (30) days before the Letter of Credit is to expire.

14.3	Company’s responsibility

For more certainty, in the event that, for whatever reason, the assets of the Trust Fund are insufficient to pay for the benefits payable under the DB SERP as and when they become due, notwithstanding any other provision of this Section 14, the Company shall remain responsible for the payment of such benefits.

15.	Non-Alienation of Benefits

No benefit payable under the provisions of the DB SERP shall be in any manner capable of anticipation, surrender, commutation, alienation, sale, transfer, assignment, pledge, encumbrance or charge; nor shall any such benefit be in any manner subject to the debts, contracts, liabilities, engagements or torts of the person entitled to such benefit, except as specifically provided in any applicable legislation.

16.	Conflicts or Inconsistencies

In the event of any conflict or inconsistency between the provisions of the DB SERP and the provisions of the Base Plans, the provisions of the DB SERP shall prevail.

DB SERP for Management Committee Members of Domtar 14
As in effect on March 7, 2007, amended and restated on October 1, 2012, July 30, 2013, January 1, 2015 and further on December 7, 2016

17.	Amendments

The Company reserves the right to amend or terminate the DB SERP at any time. Subject to Section 18.6, no amendment or termination shall adversely affect any benefits that have accrued up to the effective date of such change, based on Earnings, Credited Service, Base Plans and DC SERP accrued benefits up to that date, which effective date shall not precede the date on which the change is communicated to the Member. Notwithstanding the foregoing, any amendment to this DB SERP which is the result of a change to the Base Plans shall take effect as of the same date as applicable in respect of the amendment to the Base Plans.

18.	General Provisions

18.1

Currency

Notwithstanding anything to the contrary herein, all payments under the DB SERP shall be in Canadian currency for Members employed in Canada, and in U.S. currency for Members employed in the United States, in each case as of the last date of employment with the Company.

18.2	Withholding and reporting

All payments under the DB SERP are expressed on a pre-tax basis and shall be subject to applicable withholding tax and reporting pursuant to applicable legislation.

18.3	Interpretation

The DB SERP shall be interpreted, with respect to a Member, in accordance with the laws of the same jurisdiction as applicable for purposes of the Member’s employment agreement with the Company, which is in force at the relevant time, or in the absence of an employment agreement, with the law of the Province of Québec for a Member employed in Canada, and with the law of the State of South Carolina for a Member employed in the United States.

18.4

Entire Agreement

Except to the extent expressly contemplated by the HR Committee at the time of adoption of the DB SERP, the DB SERP supersedes and replaces any and all prior plans, agreements, arrangements or understandings between the Company and the Member regarding any retirement benefits to be provided to the Member in excess of those that may be payable in accordance with the provisions of the Base Plans and of the DC SERP.

DB SERP for Management Committee Members of Domtar 15
As in effect on March 7, 2007, amended and restated on October 1, 2012, July 30, 2013, January 1, 2015 and further on December 7, 2016

18.5	Severability

Should any of the provisions of the DB SERP and/or conditions be illegal or not enforceable, it or they shall be considered severable and the DB SERP and the remaining conditions shall remain in full force and effect and be binding upon the parties as though the said provision or provisions had never been included.

18.6

Enurement

The DB SERP shall enure to the benefit of and be binding upon the respective successors of the parties hereto, and the heirs, administrators and legal representatives of the Member.

18.7	Section 409A

Neither the Company nor any of its directors, officers or employees shall have any liability to a Member in the event Section 409A applies to any benefit paid or provided pursuant to the DB SERP in a manner that results in adverse tax consequences for the Member or any of his or her beneficiaries or transferees. The HR Committee may unilaterally amend, modify or terminate any benefit provided under the DB SERP if it determines, in its sole discretion, that such amendment, modification or termination is necessary or advisable to comply with applicable U.S. law as a result of changes in law or regulation or to avoid the imposition of an additional tax, interest or penalty under Section 409A.

18.8 Claims Procedure

The HR Committee shall adopt claims procedures, with respect to Members who are U.S. Taxpayers, in accordance with Department of Labor Regulations Section 2560.503-1.

DB SERP for Management Committee Members of Domtar 16
As in effect on March 7, 2007, amended and restated on October 1, 2012, July 30, 2013, January 1, 2015 and further on December 7, 2016

APPENDIX

Members of the Management Committee covered under a grandfathered SERP arrangement as at March 7, 2007

Steven Barker
Roger Brear
James Lenhoff
Gilles Pharand
Raymond Royer

DB SERP for Management Committee Members of Domtar 17
As in effect on March 7, 2007, amended and restated on October 1, 2012, July 30, 2013, January 1, 2015 and further on December 7, 2016

Exhibit 10.2

Amended and Restated
DC SERP for Designated
executives of Domtar

As in effect on March 7, 2007, amended and restated on September 1, 2012,
July 30, 2013, December 7, 2014 and further on December 7, 2016

Table of Contents

Introduction1

Definitions1

Retirement9

Non-Vested Termination of Employment9

Vested Termination9

Death9

Disability10

Administration10

Funding10

10.

Non-Alienation of Benefits12

11.

Conflicts or Inconsistencies12

12.

Amendments12

13.

General Provisions13

Appendix

1.	Introduction

1.1	The present document constitutes the DC SERP for Designated Executives of Domtar, hereinafter called the “DC SERP”.

1.2	The purpose of the DC SERP is to provide designated executives of the Company with additional retirement benefits in excess of those that may be payable in accordance with the provisions of the Base Plans, as defined below.

1.3	The DC SERP effective date is March 7, 2007.

1.4	On September 1, 2012, the DC SERP was amended and restated in order to allow designated employees transferred to Attends Healthcare Products, Inc. to continue participation in the DC SERP.

1.5	On July 30, 2013, the DC SERP was amended and restated in order to clarify the treatment of employees with service both in Canada and the US and to clarify the treatment of employees no longer meeting the Member criteria.

1.6	On December 7, 2014, the DC SERP was amended and restated in order to exclude employees transferred to the DC SERP for Designated Executives of Domtar Personal Care.

2.	Definitions

2.1	Annual Contribution Credit : for a given calendar year, and subject to Section 2.28,

For a Member employed in Canada: the excess, if any, of eleven percent (11%) of the Member’s Earnings during the calendar year over:

For a member of the DC Option under the Base Canadian Pension Plan: Company’s contribution to the Base Canadian Pension Plan with respect to the period of that calendar year as a Member of the DC SERP, assuming that the Member would have elected to contribute to the Base Canadian Pension Plan such amount that would result in the maximum Company contribution; and

ii)

For a member of the DB Option under the Base Canadian Pension Plan: the Pension Adjustment of the Member, reduced by the Member’s contribution to the DB Option of the Base Canadian Pension Plan, both with respect to the period of that calendar year as a Member of the DC SERP.

For a Member employed in the United States: the excess, if any, of the percentage of the Member’s Earnings applicable under the Base U.S.

DC SERP for Designated Executives of Domtar
As in effect on March 7, 2007, amended and restated on September 1, 2012, July 30, 2013, December 7, 2014,
and further on December 7, 2016

Savings Plan for an employee of the same age joining that plan on or after January 1, 2008, as may be amended from time to time, over the sum of Company’s contribution to the Base U.S. Savings Plan and of the credit to the Member for the calendar year under the Base U.S. Pension Plan, if any, in respect of the period of the calendar year as a Member of the DC SERP. For the purposes of this paragraph, a Member who is a U.S. Taxpayer is assumed to contribute to the Base U.S. Savings Plan such amount that would result in the maximum Company contribution.

Notwithstanding the above, the Annual Contribution Credit for 2007, for executives who were promoted to salary level 26 or over before March 7, 2007 and who became Members of the DC SERP on March 7, 2007, shall be equal to 10/12ths of the amount that would have been calculated above if the DC SERP had been in effect for the entire calendar year.

Annual Contribution Credits are credited by the Company to the DC SERP Notional Account Balance at the end of the calendar year for which they have been determined, or upon Separation from Service if earlier. Commencing in 2009, Annual Contribution Credits shall only be credited in respect of periods of time in which the executive is earning benefits under the applicable Base Plans, depending on country of employment. For each calendar year after 2012, the Annual Contribution Credit for the year shall only be determined with respect to the period of that calendar year throughout which the DC SERP Member meets the eligibility requirements as defined in Section 2.15.

2.2	Annual Credited Notional Return : for a given calendar year, and subject to Section 2.28,

For a Member employed in Canada: notional return calculated at the rate of return obtained by the Balanced Fund under the DC Option of the Base Canadian Pension Plan for the twelve-month period ending on November 30th of the calendar year.

For a Member employed in the United States: notional return calculated at the rate of return obtained by the Balanced Index Fund under the Base U.S. Savings Plan for the twelve-month period ending on November 30th of the calendar year.

For a Member with employment periods in Canada and the United States: the notional return with respect to amounts contributed or deemed contributed based on the Base Canadian Pension Plan shall be determined pursuant to paragraph (a) of this Section 2.2 and with respect to amounts contributed or deemed contributed based on the Base U.S. Pension Plan or the Base U.S. Savings Plan, shall be determined pursuant to paragraph (b) of this Section 2.2.

DC SERP for Designated Executives of Domtar
As in effect on March 7, 2007, amended and restated on September 1, 2012, July 30, 2013, December 7, 2014,
and further on December 7, 2016

In the event of Separation from Service before the end of the calendar year, the notional return calculated under 2.2 (a) and (b) is based on the period beginning on November 30th of the prior calendar year and ending on the last day of the month that is two months prior to the month in which the payment occurs.

Annual Credited Notional Return is applied to the DC SERP Notional Account Balance at the beginning of the calendar year and is credited to the DC SERP Notional Account Balance at the end of the calendar year for which it has been determined, or upon benefit payment if earlier.

Once a year, a Member may elect in writing, prior to November 30 of that calendar year, and subject to Section 2.28, to have the Annual Credited Notional Return for the following calendar year determined on the basis of:

For a Member employed in Canada: the notional return calculated at the rate of return obtained by the Index Bond Fund under the DC Option of the Base Canadian Pension Plan.

For a Member employed in the United States: the notional return calculated at the rate of return obtained by the Total Bond Market Index Fund under the Base U.S. Savings Plan.

For a Member with employment periods in Canada and the United States: with respect to amounts to be contributed or deemed contributed based on the Base Canadian Pension Plan, on the basis set forth in paragraph (d) of this Section 2.2 and with respect to amounts to be contributed or deemed contributed based on the Base U.S. Pension Plan or the Base U.S. Savings Plan, on the basis set forth in paragraph (e) of this Section 2.2.

Such election will be applicable to all future years after it is made, until a new election to revert to the funds described in paragraphs 2.2 (a) and (b), as applicable is communicated in writing to the Company. Such election shall be made prior to November 30 of a calendar year to take effect in the following calendar year.

2.3	Base Canadian Pension Plan : the Domtar Pension Plan for Non-Negotiated Employees, as may be amended from time to time.

2.4 Base Plans : subject to Section 2.28,

a) For a Member employed in Canada: the Base Canadian Pension Plan

For a Member employed in the United States: the Base U.S. Pension Plan and the Base U.S. Savings Plan

2.5	Base U.S. Pension Plan : the Domtar U.S. Salaried Pension Plan, as may be amended from time to time.

DC SERP for Designated Executives of Domtar
As in effect on March 7, 2007, amended and restated on September 1, 2012, July 30, 2013, December 7, 2014,
and further on December 7, 2016

2.6	Base U.S. Savings Plan : the Domtar U.S. Salaried 401(k) Plan, as may be amended from time to time.

2.7 Board : the Board of Directors of Domtar Corporation.

2.8 Code : the U.S. Internal Revenue Code of 1986, as amended.

2.9	Company : means Domtar Paper Company LLC, Domtar Inc, Domtar Industries LLC, E.B. Eddy Paper Inc., Domtar A.W. LLC and Ariva Distribution Inc.

2.10	DC SERP Notional Account Balance : shall, at any date whatsoever, be the sum of the Annual Contribution Credits and of the Annual Credited Notional Return in the name of the Member under the DC SERP, as it is reported in the books of the Company .

Notwithstanding the above, the DC SERP Notional Account Balance for a Transfer Member, shall be transferred to the DC SERP for Designated Executives of Domtar Personal Care as at the end of the year of the Transfer Date. However in the event of a Separation of Service and payment of benefits prior to the end of the year of the Transfer Date, the transfer shall occur as of the date of the payment of benefits. For greater certainty, the amount transferred shall include the Annual Contribution Credit for the calendar year. Upon such transfer, the Transfer Member shall have no more entitlement under the DC SERP.

2.11 Default : shall have the meaning given to it in the Trust Agreement.

2.12 Earnings : subject to Section 2.28,

For a Member employed in Canada: Earnings as defined under the Base Canadian Pension Plan in respect of periods in which the executive is a Member of the DC SERP.

For a Member employed in the United States: Compensation as defined under the Base U.S. Savings Plan in respect of periods in which the executive is a Member of the DC SERP.

For a Member with employment periods in Canada and the United States: with respect to an Annual Contribution Credit to be contributed or deemed contributed based on the Base Canadian Pension Plan, Earnings as defined under the Base Canadian Pension Plan, and with respect to an Annual Contribution Credit to be contributed or deemed contributed based on the Base U.S. Pension Plan or the Base U.S. Savings Plan, Compensation as defined under the Base U.S. Savings Plan.

DC SERP for Designated Executives of Domtar
As in effect on March 7, 2007, amended and restated on September 1, 2012, July 30, 2013, December 7, 2014,
and further on December 7, 2016

Notwithstanding the above, Earnings for 2007 for executives who were promoted t o salary level 26 or over before March 7, 2007 and who became Members on March 7, 2007 shall be equal to the amount that would have been determined above if the DC SERP had been in effect for the entire calendar year.

2.13 HR Committee : the Human Resources Committee of the Board.

2.14	Management Committee : means the management committee of Domtar Corporation.

2.15 Member :

A U.S. or Canadian executive of the Company from the date his salary grade is 26 or above in accordance with the Company’s compensation scales, but not before March 7, 2007, and who is accruing benefits under the DC SERP; or

Any other U.S. or Canadian executives of Domtar Corporation and any of its subsidiaries or affiliated companies as recommended by the Management Committee or its designee.

Notwithstanding the above, an executive covered under a grandfathered SERP arrangement is not a Member of the DC SERP. For convenience, a list of such executives covered under a grandfathered SERP arrangement as of March 7, 2007 is included in the Appendix. Transfer Member will cease to be a Member of the DC SERP as of his Transfer Date.

2.16	Normal Retirement Date : with respect to a Member, the first day of the month coinciding with or immediately following the Member’s sixty-fifth (65th) birthday.

2.17	Pension Adjustment : shall mean the pension adjustment as defined under the Income Tax Act (Canada), for purposes of determining a deemed value to the DB Option of the Base Canadian Pension Plan.

2.18	Refundable Tax : shall have the meaning given to it in the Trust Agreement.

2.19	Section 409A : section 409A of the Code and the rules, regulations and guidance promulgated thereunder.

DC SERP for Designated Executives of Domtar
As in effect on March 7, 2007, amended and restated on September 1, 2012, July 30, 2013, December 7, 2014,
and further on December 7, 2016

2.20 Separation from Service : occurs (or a Member Separates from Service) when

For a Member other than a U.S. Taxpayer: the Member ceases to be employed by the Company and any of its subsidiaries or affiliated companies as a result of the Member’s death, retirement, or other termination of employment.

2.21	Transfer Date : the date a Member becomes covered under the DC SERP for Designated Executives of Domtar Personal Care.

2.22	Transfer Member : a Member who becomes covered under the DC SERP for Designated Executives of Domtar Personal Care

2.23	Trust Agreement : the agreement between the Company or a subsidiary or affiliated company and a Trustee, as may be entered into in accordance with Section 9 of the DC SERP.

2.24 Trust Fund : shall have the meaning given to it in the Trust Agreement.

2.25 Trustee : the trustee party to the Trust Agreement.

2.26 U.S. Taxpayer : a Member who

a) Is a U.S. citizen; or

b) Is a foreign national/U.S. permanent resident (“green card” holder); or

Is a foreign national who meets the “substantial physical presence” test during an applicable calendar year; or

Is a “dual status” individual and either

Who declares that he is a U.S. Taxpayer (under a), b), or c) above); or

ii)

Who the Company determines is a U.S. Taxpayer (under a), b), or c) above).

Is subject to U.S. federal income tax under the terms of the Canada-United States Tax Convention (1980) and the Protocols in effect thereunder; or

DC SERP for Designated Executives of Domtar
As in effect on March 7, 2007, amended and restated on September 1, 2012, July 30, 2013, December 7, 2014,
and further on December 7, 2016

Whose benefits under this DC SERP a re otherwise subject to taxation in the U.S.

Notwithstanding the foreign Member’s declaration of U.S. Taxpayer status, and unless proven otherwise, if the Company’s payroll, human resources, or other records indicate that the Member is a U.S. Taxpayer, then the Member shall be deemed to be a U.S. Taxpayer for the purposes of the DC SERP.

2.27	For the purposes of the present document, the terms and expressions listed below shall have the meaning given to them in the Base Plans:

Base Canadian Pension Plan:

•

Balanced Fund

•

DB Option

•

DC Option

•

Index Bond Fund

Base U.S. Savings Plan

•

Balanced Index Fund

•

Total Bond Market Index Fund

2.28 For the purposes of the present document:

A Member shall be considered to be employed in the country of the Member’s primary payroll location unless the Member and the Company agree otherwise;

In no event shall a Member be deemed to be employed in two locations simultaneously;

Except as provided in Section 2.28e) below, a Member shall accrue an Annual Contribution Credit in a calendar year determined on the basis of the provisions applicable in respect of employment in the country of the Member’s primary payroll location at the commencement of the applicable calendar year; and

DC SERP for Designated Executives of Domtar
As in effect on March 7, 2007, amended and restated on September 1, 2012, July 30, 2013, December 7, 2014,
and further on December 7, 2016

In the event that a Member who is not a U.S. Taxpayer as of the commencement of the applicable calendar year and for the three years prior to that year (i) has periods of employment in both Canada and the United States during that year, (ii) accrues benefits in the Base Plans of the two countries during that year, (iii) is entitled to make an initial deferral election in that year under U.S. Treas. Reg. § 1.409A-2(c), and (iv) the actual aggregate Company contributions to the Base Plans of the two countries for the Member with respect to that year are greater than the maximum Compan y contribution that would have been made had the Member remained in the country of the Member’s primary payroll location at the commencement of that year, then that year’s Annual Contribution Credit for such Member shall be the excess, if any (such excess, the " Transition Contribution "), of (A) the sum of (i) eleven percent (11%) of the Member’s Earnings from employment in Canada during the calendar year and (ii) the percentage of the Member’s Earnings from employment in the United States during the calenda r year applicable under the Base U.S. Savings Plan (as amended from time to time) for an employee of the same age joining that plan on or after January 1, 2008, over (B) the sum of (i) for a member of the DC Option under the Base Canadian Pension Plan: the Company’s contribution to the Base Canadian Pension Plan with respect to the period of that calendar year as a Member of the DC SERP while employed in Canada, (ii) for a member of the DB Option under the Base Canadian Pension Plan: the Pension Adjustment of the Member for the year with respect to the Company, reduced by the Member’s contribution to the DB Option of the Base Canadian Pension Plan, both with respect to the period of that calendar year as a Member of the DC SERP while employed in Canada and ( iii) the sum of Company’s contribution to the Base U.S. Savings Plan and of the credit to the Member for the calendar year under the Base U.S. Pension Plan, if any, with respect to the period of the calendar year as a Member of the DC SERP while employed i n the United States. For the purposes of Sections 2.2 (c) and (f) and 2.12 (c) and with respect to the applicable calendar year referred to in this Section 2.28 (e), the Annual Contribution Credit deemed contributed for the year based on the Base Canadian Pension Plan shall equal the the Applicable Canadian Percentage of the Transition Contribution and the Annual Contribution Credit deemed contributed for the year based on the Base U.S. Pension Plan and the Base U.S. Savings Plan shall equal the Applicable U.S. Percentage of the Transition Contribution. For purposes of this Section 2.28 (e), the “ Applicable Canadian Percentage ” shall mean the percentage obtained by dividing (i) the Company’s actual contributions to the Base Canadian Pension Plan for the Memb er in the applicable calendar year by (ii) the Company’s aggregate contributions to the Base Plans of the two countries for the Member in that year, and the “ Applicable U.S. Percentage ” shall mean the percentage obtained by dividing (i) the Company’s actua l contributions to the Base U.S. Pension Plan and the Base U.S. Savings Plan for the Member in the applicable calendar year by (ii) the Company’s contributions to the Base Plans of the two countries for the Member in that year.

DC SERP for Designated Executives of Domtar
As in effect on March 7, 2007, amended and restated on September 1, 2012, July 30, 2013, December 7, 2014,
and further on December 7, 2016

3.	Retirement

A Member who Separates from Service on or after age 55, after completing two (2) years of service as a Member shall receive as soon as practicable from the Company in accordance with the DC SERP, a lump sum payment equal to his DC SERP Notional Account Balance. For a U.S. Taxpayer, such payment shall be made within 90 days following the six (6) month anniversary of the date of Separation from Service and on the same day that benefits under the DB SERP for Management Committee Members of Domtar are paid to the U.S. Taxpayer, if any.

A Member, other than a U.S. Taxpayer, may instead irrevocably elect in writing, prior to the first payment of his benefits, to receive the payment of his DC SERP Notional Account Balance over a period not exceeding 10 years in annual installments. The first payment is due upon his retirement date and is equal to his DC SERP Notional Account Balance divided by the number of payments he has elected. Subsequent payments are made on each anniversary of the retirement of the Member in an amount equal to the then remaining DC SERP Notional Account Balance divided by the number of remaining payments he has elected. For the purposes of determining the DC SERP Notional Account Balance at each retirement anniversary, the Annual Credited Notional Return is calculated on the DC SERP Notional Account Balance at the previous retirement anniversary at the rate of return of the appropriate fund over the period from the last day of the second month preceding one anniversary to the last day of the second month preceding the next anniversary. For more certainty, this paragraph does not apply to a U.S. Taxpayer.

4.	Non-Vested Termination of Employment

A Member who Separates from Service, for a reason other than death, before completing two (2) years of service as a Member is not entitled to any benefit under the DC SERP.

5.	Vested Termination

A Member who Separates from Service, for a reason other than death, prior to age 55 after completing two (2) years of service as a Member shall receive as soon as practicable from the Company in accordance with the DC SERP, a lump sum payment equal to his DC SERP Notional Account Balance. For a U.S. Taxpayer, such payment shall be made within 90 days following the six (6) month anniversary of the date of Separation from Service and on the same day that benefits under the DB SERP for Management Committee Members of Domtar are paid to the U.S. Taxpayer, if any.

Death

If a Member Separates from Service by reason of death, his estate shall receive from the Company, in accordance with the DC SERP, a lump sum payment equal to his DC SERP Notional Account Balance. Any such payment shall be made within 90 days of the date of the Member’s death.

DC SERP for Designated Executives of Domtar
As in effect on March 7, 2007, amended and restated on September 1, 2012, July 30, 2013, December 7, 2014,
and further on December 7, 2016

7.	Disability

A Member who is considered disabled under the Base Plans, and who continues, on that basis, to accrue credited service, pension credits, or company contributions under such Base Plans, as the case may be, shall continue to accrue Annual Contribution Credits for the purposes of the DC SERP, on the basis of his salary rate at the time his disability began.

Benefits will only be paid from the DC SERP upon the Member’s actual Separation from Service, as described in Sections 3, 4, 5 or 6 above, as applicable.

8.	Administration

The HR Committee is responsible for the administration of the DC SERP, the supervision of its application and the interpretation of its provisions.

With respect to a Member other than a U.S. Taxpayer, the HR Committee may, at its discretion, approve other settlement options of benefits payable under this Plan. For more certainty, this paragraph does not apply to a U.S. Taxpayer.

Funding

This Section 9 does not apply to U.S. Taxpayers.

The Company shall arrange for the issuance of a new Letter of Credit, or the renewal of an existing Letter of Credit, in accordance with this Section 9, and in accordance with the Trust Agreement, in respect of benefits payable under the DC SERP on behalf of persons who were Members and were actively employed by the Company on the effective date of the Trust Agreement or who become Members thereafter, provided such persons or their survivors who are entitled to benefits under the DC SERP are not U.S. Taxpayers. On the effective date of the Trust Agreement, the DC SERP shall become a retirement compensation arrangement within the meaning of the Income Tax Act.

Coverage in respect of benefits under the DC SERP by the Letter of Credit shall cease once all benefits payable under the DC SERP on behalf of a person have been paid. Coverage in respect of benefits under the DC SERP by the Letter of Credit shall also cease with respect to all benefits when a Member becomes a U.S. Taxpayer.

The amount of the Letter of Credit shall be determined in accordance with an actuarial valuation performed in accordance with the Trust Agreement.

DC SERP for Designated Executives of Domtar
As in effect on March 7, 2007, amended and restated on September 1, 2012, July 30, 2013, December 7, 2014,
and further on December 7, 2016

Coverage by the Letter of Credit for benefits payable under the DC SERP may be combined with coverage for benefits payable under the DB SERP for Management Committee Members of Domtar and th e Supplementary Pension Plan for Designated Managers of Domtar Inc.

If an event of Default occurs, benefits covered by the Letter of Credit shall be settled in a lump sum amount and the 10 annual instalments option provided in Section 3 shall no longer apply. Subject to the terms of the Trust Agreement, the lump sum amount shall correspond to the DC SERP Notional Account Balance if the Member had completed two years of service as a Member at the date of Default, and shall be nil otherwise.

Where a Letter of Credit is issued or renewed in accordance with this Section 9, the Company shall arrange with the issuer thereof to issue or renew, as the case may be, the Letter of Credit in the name of the Trustee, to be held by the Trustee as part of the Trust Fund.

On or before the Renewal Date of a particular Letter of Credit held by the Trustee, the Company shall either:

cause the issuer of the particular Letter of Credit to renew it on the same terms and conditions as applied before the renewal;

ii)

substitute for the particular Letter of Credit another Letter of Credit on the same terms and conditions as the particular Letter of Credit; or

iii)

contribute to the Trust Fund the face amount of the Letter of Credit or such other amount required in accordance with the last actuarial valuation report.

Where the Company does not comply with paragraph d) of this Section 9 or where there occurs a Default, the Trustee shall forthwith demand payment under the Letter of Credit.

DC SERP for Designated Executives of Domtar
As in effect on March 7, 2007, amended and restated on September 1, 2012, July 30, 2013, December 7, 2014,
and further on December 7, 2016

In this Section 9,

“Letter of Credit” means an irrevocable, standby, unsecured letter of credit obtained from a Schedule 1 Canadian Bank or other lender with a term of one year which names the Trustee as beneficiary permitted to draw down (an amount up to the face amount) on the Letter of Credit on the occurrence of a Default or a failure by the Company to comply with paragraph d) of this Section 9, and which shall require the issuing bank or lender to withhold and remit to the Receiver General the appropriate amount of Refundable Tax (provided that, notwithstanding the foregoing, the first Letter of Credit issued in connection with this DC SERP may have a term of less than one year);

“Renewal Date”, in relation to a Letter of Credit, means the date that is thirty (30) days before the Letter of Credit is to expire.

For more certainty, in the event that, for whatever reason, the assets of the Trust Fund are insufficient to settle in full the benefits payable under the DC SERP as and when they become due, notwithstanding any other provision of this Section 9, the Company shall remain responsible for the payment of such remaining benefits.

10.	Non-Alienation of Benefits

No benefit payable under the provisions of the DC SERP shall be in any manner capable of anticipation, surrender, commutation, alienation, sale, transfer, assignment, pledge, encumbrance or charge; nor shall any such benefit be in any manner subject to the debts, contracts, liabilities, engagements or torts of the person entitled to such benefit, except as specifically provided in any applicable legislation.

11.	Conflicts or Inconsistencies

In the event of any conflict or inconsistency between the provisions of the DC SERP and the provisions of the Base Plans, the provisions of the DC SERP shall prevail.

12.	Amendments

The Company reserves the right to amend or terminate the DC SERP at any time. Subject to Section 13.6, no change or termination shall adversely affect any benefits that have accrued up to the effective date of such change, which effective date shall not precede the date on which the change is communicated to the Member. Notwithstanding the foregoing, any amendment to this DC SERP which is the result of a change to the Base Plans shall take effect as of the same date as applicable in respect of the amendment to the Base Plans.

DC SERP for Designated Executives of Domtar
As in effect on March 7, 2007, amended and restated on September 1, 2012, July 30, 2013, December 7, 2014,
and further on December 7, 2016

13.	General Provisions

13.1

Currency

Notwithstanding anything to the contrary herein, all payments under the DC SERP shall be in Canadian currency for Members employed in Canada, and in U.S. currency for Members employed in the United States, in each case as of the last date of employment with the Company. Any Annual Contribution Credit and any future Annual Credited Notional Returns on such Annual Contribution Credit shall be in the currency of the applicable Base Plan used for the determination of such Annual Contribution Credit.

13.2	Withholding and reporting

All payments under the DC SERP are expressed on a pre-tax basis and shall be subject to applicable withholding tax and reporting pursuant to applicable legislation.

13.3	Interpretation

The DC SERP shall be interpreted, with respect to a Member, in accordance with the laws of the same jurisdiction as applicable for purposes of the Member’s employment agreement with the Company, which is in force at the relevant time, or in the absence of an employment agreement, with the law of the Province of Québec for a Member employed in Canada, and with the law of the State of South Carolina for a Member employed in the United States.

13.4

Entire Agreement

Except to the extent expressly contemplated by the HR Committee at the time of adoption of the DC SERP, the DC SERP supersedes and replaces any and all prior plans, agreements, arrangements or understandings between the Company and the Member regarding any retirement benefits to be provided to the Member in excess of those that may be payable in accordance with the provisions of the Base Plans.

13.5	Severability

Should any of the provisions of the DC SERP and/or conditions be illegal or not enforceable, it or they shall be considered severable and the DC SERP and the remaining conditions shall remain in full force and effect and be binding upon the parties as though the said provision or provisions had never been included.

13.6

Enurement

The DC SERP shall enure to the benefit of and be binding upon the respective successors of the parties hereto, and the heirs, administrators and legal representatives of the Member.

DC SERP for Designated Executives of Domtar
As in effect on March 7, 2007, amended and restated on September 1, 2012, July 30, 2013, December 7, 2014,
and further on December 7, 2016

13.7	Section 409A

Neither the Company nor any of its directors, officers or employees shall have any liability to a Member in the event Section 409A applies to any benefit paid or provided pursuant to the DC SERP in a manner that results in adverse tax consequences for the Member or any of his or her beneficiaries or transferees. The HR Committee may unilaterally amend, modify or terminate any benefit provided under the DC SERP if it determines, in its sole discretion, that such amendment, modification or termination is necessary or advisable to comply with applicable U.S. law as a result of changes in law or regulation or to avoid the imposition of an additional tax, interest or penalty under Section 409A.

13.8 Claims Procedure

The HR Committee shall adopt claims procedures, with respect to Members who are U.S. Taxpayers, in accordance with Department of Labor Regulations Section 2560.503-1.

DC SERP for Designated Executives of Domtar
As in effect on March 7, 2007, amended and restated on September 1, 2012, July 30, 2013, December 7, 2014,
and further on December 7, 2016

APPENDIX

Executives covered under a grandfathered SERP arrangement as at March 7, 2007

Steven Barker
Kevin Bélanger
Guy Boucher
Roger Brear
Gerald Gray
Timothy Houle
Gérard Lacombe
James Lenhoff
Martin Lorrion
Dominic Maiorino
Stewart Marcoux
Gildas Minville
Gilles Pharand
Raymond Royer
Louis Schiavone
Ross Stairs

Nicholas Willis

DC SERP for Designated Executives of Domtar
As in effect on March 7, 2007, amended and restated on September 1, 2012, July 30, 2013, December 7, 2014,
and further on December 7, 2016

Exhibit 10.3

Amended and Restated

Supplementary Pension Plan

for Designated Managers

of Domtar Inc.

As in effect on March 7, 2007, amended and restated on April 30, 2013, and further on December 7, 2016

Table of Contents

Introduction1

Definitions1

Normal Retirement4

Early Retirement5

Deferral of Early Retirement Pension6

Termination of Employment6

Normal Form of Pension7

Optional Forms of Pension7

Death Before Commencement of Pension Payments8

10)

Death After Commencement of Pension Payments8

11)

Disability9

12)

Administration9

13)

Funding9

14)

Non-Alienation of Benefits11

15)

Conflicts or Inconsistencies11

16)

Amendments11

17)

General Provisions12

1.	Introduction

1.1	The present document constitutes the Supplementary Pension Plan for Designated Managers of Domtar Inc., hereinafter called the “Supplementary Pension Plan”.

1.2	The purpose of the Supplementary Pension Plan is to provide Designated Managers of the Company with additional retirement benefits in excess of those that may be payable in accordance with the provisions of the Base Plan.

1.3	Effective March 7, 2007, the Supplementary Pension Plan is closed to new membership. However, Designated Managers participating to the Supplementary Pension Plan on that date will continue to accumulate benefits in accordance with its provisions.

2.	Definitions

2.1 Accrued Retirement Pension : at any date, the sum of (a) and (b) below:

(a)

the sum of (i) and (ii) below:

(i)

1.3% of the Member’s Best Average First Level Earnings multiplied by the number of years of Credited Service before January 1, 2000;

(ii)

2% of the Member’s Best Average Second Level Earnings multiplied by the number of years of Credited Service before January 1, 2000;

(b)

the sum of (iii) and (iv) below:

(iii)

1.5% of the Member’s Best Average First Level Earnings multiplied by the number of years of Credited Service from January 1, 2000;

(iv)

2% of the Member’s Best Average Second Level Earnings multiplied by the number of years of Credited Service from January 1, 2000.

2.2	Base Plan : the Domtar Pension Plan for Non-Negotiated Employees, as may be amended from time to time.

2.3

Best Average Earnings : has the meaning assigned to that expression in the Base Plan except that “Best Average Earnings” for the purposes of the Supplementary Pension Plan shall be determined based on Earnings as defined for the purposes of the Supplementary Pension Plan. Furthermore, for a Member who Separates from Service on or after January 1, 2015, “Best Average Earnings” for the purposes of the Supplementary Pension Plan shall not be less than the “Best Average Earnings” determined as at December 31, 2014.

2.4

Best Average First Level Earnings : has the meaning assigned to that expression in the Base Plan except that, for the purposes of the Supplementary Pension Plan, the reference to Best Average Earnings in the expression Best Average First Level Earnings in the Base Plan shall be considered to be a reference to the expression “Best Average Earnings” as defined in the Supplementary Pension Plan.

2.5	Best Average Second Level Earnings : has the meaning assigned to that expression in the Base Plan except that, for the purposes of the Supplementary

Supplementary Pension Plan for Designated Managers of Domtar Inc.,
As in effect on March 7, 2007, amended and restated on April 30, 2013, and further on December 7, 2016

Pension Plan, the references to Best Average Earnings and Best Average First Level Earnings in the expression Best Average Second Level Earnings in the Base Plan shall be considered to be references to the expressions “Best Average Earnings” and “Best Average First Level Earnings”, respectively, as defined in the Supplementary Pension Plan

2.6 Board : the Board of Directors of Domtar Corporation.

2.7 Code : the U.S. Internal Revenue Code of 1986, as amended.

2.8	Company : means Domtar Corporation and any of its subsidiaries or affiliated companies.

2.9 Credited Service :

(a)

For a Member who joined the Supplementary Pension Plan before January 1, 1998, shall, at any date whatsoever, have the meaning given to it by Article I of the Base Plan unless the HR Committee agrees on a start date, for the purpose of determining credited service under the Supplementary Pension Plan, that is different from the start date of the Base Plan.

(b)

For a Member who joined the Supplementary Pension Plan on or after January 1, 1998, shall mean the period of service with the Company starting with the date the Designated Manager becomes a Member of the Supplementary Pension Plan and ending with the date of his Separation from Service, during which the Member is accruing credited service under the DB Option of the Base Plan or the Company is contributing on behalf of the Member under the DC Option of the Base Plan, or would be contributing if it were not for the tax limits.

(c)

For all Members, Credited Service shall exclude service as a member of the management committee of the Company.

2.10 Default : shall have the meaning given to it in the Trust Agreement.

2.11	Designated Manager : a manager occupying an Eligible Position who is a participant of the Base Plan and who has been permitted by the HR Committee to participate in the Supplementary Pension Plan.

2 . 12

Earnings : in relation to a Member: has the meaning assigned to that expression in the Base Plan with the exception that bonuses recognized for a particular year after 2014 will not exceed the lesser of:

(a)

the actual target bonus for the particular year, as determined from time to time by the Company, for the Member; and

(b)

50% of the salary of the Member for the year preceding the particular year.

Supplementary Pension Plan for Designated Managers of Domtar Inc.,
As in effect on March 7, 2007, amended and restated on April 30, 2013, and further on December 7, 2016

For the period of disability recognized pursuant to Section 11 of the Supplementary Pension Plan, Earnings are deemed based on the Member’s salary rate on the day his disability begins.

2.13	Eligible Position : a position designated as such by the HR Committee upon recommendation of the President and Chief Executive Officer of the Company.

2.14 HR Committee : the Human Resources Committee of the Board.

2.15	Member : a Designated Manager from the date he is designated as such and who is accruing benefits under the Supplementary Pension Plan.

2.16 Refundable Tax : shall have the meaning given to it in the Trust Agreement.

2.17	Section 409A : section 409A of the Code and the rules, regulations and guidance promulgated thereunder.

2.18 Separation from Service : occurs (or a Member Separates from Service) when

(a)

(b)

For a Member other than a U.S. Taxpayer: the Member ceases to be employed by the Company as a result of the Member’s death, retirement, or other termination of employment.

2.19	Trust Agreement : the agreement between the Company or a subsidiary or affiliated company and a Trustee, as may be entered into in accordance with Section 13 of the Supplementary Pension Plan.

2.20 Trust Fund : shall have the meaning given to it in the Trust Agreement.

2.21 Trustee : the trustee party to the Trust Agreement.

2.22 U.S. Taxpayer : a Member who

(a)

Is a U.S. citizen; or

(b)

Is a foreign national/U.S. permanent resident (“green card” holder); or

(c)

Is a foreign national who meets the “substantial physical presence” test during an applicable calendar year;

Supplementary Pension Plan for Designated Managers of Domtar Inc.,
As in effect on March 7, 2007, amended and restated on April 30, 2013, and further on December 7, 2016

(d)

Is a “dual status” individual and either

(i)

Who declares that he is a U.S. Taxpayer (under (a), (b), or (c) above); or

(ii)

Who the Company determines is a U.S. Taxpayer (under (a), (b), or (c) above);

(e)

Is subject to U.S. federal income tax under the terms of the Canada-United States Tax Convention (1980) and the Protocols in effect thereunder; or

(f)

Whose benefits under this Supplementary Pension Plan are otherwise subject to taxation in the U.S.

Notwithstanding the foreign Member declaration of U.S. Taxpayer status, and unless proven otherwise, if the Company’s payroll, human resources, or other records indicate that the Member is a U.S. Taxpayer, then the Member shall be deemed to be a U.S. Taxpayer for the purposes of the Supplementary Pension Plan.

2.23	For the purposes of the present document, the terms and expressions listed below shall have the meaning given to them in the Base Plan:

Actuarial Equivalent Value

Normal Retirement Date

3.	Normal Retirement

A Member who Separates from Service on or beyond his Normal Retirement Date shall receive from the Company, in accordance with the Supplementary Pension Plan, a monthly pension of one twelfth of the excess of (a) over (b) below:

(a)	his Accrued Retirement Pension, determined on his date of Separation from Service;

(b)	the sum of (i) and (ii) below:

(i)

for the years of Credited Service during which he participated to the
DB Option of the Base Plan, the annual amount of the pension at Normal Retirement Date or of the pension at postponed retirement, as applicable, to which he is entitled on such date in accordance with the Base Plan;

(ii)

for the years of Credited Service during which he participated to the
DC Option of the Base Plan, the annual amount of the pension at Normal Retirement Date or of the pension at postponed retirement, as applicable, to which he would have been entitled under the Base Plan if he had participated to the DB Option of the Base Plan.

For the purposes of this paragraph (b), any amount of pension shall be determined disregarding any credit splitting resulting from a marriage breakdown.

Supplementary Pension Plan for Designated Managers of Domtar Inc.,
As in effect on March 7, 2007, amended and restated on April 30, 2013, and further on December 7, 2016

If the Designated Manager commenced his partic ipation to the Supplementary Pension Plan after January 1, 1998, his pension under the Supplementary Pension Plan shall be multiplied by the applicable percentage below:


Complete Years Since Appointment as a Designated Manager		Applicable Percentage
1		20%
2		40%
3		60%
4		80%
5 or more		100%

4.	Early Retirement

A Member who Separates from Service, for a reason other than death, before his Normal Retirement Date but on or after age 55, shall receive from the Company, in accordance with the Supplementary Pension Plan, a monthly pension of one twelfth of the excess of (a) over (b) defined below:

(a)	his Accrued Retirement Pension, determined on his retirement date, reduced in the same manner as under the Base Plan;

(b)	the sum of (i) and (ii) below:

(i)

for the years of Credited Service during which he participated to the
DB Option of the Base Plan, the annual early retirement pension amount to which he is entitled on such date in accordance with the Base Plan;

(ii)

for the years of Credited Service during which he participated to the
DC Option of the Base Plan, the annual early retirement pension amount to which he would have been entitled under the Base Plan if he had participated to the DB Option of the Base Plan.

If the Member commenced his participation to the Supplementary Pension Plan after January 1, 1998, his pension under the Supplementary Pension Plan shall be multiplied by the applicable percentage below:


Complete Years Since Appointment as a Designated Manager	Applicable Percentage
1	20%
2	40%
3	60%
4	80%
5 or more	100%

Supplementary Pension Plan for Designated Managers of Domtar Inc.,
As in effect on March 7, 2007, amended and restated on April 30, 2013, and further on December 7, 2016

5.	Deferral of Early Retirement Pension

A Member, other than a U.S. Taxpayer, who Separates from Service, for a reason other than death, before his Normal Retirement Date but on or after age 55 and who is entitled to a pension from the Supplementary Pension Plan under Article 4 above, may elect to defer the commencement of this pension until the first day of any calendar month preceding or coinciding with his Normal Retirement Date, provided he has chosen the same option for the early retirement pension to which he is entitled in accordance with the Base Plan.

In such event, the amount of pension to which he is entitled in accordance with the Supplementary Pension Plan shall be calculated as provided in Section 4 but using the pension commencement date as the date of calculation of the reduction factors of paragraph (a) of Section 4 and as the date of calculation of the amount of pension under the Base Plan for paragraph (b) of Section 4.

For more certainty, this Section 5 does not apply to a U.S. Taxpayer.

6.	Termination of Employment

6.1	A Member who voluntarily Separates from Service before attaining age 55, or whose Separation from Service before attaining age 55 occurs for just cause, is not entitled to any benefit under the Supplementary Pension Plan.

6.2

Subject to paragraphs 6.3 and 6.4 and 6.5 of the Supplementary Pension Plan, a Member, other than a US Taxpayer, who involuntarily Separates from Service before attaining age 55, for a reason other than death and for other than just cause, shall receive from the Company, in accordance with the Supplementary Pension Plan, a monthly pension determined as in Section 3 above, payable from the Member’s Normal Retirement Date.

Any increase in pension under the DB Option of the Base Canadian Pension Plan after Separation from Service shall have no impact on the pension payable to the Member from the Supplementary Pension Plan under this paragraph 6.2.

6.3

Subject to paragraph 6.4 of the Supplementary Pension Plan, if a Member eligible for a pension in accordance with paragraph 6.2, other than a U.S. Taxpayer, elects to receive the pension to which he is entitled in accordance with the Base Plan before his Normal Retirement Date, he shall receive from the Company, in accordance with the Supplementary Pension Plan and in lieu of the monthly pension provided under paragraph 6.2 of the Supplementary Pension Plan, a monthly pension that will commence on the same date as will the pension due in accordance with the Base Plan. If the Member is only entitled to receive benefits under the DC Option of the Base Plan, the Member may elect to receive the pension to which he is entitled at a date that would be permitted under the DB Option of the Base Plan if the Member were entitled to benefits under the DB Option. In these events, the pension under the Supplementary Pension Plan shall be the Actuarial Equivalent Value of the pension otherwise payable from his Normal Retirement Date.

Supplementary Pension Plan for Designated Managers of Domtar Inc.,
As in effect on March 7, 2007, amended and restated on April 30, 2013, and further on December 7, 2016

6.4	Instead of the p ension described in paragraph 6.2 or 6.3 above, a Member, other than a US Taxpayer, may elect to receive a single lump sum payment equal to the Actuarial Equivalent Value of the pension described in paragraph 6.2 above.

6.5

A U.S. Taxpayer who involuntarily Separates from Service before attaining age 55, for a reason other than death and for other than just cause, shall receive from the Company, in accordance with the Supplementary Pension Plan, a monthly pension determined as in Section 3 above, payable starting on the first day of the month coinciding with or following the month of the Member’s date of Separation from Service. In this event, the pension under the Supplementary Pension Plan shall be the Actuarial Equivalent Value of the pension otherwise payable from his Normal Retirement Date.

7.	Normal Form of Pension

The normal form of pension payable under the Supplementary Pension Plan shall consist of monthly benefits payable in equal amounts starting on the first day of the month coinciding with or following the month of the Member’s date of Separation from Service and on the first day of every subsequent month for the life of the Member, provided, however, that, for a U.S. Taxpayer, any such payment that is subject to Section 409A and that would otherwise be payable within six months following the Member’s Separation from Service shall be delayed and paid on the first day of the month following the six-month anniversary of the Member’s Separation from Service to the extent necessary to comply with Section 409A. If the Member dies before 60 monthly payments have been made, payments under the Supplementary Pension Plan shall continue to his estate until 60 monthly payments have been made.

For the purposes of Articles 3, 4, and 6 of the present document, the pension amount due in accordance with the Base Plan shall be that which corresponds to the normal form of pension and shall exclude the additional pension resulting from excess contributions of the Base Plan, if any.

8.	Optional Forms of Pension

(a)

For a Member other than a U.S. Taxpayer, if the Member elects (or is deemed to have elected) to receive the pension to which he is entitled in accordance with the Base Plan under an optional form of payment provided by the Base Plan, he will be assumed to have elected the same option for the payment of the pension due in accordance with the Supplementary Pension Plan.

Supplementary Pension Plan for Designated Managers of Domtar Inc.,
As in effect on March 7, 2007, amended and restated on April 30, 2013, and further on December 7, 2016

In this event, the payment of the pension due in accordance with the Supplementary Pension Plan shall be made following the terms and conditio ns applicable under the Base Plan for the optional form of pension elected (or deemed to have been elected). However, if the Member elects a form of pension under the DB Option of the Base Plan that has an Actuarial Equivalent Value greater than the Actuar ial Equivalent Value of the pension under the normal form of payment under the Supplementary Pension Plan, the Supplementary Pension Plan pension shall be reduced by the Actuarial Equivalent Value of such additional value under the Base Plan.

(b)

For a U.S. Taxpayer, the Member may elect to receive the pension to which he is entitled in any of the optional forms of payment provided under the Base Plan that constitutes a “life annuity” within the meaning of U.S. Treas. Reg. 1.409A-2(b)(2)(ii). Any such election must be made prior to the date that any benefit is paid or provided under the Supplementary Pension Plan and must commence on the same date that the normal form of payment described in Section 7 would otherwise have commenced (taking into account any six-month delay required under Section 7).

Payment of the pension due in accordance with the Supplementary Pension Plan shall be the Actuarial Equivalent Value of the pension to which the Member would otherwise be entitled under the normal form of payment described in Section 7.

9.	Death Before Commencement of Pension Payments

If a Member Separates from Service by reason of death before the commencement of his pension payments, his estate shall receive a single lump sum payment equal to the Actuarial Equivalent Value of the benefits to which he would have been entitled under the Supplementary Pension Plan had he Separated from Service involuntarily for a reason other than death and just cause on the day of his death. Any such payment shall be made within 90 days of the date of the Member’s death.

If a Member dies after Separation of Service and before the payment of any benefit under the Supplementary Pension Plan and the Member is entitled to a deferred pension under Section 5, 6.2 or 6.5, his estate shall receive a single lump sum equal to the Actuarial Equivalent Value of the benefits to which he would otherwise be entitled to receive under Section 5, 6.2 or 6.5 as applicable to the Member. Any such payment shall be made within 90 days of the date of the Member`s death.

10.	Death After Commencement of Pension Payments

Subject to Article 8, if a Member dies after payment of his pension, determined in accordance with Articles 3, 4, 5 or 6, as applicable, has commenced, the death benefits shall be determined in accordance with the normal form of pension as described in Article 7.

Supplementary Pension Plan for Designated Managers of Domtar Inc.,
As in effect on March 7, 2007, amended and restated on April 30, 2013, and further on December 7, 2016

11.	Disability

A Member who is considered disabled under the Base Plan, and who continues, on that basis, to accrue Credited Service and pension credits under that plan, shall continue to accrue Credited Service for the purposes of the Supplementary Pension Plan.

For the purposes of the Supplementary Pension Plan, a disabled Member is deemed to have Separated from Service on the date he Separated from Service under the Base Plan.

12.	Administration

The HR Committee is responsible for the administration of the Supplementary Pension Plan, the supervision of its application and the interpretation of its provisions. With respect to Members who are not U.S. Taxpayers, the HR Committee may, at its discretion, approve other settlement options of benefits payable under this Supplementary Pension Plan.

13.

Funding

This Section 13 does not apply to U.S. Taxpayers.

(a)

The Company shall arrange for the issuance of a new Letter of Credit, or the renewal of an existing Letter of Credit, in accordance with this Section 13, and in accordance with the Trust Agreement, in respect of benefits payable under the Supplementary Pension Plan on behalf of persons who were Members on the effective date of the Trust Agreement and were actively employed by the Company on that date, provided such persons or their survivors who are entitled to benefits under the Supplementary Pension Plan are not U.S. Taxpayers. On the effective date of the Trust Agreement, the Supplementary Pension Plan shall become a retirement compensation arrangement within the meaning of the Income Tax Act.

Coverage in respect of benefits under the Supplementary Pension Plan by the Letter of Credit shall cease once all benefits payable under the Supplementary Pension Plan on behalf of a person have been paid. Coverage in respect of benefits under the Supplementary Pension Plan by the Letter of Credit shall also cease with respect to all benefits when a Member becomes a U.S. Taxpayer.

The amount of the Letter of Credit shall be determined in accordance with an actuarial valuation performed in accordance with the Trust Agreement.

Coverage by the Letter of Credit for benefits payable under the Supplementary Pension Plan may be combined with coverage for benefits payable under the DB SERP for Management Committee Members of Domtar and the DC SERP for Designated Executives of Domtar.

Supplementary Pension Plan for Designated Managers of Domtar Inc.,
As in effect on March 7, 2007, amended and restated on April 30, 2013, and further on December 7, 2016

or over or on behalf of whom a pension is in payment, such lump sum amount shall be determined in a manner allowing the purch ase of a prescribed annuity providing an after-tax pension amount reasonably similar to what would have been provided under the Supplementary Pension Plan if retirement had occurred on the date of Default if it had not already occurred; and such lump sum a mount shall be used to purchase a prescribed annuity on behalf of the Member. Also, subject to the terms and assumptions specified in the Trust Agreement, in the case of Members covered by the Letter of Credit who are aged less than 55, such lump sum amoun t shall be determined in a manner allowing to accumulate on an after-tax return basis to an amount that could be used by the Member to purchase a prescribed annuity at Normal Retirement Date that would provide an after-tax pension amount reasonably similar to the deferred pension that would have been provided under the Supplementary Pension Plan if an involuntary Separation from Service had occurred on the date of Default.

(b)	Where a Letter of Credit is issued or renewed in accordance with this Section 13, the Company shall arrange with the issuer thereof to issue or renew, as the case may be, the Letter of Credit in the name of the Trustee, to be held by the Trustee as part of the Trust Fund.

(c)

(d)	On or before the Renewal Date of a particular Letter of Credit held by the Trustee, the Company shall either:

(i)

cause the issuer of the particular Letter of Credit to renew it on the same terms and conditions as applied before the renewal;

(ii)

substitute for the particular Letter of Credit another Letter of Credit on the same terms and conditions as the particular Letter of Credit; or

(iii)

contribute to the Trust Fund the face amount of the Letter of Credit or such other amount required in accordance with the last actuarial valuation report.

(e)	Where the Company does not comply with paragraph (d) of this Section 13 or where there occurs a Default, the Trustee shall forthwith demand payment under the Letter of Credit.

(f)	In this Section 13,

Supplementary Pension Plan for Designated Managers of Domtar Inc.,
As in effect on March 7, 2007, amended and restated on April 30, 2013, and further on December 7, 2016

“Letter of Credit” means an irrevocable, standby, unsecured letter of credit obtained from a Schedule 1 Canadian Bank or other lender with a term of one year which names the Trustee as beneficiary permitted to draw down (an amount up to the face amount) on the Lette r of Credit on the occurrence of a Default or a failure by the Company to comply with paragraph (d) of this Section 13, and which shall require the issuing bank or lender to withhold and remit to the Receiver General the appropriate amount of Refundable Ta x (provided that, notwithstanding the foregoing, the first Letter of Credit issued in connection with this Supplementary Pension Plan may have a term of less than one year);

“Renewal Date”, in relation to a Letter of Credit, means the date that is thirty (30) days before the Letter of Credit is to expire.

(g)

For more certainty, in the event that, for whatever reason, the assets of the Trust Fund are insufficient to settle in full the benefits payable under the Supplementary Pension Plan as and when they become due, notwithstanding any other provision of this Section 13, the Company shall remain responsible for the payment of such remaining benefits.

14.	Non-Alienation of Benefits

No benefit payable under the provisions of the Supplementary Pension Plan shall be in any manner capable of anticipation, surrender, commutation, alienation, sale, transfer, assignment, pledge, encumbrance or charge; nor shall any such benefit be in any manner subject to the debts, contracts, liabilities, engagements or torts of the person entitled to such benefit, except as specifically provided in any applicable legislation.

15.	Conflicts or Inconsistencies

In the event of any conflict or inconsistency between the provisions of the Supplementary Pension Plan and the provisions of the Base Plan, the provisions of the Supplementary Pension Plan shall prevail.

16.	Amendments

The Company reserves the right to amend or terminate the Supplementary Pension Plan at any time. Subject to Section 17.6, no amendment or termination shall adversely affect any benefits that have accrued up to the effective date of such change, based on Earnings, Credited Service and Base Plan accrued benefits up to that date, which effective date shall not precede the date on which the change is communicated to the Member. Notwithstanding the foregoing, any amendment to this Supplementary Pension Plan which is the result of a change to the Base Plan shall take effect as of the same date as applicable in respect of the amendment to the Base Plan.

17.	General Provisions

17.1

Currency

Supplementary Pension Plan for Designated Managers of Domtar Inc.,
As in effect on March 7, 2007, amended and restated on April 30, 2013, and further on December 7, 2016

All amounts under the Supplementary Pension Plan shall be in Canadian currency.

17.2	Withholding and reporting

All payments under the Supplementary Pension Plan are expressed on a pre-tax basis and shall be subject to applicable withholding tax and reporting pursuant to applicable legislation.

17.3	Interpretation

The Supplementary Pension Plan shall be interpreted, with respect to a Member, in accordance with the laws of the same jurisdiction as applicable for purposes of the Member’s employment agreement with the Company, which is in force at the relevant time, or in the absence of an employment agreement, with the law of the Province of Québec.

17.4	Entire Agreement

The Supplementary Pension Plan supersedes and replaces any and all prior plans, agreements, arrangements or understandings between the Company and the Senior Executive Employee regarding any retirement benefits to be provided to the Senior Executive Employee in excess of those that may be payable in accordance with the provisions of the Base Plans.

17.5	Severability

Should any of the provisions of the Supplementary Pension Plan and/or conditions be illegal or not enforceable, it or they shall be considered severable and the Supplementary Pension Plan and the remaining conditions shall remain in full force and effect and be binding upon the parties as though the said provision or provisions had never been included.

17.6

Enurement

The Supplementary Pension Plan shall enure to the benefit of and be binding upon the respective successors of the parties hereto, and the heirs, administrators and legal representatives of the Member.

17.7	Section 409A

Neither the Company nor any of its directors, officers or employees shall have any liability to a Member in the event Section 409A applies to any benefit paid or provided pursuant to the Supplementary Pension Plan in a manner that results in adverse tax consequences for the Member or any of his or her beneficiaries or transferees. The HR Committee may unilaterally amend, modify or terminate any benefit provided under the Supplementary Pension Plan if it determines, in its sole discretion, that such amendment, modification or termination is necessary or advisable to comply with applicable U.S. law as a result of changes in law or regulation or to avoid the imposition of an additional tax, interest or penalty under Section 409A.

17.8	Claims Procedure

Supplementary Pension Plan for Designated Managers of Domtar Inc.,
As in effect on March 7, 2007, amended and restated on April 30, 2013, and further on December 7, 2016

The HR Committee shall adopt claims procedures, with respect to Members who are U.S. Taxpayers, in accordance with Department of Labor Regulations Section 2560.503-1.

Supplementary Pension Plan for Designated Managers of Domtar Inc.,
As in effect on March 7, 2007, amended and restated on April 30, 2013, and further on December 7, 2016

Exhibit 10.4

Amended and Restated
DC SERP for Designated
executives of Domtar Personal Care

As in effect on March 31, 2014, amended and restated as of November 1, 2016

Table of Contents

Introduction1

Definitions1

Retirement4

Non-Vested Termination of Employment4

Vested Termination4

Death5

Disability5

Administration5

Funding5

10.

Non-Alienation of Benefits5

11.

Conflicts or Inconsistencies5

12.

Amendments6

13.

General Provisions6

Appendix

1.	Introduction

1.1	The present document constitutes the DC SERP for Designated Executives of Domtar Personal Care, hereinafter called the “Personal Care DC SERP”.

1.2	The purpose of the Personal Care DC SERP is to provide designated executives of the Company with additional retirement benefits in excess of those that may be payable in accordance with the provisions of the Base U.S. Savings Plans, as defined below.

2.	Definitions

2.1

Annual Contribution Credit : for a given calendar year, the excess, if any, of the percentage, as set in Appendix “A”, of the Member’s Earnings, over the Company’s contribution to the Base U.S. Savings Plan in respect of the period of the calendar year as a Member of the Personal Care DC SERP. For the purposes of this paragraph, a Member is assumed to contribute to the Base U.S. Savings Plan such amount that would result in the maximum Company contribution.

In any given calendar year, the aggregate of the Annual Contribution Credit and the Annual Contributions Credit received under the DC SERP for Designated Executives of Domtar combined with the aggregate contributions and pension credits received under the base plans of the DC SERP for Designated Executives of Domtar, if any, and the Base U.S. Savings Plan shall not exceed the percentage, as set in the Appendix “A”, of the Member’s Earnings.

Annual Contribution Credits are credited by the Company to the Personal Care DC SERP Notional Account Balance at the end of the calendar year for which they have been determined, or upon Separation from Service if earlier.

2.2	Annual Credited Notional Return : for a given calendar year, notional return calculated at the rate of return obtained by the Balanced Index Fund under the Base U.S. Savings Plan for the twelve-month period ending on November 30th of the calendar year.

In the event of Separation from Service before the end of the calendar year, the notional return is based on the period beginning on November 30th of the prior calendar year and ending on the last day of the month that is two months prior to the month in which the payment occurs.

DC SERP for Designated Executives of Domtar Personal Care
As in effect on March 31, 2014, amended and restated as of November 1, 2016

Annual Credited Notional Return is applied to the Personal Care DC SERP Notional Account Balance at the beginning of the calendar year including the Transferred DC SERP Notional Account Balance at the end of the prior calendar year and is cr edited to the Personal Care DC SERP Notional Account Balance at the end of the calendar year for which it has been determined, or upon benefit payment if earlier.

Once a year, a Member may elect in writing, prior to November 30 of that calendar year, to have the Annual Credited Notional Return for the following calendar year determined on the basis of the notional return calculated at the rate of return obtained by the Total Bond Market Index Fund under the Base U.S. Savings Plan.

Such election will be applicable to all future years after it is made, until a new election to revert to the funds described above is communicated in writing to the Company. Such election shall be made prior to November 30 of a calendar year to take effect in the following calendar year.

2.3	Base U.S. Savings Plan : the Domtar U.S. Salaried 401(k) Plan and the Domtar Personal Care 401(k) Plan, as may be amended from time to time, for the period of service as a Member of the Personal Care DC SERP.

2.4	Board : the Board of Directors of Domtar Corporation.

2.5	Code: the U.S. Internal Revenue Code of 1986, as amended.

2.6	Company : means Domtar Corporation and any of its subsidiaries or affiliated companies.

2.7	Earnings : compensation as defined under the Base U.S. Savings Plan in respect of periods in which the executive is a Member of the Personal Care DC SERP.

2.8	HR Committee : the Human Resources Committee of the Board.

2.9	Management Committee : means the management committee of Domtar Corporation.

2.10	Member : any executives of Domtar Personal Care division as recommended by the Management Committee or its designee as specified in the Appendix.

2.11	Normal Retirement Date : with respect to a Member, the first day of the month coinciding with or immediately following the Member’s sixty-fifth (65th) birthday.

DC SERP for Designated Executives of Domtar Personal Care
As in effect on March 31, 2014, amended and restated as of November 1, 2016

2.12

Personal Care DC SERP Notional Account Balance : shall, at any date whatsoever, be the sum of the Annual Contribution Credits, the Annual Credited Notional Return and the Transferred DC SERP Notional Account Balance, if any, in the name of the M ember under the Personal Care DC SERP, as it is reported in the books of the Company .

2.13	Section 409A : section 409A of the Code and the rules, regulations and guidance promulgated thereunder.

2.14

Separation from Service : occurs (or a Member Separates from Service) when the Member ceases to be employed by the Company and all entities considered a single employer with the Company under Code Sections 414(b) and (c) as a result of the Member’s death, retirement, or other termination of employment. Whether a Separation from Service takes place is based on all the relevant facts and circumstances and determined in accordance with U.S. Treas. Reg. 1.409A-1(h)(1);

2.15

Transferred DC SERP Notional Account Balance : if applicable , the Member’s DC SERP Notional Account Balance transferred from the DC SERP for Designated executives of Domtar as of the end of the year the Member becomes a Member of the Personal Care DC SERP and cease to participate in the DC SERP for Designated executives of Domtar or upon payment of benefits if earlier.

2.16	U.S. Taxpayer : a Member who

Is a U.S. citizen; or

Is a foreign national/U.S. permanent resident (“green card” holder); or

Is a foreign national who meets the “substantial physical presence” test during an applicable calendar year; or

Is a “dual status” individual and either

Who declares that he is a U.S. Taxpayer (under (a), (b), or (c) above); or

ii)

Who the Company determines is a U.S. Taxpayer (under (a), (b), or (c) above).

Is subject to U.S. federal income tax under the terms of the Canada-United States Tax Convention (1980) and the Protocols in effect thereunder; or

Whose benefits under this Personal Care DC SERP are otherwise subject to taxation in the U.S.

DC SERP for Designated Executives of Domtar Personal Care
As in effect on March 31, 2014, amended and restated as of November 1, 2016

2.17	Year of Service : a Member shall be credited with service in an amount equal to the aggregate of the following (applied without duplication):

years of service as a Member of the DC SERP for Designated executives of Domtar Personal Care; and

years of service as a Member DC SERP for Designated Executives of Domtar

2.18	For the purposes of the present document, the terms and expressions listed below shall have the meaning given to them in the Base U.S. Savings Plan:

•

Balanced Index Fund

•

Total Bond Market Index Fund

3.	Retirement

A Member who Separates from Service on or after age 55, after completing two (2) Years of Service as a Member, shall receive as soon as practicable from the Company in accordance with the Personal Care DC SERP, a lump sum payment equal to his Personal Care DC SERP Notional Account Balance. Such payment shall be made within 90 days following the six (6) month anniversary of the date of Separation from Service and on the same day that benefits under the DB SERP for Management Committee Members of Domtar are paid to the U.S. Taxpayer, if any.

4.	Non-Vested Termination of Employment

A Member who Separates from Service, for a reason other than death, before completing two (2) Years of Service as a Member is not entitled to any benefit under the Personal Care DC SERP.

5.	Vested Termination

A Member who Separates from Service, for a reason other than death, prior to age 55 after completing two (2) Years of Service as a Member shall receive as soon as practicable from the Company in accordance with the Personal Care DC SERP, a lump sum payment equal to his Personal Care DC SERP Notional Account Balance. Such payment shall be made within 90 days following the six (6) month anniversary of the date of Separation from Service and on the same day that benefits under the DB SERP for Management Committee Members of Domtar are paid, if any.

DC SERP for Designated Executives of Domtar Personal Care
As in effect on March 31, 2014, amended and restated as of November 1, 2016

Death

If a Member Separates from Service by reason of death, his estate shall receive from the Company, in accordance with the Personal Care DC SERP, a lump sum payment equal to his Personal Care DC SERP Notional Account Balance. Any such payment shall be made within 90 days of the date of the Member’s death.

7.	Disability

A Member who is considered disabled under the Base U.S. Savings Plans, and who continues, on that basis, to accrue credited service, or company contributions under such Base U.S. Savings Plans, as the case may be, shall continue to accrue Annual Contribution Credits for the purposes of the Personal Care DC SERP, on the basis of his salary rate at the time his disability began.

Benefits will only be paid from the Personal Care DC SERP upon the Member’s actual Separation from Service, as described in Sections 3, 4, 5 or 6 above, as applicable.

8.	Administration

The HR Committee is responsible for the administration of the Personal Care DC SERP, the supervision of its application and the interpretation of its provisions.

Funding

Benefits under the Personal Care DC SERP are not funded. They are paid from the Company’s general revenues.

10.	Non-Alienation of Benefits

No benefit payable under the provisions of the Personal Care DC SERP shall be in any manner capable of anticipation, surrender, commutation, alienation, sale, transfer, assignment, pledge, encumbrance or charge; nor shall any such benefit be in any manner subject to the debts, contracts, liabilities, engagements or torts of the person entitled to such benefit, except as specifically provided in any applicable legislation.

11.	Conflicts or Inconsistencies

In the event of any conflict or inconsistency between the provisions of the Personal Care DC SERP and the provisions of the Base U.S. Savings Plans, the provisions of the Personal Care DC SERP shall prevail.

DC SERP for Designated Executives of Domtar Personal Care
As in effect on March 31, 2014, amended and restated as of November 1, 2016

12.	Amendments

The Company reserves the right to amend or terminate the Personal Care DC SERP at any time. Subject to Section 13.6, no change or termination shall adversely affect any benefits that have accrued up to the effective date of such change, which effective date shall not precede the date on which the change is communicated to the Member. Notwithstanding the foregoing, any amendment to this Personal Care DC SERP which is the result of a change to the Base U.S. Savings Plans shall take effect as of the same date as applicable in respect of the amendment to the Base U.S. Savings Plans.

13.	General Provisions

13.1

Currency

Notwithstanding anything to the contrary herein, all payments under the Personal Care DC SERP shall be in U.S. currency. Any Annual Contribution Credit and any future Annual Credited Notional Returns on such Annual Contribution Credit shall be in U.S. currency

13.2	Withholding and reporting

All payments under the Personal Care DC SERP are expressed on a pre-tax basis and shall be subject to applicable withholding tax and reporting pursuant to applicable legislation.

13.3	Interpretation

The Personal Care DC SERP shall be interpreted, with respect to a Member, in accordance with the laws of the same jurisdiction as applicable for purposes of the Member’s employment agreement with the Company, which is in force at the relevant time, or in the absence of an employment agreement, with the law of the State of South Carolina for a Member employed in the United States.

13.4

Entire Agreement

Except to the extent expressly contemplated by the HR Committee at the time of adoption of the Personal Care DC SERP, the Personal Care DC SERP supersedes and replaces any and all prior plans, agreements, arrangements or understandings between the Company and the Member regarding any retirement benefits to be provided to the Member in excess of those that may be payable in accordance with the provisions of the Base U.S. Savings Plans.

DC SERP for Designated Executives of Domtar Personal Care
As in effect on March 31, 2014, amended and restated as of November 1, 2016

13.5	Severability

Should any of the provisions of the Personal Care DC SERP and/or conditions be illegal or not enforceable, it or they shall be considered severable and the Personal Care DC SERP and the remaining conditions shall remain in full force and effect and be binding upon the parties as though the said provision or provisions had never been included.

13.6

Enurement

The Personal Care DC SERP shall enure to the benefit of and be binding upon the respective successors of the parties hereto, and the heirs, administrators and legal representatives of the Member.

13.7	Section 409A

Neither the Company nor any of its directors, officers or employees shall have any liability to a Member in the event Section 409A applies to any benefit paid or provided pursuant to the Personal Care DC SERP in a manner that results in adverse tax consequences for the Member or any of his or her beneficiaries or transferees. The HR Committee may unilaterally amend, modify or terminate any benefit provided under the Personal Care DC SERP if it determines, in its sole discretion, that such amendment, modification or termination is necessary or advisable to comply with applicable U.S. law as a result of changes in law or regulation or to avoid the imposition of an additional tax, interest or penalty under Section 409A.

13.8 Claims Procedure

The HR Committee shall adopt claims procedures, with respect to Members who are U.S. Taxpayers, in accordance with Department of Labor Regulations Section 2560.503-1.

DC SERP for Designated Executives of Domtar Personal Care
As in effect on March 31, 2014, amended and restated as of November 1, 2016

APPENDIX

The percentage set out for the purpose of Section 2.1 for designated executives is as follow


Name	Percentage	Effective Date
Mike Fagan	11.0%	January 1 ^st 2015
Brad Goodwin	10.0%	March 31, 2014

DC SERP for Designated Executives of Domtar Personal Care
As in effect on March 31, 2014, amended and restated as of November 1, 2016

Exhibit 12.1

Domtar Corporation

Computation of ratio of earnings to fixed charges

(In millions of dollars, unless otherwise noted)

	Three months ended				Six months ended
	June 30,		June 30,		June 30,		June 30,
	2017		2016		2017		2016
	$		$		$		$
Available earnings:
Earnings before income taxes		47		24		72		25
Add fixed charges:
Interest expense incurred		16		15		33		31
Amortization of debt expense and discount		1		—		1		1
Interest portion of rental expense ⁽¹⁾		2		2		4		4
Total earnings as defined		66		41		110		61
Fixed charges:
Interest expense incurred		16		15		33		31
Amortization of debt expense and discount		1		—		1		1
Interest portion of rental expense ⁽¹⁾		2		2		4		4
Total fixed charges		19		17		38		36
Ratio of earnings to fixed charges		3.5		2.4		2.9		1.7

⁽¹⁾	Interest portion of rental expense is calculated based on the proportion deemed representation of the interest component (i.e 1/3 of rental expense).

Exhibit 31.1

CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, John D. Williams, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Domtar Corporation;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: August 4, 2017

/s/ John D. Williams

John D. Williams

President and Chief Executive Officer

Exhibit 31.2

CERTIFICATION BY THE CHIEF FINANCIAL OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Daniel Buron, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Domtar Corporation;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as the end of the period covered by this report based on such evaluation; and

5.	The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: August 4, 2017

/s/ Daniel Buron

Daniel Buron

Senior Vice-President and Chief Financial Officer

Exhibit 32.1

CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT

TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The undersigned hereby certifies that to his knowledge, the Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2017 (the “Form 10-Q”) fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 4, 2017

/s/ John D. Williams

John D. Williams

President and Chief Executive Officer

Exhibit 32.2

CERTIFICATION BY THE CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT

TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Date: August 4, 2017

/s/ Daniel Buron

Daniel Buron

Senior Vice-President and Chief Financial Officer