10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2016

or

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

For the transition period from                      to                     

Commission File Number:  001-33164

Domtar Corporation

(Exact name of registrant as specified in its charter)

Delaware	20-5901152
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

234 Kingsley Park Drive, Fort Mill, SC 29715

(Address of Principal Executive Offices)(Zip Code)

Registrant’s telephone number, including area code:  (803) 802-7500

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Each Exchange on Which Registered
Common Stock, par value $0.01 per share	New York  Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ☒    No  ☐

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ☐    No  ☒

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 Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ☐

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

Large Accelerated Filer	☒		Accelerated Filer	☐
Non-Accelerated Filer	☐	(Do not check if a smaller reporting company)	Smaller reporting company	☐

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

As of June 30, 2016, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $2,191,112,523.

Number of shares of common stock outstanding as of February 17, 2017: 62,588,837

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant’s Proxy Statement, to be filed within 120 days of the close of the registrant’s fiscal year, in connection with its 2017 Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report on Form 10-K.

DOMTAR CORPORATION

ANNUAL REPORT ON FORM 10-K

FOR THE YEAR ENDED DECEMBER 31, 2016

TABLE OF CONTENTS

			PAGE
PART I
ITEM 1	BUSINESS		4
		General	4
		Availability of Information	4
		Our Corporate Structure	4
		Our Business Segments	4
		Pulp and Paper	6
		Personal Care	10
		Our Strategic Initiatives and Financial Priorities	11
		Our Competition	11
		Our Employees	12
		Our Approach to Sustainability	12
		Our Environmental Compliance	13
		Our Intellectual Property	13
		Our Executive Officers	14
		Forward-looking Statements	15
ITEM 1A	RISK FACTORS		15
ITEM 1B	UNRESOLVED STAFF COMMENTS		23
ITEM 2	PROPERTIES		23
ITEM 3	LEGAL PROCEEDINGS		25
ITEM 4	MINE SAFETY DISCLOSURES		25
PART II
ITEM 5	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES		26
		Market Information	26
		Holders	26
		Dividends and Stock Repurchase Program	26
		Performance Graph	27
ITEM 6	SELECTED FINANCIAL DATA		28
ITEM 7	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		29
		Overview	29
		2016 Highlights	29
		Outlook	30
		Consolidated Results of Operations	30
		Segment Review	33
		Liquidity and Capital Resources	35
		Recent Accounting Pronouncements and Critical Accounting Estimates and Policies	39
ITEM 7A	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK		47
ITEM 8	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA		50
		Management’s Reports to Shareholders of Domtar Corporation	50
		Report of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm	51
		Consolidated Statements of Earnings and Comprehensive Income (Loss)	52
		Consolidated Balance Sheets	53
		Consolidated Statement of Shareholders’ Equity	54
		Consolidated Statements of Cash Flows	55
		Notes to Consolidated Financial Statements	56

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ITEM 9	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE		130
ITEM 9A	CONTROLS AND PROCEDURES		130
ITEM 9B	OTHER INFORMATION		130
PART III
ITEM 10	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE		131
ITEM 11	EXECUTIVE COMPENSATION		131
ITEM 12	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS		131
ITEM 13	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE		131
ITEM 14	PRINCIPAL ACCOUNTANT FEES AND SERVICES		131
PART IV
ITEM 15	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES		132
		Schedule II – Valuation and Qualifying Accounts	135
	SIGNATURES		136

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PART I

ITEM 1.  BUSINESS

GENERAL

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

We operate the following business segments: Pulp and Paper and Personal Care. We had revenues of $5.1 billion in 2016, of which approximately 82% was from the Pulp and Paper segment and approximately 18% was from the Personal Care segment. On January 2, 2014, we completed the acquisition of Laboratorios Indas, S.A.U. (“Indas”), primarily a branded incontinence products manufacturer and marketer in Spain. On October 1, 2016, we completed the acquisition of Home Delivery Incontinent Supplies Co. (“HDIS”), a national direct-to-customer provider of a wide variety of adult incontinence and related products, including their own Reassure^® brand, based in Olivette, Missouri. The acquired businesses are presented under our Personal Care reportable segment. Information regarding the most recent business acquisitions is included in Item 8, Financial Statements and Supplementary Data under Note 3 “Acquisition of Businesses”.

Throughout this Annual Report on Form 10-K, unless otherwise specified, “Domtar Corporation,” “the Company,” “Domtar,” “we,” “us” and “our” refer to Domtar Corporation, its subsidiaries, as well as its investments.

AVAILABILITY OF INFORMATION

In this Annual Report on Form 10-K, we incorporate by reference certain information contained in other documents filed with the Securities and Exchange Commission (“SEC”) and we refer you to such information. We file annual, quarterly and current reports and other information with the SEC. You may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100F Street, NE, Washington DC, 20549. You may obtain information on the operation of the Public Reference Room by calling 1-800-SEC-0330. The SEC maintains a website at www.sec.gov that contains our quarterly and current reports, proxy and information statements, and other information we file electronically with the SEC. You may also access, free of charge, our reports filed with the SEC through our website. Reports filed or furnished to the SEC will be available through our website as soon as reasonably practicable after they are filed or furnished to the SEC. The information contained on or connected to our website, www.domtar.com, is not incorporated by reference into this Form 10-K and should in no way be construed as a part of this or any other report that we filed with or furnished to the SEC.

OUR CORPORATE STRUCTURE

At December 31, 2016, Domtar Corporation had a total of 62,588,837 shares of common stock issued and outstanding.

Our common stock is traded on the New York Stock Exchange and the Toronto Stock Exchange under the symbol “UFS”.

Information regarding our common stock is included in Item 8, Financial Statements and Supplementary Data under Note 21 “Shareholders’ Equity”.

OUR BUSINESS SEGMENTS

We have two reportable segments as described below, which also represent our two operating segments. Each reportable segment offers different products and services and requires different manufacturing processes, technology and/or marketing strategies. The following summary briefly describes the operations included in each of our reportable segments.

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

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

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Information regarding our reportable segments is included in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations as well as Item 8, Financial Statements and Supplementary Data under Note 24 “Segment Disclosures”. Geographic information is also included under Note 24 of the Financial Statements and Supplementary Data.

FINANCIAL HIGHLIGHTSPER SEGMENT	Year ended December 31, 2016			Year ended December 31, 2015			Year ended December 31, 2014
(In millions of dollars, unless otherwise noted)
Sales: (1)
Pulp and Paper	$	4,181		$	4,395		$	4,635
Personal Care		917			869			928
Consolidated sales	$	5,098		$	5,264		$	5,563
Operating income (loss): (1)
Pulp and Paper	$	217		$	270		$	352
Personal Care		57			61			49
Corporate		(51	)		(43	)		(37	)
Total	$	223		$	288		$	364
Segment assets:
Pulp and Paper	$	3,637		$	3,667
Personal Care		1,884			1,822
Corporate		159			165
Total	$	5,680		$	5,654

⁽¹⁾ Factors that affected the year-over-year comparison of financial results are discussed in the year-over-year and segment analysis included in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operation.

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PULP AND PAPER

Our Manufacturing Operations

We produce approximately 4.1 million metric tons of softwood, fluff and hardwood pulp at 12 of our 13 mills (Port Huron being a non-integrated paper mill). More than 50% of our pulp is consumed internally to manufacture paper, with the balance being sold as market pulp. We also purchase limited papergrade pulp from third parties for specific grades and to optimize the logistics of our pulp capacity while reducing transportation costs.

We are the largest integrated manufacturer and marketer of uncoated freesheet paper in North America. We have nine integrated pulp and paper mills and one paper mill (eight in the United States and two in Canada), with an annual paper production capacity of approximately 3.0 million tons of uncoated freesheet paper. Our paper manufacturing operations are supported by 13 converting and forms manufacturing operations (including a network of 10 plants located offsite from our paper making operations). Approximately 77% of our paper production capacity is in the United States and the remaining 23% is located in Canada.

We produce market pulp in excess of our internal requirements at our pulp and paper mills in Ashdown, Espanola, Hawesville, Windsor, Marlboro and Nekoosa. We also produce papergrade, fluff and specialty pulps at our three stand-alone pulp mills in Kamloops, Dryden and Plymouth. We can sell approximately 1.9 million metric tons of pulp per year depending on market conditions. Approximately 56% of our trade pulp production capacity is in the U.S., and the remaining 44% is located in Canada.

The table below lists our operating pulp and paper mills and their annual production capacity:

					Saleable
PRODUCTION FACILITY	Fiberline Pulp Capacity				Paper (1)
	# lines		('000 ADMT) (2)		# machines		Category (3)	('000 ST) (2)
Uncoated freesheet
Ashdown, Arkansas		3		707		2	Communication		265
Windsor, Quebec		1		447		2	Communication		642
Hawesville, Kentucky		1		412		2	Communication		596
Kingsport, Tennessee		1		304		1	Communication		426
Marlboro, South Carolina		1		320		1	Specialty & Packaging		274
Johnsonburg, Pennsylvania		1		228		2	Communication		344
Nekoosa, Wisconsin		1		155		3	Specialty & Packaging		168
Rothschild, Wisconsin		1		65		1	Communication		131
Port Huron, Michigan		—		—		4	Specialty & Packaging		113
Espanola, Ontario		2		327		2	Specialty & Packaging		69
Total Uncoated freesheet		12		2,965		20			3,028
Pulp
Kamloops, British Columbia		1		354		—			—
Dryden, Ontario		1		327		—			—
Plymouth, North Carolina (4)		2		470		—			—
Total Pulp		4		1,151		—			—
Total		16		4,116		20			3,028
Total Trade Pulp (5)				1,894

⁽¹⁾ Paper capacity is based on an operating schedule of 360 days and the production at the winder.

⁽²⁾ ADMT refers to an air dry metric ton and ST refers to short ton.

⁽³⁾ Represents the majority of the capacity at each of these facilities.

⁽⁴⁾ On September 23, 2016, we announced a plan to optimize fluff pulp manufacturing at our Plymouth, North Carolina mill. The planned optimization is expected to be completed by mid-2017 and includes the permanent closure of a pulp dryer and idling of related assets. This will optimize the mill to an annualized production target of approximately 380,000 metric tons of fluff pulp. The above table does not reflect this optimization. More information regarding this project is included in Item 8, Financial Statements and Supplementary Data under Note 16 “Closure and Restructuring Costs and Liability”.

⁽⁵⁾ Estimated third-party shipments dependent upon market conditions. This also includes shipments to our Personal Care segment.

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Our Raw Materials

The manufacturing of pulp and paper requires wood fiber, chemicals and energy. We discuss these three major raw materials used in our manufacturing operations below.

Wood Fiber

United States pulp and paper mills

The fiber used by our pulp and paper mills in the United States is hardwood and softwood, both readily available in the market from multiple third-party sources. The mills obtain fiber from a variety of sources, depending on their location. These sources include a combination of supply contracts, wood lot management arrangements, advance stumpage purchases and spot market purchases.

Canadian pulp and paper mills

The fiber used at our Windsor pulp and paper mill is hardwood originating from a variety of sources, including purchases on the open market in Canada and the United States, contracts with Quebec wood producers’ marketing boards, public land where we have wood supply allocations and from Domtar’s private lands. The softwood and hardwood fiber for our Espanola pulp and paper mill and the softwood fiber for our Dryden pulp mill, are obtained from third parties, directly or indirectly from public lands and through designated wood supply allocations for the pulp mills. The fiber used at our Kamloops pulp mill is all softwood, originating mostly from third-party sawmill operations in the southern-interior part of British Columbia.

Cutting rights on public lands related to our pulp and paper mills in Canada represent about 1.2 million cubic meters of softwood and 0.8 million cubic meters of hardwood, for a total of 2.0 million cubic meters of wood per year. Access to harvesting of fiber on public lands in Ontario and Quebec is subject to licenses and review by the respective governmental authorities.

During 2016, the cost of wood fiber relating to our Pulp and Paper segment comprised approximately 21% of the total consolidated cost of sales.

Chemicals

We use various chemical compounds in our pulp and paper manufacturing operations that we purchase, primarily on a central basis, through contracts varying between one and ten years in length to ensure product availability. Most of the contracts have pricing that fluctuates based on prevailing market conditions. For pulp manufacturing, we use numerous chemicals including caustic soda, sodium chlorate, sulfuric acid, lime and peroxide. For paper manufacturing, we also use several chemical products including starch, precipitated calcium carbonate, optical brighteners, dyes and aluminum sulfate.

During 2016, the cost of chemicals relating to our Pulp and Paper segment comprised approximately 12% of the total consolidated cost of sales.

Energy

Our operations produce and consume substantial amounts of energy. Our primary energy sources include: biomass, natural gas and electricity. Approximately 75% of the total energy required to manufacture our products comes from renewable fuels such as bark and spent pulping liquor, generated as byproducts of our manufacturing processes. The remainder of the energy comes from purchased steam and smaller amounts of other fossil fuels procured under supply contracts. Under most of these contracts, suppliers are committed to provide quantities within pre-determined ranges that provide us with our needs for a particular type of fuel at a specific facility. Most of these contracts have pricing that fluctuate based on prevailing market conditions. Biomass and fossil fuels are consumed primarily to produce steam that is used in the manufacturing process and, to a lesser extent, to provide direct heat used in the chemical recovery process.

We own cogenerating assets at all of our integrated pulp and paper mills, as well as hydro assets at three locations: Espanola, Nekoosa and Rothschild. These generating assets produce the equivalent of approximately 72% of our electricity requirements. Electricity is primarily used to drive motors, pumps and other equipment, as well as provide lighting. Our complete electricity requirements are met by our on-site generation and supplied from local utilities.

During 2016, energy costs relating to our Pulp and Paper segment comprised approximately 5% of the total consolidated cost of sales.

7

Our Transportation

Transportation of raw materials, wood fiber, chemicals and pulp into our mills is mostly done by rail and trucks, although barges are used in certain circumstances. We rely strictly on third parties for the transportation of our pulp and paper products between our mills, converting operations, distribution centers and customers. Our paper products are shipped mostly by truck and logistics are managed centrally in collaboration with each location. Our pulp is either shipped by vessel, rail or truck. We work with all the major railroads and approximately 300 trucking companies in the United States and Canada. Service agreements are typically negotiated on an annual basis. We pay diesel fuel surcharges which vary depending on the mode of transportation used, and the cost of diesel fuel.

During 2016, outbound transportation costs relating to our Pulp and Paper segment comprised approximately 10% of the total consolidated cost of sales.

Our Product Offering and Go-to-Market Strategy

Paper

Our uncoated freesheet papers are categorized into communication and specialty and packaging papers. Communication papers are further categorized into business and commercial printing and publishing papers.

Our business papers include copy and electronic imaging papers, which are used with inkjet and laser printers, photocopiers and plain-paper fax machines, as well as computer papers, preprinted forms and digital papers. These products are primarily for office and home use. Business papers accounted for approximately 51% of our shipments of paper products in 2016.

Our commercial printing and publishing papers include uncoated freesheet papers, such as offset papers and opaques. These uncoated freesheet grades are used in sheet and roll fed offset presses across the spectrum of commercial printing end-uses, including digital printing. Our publishing papers include tradebook and lightweight uncoated papers used primarily in book publishing applications such as textbooks, dictionaries, catalogs, magazines, hard cover novels and financial documents. These products also include base papers that are converted into finished products, such as envelopes, tablets, business forms and data processing/computer forms. Commercial printing and publishing papers accounted for approximately 33% of our shipments of paper products in 2016.

We also produce paper for several specialty and packaging markets. These products consist primarily of thermal printing, flexible packaging, food packaging, medical packaging, medical gowns and drapes, sandpaper backing, carbonless printing, labels and other coating and laminating applications. We also manufacture papers for industrial and specialty applications including carrier papers, treated papers, security papers and specialized printing and converting applications. These specialty and packaging papers accounted for approximately 16% of our shipments of paper products in 2016. These grades of papers require a certain amount of innovation and agility in the manufacturing system.

The chart below illustrates our main paper products and their applications:

Communication Papers					Specialty and Packaging Papers
Category	Business Papers		Commercial Printing and Publishing Papers
Type	Uncoated Freesheet				Uncoated Freesheet
Grade	Copy	Premium imaging	Offset	Opaques	Thermal papers
		Technology papers	Colors	Premium opaques	Food packaging
			Index	Lightweight	Bag stock
			Tag	Tradebook	Security papers
			Bristol		Imaging papers
					Label papers
					Medical disposables
Application	Photocopies	Presentations	Commercial printing	Stationery	Food & candy packaging
	Office documents	Reports	Direct mail	Brochures	Fast food takeout bag stock
	Presentations		Pamphlets	Annual reports	Check and security papers
			Brochures	Books	Surgical gowns
			Cards	Catalogs
			Posters	Forms & Envelopes

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Our customer service personnel work closely with sales, marketing and production staff to provide service and support to merchants, converters, end-users, stationers, printers and retailers. We promote our products directly to end-users and others who influence paper purchasing decisions in order to enhance brand recognition and increase product demand. In addition, our sales representatives work closely with mill-based product development personnel and undertake joint marketing initiatives with customers in order to better understand their business needs and to support their future requirements.

We sell business papers primarily to paper stationers, merchants, office equipment manufacturers and retail outlets. We distribute uncoated commercial printing and publishing papers to end-users and commercial printers, mainly through paper merchants, as well as selling directly to converters. We sell our specialty and packaging papers mainly to converters, who apply a further production process such as coating, laminating, folding or waxing to our papers before selling them to a variety of specialized end-users.

The chart below illustrates our channels of distribution for our paper products:

Communication Papers							Specialty and Packaging Papers
Category	Business Papers			Commercial Printing and Publishing Papers
Domtar sells to:	Retailers ↓	Merchants ↓	Office Equipment Manufacturers / Stationers ↓	Merchants ↓	Converters ↓	End-Users	Converters ↓
Customer sells to:	Printers /	Printers /	Retailers /	Printers /	Merchants /		End-users
	End-users	Retailers /	Stationers /	Converters /	Retailers
		End-users	End-users	End-users

Pulp

Our pulp products are comprised of softwood, fluff and hardwood kraft. These grades are sold to customers in over 40 countries worldwide. Our pulp is used in a variety of end products, such as diapers and personal hygiene products, bathroom and facial tissue, specialty and packaging papers, customers who make printing and writing grades, building products and electrical insulating papers.

We sell market pulp to customers in North America mainly through a North American sales force while sales to most overseas customers are made directly or through commission agents. We maintain pulp supplies at strategically located warehouses, which allow us to respond to orders on short notice.

Our Customers

Our ten largest customers represented approximately 45% of our Pulp and Paper segment sales or 37% of our total sales in 2016. In 2016, Staples, a customer of our Pulp and Paper segment, represented approximately 11% of our total sales. The majority of our customers purchase products through individual purchase orders. In 2016, approximately 75% of our Pulp and Paper segment sales were domestic, 11% were in Canada, and 14% were in other countries.

9

PERSONAL CARE

Our Operations

Our Personal Care business consists of the design, manufacturing, marketing and distribution of absorbent hygiene products, including both adult incontinence and infant diaper products. We are one of the leading suppliers of adult incontinence products sold into North America and Europe, servicing institutional and consumer channels, marketed primarily under our Attends^®, IncoPack^®, Indasec^® and Reassure^® brands, in addition to our customers’ brands.

We operate six manufacturing facilities, with each having the ability to produce multiple product categories. At our Jesup facility, we have research and development capabilities and production lines which manufacture high quality airlaid and ultrathin laminated absorbent cores and we also have research and development activities in our divisional head office in Raleigh, North Carolina. We operate in the United States and in Europe.

Our Industry Dynamics

Aging population

We compete in an industry with fundamental drivers for long-term growth. The worldwide aging population suggests that adult incontinence will become much more prevalent over the next several decades, as baby boomers enter their senior years and medical advances continue to extend the average lifespan. By the year 2030, approximately 73 million Americans are estimated to be 65 years old or older, representing over 20% of the United States population.

Increased healthcare spending

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 that 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.

Infant products

We compete within the competitive and volatile store brand segment of infant diapers and training pants. Future demand based on birth rate and demographic trends is forecasted to have low growth in North America and Europe. The importance of the category to key retailers is expected to remain strong given the purchasing power and strategic importance of the infant diaper shopper. Today, our business is focused on securing multiyear contracts with large retailers that control the majority of volume in North America, leading to intense competition with other manufacturers in the industry. In Europe, we are investing in our infant diaper capacity and are focused on leveraging our existing position in adult incontinence and our infant expertise in North America to grow our business in Europe. We believe the addition of the infant product assortment to our existing platform provides our customers with the complete bundle of products at a scale required to meet their national distribution requirements.

Our Raw Materials

The primary raw materials used in our manufacturing process are fluff pulp, nonwovens, and super absorbent polymers. A significant portion of the fluff pulp used in our Personal Care business is supplied internally from our Pulp and Paper business. The majority of our nonwoven and super absorbent polymers are purchased centrally based on multiyear contracts with pricing that fluctuates with market conditions. Other raw materials used in our manufacturing process include polypropylene film, elastics and adhesives which are also purchased with multiyear contracts.

Our Product Offering and Go-to-Market Strategy

Our products, which include branded and private label briefs, protective underwear, underpads, pads and washcloths, as well as baby diapers, youth pants and infant training pants, are available in a variety of sizes, differing performance levels and product attributes. Our broad product portfolio covers most price points across each category.

We serve the healthcare, retail and direct-to-consumer channels. Through the utilization of our flexible production platform, manufacturing expertise and efficient supply chain management, we believe that we are able to provide a complete and high-quality line of products to customers across all channels, under our own brands or those of our customers. We maintain a direct sales organization in the United States, Canada and twelve European countries.

10

Our Product Development

We currently offer a comprehensive, full suite of products, and we continue to focus on product development to produce even more effective products for our customers. We continue to explore materials, designs and processes that will allow us to manufacture products that absorb wetness quickly, help address skin dryness and produce superior containment.

OUR STRATEGIC INITIATIVES AND FINANCIAL PRIORITIES

As a leading fiber-based technology company, Domtar is focused on driving innovation, enhancing our operating platforms, and delivering high quality products. To further bolster our position and drive enhanced value for our stockholders, Domtar is focused on four key business objectives: (1) driving value in our Pulp and Paper business through strategic investment; (2) building on our core competencies in fiber to diversify and expand Domtar’s footprint in growth markets and industries; (3) maintaining a balanced and disciplined approach to capital allocation that allows for investments in growth opportunities and rewards stockholders with capital returns; and (4) operating with a focus on environmental responsibility and sustainability. We are confident that the continued focus on these objectives will bolster the competitive position of our business and drive value for our stakeholders, including stockholders, customers and employees.

Driving value in the Pulp and Paper business. Domtar’s Pulp and Paper business remains an important part of the growth plan, and we have strategies and operating priorities designed to maximize the value of the business. Our key initiatives include: increasing productivity, pursuing new sources of paper consumption and repurposing options, and operating an optimal portfolio of strategic assets. We believe that execution on these priorities will enable Domtar to protect its market position in Pulp and Paper and generate the capital required to expand into complementary growth areas.

Expanding into areas of growth and leveraging our fiber expertise.  Domtar has a history of proactively adapting to changing market conditions, and today, we are repositioning the Company towards areas of growth. This includes the strategic investment into our Personal Care business, which delivered strong sales momentum during 2016. We are well positioned to capitalize on new opportunities in the fiber market. The Company already has the financial resources, infrastructure, raw materials, technologies and expertise necessary to deliver new products. We believe that we have built a strong foundation for diversification and continue to make important, but disciplined, progress. We are focused on optimizing and expanding our operations in markets with positive demand dynamics through the repurposing of assets, investments for organic growth and strategic acquisitions.

Maintaining a balanced and disciplined approach to capital allocation that allows for investments in growth opportunities and rewards stockholders with capital returns.  Domtar has a strong track record of enhancing stockholder value. We believe in a balanced and disciplined approach to capital allocation, and we are committed to deploying capital only to the areas that will achieve the best possible return for our stockholders. Domtar’s free cash flow allows us to invest in growth opportunities and maintain a strong and flexible financial position for operating and strategic initiatives, while still returning capital to our stockholders. To continue generating free cash flow, we are focused on assigning our capital expenditures effectively and minimizing working capital requirements by reducing discretionary spending, reviewing procurement costs and pursuing the balance of production and inventory control.

Operating responsibly on behalf of all of Domtar’s stakeholders.  We try to make a positive difference every day by pursuing sustainable growth, valuing relationships, and responsibly managing our resources. We aim to care for our customers, end-users and stakeholders in the communities where we operate, all seeking assurances that resources are managed in a sustainable manner. We strive to provide these assurances by certifying our distribution and manufacturing operations and measuring our performance against internationally recognized benchmarks. Domtar is committed to the responsible use of forest resources across our operations and we are enrolled in programs and initiatives to encourage landowners to pursue certification to improve their market access and increase their revenue opportunities. We believe that each of these initiatives also creates value for our stockholders and is part of our larger business strategy and commitment to environmental sustainability.

OUR COMPETITION

The markets in which our businesses operate are highly competitive with well-established domestic and foreign manufacturers.

In the paper business, our paper production does not rely on proprietary processes or formulas, except in highly specialized papers or customized products. In uncoated freesheet, we compete primarily on the basis of product quality, breadth of offering, service solutions and competitively priced paper products. We have an extensive offering of high quality Forest Stewardship Council (“FSC”)-certified paper products. While we have a leading position in the North American uncoated freesheet market, we also compete with other paper grades, including coated freesheet, and with electronic transmission and document storage alternatives. As the use of these alternative products continues to grow, we continue to see a decrease in the overall demand for paper products. All of

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our pulp and paper manufacturing facilities are located in the United States or in Canada where we sell approximately 86% of our products. Domtar is one of the five largest manufacturers of uncoated freesheet papers in North America that represent approximately 81% of the total production capacity. On a global basis, there are hundreds of manufacturers that produce and sell uncoated freesheet paper. The level of competitive pressures from foreign producers in the North American market is highly dependent upon exchange rates, particularly the rate between the U.S. dollar and the Euro as well as the U.S. dollar and the Brazilian real.

The market pulp we sell is fluff, softwood or hardwood pulp. The pulp market is highly fragmented with many manufacturers competing worldwide. Competition is primarily on the basis of access to low-cost wood fiber, product quality and competitively priced pulp products. The fluff pulp we sell is used in absorbent products, incontinence products, diapers and feminine hygiene products. The softwood and hardwood pulp we sell is primarily slow growth northern bleached softwood and hardwood kraft, and we produce specialty engineered pulp grades with a pre-determined mix of wood species. Our hardwood and softwood pulps are sold to customers who make a variety of products for specialty paper, packaging, tissue and industrial applications, and customers who make printing and writing grades. We also seek product differentiation through the certification of our pulp mills to the FSC chain-of-custody standard and the procurement of FSC-certified virgin fiber. All of our market pulp production capacity is located in the United States or in Canada, and we sell approximately 56% of our pulp to other countries.

For the adult incontinence business, competition is primarily faced across four major product categories: protective underwear, pads, briefs and underpads, with customers served through the healthcare, retail (mass retailers, dollar stores, supermarkets, warehouse clubs), and direct to consumer channels. The retail channel in Europe is more fragmented than in North America, with a mix of larger chains and smaller players. Approximately 77% of institutional and homecare expenditures are reimbursed by governments in Western Europe.    

For the infant diaper business, competition is primarily across three major product categories: diapers, training pants and youth pants with customers served through the retail (mass retailers, dollar stores, supermarkets, warehouse clubs) and direct to consumer channels. In North America, branded labels represent the majority of the infant market with the top two manufacturers supplying a significant portion of the branded demand. The remaining demand is represented by private label, and is split among the competition. In Europe, the top manufacturer supplies more than 50% of the demand with branded labels, and the remaining is represented by private label. Products are marketed in multiple channels: mass retailers, dollar stores, supermarkets, warehouse clubs, internet and home health care.

In both the adult incontinence and infant diaper businesses, the principal methods and elements of competition include brand recognition and loyalty, product innovation, quality and performance, price and marketing and distribution capabilities.

OUR EMPLOYEES

We have approximately 10,000 employees, of which approximately 61% are employed in the United States, 28% in Canada and 11% in Europe. Approximately 48% of our employees are covered by collective bargaining agreements, generally on a facility-by-facility basis. Certain agreements covering approximately 1,433 employees will expire in 2017 and others will expire between 2018 and 2020.

OUR APPROACH TO SUSTAINABILITY

Domtar aims to deliver value to our customers, employees, shareholders and communities by viewing our business decisions within the larger context of sustainability. As a renewable fiber-based company, we take a long-term view on managing natural resources for the future. We prize efficiency in everything we do. We strive to minimize waste and encourage recycling. We aim to have the highest standards for ethical conduct, for caring about the health and safety of each other, and for maintaining the environmental quality in the communities where we live and work. We value the partnerships we have formed with non-governmental organizations and believe they make us a better company, even if we do not always agree on every issue. We focus on agility to respond to new opportunities, and we are committed to turning innovation into value creation. By embracing sustainability as our operating philosophy, we seek to internalize the fact that the choices we have and the impact of the decisions we make on our stakeholders are all interconnected. We believe that our business and the people and communities who depend on us are better served as we weave this focus on sustainability into the things we do.

Domtar executes this commitment to sustainability at every level and every location across the company. With the support of the Board of Directors, our Management Committee empowers senior managers from manufacturing, technology, finance, sales and marketing and corporate staff functions to regularly come together and establish key sustainability performance metrics, and to routinely assess and report on progress. We have a vice-president position to help lead this effort, allowing the company’s organizational structure to better reflect the priority the company places on sustainable performance. We believe that weaving sustainability into our business better positions Domtar for the future.

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OUR ENVIRONMENTAL COMPLIANCE

Our business is subject to a wide range of general and industry-specific laws and regulations in the United States and other countries where we have operations, relating to the protection of the environment, including those governing wood harvesting, air emissions, climate change, waste water discharges, storage, management and disposal of hazardous substances and wastes, contaminated sites, landfill operation and closure obligations and health and safety matters. Compliance with these laws and regulations is a significant factor in the operation of our business. We may encounter situations in which our operations fail to maintain full compliance with applicable environmental requirements, possibly leading to civil or criminal fines, penalties or enforcement actions, including those that could result in governmental or judicial orders that stop or interrupt our operations or require us to take corrective measures at substantial costs, such as the installation of additional pollution control equipment or other remedial actions.

Compliance with environmental laws and regulations involves capital expenditures as well as additional operating costs. Additional information regarding environmental matters is included in Item 8, Financial Statements and Supplementary Data under Note 22 “Commitments and Contingencies” and in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations under the section of Critical accounting policies, caption “Environmental matters and other asset retirement obligations”.

OUR INTELLECTUAL PROPERTY

Many of our brand name products are protected by registered trademarks. Our key trademarks include Cougar^®, Lynx^® Opaque Ultra, Husky^® Opaque Offset, First Choice^®, EarthChoice^®, Attends^®, NovaThin^®, NovaZorb^®, IncoPack^®, Indasec^®, Reassure^® and Ariva^®. These brand names and trademarks are important to our business. Our numerous trademarks have been registered in the United States and/or in other countries where our products are sold. The current registrations of these trademarks are effective for various periods of time. These trademarks may be renewed periodically, provided that we, as the registered owner, and/or licensee comply with all applicable renewal requirements, including the continued use of the trademarks in connection with similar goods.

We own U.S. and foreign patents and have several pending patent applications. Our management regards these patents and patent applications as important but does not consider any single patent or group of patents to be materially important to our business as a whole.

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OUR EXECUTIVE OFFICERS (“MANAGEMENT COMMITTEE”)

Name	Age	Position and Business Experience
John D. Williams	62	President and Chief Executive Officer of the Company since January 2009. He is also a member of the Board of Directors. Previously, Mr. Williams served as President of SCA Packaging Europe between 2005 and 2008. Prior to assuming his leadership position with SCA Packaging Europe, Mr. Williams held increasingly senior management and operational roles in the packaging business and related industries. Mr. Williams is Lead Independent Director of the Board of Directors of Owens Corning and the Chair of the advisory board of the Stern Center for Sustainable Business at New York University.
Daniel Buron	53	Senior Vice-President and Chief Financial Officer of the Company since March 2007. Mr. Buron was previously Senior Vice-President and Chief Financial Officer of Domtar Inc. since May 2004. He joined Domtar Inc. in 1999. Prior to May 2004, he was Vice-President, Finance, Pulp and Paper sales division and, prior to September 2002, he was Vice-President and Controller. He has over 25 years of experience in finance.
Michael D. Garcia	52	President, Pulp and Paper Division of the Company. Mr. Garcia joined Domtar in 2014. Prior to joining the Company, he was the chief executive officer at EVRAZ Highveld Steel & Vanadium Co., South Africa’s second largest steel producer. Mr. Garcia has more than 25 years of international management experience in paper, steel, and aluminum manufacturing and marketing. He has broad global experience, including executive assignments in Asia and Africa. Mr. Garcia is a Director of the Federal Reserve Bank of Richmond, Charlotte Branch.
Michael Fagan	55	President, Personal Care Division of the Company. Mr. Fagan joined Domtar in 2011, following the acquisition of Attends Healthcare Products, Inc. Mr. Fagan has been with Attends since 1999, when he was hired as Senior Vice-President of Sales and Marketing. He was promoted to President and CEO in 2006. Prior to joining Attends, Mr. Fagan held a variety of sales development roles with Procter & Gamble, the previous owners of the Attends line of products.
Zygmunt Jablonski	63	Senior Vice-President and Chief Legal and Administrative Officer of the Company. Mr. Jablonski joined Domtar in 2008, after serving in various in-house counsel positions for major manufacturing and distribution companies in the paper industry for 13 years. From 1985 to 1994, he practiced law in Washington, DC.
Patrick Loulou	48	Senior Vice-President, Corporate Development since he joined the Company in March 2007. Previously, he held a number of positions in the telecommunications sector as well as in management consulting. His over 20 year career has spanned a number of areas and functions such as corporate strategy, M&A, operations, and business development.

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FORWARD-LOOKING STATEMENTS

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

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

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

• product selling prices;

• raw material prices, including wood fiber, chemical and energy;

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

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

• the level of competition from domestic and foreign producers;

• the effect of, or change in, forestry, land use, environmental and other governmental regulations (including 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,” Item 1A.

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

ITEM 1A.  RISK FACTORS

You should carefully consider the risks described below in addition to the other information presented in this Annual Report on Form 10-K.

Conditions in the global political and economic environment, including the global capital and credit markets, can adversely affect the Company’s business, results of operations and financial position.

A significant or prolonged downturn in the general economic environment may affect the Company’s sales and profitability. The Company has exposure to counterparties with which it routinely executes transactions. Such counterparties include commercial banks,

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insurance companies and other financial institutions, some of which may be exposed to bankruptcy or liquidity risks. A bankruptcy or illiquidity event by one of its significant counterparties may materially and adversely affect the Company’s access to capital, future business and results of operations. In addition, the Company’s customers and suppliers may be adversely affected by severe economic conditions. This could result in reduced demand for its products or its inability to obtain necessary supplies at reasonable costs,or at all.

The Company may be negatively impacted by political issues or crisis in individual countries or regions, including sovereign risk related to a default by or deterioration in the credit worthiness of local governments. For example, on June 23, 2016, the United Kingdom held a referendum in which a majority of voters voted to exit the European Union (“Brexit”). The effects of Brexit will depend on any agreements the United Kingdom makes to retain access to European Union markets either during a transitional period or more permanently. Brexit could adversely affect European and global economic or market conditions and could contribute to instability in global financial markets. Any of these effects of Brexit, and others the Company cannot anticipate, may have a negative effect and may adversely affect the Company’s business.

Certain countries in Europe provide medicare coverage for adult incontinence products. The governments of these countries may decide to no longer reimburse part or all of the costs of adult incontinence products, and this may have a negative impact on the Company’s operating results  in the future.

The Company faces intense competition in its markets, and the failure to compete effectively could have a material adverse effect on its business and results of operations.

The Company competes with U.S., Canadian and European producers and, for many of its product lines with global producers, some of which may have greater financial resources and lower production costs than the Company. The principal basis for competition is selling price. The Company’s ability to maintain satisfactory margins depends largely on its ability to control its costs. Our industries also are particularly sensitive to other factors including innovation, design, quality and service, with varying emphasis on these factors depending on the product line. The Company cannot provide assurance that it will compete effectively and maintain current levels of sales and profitability. If the Company cannot compete effectively, such failure could have a material adverse effect on its business and results of operations.

Failure to successfully implement the Company’s business diversification initiatives could have a material adverse effect on its business, results of operations and financial position.

The Company is pursuing strategic initiatives that management considers important to our long-term success. The most recent initiatives include, but are not limited to, the integration of adult incontinence and baby diaper businesses acquired during the past five years and the recent conversion of a paper machine to produce fluff pulp. The intent of these initiatives is to help grow the business and counteract the secular decline in our North American paper business. These initiatives may involve organic growth, select joint ventures and strategic acquisitions. The success of these initiatives will depend on, among other things, our ability to identify potential strategic initiatives, understand the key trends and principal drivers affecting those businesses and to execute the initiatives in a cost effective manner. There are significant risks involved with the execution of these initiatives, including significant business, economic and competitive uncertainties, many of which are outside the Company’s control.

Strategic acquisitions may expose the Company to additional risks. The Company may have to compete for acquisition targets and any acquisition it makes may fail to accomplish our strategic objectives or may not perform as expected. In addition, the costs of integrating an acquired business may exceed our estimates and may require significant time and attention from senior management. Accordingly, the Company cannot predict whether it will succeed in implementing these strategic initiatives. If it fails to successfully diversify our business, it may have a material adverse effect on the Company’s competitive position, financial condition and operating results.

The Company’s paper products are vulnerable to long-term declines in demand due to competing technologies or materials.

The Company’s paper business competes with electronic transmission and document storage alternatives, as well as with paper grades it does not produce, such as uncoated groundwood. As a result of such competition, the Company is experiencing ongoing decreasing demand for most of its existing paper products. As the use of these alternatives grows, demand for paper products is likely to decline further. Declines in demand for our paper products may adversely affect the Company’s business, results of operations and financial position.

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The pulp and paper industry is highly cyclical. Fluctuations in the prices of and the demand for the Company’s pulp and paper products could result in lower sales volumes and smaller profit margins.

The pulp and paper industry is highly cyclical. Historically, economic and market shifts, fluctuations in capacity and changes in foreign currency exchange rates have created cyclical changes in prices, sales volume and margins for the Company’s pulp and paper products. The length and magnitude of industry cycles have varied over time and by product, but generally reflect changes in macroeconomic conditions and levels of industry capacity. Most of the Company’s paper products are commodities that are widely available from other producers. Because commodity products have few distinguishing qualities from producer to producer, competition for these products is based primarily on price, which is determined by supply relative to demand.

The overall levels of demand for the pulp and paper products that the Company manufactures and distributes, and consequently its sales and profitability, reflect fluctuations in levels of end-user demand, which depend in part on general macroeconomic conditions in North America and worldwide, the continuation of the current level of service and cost of postal services, as well as competition from electronic substitution. See “Conditions in the global and political economic environment, including the global capital and credit markets, and the economy generally, can adversely affect the Company’s business, results of operations and financial position” and “The Company’s paper products are vulnerable to long-term declines in demand due to competing technologies or materials”.

Industry supply of pulp and paper products is also subject to fluctuation, as changing industry conditions can influence producers to idle or permanently close individual machines or entire mills. Such closures can result in significant cash and/or non-cash charges. In addition, to avoid substantial cash costs in connection with idling or closing a mill, some producers will choose to continue to operate at a loss, sometimes even a cash loss, which could prolong weak pricing environments due to oversupply. Oversupply can also result from producers introducing new capacity in response to favorable pricing trends.

Industry supply of pulp and paper products is also influenced by overseas production capacity, which has grown in recent years and is expected to continue to grow.

As a result, prices for all of the Company’s pulp and paper products are driven by many factors outside of its control, and the Company has little influence over the timing and extent of price changes, which are often volatile. Because market conditions beyond the Company’s control determine the prices for its commodity products, the price for any one or more of these products may fall below its cash production costs, requiring the Company to either incur cash losses on product sales or cease production at one or more of its pulp and paper manufacturing facilities. The Company continuously evaluates potential adjustments to its production capacity, which may include additional closures of machines or entire mills, and the Company could recognize significant cash and/or non-cash charges relating to any such closures in future periods. See Item 8, Financial Statements and Supplementary Data under Note 16 “Closure and restructuring costs and liability”. Therefore, the Company’s profitability with respect to these products depends on managing its cost structure, particularly wood fiber, chemical, transportation and energy costs, which represent the largest components of its operating costs and can fluctuate based upon factors beyond its control. If the prices or demand for its pulp and paper products decline, or if its wood fiber, chemical, transportation or energy costs increase, or both, its sales and profitability could be materially and adversely affected.

The Company is affected by changes in currency exchange rates.

The Company has manufacturing operations in the United States, Canada, Sweden and Spain. As a result, it is exposed to movements in foreign currency exchange rates in Canada and Europe. Moreover, certain assets and liabilities are denominated in currencies other than the U.S. dollar and are exposed to foreign currency movements. As a result, the Company’s earnings are affected by increases or decreases in the value of the Canadian dollar and of other European currencies relative to the U.S. dollar. The Company’s European subsidiaries are exposed to movements in foreign currency exchange rates on transactions denominated in a different currency than their Euro functional currency. Additionally, there has been, and may continue to be, volatility in currency exchange rates as a result of Brexit. The Company’s risk management policy allows it to hedge a significant portion of its exposure to fluctuations in foreign currency exchange rates for periods up to three years. The Company may use derivative instruments (currency options and foreign exchange forward contracts) to mitigate its exposure to fluctuations in foreign currency exchange rates or to designate them as hedging instruments in order to hedge the subsidiary’s cash flow risk for purposes of the Consolidated Financial Statements. There can be no assurance that the Company will be protected against substantial foreign currency fluctuations. This factor could adversely affect the Company’s results of operations and financial position.

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The Company relies heavily on a small number of significant customers, including one customer that represented approximately 11% of the Company’s sales in 2016. A significant change in customer relationships or in customer demand for our products could materially adversely affect the Company’s business, financial condition or results of operations.

The Company heavily relies on a small number of significant customers. The Company’s largest customer, Staples, represented approximately 11% of the Company’s sales in 2016. A significant reduction in sales to any of the Company’s key customers, which could be due to factors outside its control, such as purchasing diversification or financial difficulties experienced by these customers, could materially adversely affect the Company’s business, financial condition or results of operations. Consolidation among its customers could also create significant cost margin pressure and lead to more complexity across broader geographic boundaries for both the Company and its key retailers.

The Company’s operations require substantial capital, and it may not have adequate capital resources to provide for all of its capital requirements.

The Company’s businesses are capital intensive and require ongoing capital expenditures in order to maintain its equipment, increase its operating efficiency and comply with environmental laws. In 2016, the Company’s total capital expenditures were $347 million.

If the Company’s available cash resources and cash generated from operations are not sufficient to fund its operating needs and capital expenditures, the Company would have to obtain additional funds from borrowings or other available sources or reduce or delay its capital expenditures. The Company may not be able to obtain additional funds on favorable terms, or at all. In addition, the Company’s debt service obligations will reduce its available cash flows. If the Company cannot maintain or upgrade its equipment as it requires or allocate funds to ensure environmental compliance, it could be required to curtail or cease some of its manufacturing operations, or it may become unable to manufacture products that compete effectively in one or more of its product lines.

The Company and its subsidiaries may incur substantially more debt. This could increase risks associated with its leverage.

The Company and its subsidiaries may incur substantial additional indebtedness in the future. Although the revolving credit facility contains restrictions on the incurrence of additional indebtedness, including secured indebtedness, these restrictions are subject to a number of qualifications and exceptions, and additional indebtedness incurred in compliance with these restrictions could be substantial. Refer to Item 8, Financial Statements and Supplementary Data under Note 19 “Long-term debt” for more details.

The Company’s ability to generate the significant amount of cash needed to pay interest and principal on the Company’s unsecured long-term notes and service its other debt and financial obligations and its ability to refinance all or a portion of its indebtedness or obtain additional financing depends on many factors beyond the Company’s control.

In 2016, the Company paid approximately $106 million in required interest and principal payments. The Company’s ability to make payments on and refinance its debt, including the Company’s unsecured long-term notes and amounts borrowed under its revolving credit facility and term loan, if any, and other financial obligations and to fund its operations will depend on its ability to generate substantial operating cash flow. The Company’s cash flow generation will depend on its future performance, which will be subject to prevailing economic conditions and to financial, business and other factors, many of which are beyond its control.

The Company’s business may not generate sufficient cash flow from operations and future borrowings may not be available to the Company under its revolving credit facility or otherwise in amounts sufficient to enable the Company to service its indebtedness, including the Company’s unsecured long-term notes, and borrowings, if any, under its revolving credit facility or to fund its other liquidity needs. If the Company cannot service its debt, the Company will have to take actions such as reducing or delaying capital investments, selling assets, restructuring or refinancing its debt or seek additional equity capital. Any of these remedies may not be executed on commercially reasonable terms, or at all, and may impede the implementation of its business strategy. Furthermore, the revolving credit facility may restrict the Company from adopting any of these alternatives. Because of these and other factors that may be beyond its control, the Company may be unable to service its indebtedness.

The Company could incur substantial costs as a result of compliance with, violations of or liabilities under applicable environmental laws and regulations. It could also incur costs as a result of asbestos-related personal injury litigation.

The Company is subject to a wide range of general and industry-specific laws and regulations in the United States and other countries where we have operations, relating to the protection of the environment and natural resources, including those governing air emissions, greenhouse gases and climate change, wastewater discharges, harvesting, silvicultural activities, storage, management and disposal of hazardous substances and wastes, the cleanup of contaminated sites, landfill operation and closure obligations, forestry operations and endangered species habitat, and health and safety matters. In particular, the pulp and paper industry in the United States is subject to the United States Environmental Protection Agency’s (“EPA”) Cluster Rules.

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The Company has incurred, and expects that it will continue to incur, significant capital, operating and other expenditures complying with applicable environmental laws and regulations as a result of remedial obligations. The Company incurred $65 million of operating expenses and $4 million of capital expenditures in connection with environmental compliance and remediation in 2016. As of December 31, 2016, the Company had a provision of $50 million for environmental expenditures, including certain asset retirement obligations (such as for landfill capping).

The Company could also incur substantial costs, such as civil or criminal fines, sanctions and enforcement actions (including orders limiting its operations or requiring corrective measures, installation of pollution control equipment or other remedial actions), cleanup and closure costs, and third-party claims for property damage and personal injury as a result of violations of, or liabilities under, environmental laws and regulations. The Company’s ongoing efforts to identify potential environmental concerns that may be associated with its past and present properties may lead to future environmental investigations. Those efforts may result in the determination of additional environmental costs and liabilities which cannot be reasonably estimated at this time.

As the owner and operator of real estate, the Company may be liable under environmental laws for cleanup, closure and other damages resulting from the presence and release of hazardous substances, including asbestos, on or from its properties or operations, including properties that it no longer owns. The amount and timing of environmental expenditures is difficult to predict, and, in some cases, the Company’s liability may be imposed without regard to contribution or to whether it knew of, or caused, the release of hazardous substances and may exceed forecasted amounts or the value of the property itself. The discovery of additional contamination or the imposition of additional cleanup obligations at the Company’s or third-party sites may result in significant additional costs. Any material liability the Company incurs could adversely impact its financial condition or preclude it from making capital expenditures that would otherwise benefit its business.

In addition, the Company may be subject to asbestos-related personal injury litigation arising out of exposure to asbestos on or from its properties or operations, and may incur substantial costs as a result of any defense, settlement, or adverse judgment in such litigation. The Company may not have access to insurance proceeds to cover costs associated with asbestos-related personal injury litigation.

Enactment of new environmental laws or regulations or changes in existing laws or regulations (such as changes in climate change regulation), or interpretation thereof, might require significant expenditures. For additional information, refer to Item 8, Financial Statements and Supplementary Data under Note 22 “Commitments and Contingencies” under the caption “Industrial Boiler Maximum Achievable Control Technology Standard”. The Company may be unable to generate funds or other sources of liquidity and capital to fund environmental liabilities or expenditures.

Failure to comply with applicable laws and regulations could have a material adverse effect on our business, financial results or condition.

In addition to environmental laws, the Company’s business and operations are subject to a broad range of other laws and regulations in the United States and Canada as well as other jurisdictions in which the Company operates, including antitrust and competition laws, occupational health and safety laws, healthcare reimbursement laws, such as Medicare and Medicaid, and employment laws. Many of these laws and regulations are complex and subject to evolving and differing interpretation. If the Company is determined to have violated any such laws or regulations, whether inadvertently or willfully, it may be subject to civil and criminal penalties, including substantial fines, loss of authorizations to participate in or exclusion from government programs, claims for damages by third parties or fines or monetary penalties which may have a material adverse effect on the Company’s financial position, results of operations or cash flows. For additional information, refer to Item 8, Financial Statements and Supplementary Data under Note 22 “Commitments and Contingencies” under the caption “Spanish Competition Investigation”.

The Company’s financial results could be affected by changes in U.S. and foreign tax laws or in the mix of our U.S. and foreign earnings, as well as adjustments to our estimates of uncertain tax issues or results from audits by U.S. or foreign tax authorities.

The Company is subject to U.S. and foreign tax laws and regulations. Recently, international tax norms governing each country’s jurisdiction to tax cross-border international trade have evolved partly due to the Base Erosion and Profit Shifting project led by the Organization for Economic Cooperation and Development and supported by the G20. Changes in these laws and regulations, or any change in the position of tax authorities regarding their application, administration or interpretation could adversely affect the Company’s financial results.

The Company’s effective tax rates could be affected by changes in the mix of earnings in countries with differing statutory tax rates or changes in the valuation of deferred tax assets and liabilities. The Company is also subject to the examination of its tax returns and other matters by tax authorities and governmental bodies. The Company regularly assesses the likelihood of an adverse outcome resulting from these examinations to determine the adequacy of its provision for taxes and as of December 31, 2016, has a reserve for

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liabilities relating to uncertain tax positions of $43 million. Taxing authorities may disagree with the positions the Company has taken regarding the tax treatment or characterization of its transactions. If any tax authorities were successful in challenging the tax treatment or characterization of any of our transactions, it could also adversely affect its financial results.

The Company’s Pulp and Paper business may have difficulty obtaining wood fiber at favorable prices, or at all.

Wood fiber is the principal raw material used by the Company’s Pulp and Paper business, comprising approximately 21% of the consolidated cost of sales during 2016. Wood fiber is a commodity, and prices historically have been cyclical. The primary source for wood fiber is timber. Environmental litigation and regulatory developments, alternative use for energy production and reduction in harvesting related to the housing market, have caused, and may cause in the future, significant reductions in the amount of timber available for commercial harvest in the United States and Canada. In addition, future domestic or foreign legislation and litigation concerning the use of timberlands, the protection of endangered species, the promotion of forest health and the response to and prevention of catastrophic wildfires could also affect timber supplies. Availability of harvested timber may be further limited by adverse weather, fire, insect infestation, disease, ice storms, wind storms, flooding and other natural and man-made causes, thereby reducing supply and increasing prices. Wood fiber pricing is subject to regional market influences, and the Company’s cost of wood fiber may increase in particular regions due to market shifts in those regions. Any sustained increase in wood fiber prices would increase the Company’s operating costs, and the Company may be unable to increase prices for its products in response to increased wood fiber costs due to additional factors affecting the demand or supply of these products.

The Company currently meets its wood fiber requirements by purchasing wood fiber from third parties and by harvesting timber pursuant to its forest licenses and forest management agreements. If the Company’s cutting rights, pursuant to its forest licenses or forest management agreements are reduced, or any third-party supplier of wood fiber stops selling or is unable to sell wood fiber to the Company, its financial condition or results of operations could be materially and adversely affected.

An increase in the cost of the Company’s purchased energy or other raw materials would lead to higher manufacturing costs, thereby reducing its margins.

The Company’s operations consume substantial amounts of energy such as electricity, natural gas, fuel oil, coal and hog fuel. Energy prices, particularly for electricity, natural gas and fuel oil, have been volatile in recent years. As a result, fluctuations in energy prices will impact the Company’s manufacturing costs and contribute to earnings volatility. While the Company purchases substantial portions of its energy under supply contracts, most of these contracts are based on market pricing.

Other raw materials the Company uses include various chemical compounds, such as precipitated calcium carbonate, sodium chlorate, sulfuric acid, dyes, peroxide, methanol and aluminum sulfate, super absorbent polymers and nonwovens. The costs of these other raw materials have been volatile historically, and they are influenced by capacity utilization, energy prices and other factors beyond the Company’s control.

Due to the commodity nature of the Company’s products, the relationship between industry supply and demand for these products, rather than solely changes in the cost of raw materials, will determine the Company’s ability to increase prices. Consequently, the Company may be unable to pass on increases in its operating costs to its customers. Any sustained increase in other raw materials or energy prices without any corresponding increase in product pricing would reduce the Company’s operating margins and may have a material adverse effect on its business and results of operations.

The Company depends on third parties for transportation services.

The Company relies primarily on third parties for transportation of the products it manufactures and/or distributes, as well as delivery of its raw materials. In particular, a significant portion of the goods it manufactures and raw materials it uses are transported by railroad or trucks, which are highly regulated. If any of its third-party transportation providers were to fail to deliver the goods that the Company manufactures or distributes in a timely manner, the Company may be unable to sell those products at full value, or at all. Similarly, if any of these providers were to fail to deliver raw materials to the Company in a timely manner, it may be unable to manufacture its products in response to customer demand. In addition, if any of these third parties were to cease operations or cease doing business with the Company, it may be unable to replace them at reasonable cost. Any failure of a third-party transportation provider to deliver raw materials or finished products in a timely manner could harm the Company’s reputation, negatively impact its customer relationships and may have a material adverse effect on its financial condition and results of operations.

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The Company could experience disruptions in operations and/or increased labor costs due to labor disputes or restructuring activities.

Employees at 18 of the Company’s facilities, representing approximately half of the Company’s employees, are represented by unions through collective bargaining agreements generally on a facility-by-facility basis. Certain of these agreements will expire in 2017 and others will expire between 2018 and 2020. As of December 31, 2016, eight collective bargaining agreements in the U.S., representing 1,050 employees, are up for renegotiation. All unionized employees in Canada and Europe were covered by ratified agreements as of December 31, 2016. In the future, the Company may not be able to negotiate acceptable new collective bargaining agreements, which could result in strikes or work stoppages or other labor disputes by affected workers. Renewal of collective bargaining agreements could also result in higher wages or benefits paid to union members. In addition, labor organizing activities could occur at any of the Company’s facilities. Therefore, the Company could experience a disruption of its operations or higher ongoing labor costs, which could have a material adverse effect on its business and results of operations.

The Company continues to evaluate potential adjustments to its production capacity, which may include additional closures of machines or entire mills, and the Company could recognize significant cash and/or non-cash charges relating to any such closures in the future.

A material disruption at one or more of the Company’s manufacturing facilities could prevent it from meeting customer demand, reduce its sales and/or negatively impact its results of operations.

Any of the Company’s manufacturing facilities, or any of its machines within an otherwise operational facility, could cease operations unexpectedly due to a number of events, including:

• unscheduled maintenance outages;

• prolonged power failures;

• equipment failure;

• chemical spill or release;

• malfunction of a boiler;

• the effect of a drought or reduced rainfall on its water supply;

• labor difficulties;

• government regulations;

• disruptions in the transportation infrastructure, including roads, bridges, railroad tracks and tunnels;

• adverse weather, fires, floods, earthquakes, hurricanes or other catastrophes;

• terrorism or threats of terrorism; or

• other operational problems, including those resulting from the risks described in this section.

Events such as those listed above have resulted in operating losses in the past. Future events may cause shutdowns, which may result in additional downtime and/or cause additional damage to the Company’s facilities. Any such downtime or facility damage could prevent the Company from meeting customer demand for its products and/or require it to make unplanned capital expenditures. If one or more of these machines or facilities were to incur significant downtime, it may have a material adverse effect on the Company’s  results of operations and financial position.

The efficiency of our operations could be adversely affected by disruptions to our Information Technology (IT) Services.

The Company’s information technology systems, some of which are dependent on services provided by third parties, serve an important role in the efficient operation of its business. The protection of customers, employees and company data is critical to the Company’s business. This role includes ordering and managing materials from suppliers, managing its inventory, converting materials to finished products, facilitating order entry and fulfillment and processing of transactions, summarizing and reporting its financial results, facilitating internal and external communications, administering human resources functions, retaining certain personal information and providing other processes necessary to manage its business. The Company is exposed to the risk of cyber incidents in the normal course of business. Cyber incidents may be deliberate attacks for the theft of intellectual property or other sensitive information or may be the result of unintentional events. Like most companies, the Company's information technology systems may be vulnerable to interruption due to a variety of events beyond the Company's control, including, but not limited to, natural disasters,

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terrorist attacks, power and/or telecommunications failures, computer viruses, hackers and other security issues. The Company has technology security initiatives and disaster recovery plans in place to mitigate the Company's risk to these vulnerabilities, including protection of confidential or personal information, but these measures may not be adequate or implemented properly to ensure that the Company's operations are not disrupted. The Company’s IT systems have been, and will likely continue to be, subject to computer viruses or other malicious codes, unauthorized access attempts, phishing and other cyber-incidents. The Company cannot guarantee that its security efforts will prevent breaches or breakdowns to its IT systems or those of its third party providers. Potential consequences of a material cyber incident, which could result in confidential or personal information being accessed, obtained, damaged or used by unauthorized or improper persons, include damage to the Company’s reputation, litigation, inefficiencies or production downtimes and increased cyber security protection and remediation costs. Such consequences could have a negative impact on the Company’s ability to meet customers’ orders, resulting in a delay or decrease to its revenue and a reduction to its operating margins.

The Company could encounter difficulties restructuring operations or closing or disposing of facilities.

The Company is continuously seeking the most cost-effective means and structure to serve our customers and to respond to changes in our markets. Accordingly, from time to time, the Company has, and is likely to again close facilities, sell non-core assets and otherwise restructure operations in an effort to improve cost competitiveness and profitability. As a result, restructuring and divesture costs have been, and are expected to be, a recurring component of our operating costs, and may vary significantly from year to year depending on the scope of such activities. Divestures and restructuring may also result in significant financial charges for the impairment of assets, including goodwill and other intangible assets. Furthermore, such activities may divert the attention of management, disrupt our ordinary operations, or result in a reduction in the volume of products produced and sold. In 2016, the Company’s results include a $26 million of unabsorbed fixed costs related to the fluff pulp conversion outage at its Ashdown mill. There is no guarantee that any such activities will achieve its goal, and if the Company cannot successfully manage the associated risks, its financial condition and results of operations could be adversely affected.

The Company has liabilities with respect to its pension plans and the actual cost of its pension plan obligations could exceed current provisions. As of December 31, 2016, the Company’s defined benefit plans had a surplus of $103 million on certain plans and a deficit of $141 million on others.

The Company does not expect any potential short-term liquidity issues to affect the pension funds since pension fund obligations are primarily long-term in nature. Losses in pension fund investments, if any, would result in future increased contributions by the Company. Additional contributions to these pension funds would be required to be paid over 5 year or 10 year periods, depending upon the applicable legislation for funding pension deficits. Losses, if any, would also impact  results of operations over a longer period of time and immediately increase liabilities and reduce equity.

The Company’s future funding obligations for its defined benefit pension plans depend upon changes to the level of benefits provided by the plans, the future performance of assets set aside in trusts for these plans, the level of interest rates used to determine minimum funding levels, actuarial data and experience, and any changes in government laws and regulations. As of December 31, 2016, the Company’s defined benefit pension plans held assets with a fair value of $1,546 million.

The Company’s intellectual property rights are valuable, and any inability to protect them could reduce the value of its products and its brands.

The Company relies on patent, trademark and other intellectual property laws of the United States and other countries to protect its intellectual property rights. However, the Company may be unable to prevent third parties from using its intellectual property without its authorization, which may reduce any competitive advantage it has developed. If the Company had to litigate to protect these rights, any proceedings could be costly, and it may not prevail. The Company cannot guarantee that any United States or foreign patents, issued or pending, will provide it with any competitive advantage or will not be challenged by third parties. Additionally, the Company has obtained and applied for United States and foreign trademark registrations, and will continue to evaluate the registration of additional service marks and trademarks, as appropriate. The Company cannot guarantee that any of its pending patent or trademark applications will be approved by the applicable governmental authorities and, even if the applications are approved, third parties may seek to oppose or otherwise challenge these registrations. The failure to secure any pending patent or trademark applications may limit the Company’s ability to protect the intellectual property rights that these applications were intended to cover.

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If the Company is unable to successfully retain and develop executive leadership and other key personnel, it may be unable to fully realize critical organizational strategies, goals and objectives.

The success of the Company is substantially dependent on the efforts and abilities of its key personnel, including its executive management team, to develop and implement its business strategies and manage its operations. The failure to retain key personnel or to develop successors with appropriate skills and experience for key positions in the Company could adversely affect the development and achievement of critical organizational strategies, goals and objectives. There can be no assurance that the Company will be able to retain or develop the key personnel it needs and the failure to do so may adversely affect its financial condition and results of operations.

The Company’s balance sheet includes a significant amount of goodwill and intangible assets. The Company may be required to record a material charge to earnings due to impairment of goodwill and/or intangible assets carried on its balance sheet.

As a result of business acquisitions in the past years, mostly in the Personal Care segment, the Company carries on its balance sheet goodwill and intangible assets. Goodwill represents the excess of the purchase price of each of our acquisitions over the fair value of identifiable tangible and intangible assets of the acquired business. As of December 31, 2016, the Company’s balance sheet included goodwill of $550 million, all of which was attributable to our Personal Care segment, and intangible assets of $608 million, of which $337 million related to intangible assets subject to amortization and $271 million related to indefinite-lived intangible assets. The Company performs annual evaluations or more frequently if impairment indicators arise, for potential impairment of the carrying value of goodwill for each of its reporting units and of its intangible assets.

Impairment assessments inherently involve management judgment as to the assumptions used to estimate fair value of the reporting units or intangible asset being tested. Changes in assumptions or estimates can materially affect the determination of fair value. The major factors that influence the analysis of fair value are the Company's estimates for above-market future sales growth, driven by significant capital investments in new production lines, and the discount rate associated with the reporting unit or asset being tested.  In connection with the Company's annual impairment testing performed in 2016, the first step of such testing indicated that the fair values of our reporting unit and indefinite-lived intangible assets exceeded its carrying amount. The estimated fair value of the Personal Care reporting unit exceeded its carrying value by 24%. If assumed significant revenue growth is not achieved in future periods and/or there is an increase to the rate used to discount the estimated cash flows, there is the potential for partial or full goodwill impairment related to the reporting unit and/or related indefinite-lived intangible assets. As of December 31, 2016, the goodwill balance attributable to the Personal Care reporting unit was $550 million and the carrying value of related intangible assets for Personal Care was $593 million. If we are required to impair all or a significant amount of the goodwill attributable to the Personal Care reporting unit, and/or the carrying value of related intangible assets, and consequently record a non-cash impairment charge, the Company’s results of operations and financial condition could be adversely affected.

ITEM 1B.  UNRESOLVED STAFF COMMENTS

None.

ITEM 2.  PROPERTIES

A description of our mills and related properties is included in Part I, Item I, Business, of this Annual Report on Form 10-K.

Production facilities

We own substantially all of our production facilities with the exception of some production facilities where either certain portions are subject to leases with government agencies in connection with industrial development bond financings, or are leased with a third party or are fee-in-lieu-of-tax agreements, and lease substantially all of our sales offices, regional replenishment centers and warehouse facilities. We believe our properties are in good operating condition and are suitable and adequate for the operations for which they are used. We own substantially all of the equipment used in our facilities.

Forestlands

We manage approximately 4 million acres of forestlands that are directly licensed or owned by Domtar in Canada, through efficient management and the application of certified sustainable forest management practices. We also have access to fiber from an additional 22 million acres of public forestlands in Canada that are licensed and managed by third parties. We believe that these forestlands will provide a continuous supply of wood for future needs.

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Listing of facilities and locations

Corporate Offices Fort Mill, South Carolina Montreal, Quebec   Pulp & Paper Division Headquarters Fort Mill, South Carolina   Uncoated Freesheet Ashdown, Arkansas Espanola, Ontario Hawesville, Kentucky Johnsonburg, Pennsylvania Kingsport, Tennessee Marlboro (Bennettsville), South Carolina Nekoosa, Wisconsin Port Huron, Michigan Rothschild, Wisconsin Windsor, Quebec   Pulp Dryden, Ontario Kamloops, British Columbia Plymouth, North Carolina   Chip Mills Hawesville, Kentucky Johnsonburg, Pennsylvania Kingsport, Tennessee Marlboro (Bennettsville), South Carolina   Converting and Distribution – Onsite Ashdown, Arkansas Rothschild, Wisconsin Windsor, Quebec   Converting and Forms Manufacturing Addison, Illinois Brownsville, Tennessee Dallas, Texas DuBois, Pennsylvania Griffin, Georgia Owensboro, Kentucky Ridgefields, Tennessee Rock Hill, South Carolina Tatum, South Carolina Washington Court House, Ohio     Local Distribution Centers Atlanta, Georgia Birmingham, Alabama Buffalo, New York Cincinnati, Ohio Cleveland, Ohio Cumberland, Rhode Island Denver, Colorado Des Moines, Iowa Houston, Texas Indianapolis, Indiana Jackson, Mississippi Kansas City, Kansas Louisville, Kentucky Memphis, Tennessee Minneapolis, Minnesota Nashville, Tennessee Omaha, Nebraska Phoenix, Arizona Pittsburgh, Pennsylvania Plain City, Ohio Richmond, Virginia Salt Lake City, Utah San Antonio, Texas San Lorenzo, California St. Louis, Missouri Vancouver, Washington Walton, Kentucky Wayland, Michigan Wayne, Michigan   Regional Replenishment Centers – United States Mira Loma, California Jacksonville, Florida Chicago, Illinois Delran, New Jersey Charlotte, North Carolina Dallas, Texas Seattle, Washington   Regional Replenishment Centers  – Canada Richmond, Quebec Toronto, Ontario Winnipeg, Manitoba   Representative Office – International Hong Kong, China   Ariva – Canada Ottawa, Ontario Toronto, Ontario Montreal, Quebec Quebec City, Quebec Halifax, Nova Scotia Mount Pearl, Newfoundland and Labrador   Personal Care Division Headquarters Raleigh, North Carolina   Personal Care – Manufacturing and Distribution   NORTH AMERICA Delaware, Ohio Greenville, North Carolina Waco, Texas   EAM Corporation Jesup, Georgia   EUROPE Aneby, Sweden Toledo, Spain   Personal Care – Sales offices Antrim, Northern Ireland Daytona Beach, Florida Emmerloord, The Netherlands Keebergen, Belgium Olivette, Missouri Oslo, Norway Pasching, Austria Linz, Austria Lisbon, Portugal Madrid, Spain Pusignan, FranceRheinfelden, Switzerland Schwalbach am Taunus, Germany Stockholm, Sweden Texarkana, Arkansas Wakefield, United Kingdom    

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ITEM 3.  LEGAL PROCEEDINGS

In the normal course of operations, the Company becomes involved in various legal actions mostly related to contract disputes, patent infringements, environmental and product warranty claims, and labor issues. The Company periodically reviews the status of these proceedings and assesses the likelihood of any adverse judgments or outcomes of these legal proceedings, as well as analyzes probable losses. Although the final outcome of any legal proceeding is subject to a number of variables and cannot be predicted with any degree of certainty, management currently believes that the ultimate outcome of current legal proceedings will not have a material adverse effect on the Company’s long-term results of operations, cash flow or financial position. However, an adverse outcome in one or more of the significant legal proceedings could have a material adverse effect on the Company’s results, financial condition or cash flow in a given quarter or year.

For a discussion of commitments, legal proceedings and related contingencies, refer to Item 8, Financial Statements and Supplementary Data under Note 22 “Commitments and Contingencies” for more details.

ITEM 4.  MINE SAFETY DISCLOSURES

Not applicable.

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PART II

ITEM 5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

MARKET INFORMATION

Domtar Corporation’s common stock is traded on the New York Stock Exchange and the Toronto Stock Exchange under the symbol “UFS”. The following table sets forth the price ranges of our common stock during 2016 and 2015.

	New York Stock Exchange ($)						Toronto Stock Exchange (CDN$)
	High		Low		Close		High		Low		Close
2016 Quarter
First		40.50		30.43		40.50		52.57		42.41		52.57
Second		42.68		33.70		35.01		54.85		43.91		45.21
Third		39.53		33.24		37.13		52.13		43.32		48.69
Fourth		41.59		34.25		39.03		54.86		45.62		52.41
Year		42.68		30.43		39.03		54.86		42.41		52.41
2015 Quarter
First		46.86		36.75		46.22		59.49		44.24		58.48
Second		45.79		41.40		41.40		57.12		51.48		51.75
Third		42.21		35.49		35.75		54.40		47.55		47.73
Fourth		42.10		35.87		36.95		55.87		47.54		51.17
Year		46.86		35.49		36.95		59.49		44.24		51.17

HOLDERS

At December 31, 2016, the number of shareholders of record (registered and non-registered) of Domtar Corporation common stock was approximately 20,100.

DIVIDENDS AND STOCK REPURCHASE PROGRAM

During 2016, the Company declared one quarterly dividend of $0.40 per share and three quarterly dividends of $0.415 per share, to holders of our common stock. The total dividends of approximately of $25 million, $26 million, $26 million and $26 million were paid on April 15, 2016, July 15, 2016, October 17, 2016 and January 17 2017, respectively, to shareholders of record as of April 4, 2016, July 5, 2016, October 3, 2016 and January 3, 2017, respectively.  

During 2015, the Company declared four quarterly dividends of $0.40 per share, to holders of the Company’s common stock. The total dividends of approximately $26 million, $25 million, $25 million and $25 million were paid on April 15, 2015, July 15, 2015, October 15, 2015 and January 15, 2016, respectively, to shareholders of record as of April 2, 2015, July 2, 2015, October 2, 2015 and January 4, 2016, respectively.

On February 21, 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 April 17, 2017 to shareholders of record on April 3, 2017.

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, from time to time, in part to reduce the dilutive effects of its stock options, awards, and to improve shareholders’ returns.

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

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During 2016, the Company repurchased 304,915 shares (2015 – 1,210,932; 2014 – 996,967 shares) at an average price of $32.21 (2015 – $41.40; 2014 – $38.59) for a total cost of $10 million (2015 – $50 million, 2014 – $38 million).

Since the inception of the Program, the Company 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.

Share repurchase activity under our share repurchase program was as follows during the year ended December 31, 2016:

							(d) Approximate
					(c) Total Number		Dollar Value of
					of Shares		Shares that May
					Purchased  as		Yet be Purchased
	(a) Total Number		(b) Average		Part of Publicly		under the Plans
	of Shares		Price Paid		Announced Plans		or Programs
Period	Purchased		per Share		or Programs		(in 000s)
January 1 through March 31, 2016		304,915	$	32.21		304,915	$	322,572
April 1 through June 30, 2016		—	$	—		—	$	322,572
July 1 through September 30, 2016		—	$	—		—	$	322,572
October 1 through October 31, 2016		—	$	—		—	$	322,572
November 1 through November 30, 2016		—	$	—		—	$	322,572
December 1 through December 31, 2016		—	$	—		—	$	322,572
		304,915	$	32.21		304,915

PERFORMANCE GRAPH

This graph compares the return on a $100 investment in the Company’s common stock on December 31, 2011 with a $100 investment in an equally-weighted portfolio of a peer group⁽¹⁾, and a $100 investment in the S&P 400 MidCap Index. This graph assumes that returns are in local currencies and assumes quarterly reinvestment of dividends. The measurement dates are the last trading day of the period as shown.

⁽¹⁾ On May 18, 2007, the Human Resources Committee of the Board of Directors established performance measures as part of the Performance Conditioned Restricted Stock Units (“PCRSUs”) Agreement including the achievement of a total shareholder

27

return compared to a peer group. The 2016 peer group includes: Sonoco Products Company, Glatfelter Corporation, International Paper Co., Kimberly-Clark Corporation, Packaging Corp. of America, Resolute Forest Products Inc., Neenah Paper, Inc., UPM-Kymmene Corp., SCA and Stora Enso Oyj.

ITEM 6.  SELECTED FINANCIAL DATA

The following sets forth selected historical financial data of the Company for the periods and as of the dates indicated. The selected financial data as of and for the fiscal years then ended have been derived from the audited financial statements of Domtar Corporation.

The following table should be read in conjunction with Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 8, Financial Statements and Supplementary Data.

	Year ended
FIVE YEAR FINANCIAL SUMMARY	December 31, 2016		December 31, 2015		December 31, 2014		December 31, 2013		December 31, 2012
(In millions of dollars, except per share figures)
Statement of Income Data:
Sales	$	5,098	$	5,264	$	5,563	$	5,391	$	5,482
Closure and restructuring costs and impairment    of property, plant and equipment and intangible assets		61		81		32		40		44
Depreciation and amortization		348		359		384		376		385
Operating income		223		288		364		161		367
Net earnings		128		142		431		91		172
Net earnings per common share - basic 1	$	2.04	$	2.24	$	6.65	$	1.37	$	2.39
Net earnings per common share - diluted1	$	2.04	$	2.24	$	6.64	$	1.36	$	2.39
Cash dividends paid per common and exchangeable    share 1	$	1.63	$	1.58	$	1.30	$	1.00	$	0.80
Balance Sheet Data:
Cash and cash equivalents	$	125	$	126	$	174	$	655	$	661
Net property, plant and equipment		2,825		2,835		3,131		3,289		3,401
Total assets		5,680		5,654		6,175		6,267		6,114
Long-term debt due within one year		63		41		169		4		79
Long-term debt		1,218		1,210		1,171		1,499		1,119
Total shareholders' equity		2,676		2,652		2,890		2,782		2,877

¹ Earnings per common share and cash dividends paid per common and exchangeable share have been adjusted on a post-split basis.

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ITEM 7.  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 audited consolidated financial statements and notes thereto included in Item 8, Financial Statements and Supplementary Data. Throughout this MD&A, unless otherwise specified, “Domtar Corporation,” “the Company,” “Domtar,” “we,” “us” and “our” refers to Domtar Corporation and its subsidiaries. Domtar Corporation’s common stock is listed on the New York Stock Exchange and the Toronto Stock Exchange. Except where otherwise indicated, all financial information reflected herein is determined on the basis of accounting principles generally accepted in the United States.

In accordance with industry practice, in this report, the term “ton” or the symbol “ST” refers to a short ton, an imperial unit of measurement equal to 0.9072 metric tons. The term “metric ton” or the symbol “ADMT” refers to an air dry metric ton. In this report, unless otherwise indicated, all dollar amounts are expressed in U.S. dollars, and the term “dollars” and the symbol “$” refer to U.S. dollars. In the following discussion, unless otherwise noted, references to increases or decreases in income and expense items, prices, contribution to net earnings (loss), and shipment volumes are based on the twelve months period ended December 31, 2016, 2015 and 2014. The twelve month periods are also referred to as 2016, 2015 and 2014. Reference to notes refers to footnotes to the consolidated financial statements and notes thereto included in Item 8, Financial Statements and Supplementary Data.

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

• 2016 Highlights

• Outlook

• Consolidated Results of Operations and Segment Review

• Liquidity and Capital Resources

• Recent Accounting Pronouncements and Critical Accounting Estimates and Policies

OVERVIEW

We have two reportable segments as described below, which also represent our two operating segments. Each reportable segment offers different products and services and requires different manufacturing processes, technology and/or marketing strategies. The following summary briefly describes the operations included in each of our reportable segments.

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

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

2016 HIGHLIGHTS

• Operating income and net earnings decreased by 23% and 10%, respectively from 2015

• Sales decreased by 3% from 2015. Net average selling prices for pulp and paper were down from 2015. Our manufactured paper volumes were down while our pulp volumes were up when compared to 2015

• Acquisition of Home Delivery Incontinent Supplies Co.  (“HDIS”) on October 1, 2016

• Recognition of closure and restructuring costs of $32 million, of which $26 million is related to the conversion of a paper machine at our Ashdown mill to a high quality fluff pulp line and $5 million is related to our plan to optimize fluff pulp manufacturing at our Plymouth mill

• Recognition of accelerated depreciation of $29 million related to the conversion of a paper machine at our Ashdown mill to a high quality fluff pulp line

• We repurchased $10 million of our common stock and paid $102 million in dividends

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	Twelve months ended
	December 31,		December 31,		December 31,		Variance 2016 vs. 2015						Variance 2015 vs. 2014
FINANCIAL HIGHLIGHTS	2016		2015		2014		$			%			$			%
(In millions of dollars, unless otherwise noted)
Sales	$	5,098	$	5,264	$	5,563	$	(166	)		-3	%	$	(299	)		-5	%
Operating income		223		288		364		(65	)		-23	%		(76	)		-21	%
Net earnings		128		142		431		(14	)		-10	%		(289	)		-67	%
Net earnings per common share    (in dollars)1 :
Basic	$	2.04	$	2.24	$	6.65	$	(0.20	)				$	(4.41	)
Diluted	$	2.04	$	2.24	$	6.64	$	(0.20	)				$	(4.40	)

	At December 31,		At December 31,
	2016		2015
Total assets	$	5,680	$	5,654
Total long-term debt, including current portion	$	1,281	$	1,251

¹ See Item 8, Financial Statements and Supplementary Date under Note 6 "Earnings per Common Share" for more information on the calculation of net earnings per common share.

OUTLOOK

In 2017, we expect our paper shipments to be in-line with market demand, while pulp shipments should be higher due to the conversion of a paper machine to a fluff pulp line. We anticipate some volatility in softwood and fluff pulp markets due to the strong U.S. dollar and new capacity additions. Costs, including freight, labor and raw materials, are expected to marginally increase. In Personal Care, investments in advertising and promotion in addition to new customer wins should drive higher sales.

CONSOLIDATED RESULTS OF OPERATIONS

This section presents a discussion and analysis of our 2016, 2015 and 2014 net sales, operating income (loss) and other information relevant to the understanding of our results of operations.

ANALYSIS OF NET SALES
By Business Segment	Twelve months ended
	December 31,			December 31,			December 31,			Variance 2016 vs. 2015						Variance 2015 vs. 2014
	2016			2015			2014			$			%			$			%
Pulp and Paper	$	4,239		$	4,458		$	4,674			(219	)		-5	%		(216	)		-5	%
Personal Care		917			869			928			48			6	%		(59	)		-6	%
Total for reportable segments		5,156			5,327			5,602			(171	)		-3	%		(275	)		-5	%
Intersegment sales		(58	)		(63	)		(39	)		5						(24	)
Consolidated		5,098			5,264			5,563			(166	)		-3	%		(299	)		-5	%
Shipments
Paper - Manufactured (in thousands of ST)		3,021			3,163			3,148			(142	)		-4	%		15			-	%
Communication Papers		2,522			2,639			2,637			(117	)		-4	%		2			-	%
Specialty and Packaging		499			524			511			(25	)		-5	%		13			3	%
Paper - sourced from third parties
(in thousands of ST)		123			127			170			(4	)		-3	%		(43	)		-25	%
Paper - total (in thousands of ST)		3,144			3,290			3,318			(146	)		-4	%		(28	)		-1	%
Pulp (in thousands of ADMT)		1,513			1,414			1,391			99			7	%		23			2	%

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ANALYSIS OF CHANGES IN SALES
	2016 vs. 2015													2015 vs. 2014
	% Change in Net Sales due to													% Change in Net Sales due to
				Volume /													Volume /
	Net Price			Mix				Currency			Total			Net Price			Mix			Currency			Total
Pulp and Paper		-3	%		-2	%			—	%		-5	%		-5	%		—	%		—	%		-5	%
Personal Care		-3	%		9	%	(a)		—	%		6	%		-1	%		4	%		-9	%		-6	%
Consolidated sales		-3	%		—	%			—	%		-3	%		-4	%		—	%		-1	%		-5	%

Commentary:

(a) Include sales of HDIS since October 1, 2016.

ANALYSIS OF OPERATING INCOME (LOSS)
By Business Segment	Twelve months ended
	December 31,			December 31,			December 31,			2016 vs. 2015 Variance						2015 vs. 2014 Variance
	2016			2015			2014			$			%			$			%
Operating income (loss)
Pulp and Paper		217			270			352			(53	)		-20	%		(82	)		(23	)%
Personal Care		57			61			49			(4	)		-7	%		12			24	%
Corporate		(51	)		(43	)		(37	)		(8	)		19	%		(6	)		16	%
Consolidated operating income		223			288			364			(65	)		-23	%		(76	)		(21	)%

2016 VS. 2015
	$ Change in Segmented Operating Income due to
	Volume/								Operating (c)						Depreciation/						Other Income/
	Mix			Net Price			Input Costs (b)		Expenses			Currency			Impairment (d)			Restructuring (e)			Expense (f)			Total
Pulp and Paper		(30	)		(135	)		44		6			44			59			(28	)		(13	)		(53	)
Personal Care		5	(a)		(25	)		30		(10	)		(5	)		(2	)		—			3			(4	)
Corporate		—			—			—		(9	)		—			—			—			1			(8	)
Consolidated operating income (loss)		(25	)		(160	)		74		(13	)		39			57			(28	)		(9	)		(65	)

Commentary:

(a) Include results of HDIS since October 1, 2016.

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

(c) Includes maintenance, freight costs, SG&A expenses and other costs.

(d) In 2016, we recorded $29 million of accelerated depreciation related to the conversion of a paper machine to a high quality fluff pulp line at our Ashdown mill, compared to $77 million recorded in 2015. Depreciation charges were lower by $9 million in 2016, excluding foreign currency impact.

(e)

2016 restructuring charges relate mostly to:	2015 restructuring charges relate mostly to:
-Fluff conversion related charges at Ashdown    ($26 million) -Plymouth optimization charges ($5 million) -Severance and termination costs ($4 million) -Credit related to pension settlement and withdrawal liabilities ($3 million)	-Fluff conversion related charges at Ashdown ($3 million) -Termination costs at Attends Healthcare Limited    (“Attends Europe”) ($1 million)

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(f)

2016 operating expenses/income includes:	2015 operating expenses/income includes:
- Foreign exchange loss ($6 million) - Environmental provision ($2 million) - Other income ($4 million)	- Net gain on sale of property, plant & equipment   ($15 million) - Environmental provision ($4 million) - Foreign exchange gain ($3 million) - Bad debt expense ($5 million) - Other expense ($4 million)

Interest Expense, net

We incurred $66 million of net interest expense in 2016, a decrease of $66 million compared to net interest expense of $132 million in 2015. This decrease was mostly due to a premium of $42 million paid in August 2015 on the partial repayment of the 9.5% Notes due 2016 and on the 10.75% Notes due 2017 as well as a decrease in interest expense on these Notes as a result of the partial repayment. In addition, interest expense also decreased due to the repayment at maturity of the 7.125% Notes due in August 2015 as well as the maturity of the 9.5% Notes in August 2016. This decrease was partially offset by interest expense related to the borrowing under the Term Loan Agreement drawn down in the third quarter of 2015.  

Income Taxes

For 2016, our income tax expense was $29 million compared to a tax expense of $14 million in 2015, which yields an effective tax rate of 18% and 9% for 2016 and 2015, respectively.

During 2016, we recorded $18 million of tax credits, mainly research and experimentation credits, which significantly impacted the effective tax rate. The effective tax rate for 2016 was also significantly impacted by our foreign operations being taxed at lower statutory tax rates.

During 2015, we recorded $16 million of tax credits, mainly research and experimentation credits, which significantly impacted the effective tax rate. Additionally, the effective tax rate for 2015 was also positively impacted by the manufacturing deduction in the U.S., enacted law changes in various U.S. states, and the impact of our foreign operations being taxed at lower statutory tax rates.

Valuation Allowances

In 2016, we recorded a net valuation allowance reversal of $1 million related to certain foreign loss carryforwards, which impacted the effective tax rate for the year. In 2015, we also recorded a net valuation reversal of $1 million, mainly related to foreign loss carryforwards, which impacted the effective tax rate for the year.

2015 VS. 2014
	$ Change in Segmented Operating Income due to
	Volume/							Operating (b)						Depreciation/					Other Income/
	Mix		Net Price			Input Costs (a)		Expenses			Currency			Impairment (c)			Restructuring (d)		Expense (e)			Total
Pulp and Paper		5		(211	)		44		23			100			(61	)		24		(6	)		(82	)
Personal Care		12		(11	)		36		(10	)		(12	)		(3	)		—		—			12
Corporate		—		—			—		5			7			—			—		(18	)		(6	)
Consolidated operating income (loss)		17		(222	)		80		18			95			(64	)		24		(24	)		(76	)

Commentary:

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

(b) Includes maintenance, freight costs, SG&A expenses and other costs.

(c) In 2015, we recorded $77 million of accelerated depreciation related to the conversion of a paper machine to a high quality fluff pulp line at our Ashdown mill. In 2014, we recorded $4 million of accelerated depreciation related to the conversion of a paper machine to a pulp line at Ashdown in the fourth quarter of 2014.

(d)

2015 restructuring charges related mostly to: 2014 restructuring charges related mostly to:

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-Fluff conversion related charges at Ashdown ($3 million) -Termination costs at Attends Healthcare Limited (“Attends Europe”) ($1 million) -Ottawa pension settlement ($19 million) -Fluff conversion related charges at Ashdown ($3 million) -Indianapolis Forms / Converting center ($3 million) -Termination costs at AHP ($1 million) -Other closure and restructuring costs ($2 million)

(e)

2015 operating expenses/income includes:	2014 operating expenses/income includes:
- Net gain on sale of property, plant & equipment   ($15 million) - Environmental provision ($4 million) - Foreign exchange gain ($3 million) - Bad debt expense ($5 million) - Other expense ($4 million)	- Recognition of Alternative fuel tax credits (“AFTC”) ($18 million) - Bad debt expense ($2 million) - Environmental provision ($1 million) - Foreign exchange gain ($1 million) - Proceeds from insurance claims on machinery and   equipment ($11 million) -Other income ($2 million)

Interest Expense, net

We incurred $132 million of net interest expense in 2015, an increase of $29 million compared to net interest expense of $103 million in 2014. The increase was mostly due to debt refinancing costs of $42 million in August 2015 on the partial repayment of the 9.5% Notes due 2016 and of the 10.75% Notes due 2017, partially offset by a corresponding decrease in interest expense on these Notes. In addition, interest expense also decreased on the 7.125% Notes due to their maturity in August 2015.

Income Taxes

For 2015, our income tax expense was $14 million compared to a tax benefit of $170 million in 2014, which approximated an effective tax rate of 9% and -65% for 2015 and 2014, respectively.

During 2015, we recorded $16 million of tax credits, mainly research and experimentation credits, which significantly impacted the effective tax rate. Additionally, the effective tax rate for 2015 was also positively impacted by the manufacturing deduction in the U.S., enacted law changes in various U.S. states, and the impact of our foreign operations being taxed at lower statutory tax rates.

In 2014, the Internal Revenue Service (“IRS”) completed its ongoing U.S. federal income tax audit for tax years 2009, 2010, and 2011, and we filed related amended state tax returns. The net impact of the audit resolution resulted in a tax benefit of $207 million for 2014, which impacted the effective tax rate. This benefit consisted primarily of the recognition of previously unrecognized tax benefits of $200 million and additional U.S. manufacturing deductions of $7 million. The effective tax rate was also positively impacted by the recognition of $18 million of AFTC with no related tax expense. Also during 2014, we recorded $18 million of tax credits, mainly research and experimentation credits pertaining to current and prior years. The effective tax rate for 2014 was also impacted by an enacted tax rate decrease in Spain, tax losses related to functional currency differences and the impact of our foreign operations being taxed at lower statutory tax rates.

Valuation Allowances

In 2015, we recorded a net valuation allowance reversal of $1 million related to certain foreign loss carryforwards, which impacted the effective tax rate for the year. In 2014, we recorded a net valuation allowance of $7 million, mainly related to foreign loss carryforwards, which impacted the effective tax rate for the year.

SEGMENT REVIEW

Pulp and Paper

Sales in our Pulp and Paper segment decreased by $219 million, or 5% when compared to sales in 2015. This decrease in sales is mostly due to a 3% decrease in net average selling prices for pulp and paper as well as a decrease in our paper sales volumes, partially offset by an increase in our pulp sales volumes of approximately 2%.

Operating income in our Pulp and Paper segment amounted to $217 million in 2016, a decrease of $53 million, when compared to operating income of $270 million in 2015. Our results were negatively impacted by:

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• Lower average selling prices for paper and pulp ($135 million)

• Lower volume and mix ($30 million) mostly related to lower volume of paper partially offset by higher volume of pulp

• Higher restructuring costs mostly related to the conversion at Ashdown described above and the closure of a pulp dryer and idling of related assets at our Plymouth mill, related to our plan to optimize fluff pulp manufacturing ($28 million)

• Higher other income/expense ($13 million) mostly due to net gain on sale of property, plant and equipment in 2015

These decreases were partially offset by:

• Lower depreciation charges ($59 million) due to lower accelerated depreciation related to our 2014 decision to convert a paper machine at our Ashdown facility to a high quality fluff pulp line and lower depreciation expenses due to certain assets reaching the end of their useful lives

• Positive impact of a weaker Canadian dollar on our Canadian denominated expenses, net of our hedging program ($44 million)

• Lower input costs ($44 million) mostly related to lower fiber and energy costs due to improved market and weather conditions

• Lower operating expenses ($6 million) mostly related to lower freight costs due to favorable global economic factors including excess vessel capacity, carrier consolidation and lower oil prices as well as lower maintenance costs due to timing of major maintenance when compared to 2015 and reduced scope of outages and cost control measures, partially offset by lower productivity

Sales in 2015 in our Pulp and Paper segment decreased by $216 million, or 5% when compared to sales in 2014. This decrease in sales is mostly due to a 5% decrease in net average selling prices for pulp and paper. Total sales volume and foreign exchange were flat when compared to 2014.

Operating income in 2015 in our Pulp and Paper segment amounted to $270 million, a decrease of $82 million, when compared to operating income of $352 million in 2014. Our results were negatively impacted by:

• Lower average selling prices for paper and pulp ($211 million)

• Higher depreciation charges ($61 million) due to higher accelerated depreciation related to our 2014 decision to convert a paper machine at our Ashdown facility to a high quality fluff pulp line, partially offset by lower depreciation expenses due to certain assets reaching the end of their useful lives

• Lower other income/expense ($6 million) due to proceeds from insurance claims on machinery and equipment in 2014, increase in bad debt expense as well as other expenses, partially offset by net gain on property, plant and equipment in 2015

These decreases were partially offset by:

• Positive impact of a weaker Canadian dollar on our Canadian denominated expenses, net of our hedging program ($100 million)

• Lower input costs ($44 million) mostly related to lower energy costs due to extreme cold weather in 2014 and chemical costs in part due to favorable prices, partially offset by higher fiber costs due to wet weather in the southern U.S. region in the first half of 2015

• Lower restructuring costs mostly due to the Ottawa pension settlement in 2014  

• Lower operating expenses ($23 million) mostly related to lower freight costs due to the 2014 strike at the port of Vancouver and disruption in the Canadian rail service also in 2014 and lower maintenance costs due to timing of major maintenance as well as additional repairs and extended scope of outages in 2014

• Lower volume and mix ($5 million) mostly related to higher volume of pulp partially offset by lower volume of paper

Personal Care

Sales in 2016  in our Personal Care segment increased by $48 million, or 6% when compared to sales in 2015. This increase in sales is driven by higher sales volume and mix of approximately 9% including sales of HDIS since October 1, 2016. This increase was partially offset by lower selling prices of approximately 3% while foreign exchange was flat when compared to 2015.  

Operating income decreased by $4 million or 7% in 2016 compared to 2015. Our results were negatively impacted by:

• Unfavorable average net selling prices ($25 million)

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• Higher operating expenses ($10 million) mostly related to higher selling, general and administrative expenses as well as higher salaries and wages due to additional labor, salary increases and an increase in advertising expense

• Unfavorable foreign exchange impact, net of our hedging program ($5 million)

• Increased depreciation charges ($2 million)

These decreases were partially offset by the following:

• Lower input costs ($30 million) mostly due to a decrease in price of super absorbent polymers, fluff pulp and non-woven as well as insourcing initiatives

• Higher sales volume and mix ($5 million)

• Favorable other income/expense ($3 million) mostly due to foreign exchange gain on working capital

Sales in 2015 in our Personal Care segment decreased by $59 million, or 6% when compared to sales in 2014. This decrease in sales is driven by unfavorable foreign currency rates of approximately 9%, due to the fluctuation between the U.S. dollar and the Euro and lower selling prices, partially offset by higher sales volume and mix of approximately 4%.

Operating income increased by $12 million or 24% in 2015 compared to 2014. Our results were positively impacted by:

• Lower input costs ($36 million) mostly due to a decrease in price of super absorbent polymers, non-woven and fluff pulp as well as insourcing initiatives

• Higher sales volume and mix ($12 million)

These increases were partially offset by the following:

• Unfavorable foreign exchange mostly between the U.S. dollar and the Euro, net of our hedging program ($12 million)

• Unfavorable average net selling prices ($11 million)

• Higher operating expenses ($10 million) mostly due higher selling, general and administrative expenses as well as higher salaries and wages due to additional labor for newly installed capacity

• Higher depreciation charges ($3 million)

STOCK-BASED COMPENSATION EXPENSE

Under the Omnibus Incentive Plan, we may award to key employees and non-employee directors at the discretion of the Human Resources Committee of the Board of Directors, non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock units, performance-conditioned restricted stock units, performance share units, deferred share units (“DSUs”) and other stock-based awards. The non-employee directors only receive DSUs. We generally grant awards annually and use, when available, treasury stock to fulfill awards settled in common stock and options exercises.

For the year ended December 31, 2016, stock-based compensation expense recognized in our results of operations was $16 million (2015– $10 million; 2014 – $9 million) for all outstanding awards. Stock-based compensation expense not yet recognized amounted to $17 million (2015 – $16 million; 2014 – $14 million) and will be recognized over the remaining service period of approximately 26 months. The aggregate value of liability awards settled in 2016 was $4 million (2015 – $4 million; 2014 – $12 million). The total fair value of equity awards settled in 2016 was $2 million, representing the fair value at the time of settlement. The fair value at the grant date for these settled equity awards was $3 million. 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 $650 million is currently undrawn and available, or through our $150 million receivables securitization facility, of which $32 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

35

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 indefinitely reinvested in foreign operations. We do not intend on repatriating these funds and no provision is made for income taxes that would be payable upon the distribution of earnings from foreign subsidiaries as computation of these amounts is not practical.

Operating Activities

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

Cash flows provided from operating activities totaled $465 million in 2016, a $12 million increase compared to cash flows provided from operating activities of $453 million in 2015. This increase in cash flows provided from operating activities is primarily due to a decrease in working capital requirements in 2016 when compared to 2015 as a result of inventory draw down and cash collection on accounts receivable, partially offset by lower profitability. We made income tax payments, net of refunds, of $40 million in 2016 compared to income tax payments, net of refunds of $34 million in 2015. We paid $21 million of employer pension and other post-retirement contribution in excess of pension and other post-retirement expense in 2016, compared to $1 million in 2015. We paid debt refinancing costs of $42 million in 2015.

Cash flows provided from operating activities totaled $453 million in 2015, a $181 million decrease compared to cash flows provided from operating activities of $634 million in 2014. This decrease in cash flows provided from operating activities is primarily due to lower profitability and an increase in working capital requirements in 2015 when compared to 2014, in part due to inventory build-up. We received cash of $34 million in the first quarter of 2014 due to the impact of the Spanish government supplier payment plan on past due receivables, paid debt refinancing costs of $42 million in the third quarter of 2015 and made income tax payments, net of refunds of $34 million in 2015.

In 2014, we experienced a decrease in working capital requirements, in part due to cash received of $34 million due to the impact of the Spanish government supplier payment plan on past due receivables.

Investing Activities

Cash flows used for investing activities in 2016 amounted to $391 million, a $147 million increase compared to cash flows used for investing activities of $244 million in 2015.

The use of cash in 2016 was attributable to additions to property, plant and equipment of $347 million as well as the acquisition of HDIS in the fourth quarter of 2016 for $45 million. This was partially offset by the proceeds from disposal of property, plant and equipment of $1 million.

The use of cash in 2015 was attributable to additions to property, plant and equipment of $289 million, partially offset by the proceeds from disposal of property, plant and equipment of $36 million. In addition, during the year, we sold $9 million of Asset-backed notes.

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

Cash flows used for investing activities in 2015 amounted to $244 million, a $542 million decrease compared to cash flows used for investing activities of $786 million in 2014.

The use of cash in 2014 was attributable to the acquisition of Indas of $546 million (€399 million), additions to property, plant and equipment of $236 million and the repurchase of Asset-backed notes from one of our pension plan ($10 million). These items were partially offset by the sale of Asset-backed notes of $5 million in 2014.

Financing Activities

Cash flows used for financing activities totaled $73 million in 2016 compared to cash flows used for financing activities of $249 million in 2015.

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The use of cash in 2016 was primarily the result of dividend payments ($102 million) and the repurchase of our common stock ($10 million). This was partially offset by the net proceeds from borrowings under our credit facilities (revolver and receivable securitization) ($30 million) and an increase in our bank indebtedness ($12 million).

The use of cash in 2015 was primarily the result of dividend payments ($100 million), a net repayment of our long-term debt ($89 million), the repurchase of our common stock ($50 million) and a reduction in our bank indebtedness ($11 million).

Cash flows used for financing activities totaled $249 million in 2015 compared to cash flows used for financing activities of $326 million in 2014.

The use of cash in 2014 was primarily the result of a net repayment of our revolving bank credit facility and other borrowings ($199 million), dividend payments ($84 million), the repurchase of our common stock ($38 million) and a reduction in our bank indebtedness ($6 million). In addition, we repaid $5 million of capital lease relating to land and building in 2014.

Capital Resources

Net indebtedness, consisting of bank indebtedness and long-term debt, net of cash and cash equivalents, was $1,168  million as of December 31, 2016 compared to $1,125 million as of December 31, 2015.

Note Redemptions and Repayment

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

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

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

The above-noted redemptions and repayment of notes during 2015, were funded through a combination of cash on hand, borrowings under our credit facilities and proceeds from a new $300 million 10 year term loan agreement with a syndicate of bank lenders.

Term Loan

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 December 31, 2016, we were in compliance with these financial covenants.

Revolving Credit Facility

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

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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 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 December 31, 2016, we were in compliance with these financial covenants, and $50 million was borrowed (December 31, 2015 – $50 million). At December 31, 2016, we had no outstanding letters of credit (December 31, 2015 – nil). At December 31, 2016, we had $650 million unused and available.

Receivables Securitization

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

At December 31, 2016, borrowings under the receivables securitization facility amounted to $70 million and $48 million of letters of credit under the program (December 31, 2015 – nil 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 December 31, 2016, we had $32 million unused and available under the accounts receivable securitization facility.

Common Stock

On April 30, 2014, our Board of Directors approved a 2-for-1 split of our common stock to be effected through a stock dividend. Shareholders of record on June 10, 2014 received one additional share for every share they owned on that date. As a result of the stock split, total shares of our common stock outstanding increased from approximately 32.5 million to 65 million.

During 2016, we declared one quarterly dividend of $0.40 per share and three quarterly dividends of $0.415 per share, to holders of our common stock. The total dividends of approximately of $25 million, $26 million, $26 million and $26 million were paid on April 15, 2016, July 15, 2016, October 17, 2016 and January 17, 2017, respectively, to shareholders of record as of April 4, 2016, July 5, 2016, October 3, 2016 and January 3, 2017, respectively.  

During 2015, we declared four quarterly dividends of $0.40 per share, to holders of our common stock. The total dividends of approximately $26 million, $25 million, $25 million and $25 million were paid on April 15, 2015, July 15, 2015, October 15, 2015 and January 15, 2016, respectively, to shareholders of record as of April 2, 2015, July 2, 2015, October 2, 2015 and January 4, 2016, respectively.

On February 21, 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 April 17, 2017 to shareholders of record on April 3, 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 December 31, 2016, we were unable to estimate the potential maximum liabilities for these types of indemnification guarantees as the amounts are contingent upon the outcome of future events, the nature and likelihood of which cannot be reasonably estimated at this time. Accordingly, no provision has been recorded. These indemnifications have not yielded significant expenses in the past.

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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 December 31, 2016, we have not recorded a liability associated with these indemnifications, as we do not expect to make any payments pertaining to these indemnifications.

CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITMENTS

In the normal course of business, we enter into certain contractual obligations and commercial commitments. The following tables provide our obligations and commitments at December 31, 2016:

CONTRACT TYPE	2017		2018		2019		2020		2021		THEREAFTER		TOTAL
(in millions of dollars)
Long-term debt	$	63		—		70		—		50	$	1,100	$	1,283
Capital leases (including interest)		1		1		1		1		1		6		11
Operating leases		25		23		18		16		13		38		133
Total obligations	$	89	$	24	$	89	$	17	$	64	$	1,144		1,427

COMMITMENT TYPE	2017		2018		2019		2020		2021		THEREAFTER		TOTAL
(in millions of dollars)
Other commercial commitments (1)	$	87	$	8	$	5		3		2		1	$	106

⁽¹⁾ Includes commitments to purchase property, plant and equipment, roundwood, wood chips, gas and certain chemicals. Purchase orders in the normal course of business are excluded.

In addition, we expect to contribute a minimum total amount of $13 million to the pension plans in 2017 and a minimum total amount of $4 million in 2017 to the other post-retirement benefits plans.

For 2017 and the foreseeable future, we expect cash flows from operations and from our various sources of financing to be sufficient to meet our contractual obligations and commercial commitments.

RECENT ACCOUNTING PRONOUNCEMENTS

Refer to Item 8, Financial Statements and Supplementary Data under Note 2 “Recent Accounting Pronouncements”.

CRITICAL ACCOUNTING ESTIMATES AND POLICIES

Our principal accounting policies are described in Item 8, Financial Statements and Supplementary Data under Note 1 “Summary of Significant Accounting Policies”. Notes referenced in this section are included in Item 8, Financial Statements and Supplementary Data.

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 as set forth in Note 1 “Summary of Significant Accounting Policies”, should be reviewed as they are essential to understanding our results of operations, cash flows and financial position. Actual results could differ from those estimates.

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Environmental Matters and Asset Retirement Obligations

We maintain provisions for estimated environmental costs when remedial efforts are probable and can be reasonably estimated. Environmental provisions relate mainly to air emissions, effluent treatment, silvicultural activities and site remediation (together referred to as “environmental matters”). The environmental cost estimates reflect assumptions and judgments as to probable nature, magnitude and timing of required investigation, remediation and monitoring activities, as well as contribution by other responsible parties.

The most significant environmental provision is related to the Seaspan action. As at December 31, 2016, the provision for Seaspan did not change from December 31, 2015. The provision estimates are based on an awarded contract to implement the remediation plan approved by the relevant government authorities. Additional information regarding Seaspan and other environmental matters is available in Note 22 “Commitments and Contingencies”.

While we believe that we have determined the costs for environmental matters likely to be incurred, based on known information, our ongoing efforts to identify potential environmental concerns that may be associated with the properties may lead to future environmental investigations. These efforts may result in the determination of additional environmental costs and liabilities, which cannot be reasonably estimated at this time. In addition, environmental laws and regulations and interpretation by regulatory authorities could change which could result in significant changes to our estimates. For further details on “Climate change regulation” and other environmental matters refer to Note 22 “Commitments and Contingencies”.

Asset retirement obligations are mainly associated with landfill operation and closure and bark pile management. We recognize asset retirement obligations, at fair value, in the period in which we incur a legal obligation associated with the retirement of an asset. The fair value is based on the expected cash flow approach, in which multiple cash flow scenarios that reflect a range of possible outcomes are considered. Probabilities are applied to each of the cash flow scenarios to arrive at an expected cash flow. The estimated cash flows are then discounted using a credit adjusted risk-free interest rate in combination with business-specific and other relevant risks to discount the cash flow. The rates used vary between 5.5% and 12.0%.

Cash flow estimates incorporate assumptions that marketplace participants would use in their estimates of fair value, whenever that information is available without undue cost and effort. If unavailable, assumptions are based on internal experts, third-party engineers’ studies and historical experience in remediation work. As at December 31, 2016, we had an asset retirement obligation provision of $16 million for 13 locations ($16 million in 2015 for 13 locations).

At December 31, 2016, we had a provision of $50 million for environmental matters and other asset retirement obligations (2015 – $52 million). Certain of these amounts have been discounted due to more certainty of the timing of expenditures using the credit adjusted risk-free interest rate for the corresponding period until the settlement date. The rates used vary, based on the prevailing rate at the moment of recognition of the liability and on its settlement period. Additional costs, not known or identified, could be incurred for remediation efforts. Based on policies and procedures in place to monitor environmental exposure, management believes that such additional remediation costs would not have a material adverse effect on our financial position, result of operations or cash flows.

Impairment of Property Plant and Equipment and Definite-Lived Intangible Assets

Property, plant and equipment and definite-lived intangible assets are reviewed for impairment upon the occurrence of events or changes in circumstances indicating that, at the lowest level of determinable cash flows, the carrying value of the assets may not be recoverable. Step I of the impairment test assesses if the carrying value of the assets exceeds their estimated undiscounted future cash flows in order to assess if the property, plant and equipment and definite-lived intangible assets are impaired. In the event the estimated undiscounted future cash flows are lower than the net book value of the assets, a Step II impairment test must be carried out to determine the impairment charge. In Step II, the assets are written down to their estimated fair values. Given that there is generally no readily available quoted value for our property, plant and equipment and definite-lived intangible assets, we determine fair value of our assets based on the present value of estimated future cash flows expected from their use and eventual disposition, and by using the liquidation or salvage value in the case of idled assets. The fair value estimate in Step II is based on the undiscounted cash flows used in Step I.

Estimates of undiscounted future cash flows used to test the recoverability of the property, plant and equipment and definite-lived intangible assets includes key assumptions related to selling prices, inflation-adjusted cost projections, forecasted exchange rates (when applicable) and estimated useful life. Changes in our assumptions and estimates may affect our forecasts and may lead to an outcome where impairment charges would be required. In addition, actual results may vary from our forecasts, and such variations may be material and unfavorable, thereby triggering the need for future impairment tests where our conclusions may differ in reflection of prevailing market conditions.

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In the fourth quarter of 2014, we announced the conversion of a paper machine at our Ashdown, Arkansas facility to a high quality fluff pulp line. As a result, we recognized $29 million of accelerated depreciation in 2016 ($77 million in 2015).

Useful Lives

On a regular basis, we review the estimated useful lives of our property, plant and equipment and our definite-lived intangible assets. Assessing the reasonableness of the estimated useful lives of property, plant and equipment and definite-lived intangible assets requires judgment and is based on currently available information. Changes in circumstances such as technological advances, changes to our business strategy, changes to our capital strategy or changes in regulation can result in useful lives differing from our estimates. Revisions to the estimated useful lives of property, plant and equipment and definite-lived intangible assets constitute a change in accounting estimate and are dealt with prospectively by amending depreciation and amortization rates.

A change in the remaining estimated useful life of a group of assets, or their estimated net salvage value, will affect the depreciation or amortization rate used to depreciate or amortize the group of assets and thus affect depreciation or amortization expense as reported in our results of operations. In 2016, we recorded depreciation and amortization expense of $348 million compared to $359 million and $384 million in 2015 and 2014, respectively. At December 31, 2016, we had property, plant and equipment with a net book value of $2,825 million ($2,835 million in 2015) and definite-lived intangible assets, net of amortization of $337 million ($339 million in 2015).

Closure and Restructuring Costs

Closure and restructuring costs are recognized as liabilities in the period when they are incurred and are measured at their fair value. For such recognition to occur, management, with the appropriate level of authority, must have approved and committed to a firm plan and appropriate communication to those affected must have occurred. These provisions may require an estimation of costs such as severance and termination benefits, pension and related curtailments, environmental remediation and may also include expenses related to demolition and outplacement. Actions taken may also require an evaluation of any remaining assets to determine required impairments, if any, and a review of estimated remaining useful lives which may lead to accelerated depreciation expense.

Estimates of cash flows and fair value relating to closures and restructuring require judgment. Closure and restructuring liabilities are based on management’s best estimates of future events at December 31, 2016. Although we do not anticipate significant changes, the actual costs may differ from these estimates due to subsequent developments such as the results of environmental studies, the ability to find a buyer for assets set to be dismantled and demolished and other business developments. As such, additional costs and further working capital adjustments may be required in future periods.

In 2016, in connection with our plan to optimize fluff pulp manufacturing at the Plymouth, North Carolina mill, we recognized $5 million of severance and termination costs.

Due to the conversion of the paper machine at our Ashdown, Arkansas mill, we recognized $26 million of costs related to the fluff pulp conversion outage. In the fourth quarter of 2016, as a result of a revision in our estimated withdrawal liability for U.S. multiemployer plans, we recorded a credit to earnings of $4 million in Closure and restructuring costs on the Consolidated Statement of Earnings and Comprehensive Income (Loss).

Additional information can be found under Note 16 “Closure and Restructuring Costs and Liability”.

Goodwill Impairment Assessment

All goodwill resides in our Personal Care reporting segment. As of December 31, 2016, we had $550 million of goodwill ($539 million as of December 31, 2015). For further details on goodwill, refer to Note 3 “Acquisition of Businesses” and Note 12 “Goodwill”.

For purposes of impairment testing, goodwill must be assigned to one or more reporting units. In light of the increased integration amongst our acquired businesses, we reviewed and assessed the different components of our Personal Care segment in order to determine our reporting units for goodwill impairment. We concluded that all the components of the Personal Care segment share similar economic characteristics and should be aggregated. Thus goodwill impairment testing was done under one reporting unit.

Goodwill is evaluated for impairment at the beginning of the fourth quarter of every year or more frequently whenever indicators of potential impairment exist. Goodwill impairment exists when the carrying amount of goodwill exceeds its fair value. The impairment evaluation is done in a two-step approach.

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We have the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. In performing the qualitative assessment, we identify the relevant drivers of fair value of the reporting unit and the relevant events and circumstances that may have an impact on those drivers of fair value and assess their impact on the fair value of the reporting unit. To carry out the qualitative assessment, we consider elements such as the results of recent fair value assessments, macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, specific events affecting the Company and the business. The identification and impact assessment of events and circumstances on the fair value involves significant judgment and assumptions. If a qualitative assessment is performed and after assessing the totality of events or circumstances, we determine that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill, then we perform Step 1 of the two-step impairment test. We can also elect to bypass the qualitative assessment and proceed directly to Step 1 of the impairment test.

The first step is to determine if the fair value of a reporting unit exceeds its carrying amount, including goodwill. If the fair value is greater than the carrying amount, including goodwill, no goodwill impairment is necessary.

We typically use an income method to determine the fair value of a reporting unit. Under the income approach, we estimate the fair value of a reporting unit based on the present value of estimated future cash flows. Considerable management judgment is necessary to estimate future cash flows used to measure the fair value. Key estimates supporting the cash flow projections include, but are not limited to, management's estimates of revenue growth rates and profit margins, economic indicators, industry and market conditions as well as estimates of capital expenditures and assumed terminal growth rates. The financial forecasts are consistent with our operating plans and take into consideration forecasted above-market growth to be driven mainly by recently secured and established customer relationships as well as capital investments in new production lines. The discount rate assumption used is based on the weighted-average cost of capital adjusted for business-specific and other relevant risks of the reporting units. We also perform an overall reconciliation to corroborate the fair value from the income approach to Domtar’s overall market capitalization.

In the event that the carrying amount, including goodwill, exceeds the fair value, the second step of the impairment test must be performed in order to determine the amount of the impairment charge. Fair value of goodwill in Step II of the impairment test is estimated the same way as goodwill is determined at the date of acquisition in a business combination, that is, the excess of the fair value of the reporting unit over the fair value of the identifiable net assets of the business. The excess of the carrying value over the fair value is taken as an impairment charge in the period. Additional information regarding goodwill is available in Note 1 “Summary of Significant Accounting Policies”.

As of October 1, 2016, the fair value of the reporting unit exceeded its carrying amount by 24%, therefore no impairment was recognized. Small variations to our assumptions and estimates, particularly in the expected growth rates embedded in our cash flow projections and the discount rate could have a significant impact on fair value. If the reporting unit does not perform in accordance with our expectations over the next few years, we will have to consider reducing our assumed growth rates, which, depending on the magnitude of the change, could result in a partial or full impairment charge.

The following table summarizes the approximate impact that a change in certain key assumptions would have on the present value of estimated future cash flows at October 1, 2016. Note that this sensitivity analysis assumes that all other assumptions and trends remain constant for each independent variable.

KEY ASSUMPTIONS	Approximate impact on the discounted cash flows (in millions of dollars)
Revenue growth rates (years 2018 - 2021)
1% increase		104
1% decrease		(106	)
Terminal growth rates
0.5% increase		108
0.5% decrease		(94	)
Discount rate
0.3% increase		(79	)
0.3% decrease		86

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Between annual impairment tests, we continue to monitor for potential indicators of impairment of goodwill whenever events or changes in circumstances occur, such as significant adverse changes in the business climate or operating results or changes in management's business strategy as well as significant changes in Domtar’s share price or Domtar’s overall market capitalization.

Indefinite-lived intangible assets impairment assessment

Indefinite-lived intangible assets consist of trade names ($225 million) and catalog rights ($36 million) following the business acquisitions in the Personal Care segment and license rights ($6 million) following the acquisition of Xerox’s paper and print media products and water rights ($4 million).

We test indefinite-lived intangible assets at the asset level. Indefinite-lived intangible assets are not amortized and are evaluated at the beginning of the fourth quarter of every year or more frequently whenever indicators of potential impairment exist. We have the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of the indefinite-lived intangible assets are less than their carrying amounts. The qualitative assessment follows the same process as the one performed for goodwill, as described above. If a qualitative assessment is performed and after assessing the qualitative factors, we determine it is more likely than not that the indefinite-lived intangible assets are less than their carrying amounts, then a quantitative impairment test is required.  We can also elect to proceed directly to the quantitative test.

In performing the quantitative assessment, fair value of the indefinite-lived intangible assets is derived using an income approach (including discounted cash flows from a relief from royalty model). Under this approach, we estimate the fair value of indefinite-lived intangible assets based on the present value of estimated future cash flows. Considerable management judgment is necessary to estimate future cash flows used to measure the fair value.  Key estimates supporting the cash flow projections include, but are not limited to, management's estimates of revenue growth rates and profit margins, economic indicators, royalty rates, industry and market conditions as well as assumed terminal growth rates. The financial forecasts are consistent with our operating plans and those supporting the goodwill impairment test described above. The discount rate assumption used is based on the weighted-average cost of capital adjusted for business-specific and other relevant risks. If the carrying amounts of the indefinite-lived intangible assets exceed their fair value, an impairment loss is recognized in an amount equal to that excess.

In the fourth quarter 2016, we performed a quantitative assessment for the trade names and catalog rights of the Personal Care segment. All indefinite-lived intangible assets have a fair value that significantly exceeds their respective carrying amounts therefore no impairment charge was recorded. However, different assumptions particularly in the expected growth rates embedded in our cash flow projections and the discount rate could have a significant impact on fair value. A significant reduction in the estimated fair values could result in significant non-cash impairment charges in the future.

Pension Plans and Other Post-Retirement Benefit Plans

We have several defined contribution plans and multiemployer plans. The pension expense under these plans is equal to our contribution. Defined contribution pension expense was $37 million for the year ended December 31, 2016 (2015 – $32 million and 2014 – $28 million).

We sponsor both contributory and non-contributory U.S. and non-U.S. defined benefit pension plans. We also sponsor 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, medical and dental benefits. In addition, we provide supplemental unfunded defined benefit pension plans and supplemental unfunded defined contribution pension plans to certain senior management employees.

We account for pensions and other post-retirement benefits in accordance with Compensation-Retirement Benefits Topic of the Financial Accounting Standards Board-Accounting Standards Committee which requires employers to recognize the overfunded or underfunded status of defined benefit pension plans as an asset or liability in its Consolidated Balance Sheets. Pension and other post-retirement benefit charges require assumptions in order to estimate the projected and accumulate benefit obligations. These assumptions require a significant amount of judgment and include:

- Expected long-term rate of return on plan assets – used to estimate the growth and expected return on assets

- Discount rate – used to determine interest costs and the net present value of our obligations

- Rate of compensation increase – used to calculate the impact of future increases on our obligations

- Health care cost trends – used to calculate the impact of future health care costs on our obligations

- Employee related factors, such as mortality rates, turnover, retirement age and disabilities – used to determine the extent of our obligations

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Changes in these assumptions result in actuarial gains or losses, which are amortized over the expected average remaining service life of the active employee group covered by the plans, only to the extent that the unrecognized net actuarial gains and losses are in excess of 10% of the accrued benefit obligation at the beginning of the year, over the average remaining service period of approximately eight years of the active employee group covered by the pension plans, and 10 years of the active employee group covered by the other post-retirement benefits plans.

An expected rate of return on plan assets of 5.3% was considered appropriate by our management for the determination of pension expense for 2016. Effective January 1, 2017, we will use 5.4% as the expected return on plan assets, which reflects the current view of long-term investment returns. The overall expected long-term rate of return on plan assets is based on management’s best estimate of the long-term returns of the major asset classes (cash and cash equivalents, equities and bonds) weighted by the actual allocation of assets at the measurement date, net of expenses. This rate includes an equity risk premium over government bond returns for equity investments and a value-added premium for the contribution to returns from active management. The sources used to determine management's best estimate of long-term returns are numerous and include country specific bond yields, which may be derived from the market using local bond indices or by analysis of the local bond market, and country-specific inflation and investment market expectations derived from market data and analysts' or governments' expectations as applicable.

We set our discount rate assumption annually to reflect the rates available on high-quality, fixed income debt instruments, with a duration that is expected to match the timing and amount of expected benefit payments. High-quality debt instruments are corporate bonds with a rating of AA or better. The discount rates at December 31, 2016, for pension plans were estimated at 3.8% for the accrued benefit obligation and 4.1% for the net periodic benefit cost for 2016 and for post-retirement benefit plans were estimated at 3.9% for the accrued benefit obligation and 4.1% for the net periodic benefit cost for 2016.

Effective December 31, 2015, we changed the approach used to estimate the current service and interest cost components of net periodic benefit cost for Canadian pension plans and U.S. funded pension plans utilizing a yield curve approach. This change compared to the previous approach will result in different current service and interest cost components of net periodic benefit cost (credit) in future periods. Previously, the current service and interest cost components were estimated using a single weighted-average discount rate derived from the yield curve used to measure the defined benefit obligation at the beginning of the year for each country. We elected to utilize a full yield curve approach in the estimation of these components by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows. We made this change to provide a more precise measurement of current service and interest cost components by improving the correlation between projected benefit cash flows to the corresponding spot yield curve rates. This change does not affect the measurement of the total defined benefit obligation, but will affect the current service and interest cost components going forward. We have accounted for this change as a change in accounting estimate. 

The rate of compensation increase is another significant assumption in the actuarial model for pension (set at 2.7% for the accrued benefit obligation and 2.8% for the net periodic benefit cost) and for post-retirement benefits (set at 2.8% for the accrued benefit obligation and 2.8% for the net periodic benefit cost) and is determined based upon our long-term plans for such increases.

For employee related factors, mortality rate tables tailored to our industry were used and the others factor reflect our historical experience and management’s best judgment regarding future expectations.

For measurement purposes, a 5.0% weighted-average annual rate of increase in the per capita cost of covered health care benefits was assumed for 2016. The rate was assumed to decrease gradually to 4.1% by 2034 and remain at that level thereafter.

The following table provides a sensitivity analysis of the key weighted average economic assumptions used in measuring the accrued pension benefit obligation, the accrued other post-retirement benefit obligation and related net periodic benefit cost for 2016. The sensitivity analysis should be used with caution as it is hypothetical and changes in each key assumption may not be linear. The sensitivities in each key variable have been calculated independently of each other.

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	Pension						Other Post-Retirement Benefit
	Accrued Benefit			Net Periodic			Accrued Benefit			Net Periodic
PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS	Obligation			Benefit Cost			Obligation			Benefit Cost
(In millions of dollars)
Expected rate of return on assets
Impact of:
1% increase	N/A				(15	)	N/A			N/A
1% decrease	N/A				15		N/A			N/A
Discount rate
Impact of:
1% increase		(172	)		(3	)		(11	)		-
1% decrease		209			17			14			1
Assumed overall health care cost trend
Impact of:
1% increase	N/A			N/A				8			1
1% decrease	N/A			N/A				(7	)		-

Our pension plan funding policy is to contribute annually the amount required to provide for benefits earned in the year, and to fund solvency deficiencies, funding shortfalls and past service obligations over periods not exceeding those permitted by the applicable regulatory authorities. The other post-retirement benefit plans are not funded and contributions are made annually to cover benefit payments. We expect to contribute a minimum total amount of $13 million in 2017 compared to $31 million in 2016 (2015 – $13 million; 2014 – $29 million) to the pension plans. We expect to contribute a minimum total amount of $4 million in 2017 compared to $5 million in 2016 to the other post-retirement benefit plans (2015 – $5 million; 2014 – $5 million).

Benefit obligations and fair values of plan assets as of December 31, 2016 for our pension and post-retirement plans were are follows:

	December 31, 2016						December 31, 2015
				Other						Other
	Pension			post-retirement			Pension			post-retirement
	plans			benefit plans			plans			benefit plans
	$			$			$			$
Accrued benefit obligation at end of year		(1,584	)		(90	)		(1,509	)		(86	)
Fair value of assets at end of year		1,546			—			1,493			—
Funded status		(38	)		(90	)		(16	)		(86	)

For additional details on our pension plans and other post-retirement benefits plans, refer to Note 7 “Pension Plans and Other Post-Retirement Benefit Plans”.

Income Taxes

We use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined according to differences between the carrying amounts and tax bases of the assets and liabilities. The change in the net deferred tax asset or liability is included in earnings. Deferred tax assets and liabilities are measured using enacted tax rates and laws expected to apply in the years in which assets and liabilities are expected to be recovered or settled. Deferred tax assets and liabilities are classified as non-current items on the Consolidated Balance Sheets. For these years, a projection of taxable income and an assumption of the ultimate recovery or settlement period for temporary differences are required. The projection of future taxable income is based on management’s best estimate and may vary from actual taxable income.

On a quarterly basis, we assess the need to establish a valuation allowance for deferred tax assets and, if it is deemed more likely than not that our deferred tax assets will not be realized based on these taxable income projections, a valuation allowance is recorded. In general, “realization” refers to the incremental benefit achieved through the reduction in future taxes payable or an increase in future taxes refundable from the deferred tax assets. Evaluating the need for an amount of a valuation allowance for deferred tax assets often requires significant judgment. All available evidence, both positive and negative, should be considered to determine whether, based on the weight of that evidence, a valuation allowance is needed.

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In our evaluation process, we give the most weight to historical income or losses. After evaluating all available positive and negative evidence, although realization is not assured, we determined that it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax assets, with the exception of certain state credits and losses for which a valuation allowance of $4 million exists at December 31, 2016, and certain foreign loss carryforwards for which a valuation allowance of $18 million exists at December 31, 2016. Of this amount, ($1) million impacted tax expense and the effective tax rate for 2016 (2015 – ($1) million; 2014 – $7 million).

Our deferred tax assets are mainly composed of temporary differences related to various accruals, accounting provisions, pension and post-retirement benefit liabilities, net operating loss carryforwards, and available tax credits. Our deferred tax liabilities are mainly composed of temporary differences pertaining to property, plant, and equipment, intangible assets, and other items. Estimating the ultimate settlement period requires judgment. The reversal of timing differences is expected at enacted tax rates, which could change due to changes in income tax laws or the introduction of tax changes through the presentation of annual budgets by different governments. As a result, a change in the timing and the income tax rate at which the components will reverse could materially affect deferred tax expense in our future results of operations.

In addition, U.S. and foreign tax rules and regulations are subject to interpretation and require judgment that may be challenged by taxation authorities. To the best of our knowledge, we have adequately provided for our future tax consequences based upon current facts and circumstances and current tax law. In accordance with Income Taxes Topic of FASB ASC 740, we evaluate new tax positions that result in a tax benefit to us and determine the amount of tax benefits that can be recognized. The remaining unrecognized tax benefits are evaluated on a quarterly basis to determine if changes in recognition or classification are necessary. Significant changes in the amount of unrecognized tax benefits expected within the next 12 months are disclosed quarterly. Future recognition of unrecognized tax benefits would impact the effective tax rate in the period the benefits are recognized. At December 31, 2016, we had gross unrecognized tax benefits of $43 million (2015 – $41 million). These amounts represent the gross amount of exposure in individual jurisdictions and do not reflect any additional benefits expected to be realized if such positions were sustained, such as federal deduction that could be realized if an unrecognized state deduction was not sustained. As of December 31, 2016, we believe it is reasonably possible that up to $12 million of our unrecognized tax benefits may be recognized in 2017, which could significantly impact the effective tax rate. However, the amount and timing of the recognition of these benefits is subject to some uncertainty.

We operate in multiple jurisdictions with complex tax policy and regulatory environments. U.S. and foreign tax rules and regulations are subject to interpretation and require judgment that may be challenged by taxation authorities. Tax audits by their nature are often complex and can require several years to resolve. We have a number of audits in process in various jurisdictions. Although the resolution of these tax positions is uncertain, based on currently available information, we believe that we have adequately provided for our future tax consequences based upon current facts and circumstances and current tax law and we believe that the ultimate outcomes will not have a material adverse effect on our financial position, results of operations or cash flows. For further details refer to Note 10 “Income taxes”.

Business Combinations

We allocate the total purchase price of the acquired tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of the business combination date, with the excess purchase price recorded as goodwill.

The purchase price allocation process required us to use significant estimates and assumptions, including fair value estimates, as of the business combination date. Although we believe the assumptions and estimates we have made are reasonable and appropriate, they are based in part on historical experience and information obtained from management of the acquired company, in part based on valuation models that incorporate projections of expected future cash flows and operating plans and are inherently uncertain. Valuations are performed by management or third party valuation specialists under management's supervision. In determining the fair value of assets acquired and liabilities assumed in business combinations, as appropriate, we may use one of the following recognized valuation methods: the income approach (including discounted cash flows from relief from royalty and excess earnings model), the market approach and/or the replacement cost approach.

Examples of significant estimates used to value certain intangible assets acquired include but are not limited to:

- sales volume, pricing and future cash flows of the business overall

- future expected cash flows from customer relationships, acquired license rights and other identifiable intangible assets, including future price levels, rates of increase in revenue and appropriate attrition rates

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- the acquired company’s trade names and competitive position, royalty rate quantum, as well as assumptions about the period of time the acquired trade names will continue to benefit to the combined company’s product portfolio

- discount rates and income tax rates

However, different assumptions regarding projected performance and other factors associated with the acquired assets may affect the amount recorded under each type of asset and liability, mainly between property plant and equipment, intangibles assets, goodwill and deferred income tax liabilities; as well subsequent assessments could result in future impairment charges. The purchase price allocation process also entails us to refine these estimates over a measurement period not to exceed one year to reflect new information obtained surrounding facts and circumstances existing at acquisition date.

For further details, refer to Note 3 “Acquisition of Businesses”.

Contingencies related to legal claims

As discussed in Item 1A Risk Factors, under the risk “Failure to comply with applicable laws and regulations could have a material adverse effect on our business, financial results or condition” and in Note 22 “Commitments and Contingencies”, the Company is subject to various legal proceedings and claims that arise in the ordinary course of business. The Company records a liability when it is probable that a loss has been incurred and the amount is reasonably estimable. The most likely cost to be incurred is accrued based on an evaluation of the then available facts with respect to each matter. When no amount within a range of estimates is more likely, the minimum is accrued. There is significant judgment required in both the probability determination and as to whether an exposure can be reasonably estimated. For further details on “Contingencies” and legal claims refer to Note 22 “Commitments and Contingencies”.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Our operating income can be impacted by the following sensitivities:

SENSITIVITY ANALYSIS
(In millions of dollars, unless otherwise noted)
Each $10/unit change in the selling price of the following    products1:
Papers
Business Papers	$	15
Commercial Print & Publishing Papers		9
Specialty & Packaging Papers		5
Pulp - net position
Softwood	$	11
Fluff		6
Hardwood		2
Foreign exchange, excluding depreciation and amortization
(US $0.01 change in relative value to the Canadian dollar before    hedging)		9
(US $0.01 change in relative value to the EURO before hedging)		1
Energy 2
Natural gas: $0.25/MMBtu change in price before hedging		6

¹ Based on estimated 2017 capacity (ST or ADMT).

² Based on estimated 2017 consumption levels. The allocation between energy sources may vary during the year in order to take advantage of market conditions.

Note that we may, from time to time, hedge part of our foreign exchange, pulp and energy positions, which may therefore impact the above sensitivities.

In the normal course of business, we are exposed to certain financial risks. We do not use derivative instruments for speculative purposes; although all derivative instruments purchased to minimize risk may not qualify for hedge accounting.

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CREDIT RISK

We are exposed to credit risk on the accounts receivable from our customers. In order to reduce this risk, we review new customers’ credit history before granting credit and conduct regular reviews of existing customers’ credit performance. As of December 31, 2016, one of our Pulp and Paper segment customers located in the United States represented 12% ($74 million) (2015 – 12% ($78 million)) of our total receivables.

We are exposed to credit risk in the event of non-performance by counterparties to our financial instruments. We attempt 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

We are exposed to interest rate risk arising from fluctuations in interest rates on our cash and cash equivalents, bank indebtedness, revolving credit facility, term loan and long-term debt. Our 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 our overall borrowing costs. We may manage this interest rate exposure through the use of derivative instruments such as interest rate swap contracts, whereby we agree to exchange the difference between fixed and variable interest amounts calculated by reference to an agreed upon notional principal amount. In December 2014, we entered into a $100 million notional 2.5 year fixed to floating interest rate swap to receive fixed and pay the three month LIBOR. This swap was designated as a fair value hedge for a portion of our 10.75% Notes due June 2017. The changes in fair value of both the hedging and the hedged item were immediately recognized in interest expense. In August 2015, we terminated this swap simultaneously with the redemption of $215 million of our 10.75% Notes, with no significant impact on net earnings.

COST RISK

We are exposed to price volatility for raw materials and energy used in our manufacturing process. We manage our exposure to cost risk primarily through the use of supplier contracts. To reduce the impact on cash flow and earnings due to pricing volatility, we 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.

FOREIGN CURRENCY RISK

Cash flow hedges

We have manufacturing operations in the United States, Canada and Europe. As a result, we are exposed to movements in foreign currency exchange rates in Canada and Europe. Moreover, certain assets and liabilities are denominated in currencies other than the U.S. dollar and are exposed to foreign currency movements. Accordingly, our earnings are affected by increases or decreases in the value of the Canadian dollar and European currencies. Our European subsidiaries are also exposed to movements in foreign currency exchange rates on transactions denominated in a currency other than their Euro functional currency. Additionally, there has been, and may continue to be, volatility in currency exchange rates as a result of the United Kingdom’s June 23, 2016 referendum in which voters approved the United Kingdom’s exit from the European Union, commonly referred to as “Brexit”. Volatility in exchange rates is expected to continue in the short term as the United Kingdom (U.K.) negotiates its exit from the European Union. A weaker British pound compared to the U.S. dollar during a reporting period causes local currency results of our U.K. sales to be translated into fewer U.S. dollars. For the year ended December 31, 2016, net sales in the U.K. constituted 2% of our consolidated net sales (in 2015, net sales in the U.K. constituted 1% or our consolidated sales). In the longer term, any impact from Brexit on our U.K. sales will depend, in part, on the outcome of tariff, trade, regulatory, and other negotiations. The macroeconomic impact on our results of operations from this vote remains unknown. To date, the foreign exchange impact has been minimal since we currently hedge a portion of our British Pound Sterling exposure through the second quarter of fiscal 2018, thus reducing our currency risk.

Our risk management policy allows us to hedge a significant portion of the exposure to fluctuations in foreign currency exchange rates for periods up to three years. We may use derivative financial instruments (currency options and foreign exchange forward contracts) to mitigate our exposure to fluctuations in foreign currency exchange rates.

Derivatives are currently used to hedge forecasted purchases in Canadian dollars by our Canadian subsidiary over the next 24 months. Derivatives are also currently used to hedge forecasted sales by our U.S. subsidiaries in Euros and in British pounds over a period of between 6 to 12 months. Derivatives are also currently used to hedge forecasted sales in British pounds and Norwegian krone and a

48

portion of forecasted purchases in U.S. dollars and Swedish krona by our European subsidiaries over a period of between 12 to 18 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.

The foreign exchange derivative contracts were fully effective as of December 31, 2016. There were no amounts reflected in the Consolidated Statements of Earnings and Comprehensive Income (Loss) for the year ended December 31, 2016 resulting from hedge ineffectiveness (2015 and 2014 - nil).

49

PART II

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Management’s Reports to Shareholders of Domtar Corporation

Management’s Report on Financial Statements and Practices

The accompanying Consolidated Financial Statements of Domtar Corporation and its subsidiaries (the “Company”) were prepared by management. The statements were prepared in accordance with accounting principles generally accepted in the United States of America and include amounts that are based on management’s best judgments and estimates. Management is responsible for the completeness, accuracy and objectivity of the financial statements. The other financial information included in the annual report is consistent with that in the financial statements.

Management has established and maintains a system of internal accounting and other controls for the Company and its subsidiaries. This system and its established accounting procedures and related controls are designed to provide reasonable assurance that assets are safeguarded, that the books and records properly reflect all transactions, that policies and procedures are implemented by qualified personnel, and that published financial statements are properly prepared and fairly presented. The Company’s system of internal control is supported by written policies and procedures, contains self-monitoring mechanisms, and is audited by the internal audit function. Appropriate actions are taken by management to correct deficiencies as they are identified.

Management’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. In order to evaluate the effectiveness of internal control over financial reporting, management has conducted an assessment, including testing, using the criteria established in 2013 Internal Control – Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s system of internal control over financial reporting is designed 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. The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Management has excluded Home Delivery Incontinent Supplies Co. from the assessment of internal control over financial reporting as of December 31, 2016 because it was acquired by the Company in a business combination during 2016. The assets and revenues of this business represent 1% and less than 1%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2016.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Based on the assessment, management has concluded that the Company maintained effective internal control over financial reporting as of December 31, 2016, based on criteria in Internal Control – Integrated Framework issued in 2013 by the COSO.

The effectiveness of the Company’s internal control over financial reporting as of December 31, 2016 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report, which is included herein.

50

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Domtar Corporation:

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of earnings and comprehensive income (loss), shareholders’ equity and cash flows present fairly, in all material respects, the financial position of Domtar Corporation and its subsidiaries (the “Company”) at December 31, 2016 and December 31, 2015, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2016 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).  The Company's management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting.  Our responsibility is to express opinions on these financial statements, on the financial statement schedule and on the Company's internal control over financial reporting based on our integrated audits.  We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects.  Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.  Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.  Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed 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.  A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

As described in Management’s Report on Internal Control over Financial Reporting, management has excluded Home Delivery Incontinent Supplies Co. (“HDIS”) from its assessment of internal control over financial reporting as of December 31, 2016 because it was acquired by the Company in a purchase business combination during 2016. We have also excluded HDIS from our audit of internal control over financial reporting. HDIS is a wholly-owned subsidiary whose total assets and total revenues represent 1% and nil, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2016.

/s/ PricewaterhouseCoopers LLP

Richmond, Virginia

February 24, 2017

51

DOMTAR CORPORATION

CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME (LOSS)

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

	Year ended December 31,			Year ended December 31,			Year ended December 31,
	2016			2015			2014
	$			$			$
Sales		5,098			5,264			5,563
Operating expenses
Cost of sales, excluding depreciation and amortization		4,035			4,147			4,396
Depreciation and amortization		348			359			384
Selling, general and administrative		427			394			416
Impairment of property, plant and equipment (NOTE 4)		29			77			4
Closure and restructuring costs (NOTE 16)		32			4			28
Other operating loss (income), net (NOTE 8)		4			(5	)		(29	)
		4,875			4,976			5,199
Operating income		223			288			364
Interest expense, net (NOTE 9)		66			132			103
Earnings before income taxes		157			156			261
Income tax expense (benefit) (NOTE 10)		29			14			(170	)
Net earnings		128			142			431
Per common share (in dollars) (NOTE 6)
Net earnings
Basic		2.04			2.24			6.65
Diluted		2.04			2.24			6.64
Weighted average number of common    and exchangeable shares outstanding (millions)
Basic		62.6			63.3			64.8
Diluted		62.7			63.4			64.9
Cash dividends per common share		1.63			1.58			1.30
Net earnings		128			142			431
Other comprehensive income (loss):
Net derivative gains (losses) on cash flow hedges
Net gains (losses) arising during the period, net    of tax $(15) (2015 - $28; 2014 - $15)		27			(41	)		(23	)
Less: Reclassification adjustment of losses included in net earnings,    net of tax of $(10) (2015 - $(18); 2014 - $(4))		14			26			8
Foreign currency translation adjustments		(7	)		(223	)		(200	)
Change in unrecognized (losses) gains and prior service    cost related to pension and post-retirement benefit plans, net of tax of $12    (2015 - $(2); 2014 - $(2))		(32	)		5			12
Other comprehensive income (loss)		2			(233	)		(203	)
Comprehensive income (loss)		130			(91	)		228

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

52

DOMTAR CORPORATION

CONSOLIDATED BALANCE SHEETS

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

	At
	December 31,			December 31,
	2016			2015
	$			$
Assets
Current assets
Cash and cash equivalents		125			126
Receivables, less allowances of $7 and $6		613			627
Inventories (NOTE 11)		759			766
Prepaid expenses		40			21
Income and other taxes receivable		31			14
Total current assets		1,568			1,554
Property, plant and equipment, net (NOTE 13)		2,825			2,835
Goodwill (NOTE 12)		550			539
Intangible assets, net (NOTE 14)		608			601
Other assets (NOTE 15)		129			125
Total assets		5,680			5,654
Liabilities and shareholders' equity
Current liabilities
Bank indebtedness		12			—
Trade and other payables (NOTE 17)		656			720
Income and other taxes payable		22			27
Long-term debt due within one year (NOTE 19)		63			41
Total current liabilities		753			788
Long-term debt (NOTE 19)		1,218			1,210
Deferred income taxes and other (NOTE 10)		675			654
Other liabilities and deferred credits (NOTE 20)		358			350
Commitments and contingencies (NOTE 22)
Shareholders' equity (NOTE 21)
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; 2,412,267 and 2,151,168 shares		—			—
Additional paid-in capital		1,963			1,966
Retained earnings		1,211			1,186
Accumulated other comprehensive loss		(499	)		(501	)
Total shareholders' equity		2,676			2,652
Total liabilities and shareholders' equity		5,680			5,654

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

53

DOMTAR CORPORATION

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

	Issued and outstanding common and exchangeable shares (millions of shares)			Common stock, atpar		Exchangeable shares			Additional paid-in capital			Retained earnings			Accumulated other comprehensive loss			Total shareholders’ equity
				$		$			$			$			$			$
Balance at December 31, 2013		32.4			—		44			1,999			804			(65	)		2,782
Conversion of exchangeable shares		—			—		(12	)		12			—			—			—
Stock split		32.5			1		—			—			—			—			1
Redemption of exchangeable shares		—			—		(32	)		32			—			—			—
Stock-based compensation, net of tax		0.1			—		—			7			—			—			7
Net earnings		—			—		—			—			431			—			431
Net derivative losses on cash flow hedges:
Net losses arising during the period,    net of tax of $15		—			—		—			—			—			(23	)		(23	)
Less: Reclassification adjustments    for losses included in net earnings,    net of tax of $(4)		—			—		—			—			—			8			8
Foreign currency translation adjustments		—			—		—			—			—			(200	)		(200	)
Change in unrecognized gains and    prior service cost related to pension    and post-retirement benefit plans,    net of tax of $(2)		—			—		—			—			—			12			12
Stock repurchase		(1.0	)		—		—			(38	)		—			—			(38	)
Cash dividends declared		—			—		—			—			(90	)		—			(90	)
Balance at December 31, 2014		64.0			1		—			2,012			1,145			(268	)		2,890
Stock-based compensation, net of tax		—			—		—			4			—			—			4
Net earnings		—			—		—			—			142			—			142
Net derivative losses on cash flow hedges:
Net losses arising during the period,    net of tax of $28		—			—		—			—			—			(41	)		(41	)
Less: Reclassification adjustments for    losses included in net earnings,    net of tax of $(18)		—			—		—			—			—			26			26
Foreign currency translation adjustments		—			—		—			—			—			(223	)		(223	)
Change in unrecognized gains and prior    service cost related to pension    and post-retirement benefit plans,    net of tax of $(2)		—			—		—			—			—			5			5
Stock repurchase		(1.2	)		—		—			(50	)		—			—			(50	)
Cash dividends declared		—			—		—			—			(101	)		—			(101	)
Balance at December 31, 2015		62.8			1		—			1,966			1,186			(501	)		2,652
Stock-based compensation, net of tax		0.1			—		—			7			—			—			7
Net earnings		—			—		—			—			128			—			128
Net derivative gains on cash flow hedges:
Net gains arising during the period,    net of tax of $(15)		—			—		—			—			—			27			27
Less: Reclassification adjustments for    losses included in net earnings,    net of tax of $(10)		—			—		—			—			—			14			14
Foreign currency translation adjustments		—			—		—			—			—			(7	)		(7	)
Change in unrecognized losses and prior    service cost related to pension    and post-retirement benefit plans,    net of tax of $12		—			—		—			—			—			(32	)		(32	)
Stock repurchase		(0.3	)		—		—			(10	)		—			—			(10	)
Cash dividends declared		—			—		—			—			(103	)		—			(103	)
Balance at December 31, 2016		62.6			1		—			1,963			1,211			(499	)		2,676

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

54

DOMTAR CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN MILLIONS OF DOLLARS)

	Year ended December 31, 2016			Year ended December 31, 2015			Year ended December 31, 2014
	$			$			$
Operating activities
Net earnings		128			142			431
Adjustments to reconcile net earnings to cash flows from operating activities
Depreciation and amortization		348			359			384
Deferred income taxes and tax uncertainties (NOTE 10)		9			(56	)		(201	)
Impairment of property, plant and equipment (NOTE 4)		29			77			4
Net gains on disposals of property, plant and equipment		—			(15	)		—
Stock-based compensation expense		7			5			4
Other		(2	)		4			3
Changes in assets and liabilities, excluding the effect of sale and acquisition    of businesses
Receivables		18			(22	)		39
Inventories		14			(84	)		(29	)
Prepaid expenses		5			5			1
Trade and other payables		(51	)		—			(33	)
Income and other taxes		(18	)		38			12
Difference between employer pension and other post-retirement    contributions and pension and other post-retirement expense		(21	)		(1	)		16
Other assets and other liabilities		(1	)		1			3
Cash flows from operating activities		465			453			634
Investing activities
Additions to property, plant and equipment		(347	)		(289	)		(236	)
Proceeds from disposals of property, plant and equipment and sale of business		1			36			1
Acquisition of businesses, net of cash acquired (NOTE 3)		(46	)		—			(546	)
Other		1			9			(5	)
Cash flows used for investing activities		(391	)		(244	)		(786	)
Financing activities
Dividend payments		(102	)		(100	)		(84	)
Stock repurchase		(10	)		(50	)		(38	)
Net change in bank indebtedness		12			(11	)		(6	)
Change in revolving credit facility		—			50			(160	)
Proceeds from receivables securitization facility		140			—			90
Repayments of receivables securitization facility		(70	)		—			(129	)
Issuance of long-term debt		—			300			—
Repayments of long-term debt		(40	)		(439	)		(4	)
Other		(3	)		1			5
Cash flows used for financing activities		(73	)		(249	)		(326	)
Net increase (decrease) in cash and cash equivalents		1			(40	)		(478	)
Impact of foreign exchange on cash		(2	)		(8	)		(3	)
Cash and cash equivalents at beginning of year		126			174			655
Cash and cash equivalents at end of year		125			126			174
Supplemental cash flow information
Net cash payments for:
Interest (including $40 million of redemption premiums in 2015)		64			133			92
Income taxes		40			34			18

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

55

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

INDEX FOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES	57
NOTE 2	RECENT ACCOUNTING PRONOUNCEMENTS	64
NOTE 3	ACQUISITION OF BUSINESSES	67
NOTE 4	IMPAIRMENT OF PROPERTY, PLANT AND EQUIPMENT	69
NOTE 5	STOCK-BASED COMPENSATION	70
NOTE 6	EARNINGS PER COMMON SHARE	75
NOTE 7	PENSION PLANS AND OTHER POST-RETIREMENT BENEFIT PLANS	76
NOTE 8	OTHER OPERATING LOSS (INCOME), NET	86
NOTE 9	INTEREST EXPENSE, NET	87
NOTE 10	INCOME TAXES	88
NOTE 11	INVENTORIES	92
NOTE 12	GOODWILL	93
NOTE 13	PROPERTY, PLANT AND EQUIPMENT	94
NOTE 14	INTANGIBLE ASSETS	95
NOTE 15	OTHER ASSETS	96
NOTE 16	CLOSURE AND RESTRUCTURING COSTS AND LIABILITY	97
NOTE 17	TRADE AND OTHER PAYABLES	100
NOTE 18	CHANGES IN ACCUMULATED OTHER COMPREHENSIVE LOSS BY COMPONENT	101
NOTE 19	LONG-TERM DEBT	103
NOTE 20	OTHER LIABILITIES AND DEFERRED CREDITS	106
NOTE 21	SHAREHOLDERS’ EQUITY	107
NOTE 22	COMMITMENTS AND CONTINGENCIES	109
NOTE 23	DERIVATIVES AND HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENT	113
NOTE 24	SEGMENT DISCLOSURES	118
NOTE 25	SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION	121

56

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 1.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS

Domtar designs, manufactures, markets and distributes a wide variety of fiber-based products including communication papers, specialty and packaging papers and absorbent hygiene products. The foundation of its business is a network of wood fiber converting assets that produce paper grade, fluff and specialty pulp. The majority of this pulp production is consumed internally to manufacture paper and other consumer products with the balance sold as market pulp. Domtar is 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. Domtar also designs, manufactures, markets and distributes a broad line of absorbent hygiene products, as well as infant diapers.

BASIS OF PRESENTATION

The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America which requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the year, the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements. On an ongoing basis, management reviews the estimates and assumptions, including but not limited to those related to environmental matters and asset retirement obligations, impairment and useful lives of long-lived assets, closure and restructuring costs, pension and other post-retirement benefit plans, income taxes, business combinations and contingencies, based on currently available information. Actual results could differ from those estimates.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Domtar and its controlled subsidiaries. Intercompany transactions have been eliminated on consolidation. Investment in an affiliated company, where the Company has joint control over their operations, is accounted for using the equity method.

TRANSLATION OF FOREIGN CURRENCIES

The Company determines its international subsidiaries’ functional currency by reviewing the currencies in which their respective operating activities occur. The Company translates assets and liabilities of its non-U.S. dollar functional currency subsidiaries into U.S. dollars using the rate in effect at the balance sheet date and revenues and expenses are translated at the average exchange rates during the year. Foreign currency translation gains and losses are included in Shareholders’ equity as a component of Accumulated other comprehensive loss in the accompanying Consolidated Balance Sheets.

Monetary assets and liabilities denominated in a currency that is different from a reporting entity’s functional currency must first be remeasured from the applicable currency to the legal entity’s functional currency. The effect of this remeasurement process is recognized in the Consolidated Statements of Earnings and Comprehensive Income (Loss) and is partially offset by our hedging program (refer to Note 23 “Derivatives and hedging activities and fair value measurement”).

At December 31, 2016, the accumulated translation adjustment accounts amounted to $(278) million (2015 – $(271) million).

57

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

REVENUE RECOGNITION

Domtar recognizes revenue when pervasive evidence of an arrangement exists, the customer takes title and assumes the risks and rewards of ownership, the sales price charged is fixed or determinable and when collection is reasonably assured. Revenue is recorded at the time of shipment for terms designated free on board (“f.o.b.”) shipping point. For sales transactions designated f.o.b. destination, revenue is recorded when the product is delivered to the customer’s delivery site, when the title and risk of loss are transferred.

SHIPPING AND HANDLING COSTS

The Company classifies shipping and handling costs as a component of Cost of sales in the Consolidated Statements of Earnings and Comprehensive Income (Loss).

CLOSURE AND RESTRUCTURING COSTS

Closure and restructuring costs are recognized as liabilities in the period when they are incurred and are measured at their fair value. For such recognition to occur, management, with the appropriate level of authority, must have approved and committed to a firm plan and appropriate communication to those affected must have occurred. These provisions may require an estimation of costs such as severance and termination benefits, pension and related curtailments, environmental remediation and may also include expenses related to demolition and outplacement. Actions taken may also require an evaluation of any remaining assets to determine required impairments, if any, and a review of estimated remaining useful lives which may lead to accelerated depreciation expense.

Estimates of cash flows and fair value relating to closures and restructurings require judgment. Closure and restructuring liabilities are based on management’s best estimates of future events at December 31, 2016. Although the Company does not anticipate significant changes, the actual costs may differ from these estimates due to subsequent developments such as the results of environmental studies, the ability to find a buyer for assets set to be dismantled and demolished and other business developments. As such, additional costs and further working capital adjustments may be required in future periods.

INCOME TAXES

Domtar uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined according to differences between the carrying amounts and tax bases of the assets and liabilities. The Company records its worldwide tax provision based on the respective tax rules and regulations for the jurisdictions in which it operates. The change in the net deferred tax asset or liability is included in Income tax expense (benefit) or in Other comprehensive income (loss) in the Consolidated Statements of Earnings and Comprehensive Income (Loss). Deferred tax assets and liabilities are measured using enacted tax rates and laws expected to apply in the years in which the assets and liabilities are expected to be recovered or settled. Uncertain tax positions are recorded based upon the Company’s evaluation of whether it is “more likely than not” (a probability level of more than 50 percent) that, based upon its technical merits, the tax position will be sustained upon examination by the taxing authorities. The Company establishes a valuation allowance for deferred tax assets when it is more likely than not that they will not be realized. In general, “realization” refers to the incremental benefit achieved through the reduction in future taxes payable or an increase in future taxes refundable from the deferred tax assets. Deferred tax assets and liabilities are classified as non-current items on the Consolidated Balance Sheets.

The Company recognizes interest and penalties related to income tax matters as a component of Income tax expense (benefit) in the Consolidated Statements of Earnings and Comprehensive Income (Loss).

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash and short-term investments with original maturities of less than three months and are presented at cost which approximates fair value.

58

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

RECEIVABLES

Receivables are recorded net of a provision for doubtful accounts that is based on expected collectability. The securitization of receivables is accounted for as secured borrowings. Accordingly, financing expenses related to the securitization of receivables are recognized in earnings as a component of Interest expense in the Consolidated Statements of Earnings and Comprehensive Income (Loss).

INVENTORIES

Inventories are stated at the lower of cost or market. Cost includes labor, materials and production overhead. The last-in, first-out (“LIFO”) method is used to account for certain domestic raw materials, in process and finished goods inventories. LIFO inventories were $268 million and $288 million at December 31, 2016 and 2015, respectively. The balance of domestic raw material inventories, all materials and supplies inventories and all foreign inventories are recorded at either the first-in, first-out (“FIFO”) or average cost methods. Had the inventories for which the LIFO method is used been valued under the FIFO method, the amounts at which product inventories are stated would have been $63 million and $66 million greater at December 31, 2016 and 2015, respectively.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at cost less accumulated depreciation including asset impairments. Costs for repair and maintenance activities are expensed as incurred under the direct expense method of accounting. Interest costs are capitalized for significant capital projects. For timberlands, the amortization is calculated using the unit of production method. For all other assets, depreciation is calculated using the straight-line method over the estimated useful lives of the assets. Buildings and improvements are depreciated over periods of 10 to 40 years and machinery and equipment over periods of 3 to 20 years. No depreciation is recorded on assets under construction.

IMPAIRMENT OF PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are reviewed for impairment upon the occurrence of events or changes in circumstances indicating that the carrying value of the assets may not be recoverable, as measured by comparing the net book value of the asset group to their estimated undiscounted future cash flows expected from their use and eventual disposition. Impaired assets are recorded at estimated fair value, determined principally by using the present value of estimated future cash flows expected from their use and eventual disposition (refer to Note 4 “Impairment of property, plant and equipment”).

GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill is not amortized and is evaluated for impairment at the beginning of the fourth quarter of every year or more frequently whenever indicators of potential impairment exist. The Company performs the impairment test of goodwill at its reporting unit’s level.

The Company has the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount including goodwill. In performing the qualitative assessment, the Company identifies the relevant drivers of fair value of a reporting unit and the relevant events and circumstances that may have an impact on those drivers of fair value and assesses their impact on the fair value of the reporting unit. To carry out the qualitative assessment, the Company considers elements such as the results of recent fair value assessments, macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, specific events affecting the Company and the business. The identification and impact assessment of events and circumstances on the fair value involves significant judgment and assumptions. If, a qualitative assessment is performed and after assessing the totality of events or circumstances, the Company determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill, then it performs Step I of the two-step impairment test. The Company can also elect to bypass the qualitative assessment and proceed directly to the Step I of the impairment test.

The first step is to compare the fair value of a reporting unit to its carrying amount, including goodwill. Significant judgment is required to estimate the fair value of a reporting unit.

59

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

The Company typically uses an income approach to determine the fair value of a reporting unit. Under the income approach, the Company estimates the fair value of a reporting unit based on the present value of estimated future cash flows. Key assumptions supporting the cash flow projections include, but are not limited to, estimates of future sales volumes, selling prices and costs, changes in working capital, investments in property, plant and equipment and discount rate.  Assumptions used in our impairment evaluations are consistent with internal projections and operating plans. Analysis of the sensitivities of the fair value estimate to changes in assumptions are also performed. Unanticipated market and macroeconomic events and circumstances may occur and could affect the accuracy and validity of management assumptions and estimates.

In the event that the net carrying amount, including goodwill, exceeds the fair value of the reporting unit, the second step of the impairment test must be performed in order to determine the amount of the impairment charge. Fair value of goodwill in Step II of the impairment test is estimated in the same way as goodwill was determined at the date of the acquisition in a business combination, that is, the excess of the fair value of the reporting unit over the fair value of the identifiable net assets of the business.

All goodwill as of December 31, 2016 resides in the Personal Care reporting segment.

Indefinite-lived intangible assets are not amortized and are evaluated individually at the beginning of the fourth quarter of every year, or more frequently whenever indicators of potential impairment exist. The Company has the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of indefinite-lived intangible assets are less than their carrying amounts. The qualitative assessment follows the same process as the one performed for goodwill, as described above. If, a qualitative assessment is performed and after assessing the qualitative factors, the Company determines that it is more likely than not that the indefinite-lived intangible assets are less than their carrying amounts, then a quantitative impairment test is required. The Company can also elect to proceed directly to the quantitative test. The quantitative impairment test consists of comparing the fair value of the indefinite-lived intangible assets determined using a variety of methodologies to their carrying amount. If the carrying amounts of the indefinite-lived intangible assets exceed their fair value, an impairment loss is recognized in an amount equal to that excess. Indefinite-lived intangible assets include trade names related to Attends^®, IncoPack^®, Indasec^® and Reassure^®, catalog rights related to Laboratorios Indas S.A.U., license rights related to Xerox and water rights. The Company reviews its indefinite-lived intangible assets each reporting period to determine whether events and circumstances continue to support indefinite useful lives.

Definite lived intangible assets are stated at cost less amortization and are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Definite lived intangible assets include water rights, customer relationships, technology, non-compete agreements as well as license rights, which are being amortized using the straight-line method over their respective estimated useful lives. Any potential impairment for definite lived intangible assets will be calculated in the same manner as disclosed under impairment of property, plant and equipment.

Amortization is based on the following useful lives:

	Useful life
Water rights	40 years
Customer relationships	10 to 40 years
Technology	7 to 20 years
Non-Compete agreements	9 years
Licence rights	12 years

OTHER ASSETS

Other assets are recorded at cost.

60

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

DEBT ISSUANCE COSTS

Debt issuance costs are presented in the Consolidated Balance Sheet as a direct deduction from the carrying value of long-term debt. Debt issuance costs associated with revolving credit arrangements are presented in Other assets in the Consolidated Balance Sheets. Debt issuance costs are amortized using the effective rate method over the term of the related debt and included in Interest expense, net in the Consolidated Statements of Earnings and Comprehensive Income (Loss).

ENVIRONMENTAL COSTS AND ASSET RETIREMENT OBLIGATIONS

Environmental expenditures for effluent treatment, air emission, silvicultural activities and site remediation (together referred to as environmental matters) are expensed or capitalized depending on their future economic benefit. In the normal course of business, Domtar incurs certain operating costs for environmental matters that are expensed as incurred. Expenditures for property, plant and equipment that prevent future environmental impacts are capitalized and amortized on a straight-line basis over 10 to 40 years. Provisions for environmental matters are not discounted, due to uncertainty with respect to timing of expenditures, and are recorded when remediation efforts are probable and can be reasonably estimated.

Asset retirement obligations are mainly associated with landfill operation and closure, asbestos containment and removal and bark pile management and are recognized, at fair value, in the period in which Domtar incurs a legal obligation associated with the retirement of an asset. Conditional asset retirement obligations are recognized, at fair value, when the fair value of the liability can be reasonably estimated or on a probability-weighted discounted cash flow estimate. The associated costs are capitalized as part of the carrying value of the related asset and depreciated over its remaining useful life. The liability is accreted using the credit adjusted risk-free interest rate used to discount the cash flow.

STOCK-BASED COMPENSATION AND OTHER STOCK-BASED PAYMENTS

Domtar recognizes the cost (net of estimated forfeitures) of employee services received in exchange for awards of equity instruments over the requisite service period, based on their grant date fair value for awards accounted for as equity and based on the quoted market value at the end of each reporting period for awards accounted for as liability. The Company awards are accounted for as compensation expense and presented in Additional paid-in capital on the Consolidated Balance Sheets for equity type awards and presented in Other liabilities and deferred credits on the Consolidated Balance Sheets for liability type awards.

The Company’s awards may be subject to market, performance and/or service conditions. Any consideration paid by plan participants on the exercise of stock options or the purchase of shares is credited to Additional paid-in capital on the Consolidated Balance Sheets. The par value included in the Additional paid-in capital component of stock-based compensation is transferred to Common stock upon the issuance of shares of common stock.

Unless otherwise determined at the time of the grant, awards subject to service conditions vest in approximately equal installments over three years beginning on the first anniversary of the grant date and performance-based awards vest based on achievement of pre-determined performance goals over performance periods of three years. The majority of non-qualified stock options and performance share units expire at various dates no later than seven years from the date of grant. Deferred Share Units vest immediately at the grant date and are remeasured at the end of each reporting period, until settlement, using the quoted market value.

Under the amended and restated Domtar Corporation 2007 Omnibus Incentive Plan (“Omnibus Plan”), a maximum of 1,793,095 shares are reserved for issuance in connection with awards granted or to be granted.

61

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

DERIVATIVE INSTRUMENTS

Derivative instruments are utilized by Domtar as part of the overall strategy to manage exposure to fluctuations in foreign currency, interest rate and commodity price on certain purchases. As a matter of policy, derivatives are not used for trading or speculative purposes. All derivatives are recorded at fair value either as assets or liabilities. When derivative instruments have been designated within a hedge relationship and are highly effective in offsetting the identified risk characteristics of specific financial assets and liabilities or group of financial assets and liabilities, hedge accounting is applied. In a fair value hedge, changes in fair value of derivatives are recognized in the Consolidated Statements of Earnings and Comprehensive Income (Loss). The change in fair value of the hedged item attributable to the hedged risk is also recorded in the Consolidated Statements of Earnings and Comprehensive Income (Loss) by way of a corresponding adjustment of the carrying amount of the hedged item recognized in the Consolidated Balance Sheets. In a cash flow hedge, changes in fair value of derivative instruments are recorded in Other comprehensive income (loss). These amounts are reclassified in the Consolidated Statements of Earnings and Comprehensive Income (Loss) in the periods in which results are affected by the cash flows of the hedged item within the same line item. Any hedge ineffectiveness is recorded in the Consolidated Statements of Earnings and Comprehensive Income (Loss) when incurred.

PENSION PLANS

Domtar’s plans include funded and unfunded defined benefit and defined contribution pension plans. Domtar recognizes the overfunded or underfunded status of defined benefit and underfunded defined contribution pension plans as an asset or liability in the Consolidated Balance Sheets. The net periodic benefit cost includes the following:

- The cost of pension benefits provided in exchange for employees’ services rendered during the period,

- The interest cost of pension obligations,

- The expected long-term return on pension fund assets based on a market value of pension fund assets,

- Gains or losses on settlements and curtailments,

- The straight-line amortization of past service costs and plan amendments over the average remaining service period of approximately eight years of the active employee group covered by the plans, and

- The amortization of cumulative net actuarial gains and losses in excess of 10% of the greater of the accrued benefit obligation or market value of plan assets at the beginning of the year over the average remaining service period of approximately eight years of the active employee group covered by the plans.

The defined benefit plan obligations are determined in accordance with the projected unit credit actuarial cost method.

OTHER POST-RETIREMENT BENEFIT PLANS

The Company recognizes the unfunded status of other post-retirement benefit plans (other than multiemployer plans) as a liability in the Consolidated Balance Sheets. These benefits, which are funded by Domtar as they become due, include life insurance programs, medical and dental benefits and short-term and long-term disability programs. The Company amortizes the cumulative net actuarial gains and losses in excess of 10% of the accrued benefit obligation at the beginning of the year over the average remaining service period of approximately 10 years of the active employee group covered by the plans.

62

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

BUSINESS COMBINATION

The Company applies the acquisition method of accounting in a business combination. This methodology requires companies to record assets acquired and liabilities assumed at their respective fair market values at the date of acquisition. The value is determined from the viewpoint of market participants. Any amount of the purchase price paid that is in excess of the estimated fair values of net assets acquired is recorded as Goodwill in the Consolidated Balance Sheets. Management's judgment is used to determine the estimated fair values assigned to assets acquired and liabilities assumed, as well as asset useful lives for property, plant and equipment and intangible assets, and can materially affect the Company's results of operations. Transaction costs, as well as costs to reorganize acquired companies, are expensed as incurred in the Company's Consolidated Statements of Earnings and Comprehensive Income (Loss).

GUARANTEES

A guarantee is a contract or an indemnification agreement that contingently requires Domtar to make payments to the other party of the contract or agreement, based on changes in an underlying item that is related to an asset, a liability or an equity security of the other party or on a third party’s failure to perform under an obligating agreement. It could also be an indirect guarantee of the indebtedness of another party, even though the payment to the other party may not be based on changes in an underlying item that is related to an asset, a liability or an equity security of the other party. Guarantees, when applicable, are accounted for at fair value.

63

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 2.

RECENT ACCOUNTING PRONOUNCEMENTS

ACCOUNTING CHANGES IMPLEMENTED

PRESENTATION OF DEBT ISSUANCE COSTS

In April 2015, the FASB issued Accounting Standard Update (“ASU”) 2015-03, “Simplifying the Presentation of Debt Issuance Costs,” which requires debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying value of the associated debt liability, consistent with the presentation of a debt discount. In August 2015, the FASB also issued ASU 2015-15, “Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements,” which allows debt issuance costs associated with line-of-credit arrangements to be presented as an asset.

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

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 has begun its assessment of 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 modified 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 of its revenue to remain the same.

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

INVENTORY

In July 2015, the FASB issued 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 costs 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 amendments in the update are effective for interim and annual periods beginning after December 15, 2016. The amendments should be applied prospectively and early adoption is permitted.

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

64

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

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, the Company will be required to make a cumulative-effect adjustment to beginning retained earnings as of the beginning of the fiscal year in which the guidance is effective. Early adoption is permitted.

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

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.

The Company is currently evaluating the impact of this guidance on the consolidated financial statements, including identifying and analyzing all contracts that contain a lease. 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 (Loss) 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.

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.  This ASU is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years, with early adoption permitted as of the beginning of an interim or annual reporting period.

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

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.

65

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

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 No. 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. 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 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 does not expect this new guidance to have a material impact on the consolidated financial statements.

66

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 3.

ACQUISITION OF BUSINESSES

Acquisition of Home Delivery Incontinent Supplies Co.

On October 1, 2016, Domtar completed the acquisition of 100% of the outstanding shares of Home Delivery Incontinent Supplies Co. (“HDIS”). HDIS is a leading national direct-to-consumer provider of adult incontinence and related products. Based in Olivette, Missouri, HDIS provides customers with high-quality products and a personalized service for all of their incontinence needs. HDIS operates a distribution center in Olivette, Missouri, as well as two retail locations, in Texarkana, Arkansas and Daytona Beach, Florida and has approximately 240 employees. The results of HDIS’s operations are included in the Personal Care reportable segment starting on October 1, 2016. The purchase price was $52 million, net of cash acquired of $3 million and includes a potential earn-out payment of up to $10 million to be settled after the first anniversary of the acquisition.

The total purchase price was allocated to tangible and intangible assets acquired and liabilities assumed based on the Company’s estimates of their fair value, which are based on information currently available.

The table below illustrates the purchase price allocation:

Fair value of net assets acquired at the date of acquisition
Receivables		$	4
Inventory			4
Property, plant and equipment			1
Intangible assets
Customer relationships (1)	21
Trade names (2)	13
			34
Goodwill			17
Deferred income tax assets			2
Total assets			62
Less: Liabilities
Trade and other payables			10
Total liabilities			10
Fair value of net assets acquired at the date of    acquisition			52

⁽¹⁾ The useful life of the Customer relationships acquired is estimated at 10 years (as of the date of acquisition).

⁽²⁾ Indefinite useful life.

67

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 3. ACQUISITION OF BUSINESSES (CONTINUED)

Acquisition of Laboratorios Indas

On January 2, 2014, Domtar completed the acquisition of 100% of the outstanding shares of Laboratorios Indas, S.A.U. (“Indas”), primarily a branded incontinence products manufacturer and marketer in Spain. Indas has approximately 570 employees and operates two manufacturing facilities in Spain. The results of Indas’ operations have been included in the Personal Care reportable segment as of January 2, 2014. The purchase price was $546 million (€399 million) in cash, net of cash acquired of $46 million (€34 million).

The total purchase price was allocated to tangible and intangible assets acquired and liabilities assumed based on the Company’s estimates of their fair value, which were based on information available at that time.

The table below illustrates the purchase price allocation:

Fair value of net assets acquired at the date of acquisition
Receivables		$	101
Inventory			28
Income and other taxes receivable			3
Property, plant and equipment			72
Intangible assets
Customer relationships (1)	142
Trade names (2)	140
Catalog rights (2)	46
			328
Goodwill			234
Deferred income tax assets			16
Total assets			782
Less: Liabilities
Trade and other payables			71
Income and other taxes payable			3
Long-term debt (including short-term portion)			42
Deferred income tax liabilities			119
Other liabilities and deferred credits			1
Total liabilities			236
Fair value of net assets acquired at the date of    acquisition			546

⁽¹⁾ The useful life of Customer relationships acquired is between 10-20 years (as of the date of acquisition).

⁽²⁾ Indefinite useful life.

68

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 4.

IMPAIRMENT OF PROPERTY, PLANT AND EQUIPMENT

The Company reviews property, plant and equipment for impairment upon the occurrence of events or changes in circumstances indicating that, at the lowest level of determinable cash flows, the carrying value of the asset group may not be recoverable.

Estimates of undiscounted future cash flows used to test the recoverability of the asset group includes key assumptions related to selling prices, inflation-adjusted cost projections, forecasted exchange rates when applicable and the estimated useful life of the asset group.

Ashdown, Arkansas pulp and paper mill - Conversion of a paper machine

In the fourth quarter of 2014, the Company announced the conversion of a paper machine at Ashdown, Arkansas pulp and paper mill to a high quality fluff pulp line. As a result, in 2016 the Company recognized $29 million of accelerated depreciation in Impairment of property, plant and equipment on the Consolidated Statement of Earnings and Comprehensive Income (Loss) (2015 – $77 million; 2014 – $4 million).

69

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 5.

STOCK-BASED COMPENSATION

OMNIBUS PLAN

Under the Omnibus Plan, the Company may award to key employees and non-employee directors, at the discretion of the Human Resources Committee of the Board of Directors, non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock units, performance-conditioned restricted stock units, performance share units, deferred share units (“DSUs”) and other stock-based awards. The non-employee directors only receive DSUs. The Company generally grants awards annually and uses, when available, treasury stock to fulfill awards settled in common stock and option exercises.

PERFORMANCE SHARE UNITS (“PSUs”)

PSUs are granted to Management Committee and non-Management Committee members. These awards will be settled in shares for Management Committee members and in cash for non-Management Committee members, based on market conditions and/or performance and service conditions. These awards have an additional feature where the ultimate number of units that vest will be determined by the Company’s performance results or shareholder return in relation to a predetermined target over the vesting period. No awards vest when the minimum thresholds are not achieved. The performance measurement date will vary depending on the specific award. These awards will cliff vest at various dates up to December 31, 2018.

				Weighted
				average grant
PSUs	Number of units			date fair value
				$
Vested and non-vested at December 31, 2013		350,076			42.60
Granted		175,815			53.97
Forfeited		(33,076	)		45.29
Cancelled		(89,622	)		49.79
Vested and settled		(92,890	)		46.49
Vested and non-vested at December 31, 2014		310,303			45.52
Granted		219,453			44.22
Forfeited		(21,918	)		45.52
Cancelled		(60,768	)		35.40
Vested and settled		(20,991	)		51.48
Vested and non-vested at December 31, 2015		426,079			46.00
Granted		295,504			32.38
Forfeited		(28,523	)		39.81
Cancelled		(101,124	)		51.27
Vested and settled		(74,655	)		35.97
Vested and non-vested at December 31, 2016		517,281			38.93

70

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 5. STOCK-BASED COMPENSATION (CONTINUED)

The fair value of PSUs granted in 2016, 2015 and 2014 was estimated at the grant date using the Monte Carlo simulation methodology. The Monte Carlo simulation creates artificial futures by generating numerous sample paths of potential outcomes. The following assumptions were used in calculating the fair value of the units granted:

	2016			2015			2014
Dividend yield		4.740	%		3.220	%		1.980	%
Expected volatility 1 year		24	%		34	%		31	%
Expected volatility 3 years		30	%		30	%		31	%
Risk-free interest rate December 31, 2014		—			—			0.499	%
Risk-free interest rate December 31, 2015		—			0.732	%		0.447	%
Risk-free interest rate December 31, 2016		1.057	%		0.893	%		0.755	%
Risk-free interest rate December 31, 2017		0.860	%		1.200	%		—
Risk-free interest rate December 31, 2018		0.900	%		—			—

At December 31, 2016, of the total vested and non-vested PSUs, 231,071 are expected to be settled in shares and 286,210 will be settled in cash.

RESTRICTED STOCK UNITS (“RSUs”)

RSUs are granted to Management Committee and non-Management Committee members. These awards will be settled in shares for Management Committee members and in cash for non-Management Committee members, upon completing service conditions. The awards cliff vest after a service period of approximately three years. Additionally, the RSUs are credited with dividend equivalents in the form of additional RSUs when cash dividends are paid on the Company’s stock. The grant date fair value of RSUs is equal to the market value of the Company’s stock on the date the awards are granted.

				Weighted
				average grant
RSUs	Number of units			date fair value
				$
Non-vested at December 31, 2013		374,414			41.46
Granted/issued		130,045		49.95
Forfeited		(29,230	)	44.37
Vested and settled		(161,009	)	41.27
Non-vested at December 31, 2014		314,220			44.80
Granted/issued		164,879			43.21
Forfeited		(12,464	)		44.78
Vested and settled		(119,669	)		44.31
Non-vested at December 31, 2015		346,966			44.21
Granted/issued		196,786			34.04
Forfeited		(17,884	)		39.69
Vested and settled		(107,198	)		39.12
Non-vested at December 31, 2016		418,670			40.90

At December 31, 2016, of the total non-vested RSUs, 167,280 are expected to be settled in shares and 251,390 will be settled in cash.

71

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 5. STOCK-BASED COMPENSATION (CONTINUED)

DEFERRED SHARE UNITS

DSUs are granted to the Company’s Directors. The DSUs granted to the Directors vest immediately on the grant date. The DSUs are credited with dividend equivalents in the form of additional DSUs when cash dividends are paid on the Company’s stock. For Directors’ DSUs, the Company will deliver at the option of the holder either one share of common stock or the cash equivalent of the fair market value on settlement of each outstanding DSU (including dividend equivalents accumulated) upon termination of service. Directors who attained the share ownership requirements may elect to receive the equity component of their annual retainer in DSUs that may be settled in either cash or stock one year after the grant date. The grant date fair value of DSU awards is equal to the market value of the Company’s stock on the date the awards are granted.

Management Committee members may elect to defer awards earned under another program into DSUs. In 2016, no vested awards were deferred to DSUs (2015 – nil; 2014 – 6,799). Those DSUs can be settled in shares of common stock beginning February 2017.

				Weighted
				average grant
DSUs	Number of units			date fair value
				$
Vested at December 31, 2013		271,742			25.54
Granted/issued		39,165			44.25
Settled		(48,186	)		32.17
Vested at December 31, 2014		262,721			27.11
Granted/issued		40,494			39.92
Settled		(13,755	)		41.88
Vested at December 31, 2015		289,460			28.20
Granted/issued		46,737			37.43
Settled		(15,123	)		39.60
Vested at December 31, 2016		321,074			29.01

NON-QUALIFIED & PERFORMANCE STOCK OPTIONS

Stock options are granted to Management Committee and non-Management Committee members. The stock options vest at various dates up to February 22, 2019 subject to service conditions for non-qualified stock options and, for performance stock options, if certain market conditions are met in addition to the service period. The options expire at various dates no later than seven years from the date of grant.

The fair value of the stock options granted in 2016, 2015 and 2014 (except for the stock options granted on May 1, 2014) was estimated at the grant date using a Black-Scholes based option pricing model or an option pricing model that incorporated the market conditions when applicable. The following assumptions were used in calculating the fair value of the options granted:

	2016			2015			2014
Dividend yield		3.78	%		3.22	%		2.62	%
Expected volatility		30	%		32	%		32	%
Risk-free interest rate		1.17	%		1.47	%		1.34	%
Expected life	4.5 years			4.5 years			4.5 years
Strike price	$	33.78		$	43.42		$	53.12

The grant date fair value of the non-qualified options granted in 2016 was $5.95 (2015 – $8.96; 2014 – $11.60).

72

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 5. STOCK-BASED COMPENSATION (CONTINUED)

On May 1, 2014, the Company granted 22,448 options to Michael Garcia, President Pulp and Paper Division, as part of his employment conditions, and the following assumptions were used in calculating the fair value of the options granted:

	2014
Dividend yield		2.80	%
Expected volatility		33	%
Risk-free interest rate		1.485	%
Expected life	4.5 years
Strike price	$	47.08

The grant date fair value of the non-qualified options granted on May 1, 2014 was $10.52.

				Weighted average		Weighted average		Aggregate intrinsic
	Number			exercise		remaining life		value
OPTIONS (including Performance options)	of options			price		(in years)		(in millions)
				$				$
Outstanding at December 31, 2013		465,674			43.93		2.6		3.3
Granted		270,028			52.48		6.2		—
Exercised		(131,312	)		37.02		—		—
Forfeited/expired		(186,267	)		55.67		—		—
Outstanding at December 31, 2014		418,123			46.39		4.6		0.5
Options exercisable at December 31, 2014		93,027			37.40		2.0		0.3
Outstanding at December 31, 2014		418,123			46.39		4.6		0.5
Granted		82,885			43.42		6.2		—
Exercised		(35,924	)		43.13		—		—
Forfeited/expired		(13,782	)		34.08		—		—
Outstanding at December 31, 2015		451,302			46.48		4.8		0.1
Options exercisable at December 31, 2015		176,315			44.56		3.9		0.1
Outstanding at December 31, 2015		451,302			46.48		4.8		0.1
Granted		114,723			33.78		6.2		—
Exercised		(37,296	)		41.11		—		—
Forfeited/expired		(6,502	)		20.89		—		—
Outstanding at December 31, 2016		522,227			44.39		4.5		0.7
Options exercisable at December 31, 2016		286,011			46.50		3.9		0.1

The Company has no outstanding and exercisable stock appreciation rights at December 31, 2016 (2015 – 672 with a weighted average exercise price of $41.46).

The total intrinsic value of options exercised in 2016 was nil (2015 – nil; 2014 – $2 million). Based on the Company’s closing year-end stock price of $39.03 (2015 – $36.95; 2014 – $40.22), the aggregate intrinsic value of options outstanding and options exercisable is $1 million.

73

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 5. STOCK-BASED COMPENSATION (CONTINUED)

For the year ended December 31, 2016, stock-based compensation expense recognized in the Company’s results of operations was $16 million (2015 – $10 million; 2014 – $9 million) for all of the outstanding awards. Compensation costs not yet recognized amounted to $17 million (2015 – $16 million; 2014 – $14 million) and will be recognized over the remaining service period of approximately 26 months. The aggregate value of liability awards settled in 2016 was $4 million (2015 – $4 million; 2014 – $12 million). The total fair value of equity awards settled in 2016 was $2 million, representing the fair value at the time of settlement. The fair value at the grant date for these settled equity awards was $3 million. Compensation costs for performance awards are based on management’s best estimate of the final performance measurement.

CLAWBACK FOR FINANCIAL REPORTING MISCONDUCT

If a participant in the Omnibus Plan knowingly or grossly negligently engages in financial reporting misconduct, then all awards and gains from the exercise of options in the 12 months prior to the date the misleading financial statements were issued as well as any awards that vested based on the misleading financial statements will be disgorged to the Company. In addition, the Company may cancel or reduce, or require a participant to forfeit and disgorge to the Company or reimburse the Company for, any awards granted or vested, and bonus granted or paid, and any gains earned or accrued, due to the exercise, vesting or settlement of awards or sale of any common stock, to the extent permitted or required by, or pursuant to any Company policy implemented as required by applicable law, regulation or stock exchange rule as may from time to time be in effect.

74

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 6.

EARNINGS PER COMMON SHARE

On April 30, 2014, the Company’s Board of Directors approved a 2-for-1 split of its common stock that was effected through a stock dividend. Shareholders of record on June 10, 2014 received one additional share for every share they owned on that date.

The calculation of basic earnings per common share is based on the weighted average number of Domtar common shares outstanding during the year. The calculation for diluted earnings per common share recognizes the effect of all potential dilutive common securities.

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

	Year ended		Year ended		Year ended
	December 31,		December 31,		December 31,
	2016		2015		2014
Net earnings	$	128	$	142	$	431
Weighted average number of common    and exchangeable shares outstanding (millions)		62.6		63.3		64.8
Effect of dilutive securities (millions)		0.1		0.1		0.1
Weighted average number of diluted common    and exchangeable shares outstanding (millions)		62.7		63.4		64.9
Basic net earnings per common share (in dollars)	$	2.04	$	2.24	$	6.65
Diluted net earnings per common share (in dollars)	$	2.04	$	2.24	$	6.64

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:

	December 31,		December 31,		December 31,
	2016		2015		2014
Options		410,978		343,581		247,152

75

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 7.

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 year ended December 31, 2016, the related pension expense was $37 million (2015 – $32 million; 2014 – $28 million).

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

Related pension and other post-retirement plan expenses and the corresponding obligations are actuarially determined using management’s most probable assumptions.

The Company’s pension plan funding policy is to contribute annually the amount required to provide for benefits earned in the year, and to fund solvency deficiencies, funding shortfalls and past service obligations over periods not exceeding those permitted by the applicable regulatory authorities. Past service obligations primarily arise from improvements to plan benefits. The other post-retirement benefit plans are not funded and contributions are made annually to cover benefit payments.

The Company expects to contribute a minimum total amount of $13 million in 2017 compared to $31 million in 2016 (2015 – $13 million; 2014 – $29 million) to the pension plans. The Company expects to contribute a minimum total amount of $4 million in 2017 compared to $5 million in 2016 to the other post-retirement benefit plans (2015 – $5 million; 2014 – $5 million).

76

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 7. PENSION PLANS AND OTHER POST-RETIREMENT BENEFIT PLANS (CONTINUED)

CHANGE IN ACCRUED BENEFIT OBLIGATION

The following table represents the change in the accrued benefit obligation as of December 31, 2016 and December 31, 2015, the measurement date for each year:

	December 31, 2016						December 31, 2015
	Pension			Other post-retirement			Pension			Other post-retirement
	plans			benefit plans			plans			benefit plans
	$			$			$			$
Accrued benefit obligation at beginning of year		1,509			86			1,723			105
Service cost for the year		31			2			34			2
Interest expense		51			4			60			4
Plan participants' contributions		6			—			6			—
Actuarial loss (gain)		46			1			(25	)		(5	)
Plan amendments		—			—			10			—
Benefits paid		(83	)		—			(76	)		—
Direct benefit payments		(4	)		(5	)		(3	)		(5	)
Settlement		(6	)		—			(1	)		—
Effect of foreign currency exchange rate change		34			2			(219	)		(15	)
Accrued benefit obligation at end of year		1,584			90			1,509			86

CHANGE IN FAIR VALUE OF ASSETS

The following table represents the change in the fair value of assets reflecting the actual return on plan assets, the contributions and the benefits paid during the year:

	December 31, 2016			December 31, 2015
	Pension plans			Pension plans
	$			$
Fair value of assets at beginning of year		1,493			1,721
Actual return on plan assets		73			63
Employer contributions		31			13
Plan participants' contributions		6			6
Benefits paid		(87	)		(79	)
Settlement		(6	)		(1	)
Effect of foreign currency exchange rate change		36			(230	)
Fair value of assets at end of year		1,546			1,493

INVESTMENT POLICIES AND STRATEGIES OF THE PLAN ASSETS

The assets of the pension plans are held by a number of independent trustees and are accounted for separately in the Company’s pension funds. The investment strategy for the assets in the pension plans is to maintain a diversified portfolio of assets, invested in a prudent manner to maintain the security of funds while maximizing returns within the guidelines provided in the investment policy. Diversification of the pension plans’ holdings is maintained in order to reduce the pension plans’ annual return variability, reduce market and credit exposure to any single asset and to any single component of the capital markets, reduce exposure to unexpected inflation, enhance the long-term risk-adjusted return potential of the pension plans and reduce funding risk.

77

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 7. PENSION PLANS AND OTHER POST-RETIREMENT BENEFIT PLANS (CONTINUED)

Over the long-term, the performance of the pension plans is primarily determined by the long-term asset mix decisions. To manage the long-term risk of not having sufficient funds to match the obligations of the pension plans, the Company conducts asset/liability studies. These studies lead to the recommendation and adoption of a long-term asset mix target that sets the expected rate of return and reduces the risk of adverse consequences to the plans from increases in liabilities and decreases in assets. In identifying the asset mix target that would best meet the investment objectives, consideration is given to various factors, including (a) each plan’s characteristics, (b) the duration of each plan’s liabilities, (c) the solvency and going concern financial position of each plan and their sensitivity to changes in interest rates and inflation, and (d) the long-term return and risk expectations for key asset classes.

The investments of each plan can be done directly through cash investments in equities or bonds or indirectly through derivatives or pooled funds. The use of derivatives must be in accordance with an approved mandate and cannot be used for speculative purposes.

The Company’s pension funds are not permitted to directly own any of the Company’s shares or debt instruments.

The following table shows the allocation of the plan assets, based on the fair value of the assets held and the target allocation for 2016:

			Percentage of			Percentage of
			plan assets at			plan assets at
			December 31,			December 31,
	Target allocation		2016			2015
Fixed income
Cash and cash equivalents	0% - 9%			3	%		2	%
Bonds	46%-56%			51	%		51	%
Insurance contracts		5%		5	%		6	%
Equity
Canadian Equity	3% - 11%			6	%		6	%
U.S. Equity	8% - 18%			13	%		15	%
International Equity	17%-27%			22	%		20	%
Total (1)				100	%		100	%

⁽¹⁾ Approximately 80% of the pension plans' assets relate to Canadian plans and 20% relate to U.S. plans.

RECONCILIATION OF FUNDED STATUS TO AMOUNTS RECOGNIZED IN THE CONSOLIDATED BALANCE SHEETS

The following table presents the difference between the fair value of assets and the actuarially determined accrued benefit obligation. This difference is also referred to as either the deficit or surplus, as the case may be, or the funded status of the plans. The table further reconciles the amount of the surplus or deficit (funded status) to the net amount recognized in the Consolidated Balance Sheets.

	December 31, 2016						December 31, 2015
	Pension			Other post-retirement			Pension			Other post-retirement
	plans			benefit plans			plans			benefit plans
	$			$			$			$
Accrued benefit obligation at end of year		(1,584	)		(90	)		(1,509	)		(86	)
Fair value of assets at end of year		1,546			—			1,493			—
Funded status		(38	)		(90	)		(16	)		(86	)

78

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 7. PENSION PLANS AND OTHER POST-RETIREMENT BENEFIT PLANS (CONTINUED)

The funded status includes $48 million of accrued benefit obligation ($46 million at December 31, 2015) related to supplemental unfunded defined benefit and defined contribution plans.

	December 31, 2016						December 31, 2015
	Pension			Other post-retirement			Pension			Other post-retirement
	plans			benefit plans			plans			benefit plans
	$			$			$			$
Trade and other payables (Note 17)		—			(4	)		—			(4	)
Other liabilities and deferred credits (Note 20)		(141	)		(86	)		(129	)		(82	)
Other assets (Note 15)		103			—			113			—
Net amount recognized in the Consolidated    Balance Sheets		(38	)		(90	)		(16	)		(86	)

The following table presents the pre-tax amounts included in Other comprehensive income (loss):

	Year ended						Year ended					Year ended
	December 31, 2016						December 31, 2015					December 31, 2014
				Other post-						Other post-					Other post-
	Pension			retirement			Pension			retirement		Pension			retirement
	plans			benefit plans			plans			benefit plans		plans			benefit plans
	$			$			$			$		$			$
Prior service credit		—			—			(10	)		—		(1	)		—
Amortization of prior year service cost		5			—			3			—		3			—
Net (loss) gain		(53	)		(2	)		2			4		(8	)		(8	)
Amortization of net actuarial loss		6			—			7			1		28			—
Net amount recognized in other comprehensive    (loss) income (pre-tax)		(42	)		(2	)		2			5		22			(8	)

An estimated amount of $13 million for pension plans and nil for other post-retirement benefit plans will be amortized from Accumulated other comprehensive loss into net periodic benefit cost in 2017.

At December 31, 2016, the accrued benefit obligation and the fair value of defined benefit plan assets with an accrued benefit obligation in excess of fair value of plan assets were $765 million and $624 million, respectively (2015 – $405 million and $276 million, respectively).

79

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 7. PENSION PLANS AND OTHER POST-RETIREMENT BENEFIT PLANS (CONTINUED)

	Year ended			Year ended			Year ended
	December 31,			December 31,			December 31,
Components of net periodic benefit cost for pension plans	2016			2015			2014
	$			$			$
Service cost for the year		31			34			35
Interest expense		51			60			77
Expected return on plan assets		(80	)		(86	)		(101	)
Amortization of net actuarial loss		5			7			9
Settlement loss(a)		1			—			19
Amortization of prior year service cost		5			3			3
Net periodic benefit cost		13			18			42

	Year ended December 31,		Year ended December 31,		Year ended December 31,
Components of net periodic benefit cost for other post-retirement benefit plans	2016		2015		2014
	$		$		$
Service cost for the year		2		2		2
Interest expense		4		4		5
Net periodic benefit cost		6		6		7

(a) The settlement loss of $19 million in the pension plans for the year ended December 31, 2014 is related to the previously closed Ottawa, Ontario paper mill (see Note 16 “Closure and restructuring costs and liability”).

WEIGHTED-AVERAGE ASSUMPTIONS

The Company used the following key assumptions to measure the accrued benefit obligation and the net periodic benefit cost. These assumptions are long-term, which is consistent with the nature of employee future benefits.

	December 31,			December 31,			December 31,
Pension plans	2016			2015			2014
Accrued benefit obligation
Discount rate		3.8	%		4.0	%		3.9	%
Rate of compensation increase		2.7	%		2.7	%		2.7	%
Net periodic benefit cost
Discount rate		4.1	%		3.9	%		4.8	%
Rate of compensation increase		2.8	%		2.8	%		2.7	%
Expected long-term rate of return on plan assets		5.3	%		5.6	%		6.3	%

80

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 7. PENSION PLANS AND OTHER POST-RETIREMENT BENEFIT PLANS (CONTINUED)

Effective December 31, 2015, the Company changed the approach used to estimate the current service and interest cost components of net periodic benefit cost for Canadian pension plans and U.S. funded pension plans utilizing a yield curve approach. This change compared to the previous approach results in different current service and interest cost components of net periodic benefit cost (credit) in future periods. Previously, the current service and interest cost components were estimated using a single weighted-average discount rate derived from the yield curve used to measure the defined benefit obligation at the beginning of the year for each country. The Company elected to utilize a full yield curve approach in the estimation of these components by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows. The Company made this change to provide a more precise measurement of current service and interest cost components by improving the correlation between projected benefit cash flows to the corresponding spot yield curve rates. This change did not affect the measurement of the total defined benefit obligation, but affects the current service and interest cost components going forward. The Company has accounted for this change as a change in accounting estimate. 

For the U.S. unfunded pension plan and other post-retirement benefits, given materiality, the previous approach has continued to be applied except that discount rates were determined based on plans’ projected cash flows.

For Canadian plans, short-term yields to maturity are derived from actual AA rated corporate bond yield data. For longer terms, extrapolated data is used. The extrapolated data are created by adding a term-based spread over long provincial bond yields. For U.S. funded plans, the rates are taken from the Mercer Yield Curve which is based on bonds rated AA by Moody’s or Standard & Poor’s, excluding callable bonds, bonds of less than a minimum issue size, and certain other bonds. The universe of bonds also includes private placement (traded in reliance on Rule 144A and which are at least two years from issuance), make whole, and foreign corporation (denominated in U.S. dollars) bonds.

The discount rate for U.S. unfunded plans of 4.1% is obtained by incorporating the plans’ expected cash flows in the Mercer Yield Curve.

Effective January 1, 2017, the Company will use 5.4% (2016 – 5.3%; 2015 – 5.6%) as the expected return on plan assets, which reflects the current view of long-term investment returns. The overall expected long-term rate of return on plan assets is based on management's best estimate of the long-term returns of the major asset classes (cash and cash equivalents, equities, and bonds) weighted by the actual allocation of assets at the measurement date, net of expenses. This rate includes an equity risk premium over government bond returns for equity investments and a value-added premium for the contribution to returns from active management. The sources used to determine management's best estimate of long-term returns are numerous and include country specific bond yields, which may be derived from the market using local bond indices or by analysis of the local bond market, and country-specific inflation and investment market expectations derived from market data and analysts' or governments' expectations as applicable.

	December 31,			December 31,			December 31,
Other post-retirement benefit plans	2016			2015			2014
Accrued benefit obligation
Discount rate		3.9	%		4.1	%		3.9	%
Rate of compensation increase		2.8	%		2.8	%		2.8	%
Net periodic benefit cost
Discount rate		4.1	%		3.9	%		4.8	%
Rate of compensation increase		2.8	%		2.8	%		2.7	%

81

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 7. PENSION PLANS AND OTHER POST-RETIREMENT BENEFIT PLANS (CONTINUED)

For measurement purposes, a 5.0% weighted average annual rate of increase in the per capita cost of covered health care benefits was assumed for 2016. The rate was assumed to decrease gradually to 4.1% by 2034 and remain at that level thereafter. An increase or decrease of 1% of this rate would have the following impact:

	Increase of 1%		Decrease of 1%
	$		$
Impact on net periodic benefit cost for other    post-retirement benefit plans		1		—
Impact on accrued benefit obligation		8		(7	)

FAIR VALUE MEASUREMENT

Fair Value Measurements and Disclosures Topic of FASB ASC 820 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 assets or liabilities.

82

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 7. PENSION PLANS AND OTHER POST-RETIREMENT BENEFIT PLANS (CONTINUED)

The following table presents the fair value of the plan assets at December 31, 2016, by asset category:

	Fair Value Measurements at
	December 31, 2016
				Quoted Prices
				in Active		Significant			Significant
				Markets for		Observable			Unobservable
				Identical Assets		Inputs			Inputs
Asset Category	Total			(Level 1)		(Level 2)			(Level 3)
	$			$		$			$
Cash and short-term investments		80			80		—			—
Asset backed notes (1)		118			—		115			3
Canadian government bonds		81			81		—			—
Canadian corporate debt securities		3			2		1			—
Bond index funds (2 & 3)		585			—		585			—
Canadian equities (4)		100			100		—			—
U.S. equities (5)		77			77		—			—
International equities (6)		226			226		—			—
U.S. stock index funds (3 & 7)		193			—		193			—
Insurance contracts (8)		84			—		—			84
Derivative contracts (9)		(1	)		—		(1	)		—
Total		1,546			566		893			87

⁽¹⁾ This category is described in the section “Asset Backed Notes”.

⁽²⁾ This category represents two Canadian bond index funds not actively managed that track the FTSE TMX Long-term bond index, and the FTSE TMX Universe bond index and a U.S. actively managed bond fund that is benchmarked to the Barclays Capital Long-term Government/Credit index.

⁽³⁾ The fair value of these plan assets are classified as Level 2 (inputs that are observable, directly or indirectly) as they are measured based on quoted prices in active markets and can be redeemed at the measurement date or in the near term.

⁽⁴⁾ This category represents an active segregated large capitalization Canadian equity portfolio with the ability to purchase small and medium capitalized companies.

⁽⁵⁾ This category represents U.S. equities held within an active segregated global equity portfolio.

⁽⁶⁾ This category represents an active segregated non-North American multi-capitalization equity portfolio and the non-North American portion of an active segregated global equity portfolio.

⁽⁷⁾ This category represents two equity index funds, not actively managed, that track the Russell 3000 index.

⁽⁸⁾ This category includes: 1) two group annuity contracts totaling $76 million purchased through an insurance company that are held in the pension plans’ name as an asset within the pension plans. These insurance contracts cover pension entitlements associated with specific groups of retired members of the pension plans and 2) $8 million of insurance contracts with a minimum guarantee rate.

⁽⁹⁾ The fair value of the derivative contracts are classified as Level 2 (inputs that are observable, directly or indirectly) as they are measured using long-term bond indices.

83

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 7. PENSION PLANS AND OTHER POST-RETIREMENT BENEFIT PLANS (CONTINUED)

The following table presents the fair value of the plan assets at December 31, 2015, by asset category:

	Fair Value Measurements at December 31, 2015
			Quoted Prices in Active Markets for Identical Assets		Significant Observable Inputs		Significant Unobservable Inputs
Asset Category	Total		(Level 1)		(Level 2)		(Level 3)
	$		$		$		$
Cash and short-term investments		67		67		—		—
Asset backed notes (1)		146		—		136		10
Canadian government bonds		141		141		—		—
Canadian corporate debt securities		3		2		1		—
Bond index funds (2 & 3)		466		—		466		—
Canadian equities (4)		96		96		—		—
U.S. equities (5)		37		37		—		—
International equities (6)		229		229		—		—
U.S. stock index funds (3 & 7)		218		—		218		—
Insurance contracts (8)		86		—		—		86
Derivative contracts (9)		4		—		4		—
Total		1,493		572		825		96

⁽¹⁾ This category is described in the section “Asset Backed Notes”.

⁽²⁾ This category represents two Canadian bond index fund not actively managed that track the FTSE TMX Long-term bond index, and the FTSE TMX Universe bond index and a U.S. actively managed bond fund that is benchmarked to the Barclays Capital Long-term Government/Credit index.

⁽³⁾ The fair value of these plan assets are classified as Level 2 (inputs that are observable, directly or indirectly) as they are measured based on quoted prices in active markets and can be redeemed at the measurement date or in the near term.

⁽⁴⁾ This category represents active segregated large capitalization Canadian equity portfolios with the ability to purchase small and medium capitalized companies and $4 million of Canadian equities held within an active segregated global equity portfolio.

⁽⁵⁾ This category represents U.S. equities held within an active segregated global equity portfolio.

⁽⁶⁾ This category represents an active segregated non-North American multi-capitalization equity portfolio and the non-North American portion of an active segregated global equity portfolio.

⁽⁷⁾ This category represents equity index funds, not actively managed, that track the Standard & Poor’s 500 (“S&P 500”) index and an equity index fund not actively managed that tracks the Russell 3000 index.

⁽⁸⁾ This category includes: 1) two group annuity contracts totaling $78 million purchased through an insurance company that are held in the pension plans’ name as an asset within the pension plans. These insurance contracts cover pension entitlements associated with specific groups of retired members of the pension plans and 2) $8 million of insurance contracts with a minimum guarantee rate.

⁽⁹⁾ The fair value of the derivative contracts are classified as Level 2 (inputs that are observable, directly or indirectly) as they are measured using long-term bond indices.

84

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 7. PENSION PLANS AND OTHER POST-RETIREMENT BENEFIT PLANS (CONTINUED)

ASSET BACKED NOTES

At December 31, 2016, Domtar’s Canadian defined benefit pension funds held restructured asset backed notes (“ABN”) valued at $118 million (CDN $158 million). At December 31, 2015, the plans held ABN valued at $146 million (CDN $201 million). During 2016, the total value of ABN benefited from an increase in value of $8 million (CDN $10 million) and by a $4 million impact in the value of the Canadian dollar. For the same period, the total value of the ABN was reduced by repayments totalling $40 million (CDN $53 million).

These ABN were subject to restructuring under the court order governing the Montreal Accord that was completed in January 2009. About $116 million (CDN $154 million) of these notes were repaid in January 2017. These maturing notes were valued at a minimal discount to the repayment amount. The values for the $3 million of remaining ABN were sourced either from the asset manager of the ABN, or from trading values for similar securities of similar credit quality.

The following table presents changes during the period for Level 3 fair value measurements of plan assets:

	Fair Value Measurements Using Significant
	Unobservable Inputs (Level 3)
	ABN(1)			Insurance contracts			TOTAL
	$			$			$
Balance at December 31, 2014		15			8			23
(Settlements)/Purchases		(4	)		79			75
Return on plan assets		1			3			4
Effect of foreign currency exchange rate change		(2	)		(4	)		(6	)
Balance at December 31, 2015		10			86			96
(Settlements)/Purchases		(7	)		(5	)		(12	)
Return on plan assets		—			1			1
Effect of foreign currency exchange rate change		—			2			2
Balance at December 31, 2016		3			84			87

⁽¹⁾ Includes $3 million of Montreal Accord in 2016 (2015 – $4 million)

ESTIMATED FUTURE BENEFIT PAYMENTS FROM THE PLANS

Estimated future benefit payments from the plans for the next 10 years at December 31, 2016 are as follows:

.	Pension plans		Other post-retirement benefit plans
	$		$
2017		102		4
2018		100		4
2019		102		4
2020		102		5
2021		102		5
2022-2026		515		24

85

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 8.

OTHER OPERATING LOSS (INCOME), NET

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

	Year ended December 31, 2016			Year ended December 31, 2015			Year ended December 31, 2014
	$			$			$
Alternative fuel tax credits (Note 10)		—			—			(18	)
Net gain on sale of property, plant and    equipment		—			(15	)		—
Bad debt expense		—			5			2
Environmental provision		2			4			1
Foreign exchange loss (gain)		6			(3	)		(1	)
Proceeds from insurance claims on machinery    and equipment		—			—			(11	)
Other		(4	)		4			(2	)
Other operating loss (income), net		4			(5	)		(29	)

86

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 9.

INTEREST EXPENSE, NET

The following table presents the components of interest expense, net:

	Year ended		Year ended			Year ended
	December 31,		December 31,			December 31,
	2016		2015			2014
	$		$			$
Interest on long-term debt (1)		59		82			95
Premium paid on repurchase of long-term debt		—		40			—
Reversal of fair value increment on long-term debt		—		(1	)		—
Interest on receivables securitization		2		1			1
Interest on withdrawal liabilities for multiemployer plans		3		4			3
Amortization of debt issuance costs and other		2		6			4
		66		132			103

⁽¹⁾ The Company capitalized $5 million of interest expense in 2016 ($3 million in 2015 and 2014, respectively).

87

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 10.

INCOME TAXES

The Company’s earnings before income taxes by taxing jurisdiction were:

	Year ended		Year ended		Year ended
	December 31,		December 31,		December 31,
	2016		2015		2014
	$		$		$
U.S. earnings		69		26		86
Foreign earnings		88		130		175
Earnings before income taxes		157		156		261

Provisions for income taxes include the following:

	Year ended		Year ended			Year ended
	December 31,		December 31,			December 31,
	2016		2015			2014
	$		$			$
U.S. Federal and State:
Current		10		61			20
Deferred		1		(78	)		(213	)
Foreign:
Current		10		9			11
Deferred		8		22			12
Income tax expense (benefit)		29		14			(170	)

88

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 10. INCOME TAXES (CONTINUED)

The Company’s provision for income taxes differs from the amounts computed by applying the statutory income tax rate of 35% to earnings before income taxes due to the following:

	Year ended			Year ended			Year ended
	December 31,			December 31,			December 31,
	2016			2015			2014
	$			$			$
U.S. federal statutory income tax		55			55			91
Reconciling Items:
State and local income taxes, net of federal    income tax benefit		3			1			3
Foreign income tax rate differential		(14	)		(16	)		(18	)
Tax credits and special deductions		(18	)		(16	)		(18	)
Alternative fuel tax credit income		—			—			(6	)
Tax rate changes		—			(5	)		(16	)
Uncertain tax positions		2			1			(194	)
U.S. manufacturing deduction		(2	)		(6	)		(9	)
Functional currency differences		—			1			(5	)
Valuation allowance on deferred tax assets		(1	)		(1	)		7
Other		4			—			(5	)
Income tax expense (benefit)		29			14			(170	)

During 2016, the Company recorded $18 million of tax credits, mainly research and experimentation credits, which significantly impacted the effective tax rate. The effective tax rate for 2016 was also significantly impacted by the Company’s foreign operations being taxed at lower statutory tax rates.

During 2015, the Company recorded $16 million of tax credits, mainly research and experimentation credits, which significantly impacted the effective tax rate. The effective tax rate for 2015 was also impacted by the manufacturing deduction in the U.S., enacted law changes in various U.S. states, and the impact of the Company’s foreign operations being taxed at lower statutory tax rates.

In 2014, the Company settled its ongoing U.S. federal income tax audit for tax years 2009, 2010, and 2011, and the Company filed related amended state tax returns. As a result of the audit completion, the Company recognized previously unrecognized gross tax benefits of $223 million and reversed related deferred tax assets of $23 million for a net tax benefit of $200 million for 2014. This $200 million benefit, less $6 million of expense for other 2014 activity, impacted the 2014 effective tax rate and is included in the table above in the uncertain tax positions benefit of $194 million. The audit closure also resulted in an additional $7 million benefit related to the U.S. manufacturing deduction which impacted the effective tax rate for 2014 and is included in the $9 million for that line item above. The effective tax rate was also impacted by the recognition of $18 million of Alternative Fuel Tax Credits (“AFTC”) with no related tax expense.  During 2014, the Company recorded $18 million of tax credits, mainly research and experimentation credits pertaining to current and prior years. The effective tax rate for 2014 was also impacted by an enacted tax rate decrease in Spain and tax losses related to functional currency differences, and the impact of the Company’s foreign operations being taxed at lower statutory tax rates.

Deferred tax assets and liabilities are based on tax rates that are expected to be in effect in future periods when deferred items are expected to reverse. Changes in tax rates or tax laws affect the expected future benefit or expense. The effect of such changes that occurred during each of the last three fiscal years is included in “Tax rate changes” disclosed under the effective income tax rate reconciliation shown above.

89

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 10. INCOME TAXES (CONTINUED)

DEFERRED TAX ASSETS AND LIABILITIES

The tax effects of significant temporary differences representing deferred tax assets and liabilities at December 31, 2016 and December 31, 2015 are comprised of the following:

	December 31,			December 31,
	2016			2015
	$			$
Accounting provisions		62			57
Net operating loss carryforwards and other deductions		43			48
Pension and other employee future benefit plans		65			59
Inventory		15			17
Tax credits		25			25
Other		—			16
Gross deferred tax assets		210			222
Valuation allowance		(22	)		(23	)
Net deferred tax assets		188			199
Property, plant and equipment		(648	)		(647	)
Impact of foreign exchange on long-term debt    and investments		(8	)		(6	)
Intangible assets		(152	)		(157	)
Other		(10	)		—
Total deferred tax liabilities		(818	)		(810	)
Net deferred tax liabilities		(630	)		(611	)
Included in:
Other assets (Note 15)		2			2
Deferred income taxes and other		(632	)		(613	)
Total		(630	)		(611	)

At December 31, 2016, the Company had less than $1 million of federal net operating loss carryforwards remaining which expire in 2032. These U.S. federal net operating losses are subject to annual limitations under Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"), that can vary from year to year. The Company also has other foreign net operating losses and deduction limitations of $140 million, which may be carried forward indefinitely.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which temporary differences become deductible.

The Company evaluates the realization of deferred tax assets on a quarterly basis. Evaluating the need for an amount of a valuation allowance for deferred tax assets often requires significant judgment. All available evidence, both positive and negative, is considered when determining whether, based on the weight of that evidence, a valuation allowance is needed. Specifically, the Company evaluated the following items:

• Historical income / (losses) – particularly the most recent three-year period

• Reversals of future taxable temporary differences

• Projected future income / (losses)

• Tax planning strategies

• Divestitures

90

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 10. INCOME TAXES (CONTINUED)

Management believes that it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax assets, with the exception of certain state credits for which a valuation allowance of $4 million exists at December 31, 2016, and certain foreign loss carryforwards for which a valuation allowance of $18 million exists at December 31, 2016. Of this amount, $(1) million impacted tax expense and the effective tax rate for 2016 (2015 – $(1) million; 2014 – $7 million).

The Company does not provide for a U.S. income tax liability on undistributed earnings of our foreign subsidiaries. The earnings of the foreign subsidiaries, which reflect full provision for income taxes, are currently indefinitely reinvested in foreign operations. No provision is made for income taxes that would be payable upon the distribution of earnings from foreign subsidiaries as computation of these amounts is not practicable.

ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES

At December 31, 2016, the Company had gross unrecognized tax benefits of approximately $43 million ($41 million and $48 million for 2015 and 2014, respectively). If recognized in 2017, these tax benefits would impact the effective tax rate. These amounts represent the gross amount of exposure in individual jurisdictions and do not reflect any additional benefits expected to be realized if such positions were sustained, such as federal deduction that could be realized if an unrecognized state deduction was not sustained.

	December 31,			December 31,			December 31,
	2016			2015			2014
	$			$			$
Balance at beginning of year		41			48			259
Additions based on tax positions related to current year		3			3			3
Additions for tax positions of prior years		3			2			10
Reductions for tax positions of prior years		(2	)		(1	)		—
Reductions related to settlements with taxing authorities		—			(4	)		(223	)
Expirations of statutes of limitations		(3	)		(7	)		(4	)
Interest		1			1			4
Foreign exchange impact		—			(1	)		(1	)
Balance at end of year		43			41			48

As a result of the acquisition of Indas on January 2, 2014, the Company recorded unrecognized tax benefits which are shown as additions for tax positions of prior years in the table above.

The Company recorded $1 million of accrued interest associated with unrecognized tax benefits for the period ending December 31, 2016 ($1 million and $4 million for 2015 and 2014, respectively). The Company recognizes accrued interest and penalties, if any, related to unrecognized tax benefits as a component of tax expense. The Company believes it is reasonably possible that up to $12 million of its unrecognized tax benefits may be recognized by December 31, 2017, which could significantly impact the effective tax rate. However, the amount and timing of the recognition of these benefits is subject to some uncertainty.

The major jurisdictions where the Company and its subsidiaries will file tax returns for 2016, in addition to filing one consolidated U.S. federal income tax return, are Canada, Sweden and Spain. The Company and its subsidiaries will also file returns in various other countries in Europe and Asia as well as various U.S. states and Canadian provinces. At December 31, 2016, the Company’s subsidiaries are subject to foreign federal income tax examinations for the tax years 2007 through 2015, with federal years prior to 2013 being closed from a cash tax liability standpoint in the U.S., but the loss carryforwards can be adjusted in any open year where the loss has been utilized. The Company does not anticipate that adjustments stemming from these audits would result in a significant change to the results of its operations and financial condition.

91

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 11.

INVENTORIES

The following table presents the components of inventories:

	December 31,		December 31,
	2016		2015
	$		$
Work in process and finished goods		413		432
Raw materials		132		130
Operating and maintenance supplies		214		204
		759		766

92

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 12.

GOODWILL

Changes in the carrying value of goodwill are as follows:

	December 31,			December 31,
	2016			2015
	$			$
Balance at beginning of year		539			567
Acquisition of HDIS (Note 3)		17			—
Effect of foreign currency exchange rate change		(6	)		(28	)
Balance at end of year		550			539

The goodwill at December 31, 2016 is entirely related to the Personal Care reporting segment.

The Company performed its annual goodwill impairment testing at October 1, 2016, 2015 and 2014 and determined that the estimated fair value of the Personal Care reporting unit exceeded its carrying value. As a result, no impairment charges were recorded during 2016, 2015 or 2014.

93

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 13.

PROPERTY, PLANT AND EQUIPMENT

The following table presents the components of property, plant and equipment:

	Range of		December 31,			December 31,
	useful lives		2016			2015
			$			$
Machinery and equipment	3-20			7,408			7,255
Buildings and improvements	10-40			1,007			975
Timberlands	(1)			200			196
Assets under construction		—		94			224
				8,709			8,650
Less: Accumulated depreciation				(5,884	)		(5,815	)
				2,825			2,835

⁽¹⁾ Amortization is calculated using the unit of production method.

Depreciation expense related to property, plant and equipment for the year ended December 31, 2016 was $329 million (2015 – $340 million; 2014 – $363 million).

94

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 14.

INTANGIBLE ASSETS

The following table presents the components of intangible assets:

	Estimated useful lives		December 31,							December 31,
	(in years)		2016							2015
			Gross carrying		Accumulated					Gross carrying		Accumulated
			amount		amortization			Net		amount		amortization			Net
Definite-lived intangible assets    subject to amortization			$		$			$		$		$			$
Water rights		40		3		(1	)		2		3		(1	)		2
Customer relationships	10 - 40			369		(60	)		309		354		(46	)		308
Technology	7 - 20			8		(3	)		5		8		(2	)		6
Non-Compete		9		1		—			1		1		—			1
License rights		12		28		(8	)		20		28		(6	)		22
				409		(72	)		337		394		(55	)		339
Indefinite-lived intangible assets    not subject to amortization
Water rights			4			—			4	4			—			4
Trade names				225		—			225		215		—			215
License rights				6		—			6		6		—			6
Catalog rights				36		—			36		37		—			37
Total				680		(72	)		608		656		(55	)		601

Amortization expense related to intangible assets for the year ended December 31, 2016 was $19 million (2015 – $19 million; 2014 – $21 million).

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		20		20		20		20

The Company performed its annual impairment test on its indefinite-lived intangible assets at October 1, 2016, 2015 and 2014, using a quantitative approach, except for the license rights and water rights, where the Company used a qualitative approach, and determined that the estimated fair values of its indefinite-lived intangible assets significantly exceeded their carrying amounts. No impairment charge was recorded for indefinite-lived intangible assets during 2016, 2015 or 2014.

95

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 15.

OTHER ASSETS

The following table presents the components of other assets:

	December 31,		December 31,
	2016		2015
	$		$
Pension asset - defined benefit pension plans (Note 7)		103		113
Investment tax credits receivable		4		—
Unamortized debt issuance costs		5		3
Deferred income tax assets (Note 10)		2		2
Derivative financial instruments (Note 23)		8		3
Other		7		4
		129		125

96

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 16.

CLOSURE AND RESTRUCTURING COSTS AND LIABILITY

In the fourth quarter of 2016, as a result of a revision in the Company’s estimated withdrawal liability for U.S. multiemployer plans, the Company recorded a credit of $4 million in Closure and restructuring costs on the Consolidated Statement of Earnings and Comprehensive Income (Loss). At December 31, 2016, the total provision for the withdrawal liabilities was $50 million.

Plymouth, North Carolina mill

On September 23, 2016, the Company announced a plan to optimize fluff pulp manufacturing at its Plymouth, North Carolina mill. The restructuring, which is expected to be completed by mid-2017, includes the permanent closure of a pulp dryer and idling of related assets, in addition to a workforce reduction of approximately 100 positions. The streamlining process will also right-size the mill to an annualized production target of approximately 380,000 metric tons of fluff pulp. The Company recorded $5 million of severance and termination costs under Closure and restructuring costs during the third quarter of 2016.

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 qualification period began in the fourth 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 $29 million for the year ended December 31, 2016, of accelerated depreciation under Impairment of property, plant and equipment on the Consolidated Statement of Earnings and Comprehensive Income (Loss). During 2016, the Company also recorded $26 million of costs related to the fluff pulp conversion outage and $1 million of severance and termination costs under Closure and restructuring costs.

The Company recorded $77 million for the year ended December 31, 2015, of accelerated depreciation under Impairment of property, plant and equipment on the Consolidated Statement of Earnings and Comprehensive Income (Loss). During 2015, the Company also recorded $3 million of severance and termination costs under Closure and restructuring costs.

In the fourth quarter of 2014, the Company recorded $4 million of accelerated depreciation under Impairment of property plant and equipment on the Consolidated Statement of Earnings and Comprehensive Income (Loss) and $3 million of inventory obsolescence under Closure and restructuring costs.

Indianapolis, Indiana Converting

On October 13, 2014, the Company announced the closure of its Indianapolis, Indiana plant and the shutdown affected approximately 60 employees. As a result, during the fourth quarter of 2014, the Company recorded $2 million of severance and termination costs and $1 million of inventory obsolescence.

97

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 16. CLOSURE AND RESTRUCTURING COSTS AND LIABILITY (CONTINUED)

Other costs

During 2016, other costs related to previous and ongoing closures included $3 million of severance and termination costs (2015 – $1 million; 2014 – $3 million) and $1 million of pension settlement (2015 and 2014 – nil).

The following tables provide the components of closure and restructuring costs by segment:

	Year ended
	December 31, 2016
	Pulp and Paper			Personal Care		Total
	$			$		$
Severance and termination costs		8			1		9
Pension settlement and withdrawal liability		(3	)		—		(3	)
Fluff pulp conversion outage		26			—		26
Closure and restructuring costs		31			1		32

	Year ended
	December 31, 2015
	Pulp and Paper		Personal Care		Total
	$		$		$
Severance and termination costs		3		1		4
Closure and restructuring costs		3		1		4

	Year Ended
	December 31, 2014
	Pulp and Paper			Personal Care		Total
	$			$		$
Severance and termination costs		4			1		5
Inventory write-down		4			—		4
Pension settlement and withdrawal liability		19	(a)		—		19
Closure and restructuring costs		27			1		28

^(a) Related to the previously closed Ottawa paper mill.

The following table provides the activity in the closure and restructuring liability:

	December 31,			December 31,
	2016			2015
	$			$
Balance at beginning of year		3			2
Additions		9			4
Payments		(5	)		(3	)
Balance at end of year		7			3

98

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 16. CLOSURE AND RESTRUCTURING COSTS AND LIABILITY (CONTINUED)

The $7 million provision is comprised of severance and termination costs of $6 million and $1 million in the Pulp and Paper segment and Personal Care segment, respectively.

Closure and restructuring costs are based on management’s best estimates at December 31, 2016. Actual costs may differ from these estimates due to subsequent developments such as the results of environmental studies, the ability to find a buyer for assets set to be dismantled and demolished and other business developments. As such, additional costs and further impairment charges may be required in future periods.

99

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 17.

TRADE AND OTHER PAYABLES

The following table presents the components of trade and other payables:

	December 31,		December 31,
	2016		2015
	$		$
Trade payables		332		350
Payroll-related accruals		160		160
Accrued interest		16		18
Payables on capital projects		13		16
Rebate accruals		62		66
Liability - pension and other post-retirement benefit    plans (Note 7)		4		4
Liability - multiemployer plan withdrawal		2		2
Provision for environment and other asset retirement    obligations (Note 22)		15		14
Closure and restructuring costs liability (Note 16)		7		3
Derivative financial instruments (Note 23)		11		53
Dividends payable (Note 21)		26		25
Stock-based compensation - liability awards		2		4
Other		6		5
		656		720

100

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 18.

CHANGES IN ACCUMULATED OTHER COMPREHENSIVE LOSS BY COMPONENT

The following table presents the changes in Accumulated other comprehensive loss by component⁽¹⁾ for the period ended  December 31, 2016 and 2015.

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

⁽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.

101

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 18. CHANGES IN OTHER ACCUMULATED COMPREHENSIVE LOSS BY COMPONENT (CONTINUED)

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

Details about Accumulated other comprehensive loss components	Amount reclassified from Accumulated other comprehensive loss(1)
	Year ended			Year ended			Year ended
	December 31,			December 31,			December 31,
	2016			2015			2014
	$			$			$
Net derivative gains (losses) on cash flow hedge
Natural gas swap contracts		12			16			(4	)	(2)
Currency options and forwards		12			28			16		(2)
Total before tax		24			44			12
Tax expense		(10	)		(18	)		(4	)
Net of tax		14			26			8
Amortization of defined benefit pension items
Amortization of prior year service cost		5			3			22		(3)
Amortization of net actuarial loss		6			7			9		(3)
Total before tax		11			10			31
Tax expense		(4	)		(3	)		(9	)
Net of tax		7			7			22

⁽¹⁾ Amounts in parentheses indicate losses.

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

⁽³⁾ These amounts are included in the computation of net periodic benefit cost (see Note 7 "Pension Plans and Other Post-Retirement Benefit Plans" for more details).

102

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 19.

LONG-TERM DEBT

		Par			December 31,		December 31,
	Maturity	Amount		Currency	2016		2015
		$			$		$
Unsecured notes
9.5% Notes	2016		39	US		—		39
10.75% Notes	2017		63	US		63		63
4.4% Notes	2022		300	US		300		300
6.25% Notes	2042		250	US		249		249
6.75% Notes	2044		250	US		249		249
Revolving Credit Facility	2021		50	US		50		50
Term Loan	2025		300	US		300		300
Securitization	2019		70	US		70		—
Capital lease obligations and other	2016 - 2028					8		10
						1,289		1,260
Less: Unamortized debt issuance costs						8		9
Less: Due within one year						63		41
						1,218		1,210

Principal long-term debt repayments, including capital lease obligations, in each of the next five years will amount to:

	Long-term debt		Capital leases and other
	$		$
2017		63		1
2018		—		1
2019		70		1
2020		—		1
2021		50		1
Thereafter		1,100		6
		1,283		11
Less: Amounts representing interest		—		3
Total payments		1,283		8

UNSECURED NOTES

The Company’s 9.5% Notes, in the aggregate principal amount of $39 million, matured on August 1, 2016.

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

103

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 19. LONG-TERM DEBT (CONTINUED)

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

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

REVOLVING CREDIT FACILITY

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

Borrowings by the Company under the Credit Agreement are guaranteed by its significant domestic subsidiaries. Borrowings by foreign borrowers under the Credit Agreement are guaranteed by the Company, the Company’s significant domestic subsidiaries and certain of the Company’s 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 LIBOR, EURIBOR, Canadian bankers' acceptance or prime rate, as applicable, plus a margin linked to the Company’s credit rating. In addition, the Company pays facility fees quarterly at rates dependent on the Company's 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 December 31, 2016, the Company was in compliance with these financial covenants, and $50 million was borrowed (December 31, 2015 – $50 million).

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 with certain domestic banks.

The Company and certain significant domestic subsidiaries of the Company unconditionally guarantee any obligations from time to time arising under the Term Loan Agreement. On August 18, 2016, Domtar entered into an amendment to its Term Loan Agreement, pursuant to which, among other things, certain insignificant subsidiaries were released from their guarantees of the borrower’s obligations under the Term Loan Agreement.

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

The Term Loan Agreement contains customary covenants, including two financial covenants: (i) an interest coverage ratio, as defined in the Term Loan Agreement, that must be maintained at a level of not less than 3 to 1 and (ii) a leverage ratio, as defined in the Term Loan Agreement, that must be maintained at a level of not greater than 3.75 to 1. At December 31, 2016, the Company was in compliance with these financial covenants.

104

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 19. LONG-TERM DEBT (CONTINUED)

RECEIVABLES SECURITIZATION

The Company has a $150 million receivables securitization facility that matures in March 2019. The Company uses securitization of certain receivables to provide additional liquidity to fund its operations. Sales of receivables under this program are accounted for as secured borrowings. The costs under the program vary based on changes in interest rates and amounts borrowed.

The Company’s securitization program consists of the ongoing sale of most of the receivables of its domestic subsidiaries to a bankruptcy remote consolidated subsidiary which, in turn, transfers a senior beneficial interest in them to a special purpose entity managed by a financial institution for multiple sellers of receivables to support the issue of letters of credit or borrowings.

The program contains certain termination events, which include, but are not limited to, matters related to receivable performance, certain defaults occurring under the 2016 Credit Agreement, or the failure by Domtar to satisfy material obligations.

At December 31, 2016, $70 million was borrowed under this facility and $48 million of letters of credit were outstanding under the program (2015 – nil and $38 million, respectively).

In 2016, a net charge of $2 million (2015 – $1 million; 2014 – $1 million) resulted from the program described above and was included in Interest expense, net in the Consolidated Statements of Earnings and Comprehensive Income (Loss).

105

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 20.

OTHER LIABILITIES AND DEFERRED CREDITS

The following table presents the components of other liabilities and deferred credits:

.	December 31,		December 31,
	2016		2015
	$		$
Liability - other post-retirement benefit plans (Note 7)		86		82
Pension liability - defined benefit pension plans (Note 7)		141		129
Pension liability - multiemployer plan withdrawal		48		52
Provision for environmental and asset retirement    obligations (Note 22)		35		38
Stock-based compensation - liability awards		17		13
Derivative financial instruments (Note 23)		10		14
Other		21		22
		358		350

ASSET RETIREMENT OBLIGATIONS

The asset retirement obligations are principally linked to landfill capping obligations and demolition of certain abandoned buildings. At December 31, 2016, Domtar estimated the net present value of its asset retirement obligations to be $16 million (2015 – $16 million); the present value is based on probability weighted undiscounted cash outflows of $60 million (2015 – $61 million). The majority of the asset retirement obligations are estimated to be settled prior to December 31, 2056. Domtar’s credit adjusted risk-free rates were used to calculate the net present value of the asset retirement obligations. The rates used vary between 5.5% and 12.0%, based on the prevailing rate at the moment of recognition of the liability and on its settlement period.

The following table reconciles Domtar’s asset retirement obligations:

	December 31,			December 31,
	2016			2015
	$			$
Asset retirement obligations, beginning of year		16			20
Revisions to estimated cash flows		—			(3	)
Asset retirement obligation payments		(1	)		(1	)
Accretion expense		1			1
Effect of foreign currency exchange rate change		—			(1	)
Asset retirement obligations, end of year		16			16

106

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 21.

SHAREHOLDERS’ EQUITY

On April 30, 2014, the Company’s Board of Directors approved a 2-for-1 split of its common stock that was effected through a stock dividend. Shareholders of record on June 10, 2014 received one additional share for every share they owned on that date. As a result of the stock split, total shares of the Company’s common stock outstanding increased from approximately 32.5  million to 65 million.

During 2016, the Company declared one quarterly dividend of $0.40 per share and three quarterly dividends of $0.415 per share, to holders of the Company’s common stock. The total dividends of approximately $25 million, $26 million, $26 million and $26 million were paid on April 15, 2016, July 15, 2016, October 17, 2016 and January 17, 2017, respectively, to shareholders of record as of April 4, 2016, July 5, 2016, October 3, 2016 and January 3, 2017, respectively.

During 2015, the Company declared four quarterly dividends of $0.40 per share, to holders of the Company’s common stock. The total dividends of approximately $26 million, $25 million, $25 million and $25 million were paid on April 15, 2015, July 15, 2015, October 15, 2015 and January 15, 2016, respectively, to shareholders of record as of April 2, 2015, July 2, 2015, October 2, 2015 and January 4, 2016, respectively.

On February 21, 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 April 17, 2017 to shareholders of record on April 3, 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, from time to time, in part to reduce the dilutive effects of stock options and awards, and to improve shareholders’ returns.

The Company makes open market purchases of its common stock using general corporate funds. Additionally, the Company 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 2016, the Company repurchased 304,915 shares (2015 – 1,210,932; 2014 – 996,967) at an average price of $32.21 (2015 – $41.40; 2014 – $38.59) for a total cost of $10 million (2015 – $50 million; 2014 – $38 million).

Since the inception of the Program, the Company 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.

107

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 21. SHAREHOLDERS’ EQUITY (CONTINUED)

The authorized stated capital consists of the following:

PREFERRED SHARES

The Company is authorized to issue 20 million preferred shares, par value $0.01 per share. The Board of Directors of the Company will determine the voting powers (if any) of the shares, and the preferences and relative, participating, optional or other special rights, if any, and any qualifications, limitations or restrictions thereof, of the shares at the time of issuance. No preferred shares were outstanding at December 31, 2016 or December 31, 2015.

COMMON STOCK

The Company is authorized to issue two billion shares of common stock, par value $0.01 per share. Holders of the Company’s common stock are entitled to one vote per share.

The changes in the number of outstanding common stock and their aggregate stated value during the years ended December 31, 2016 and December 31, 2015, were as follows:

	December 31,					December 31,
	2016					2015
	Number					Number
Common stock	of shares			$		of shares			$
Balance at beginning of year		62,849,936			1		64,010,087			1
Shares issued
Treasury stock (1)		(261,099	)		—		(1,160,151	)		—
Balance at end of year		62,588,837			1		62,849,936			1

⁽¹⁾ During 2016, the Company repurchased 304,915 shares through the Program (2015 – 1,210,932) and issued 43,816 shares (2015 – 50,781) out of Treasury stock in conjunction with the exercise of stock-based compensation awards.

108

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 22.

COMMITMENTS AND CONTINGENCIES

ENVIRONMENTAL MATTERS

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

In 2016, the Company’s operating expenses for environmental matters amounted to $65 million (2015 – $70 million; 2014 – $68 million).

The Company made capital expenditures for environmental matters of $4 million in 2016 (2015 – $7 million; 2014 – $14 million).

An action was commenced by Seaspan International Ltd. (“Seaspan”) in the Supreme Court of British Columbia, on March 31, 1999 against the Company and others with respect to alleged contamination of Seaspan’s site bordering Burrard Inlet in North Vancouver, British Columbia, including contamination of sediments in Burrard Inlet, due to the presence of creosote and heavy metals. On February 16, 2010, the government of British Columbia issued a Remediation Order to Seaspan and the Company, in order to define and implement an action plan to address soil, sediment and groundwater issues. Working with authorities, Seaspan and the Company selected a remedial plan and obtained permitting approval on May 14, 2015 from the Vancouver Fraser Port Authority. Construction began in January 2017. The Company has 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:

	December 31,			December 31,
	2016			2015
	$			$
Balance at beginning of year		52			60
Additions		2			1
Environmental spending		(5	)		(3	)
Accretion		—			1
Effect of foreign currency exchange rate change		1			(7	)
Balance at end of year (1)		50			52

⁽¹⁾ At December 31, 2016, $15 million is shown in Trade and other payables (see Note 17) and $35 million is shown in Other liabilities and deferred credits (see Note 20).

At December 31, 2016, anticipated undiscounted payments in each of the next five years are as follows:

	2017		2018		2019		2020		2021		Thereafter		Total
	$		$		$		$		$		$		$
Environmental provision and asset    retirement obligations		15		6		4		1		2		66		94

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.

109

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 22. COMMITMENTS AND CONTINGENCIES (CONTINUED)

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 Paris Agreement was negotiated at the Conference of the Parties to the Kyoto Protocol in December 2015. Domtar does not expect to be disproportionately affected by the agreement compared with other pulp and paper producers in jurisdictions where the Company has operations.

In the United States, EPA’s Clean Power Plan requires states to develop compliance plans to reduce greenhouse gases (“GHG”) emissions beginning in 2022 from existing electric utilities. The Clean Power Plan requirements could result in significant changes to state energy resources and increase the cost of purchased energy in most states. The final rule is being litigated and on February 9, 2016, the U.S. Supreme Court stayed the implementation of the Clean Power Plan until the litigation is resolved. Oral argument was held before the U.S. Court of Appeals for the D.C. Circuit on September 27, 2016, and a final decision is expected within months, although subsequent appeals to the U.S. Supreme Court are likely. 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 EPA is also developing a biogenic carbon accounting framework to account for carbon dioxide emissions from biomass fuels for Clean Air Act permitting and other regulatory purposes. The Company does not expect to be disproportionately affected by any future EPA measures compared with other pulp and paper producers in the U.S.

The Government of Canada is reviewing national policies to further GHG reductions and has announced its intent to establish a national price on carbon emissions. The Company does not expect its facilities to be disproportionately affected by these measures compared with other pulp and paper producers in Canada.

The province of Quebec has a GHG cap-and-trade system with reduction targets. British Columbia has a carbon tax that applies to the purchase of fossil fuels within the province. The province of Ontario has finalized a cap-and-trade program with the first compliance period beginning January 1, 2017 through 2020. The Company does not expect to be disproportionately affected compared to the other large pulp and paper producers located in these provinces.

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

The Company has implemented its plans and is in compliance with EPA’s Boiler MACT rule. On December 23, 2016, The U.S. Court of Appeals for the D.C. Circuit granted EPA’s request to remand versus vacate certain standards in the Boiler MACT rule. The Court directed the EPA to identify the affected standards and issue the rulemaking to implement replacement standards expeditiously. Adjustments to compliance plans may be needed to accommodate any changes to the final rule.  It is not expected that any changes will require additional capital costs for compliance and/or additional operating costs.

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 December 31, 2016, cannot be predicted with certainty, it is management’s opinion that their resolution will not have a material adverse effect on the Company’s financial position, results of operations or cash flows.

Spanish Competition Investigation

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 channelin 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.

110

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 22. COMMITMENTS AND CONTINGENCIES (CONTINUED)

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 (income), net.

On May 26, 2016, the CNMC rendered its final decision, which declared that a number of manufacturers of heavy adult 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 (income), 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 (income), 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.

LEASE AND OTHER COMMERCIAL COMMITMENTS

The Company has entered into operating leases for property, plant and equipment. The Company also has commitments to purchase property, plant and equipment, roundwood, wood chips, gas and certain chemicals. Purchase orders in the normal course of business are excluded from the table below. Any amounts for which the Company is liable under purchase orders are reflected in the Consolidated Balance Sheets as Trade and other payables. Minimum future payments under these operating leases and other commercial commitments, determined at December 31, 2016, were as follows:

	2017		2018		2019		2020		2021		Thereafter		Total
	$		$		$		$		$		$		$
Operating leases		25		23		18		16		13		38		133
Other commercial commitments		87		8		5		3		2		1		106

Total operating lease expense amounted to $28 million in 2016 (2015 – $28 million; 2014 – $32 million).

111

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 22. 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 December 31, 2016, the Company is unable to estimate the potential maximum liabilities for these types of indemnification guarantees as the amounts are contingent upon the outcome of future events, the nature and likelihood of which cannot be reasonably estimated at this time. Accordingly, no provision has been recorded. These indemnifications have not yielded a significant expense in the past.

Pension Plans

The Company has indemnified and held harmless the trustees of its pension funds, and the respective officers, directors, employees and agents of such trustees, from any and all costs and expenses arising out of the performance of their obligations under the relevant trust agreements, including in respect of their reliance on authorized instructions from the Company or for failing to act in the absence of authorized instructions. These indemnifications survive the termination of such agreements. At December 31, 2016 the Company has not recorded a liability associated with these indemnifications, as it does not expect to make any payments pertaining to these indemnifications.

112

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 23.

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 years 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 December 31, 2016, one of Domtar’s Pulp and Paper segment customers located in the U.S. represented 12% or $74 million (2015 – 12% or $78 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. In December 2014, the Company entered into a $100 million notional 2.5 year fixed to floating interest rate swap. This swap was designated as a fair value hedge for a portion of its 10.75% Notes due June 2017. The changes in fair value of both the hedging and the hedged item were immediately recognized in interest expense. In August 2015, the Company terminated this swap simultaneously with the redemption of $215 million of its 10.75% Notes, with no significant impact on net earnings.

113

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 23. DERIVATIVES AND HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENT (CONTINUED)

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.

The following table presents the volumes under derivative financial instruments for natural gas contracts outstanding as of December 31, 2016 to hedge forecasted purchases:

Commodity	Notional contractual quantity under derivative contracts MMBTU(1)	Notional contractual value under derivative contracts (in millions of dollars)			Percentage of forecasted purchases under derivative contracts
Natural gas
2017	8,980,000		$	28		35%
2018	5,085,000		$	15		20%
2019	6,560,000		$	20		26%
2020	5,750,000		$	18		23%
2021	3,920,000		$	12		15%

⁽¹⁾ MMBTU: Millions of British thermal units

The natural gas derivative contracts were fully effective as of December 31, 2016. There were no amounts reflected in the Consolidated Statements of Earnings and Comprehensive Income (Loss) for the year ended December 31, 2016 resulting from hedge ineffectiveness (2015 and 2014 – 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 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. Derivatives are currently used to hedge a portion of forecasted sales by its U.S. subsidiaries in Euros and in British pounds over a period of between 6 to 12 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 a period of between 12 to 18 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.

114

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 23. 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 December 31, 2016 to hedge forecasted purchases and sales:

				Percentage of
			Notional	forecastednet
	Business	Year of	contractual	exposures under		Average	Average
Currency exposure hedged	Segment	maturity	value	contracts		Protection rate	Obligation rate
		2017
CDN/USD	Pulp and Paper		511 CDN		66%	1 USD = 1.3045	1 USD = 1.3570
USD/Euro	Personal Care		55 USD		82%	1 Euro = 1.1336	1 Euro = 1.1336
Euro/USD	Pulp and Paper		19 EUR		31%	1 Euro = 1.1370	1 Euro = 1.1370
		2018
CDN/USD	Pulp and Paper		225 CDN		29%	1 USD = 1.2951	1 USD = 1.3519
USD/Euro	Personal Care		14 USD		20%	1 Euro = 1.1532	1 Euro = 1.1532

The foreign exchange derivative contracts were fully effective as of December 31, 2016. There were no amounts reflected in the Consolidated Statements of Earnings and Comprehensive Income (Loss) for the year ended December 31, 2016 resulting from hedge ineffectiveness (2015 and 2014 - 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.

115

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 23. DERIVATIVES AND HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENT (CONTINUED)

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

			Quotedprices in		Significant		Significant
			active markets for		observable		unobservable
	December 31,		identical assets		inputs		inputs
Fair Value of financial instruments at:	2016		(Level 1)		(Level 2)		(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:
Long-term debt		1,313		—		1,313		—	(c)	Long-term debt

The net cumulative gain recorded in Accumulated other comprehensive loss relating to natural gas contracts is $3 million at December 31, 2016, of which $5 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 December 31, 2016.

116

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 23. DERIVATIVES AND HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENT (CONTINUED)

The net cumulative gain recorded in Accumulated other comprehensive loss relating to currency options and forwards hedging forecasted purchases of $8 million at December 31, 2016, 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 December 31, 2016.

			Quoted prices in		Significant		Significant
			active markets for		observable		unobservable
	December 31,		identical assets		inputs		inputs
Fair Value of financial instruments at:	2015		(Level 1)		(Level 2)		(Level 3)			Balance sheet classification
	$		$		$		$
Derivatives designated as hedging instruments:
Asset derivatives
Currency derivatives		6		—		6		—	(a)	Prepaid expenses
Natural gas swap contracts		1		—		1		—	(a)	Prepaid expenses
Currency derivatives		2		—		2		—	(a)	Other assets
Natural gas swap contracts		1		—		1		—	(a)	Other assets
Total Assets		10		—		10		—
Liabilities derivatives
Currency derivatives		39		—		39		—	(a)	Trade and other payables
Natural gas swap contracts		14		—		14		—	(a)	Trade and other payables
Currency derivatives		10		—		10		—	(a)	Other liabilities and deferred credits
Natural gas swap contracts		4		—		4		—	(a)	Other liabilities and deferred credits
Total Liabilities		67		—		67		—
Other Instruments:
Asset backed notes ("ABN")		1		—		—		1	(b)	Other assets
Long-term debt		1,261		—		1,261		—	(c)	Long-term debt

^(a) Fair value of the Company’s derivatives is 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) ABN are reported at fair value utilizing Level 3 inputs. Fair value of ABN reported under Level 3 is based on the value of the collateral investments held in the conduit issuer, reduced by the negative value of credit default derivatives, with an additional discount applied for illiquidity. These ABN are held outside of the Company’s pension plans.

^(c) 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 December 31, 2016 and December 31, 2015. However, fair value disclosure is required. The carrying value of the Company’s long-term debt is $1,281 million and $1,251  million at December 31, 2016 and December 31, 2015, 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.

117

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 24.

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.

The accounting policies of the reportable segments are the same as described in Note 1. The Company evaluates segment performance based on operating income. Transfer prices between segments are based on market prices. Certain Corporate general and administrative costs are allocated to the segments. Corporate costs that are not related to segment activities, as well as the mark-to-market impact on stock based compensation awards, are presented on the Corporate line. The Company does not allocate interest expense and income taxes to the segments. Segment assets are those directly used in segment operations.

The Company attributes sales to customers in different geographical areas on the basis of the location of the customer.

Long-lived assets consist of property, plant and equipment, intangible assets and goodwill used in the generation of sales in the different geographical areas.

118

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 24. SEGMENT DISCLOSURES (CONTINUED)

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

	Year ended			Year ended			Year ended
	December 31,			December 31,			December 31,
SEGMENT DATA	2016			2015			2014
	$			$			$
Sales
Pulp and Paper		4,239			4,458			4,674
Personal Care		917			869			928
Total for reportable segments		5,156			5,327			5,602
Intersegment sales		(58	)		(63	)		(39	)
Consolidated sales (1)		5,098			5,264			5,563
Depreciation and amortization    of property, plant and equipment
Pulp and Paper		284			297			319
Personal Care		64			62			65
Total for reportable segments		348			359			384
Impairment of property, plant and    equipment - Pulp and Paper		29			77			4
Consolidated depreciation and amortization and impairment    of property, plant and equipment		377			436			388
Operating income (loss)
Pulp and Paper		217			270			352
Personal Care		57			61			49
Corporate		(51	)		(43	)		(37	)
Consolidated operating income		223			288			364
Interest expense, net		66			132			103
Earnings before income taxes		157			156			261
Income tax expense (benefit)		29			14			(170	)
Net earnings		128			142			431

⁽¹⁾ In 2016 and 2015, Staples, one of the Company’s largest customers in the Pulp and Paper segment, represented approximately 11% (2015 – 10%) of the total sales.

	December 31,		December 31,
	2016		2015
	$		$
Segment assets
Pulp and Paper		3,637		3,667
Personal Care		1,884		1,822
Total for reportable segments		5,521		5,489
Corporate		159		165
Consolidated assets		5,680		5,654

119

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 24. SEGMENT DISCLOSURES (CONTINUED)

	Year ended		Year ended		Year ended
	December 31,		December 31,		December 31,
SEGMENT DATA (CONTINUED)	2016		2015		2014
	$		$		$
Additions to property, plant and equipment
Pulp and Paper		287		221		161
Personal Care		55		57		86
Total for reportable segments		342		278		247
Corporate		4		6		5
Consolidated additions to property, plant and equipment		346		284		252
Add: Change in payables on capital projects		1		5		(16	)
Consolidated additions to property, plant and equipment    per Consolidated Statements of Cash Flows		347		289		236

	Year ended		Year ended		Year ended
	December 31,		December 31,		December 31,
	2016		2015		2014
	$		$		$
Geographic information
Sales
United States		3,571		3,776		3,910
Canada		493		492		591
Europe		605		561		659
Asia		351		302		257
Other foreign countries		78		133		146
		5,098		5,264		5,563

	December 31,		December 31,
	2016		2015
	$		$
Long-lived assets
United States		2,589		2,566
Canada		642		640
Europe		752		769
		3,983		3,975

120

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 25.

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 December 31, 2016 and 2015 and the Statements of Earnings and Comprehensive Income (Loss) and Cash Flows for the years ended December 31, 2016, 2015 and 2014 for Domtar Corporation (the “Parent”), and on a combined basis for the Guarantor Subsidiaries and, on a combined basis, the Non-Guarantor Subsidiaries. The supplemental condensed consolidating financial information reflects the investments of the Parent in the Guarantor Subsidiaries, as well as the investments of the Guarantor Subsidiaries in the Non-Guarantor Subsidiaries, using the equity method.

CONDENSED CONSOLIDATING STATEMENT OF EARNINGS	Year ended
AND COMPREHENSIVE INCOME	December 31, 2016
							Non-
				Guarantor			Guarantor			Consolidating
	Parent			Subsidiaries			Subsidiaries			Adjustments			Consolidated
	$			$			$			$			$
Sales		—			4,203			2,040			(1,145	)		5,098
Operating expenses
Cost of sales, excluding depreciation and    amortization		—			3,638			1,542			(1,145	)		4,035
Depreciation and amortization		—			256			92			—			348
Selling, general and administrative		17			93			317			—			427
Impairment of property, plant and equipment		—			29			—			—			29
Closure and restructuring costs		—			31			1			—			32
Other operating loss (income), net		1			(1	)		4			—			4
		18			4,046			1,956			(1,145	)		4,875
Operating (loss) income		(18	)		157			84			—			223
Interest expense (income), net		65			50			(49	)		—			66
(Loss) earnings before income taxes		(83	)		107			133			—			157
Income tax (benefit) expense		(43	)		36			36			—			29
Share in earnings of equity accounted investees		168			97			—			(265	)		—
Net earnings		128			168			97			(265	)		128
Other comprehensive income (loss)		2			(12	)		(35	)		47			2
Comprehensive income		130			156			62			(218	)		130

121

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE. 25 SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)

CONDENSED CONSOLIDATING STATEMENT OF EARNINGS	Year ended
AND COMPREHENSIVE LOSS	December 31, 2015
							Non-
				Guarantor			Guarantor			Consolidating
	Parent			Subsidiaries			Subsidiaries			Adjustments			Consolidated
	$			$			$			$			$
Sales		—			4,346			2,070			(1,152	)		5,264
Operating expenses
Cost of sales, excluding depreciation and    amortization		—			3,726			1,573			(1,152	)		4,147
Depreciation and amortization		—			256			103			—			359
Selling, general and administrative		11			105			278			—			394
Impairment of property, plant and equipment		—			77			—			—			77
Closure and restructuring costs		—			3			1			—			4
Other operating loss (income), net		5			(3	)		(7	)		—			(5	)
		16			4,164			1,948			(1,152	)		4,976
Operating (loss) income		(16	)		182			122			—			288
Interest expense (income), net		131			30			(29	)		—			132
(Loss) earnings before income taxes		(147	)		152			151			—			156
Income tax (benefit) expense		(63	)		38			39			—			14
Share in earnings of equity accounted investees		226			112			—			(338	)		—
Net earnings		142			226			112			(338	)		142
Other comprehensive loss		(233	)		(235	)		(215	)		450			(233	)
Comprehensive loss		(91	)		(9	)		(103	)		112			(91	)

CONDENSED CONSOLIDATING STATEMENT OF EARNINGS	Year ended
AND COMPREHENSIVE INCOME (LOSS)	December 31, 2014
							Non-
				Guarantor			Guarantor			Consolidating
	Parent			Subsidiaries			Subsidiaries			Adjustments			Consolidated
	$			$			$			$			$
Sales		—			4,440			2,250			(1,127	)		5,563
Operating expenses
Cost of sales, excluding depreciation and    amortization		—			3,762			1,761			(1,127	)		4,396
Depreciation and amortization		—			264			120			—			384
Selling, general and administrative		29			209			178			—			416
Impairment of property, plant and equipment		—			4			—			—			4
Closure and restructuring costs		—			7			21			—			28
Other operating loss (income), net		2			(26	)		(5	)		—			(29	)
		31			4,220			2,075			(1,127	)		5,199
Operating (loss) income		(31	)		220			175			—			364
Interest expense (income), net		101			26			(24	)		—			103
(Loss) earnings before income taxes		(132	)		194			199			—			261
Income tax (benefit) expense		(51	)		(151	)		32			—			(170	)
Share in earnings of equity accounted investees		512			167			—			(679	)		—
Net earnings		431			512			167			(679	)		431
Other comprehensive loss		(203	)		(194	)		(168	)		362			(203	)
Comprehensive income (loss)		228			318			(1	)		(317	)		228

122

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE. 25 SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)

CONDENSED CONSOLIDATING BALANCE SHEET	December 31, 2016
					Non-
			Guarantor		Guarantor		Consolidating
	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

123

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE. 25 SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)

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

124

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE. 25 SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)

CONDENSED CONSOLIDATING STATEMENT OF    CASH FLOWS	Year ended December 31, 2016
							Non-
				Guarantor			Guarantor			Consolidating
	Parent			Subsidiaries			Subsidiaries			Adjustments			Consolidated
	$			$			$			$			$
Operating activities
Net earnings		128			168			97			(265	)		128
Changes in operating and intercompany assets and    liabilities and non-cash items, included in net    earnings		(4,280	)		4,149			203			265			337
Cash flows (used for) provided from operating activities		(4,152	)		4,317			300			—			465
Investing activities
Additions to property, plant and equipment		—			(265	)		(82	)		—			(347	)
Proceeds from disposals of property, plant and    equipment and sale of business		—			—			1			—			1
Acquisition of businesses, net of cash acquired		—			(1	)		(45	)		—			(46	)
Other		—			—			1			—			1
Cash flows used for investing activities		—			(266	)		(125	)		—			(391	)
Financing activities
Dividend payments		(102	)		—			—			—			(102	)
Stock repurchase		(10	)		—			—			—			(10	)
Net change in bank indebtedness		—			12			—			—			12
Proceeds from receivables securitization facilities		—			—			140			—			140
Repayments of receivables securitization facilities		—			—			(70	)		—			(70	)
Repayments of long-term debt		(38	)		(1	)		(1	)		—			(40	)
Increase in long-term advances to related parties		—			(4,050	)		(223	)		4,273			—
Decrease in long-term advances to related parties		4,273			—			—			(4,273	)		—
Other		(3	)		—			—			—			(3	)
Cash flows provided from (used for) financing    activities		4,120			(4,039	)		(154	)		—			(73	)
Net (decrease) increase in cash and cash equivalents		(32	)		12			21			—			1
Impact of foreign exchange on cash		—			—			(2	)		—			(2	)
Cash and cash equivalents at beginning of year		49			2			75			—			126
Cash and cash equivalents at end of year		17			14			94			—			125

125

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE. 25 SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)

CONDENSED CONSOLIDATING STATEMENT OF    CASH FLOWS	Year ended December 31, 2015
							Non-
				Guarantor			Guarantor			Consolidating
	Parent			Subsidiaries			Subsidiaries			Adjustments			Consolidated
	$			$			$			$			$
Operating activities
Net earnings		142			226			112			(338	)		142
Changes in operating and intercompany assets and    liabilities and non-cash items, included in net    earnings		134			(250	)		89			338			311
Cash flows provided from (used for) operating activities		276			(24	)		201			—			453
Investing activities
Additions to property, plant and equipment		—			(210	)		(79	)		—			(289	)
Proceeds from disposals of property, plant and    equipment		1			7			28			—			36
Other		—			—			9			—			9
Cash flows provided from (used for) investing activities		1			(203	)		(42	)		—			(244	)
Financing activities
Dividend payments		(100	)		—			—			—			(100	)
Stock repurchase		(50	)		—			—			—			(50	)
Net change in bank indebtedness		—			(11	)		—			—			(11	)
Change of revolving credit facility		50			—			—			—			50
Issuance of long-term debt		—			300			—			—			300
Repayments of long-term debt		(436	)		(2	)		(1	)		—			(439	)
Increase in long-term advances to related parties		—			(75	)		(152	)		227			—
Decrease in long-term advances to related parties		227			—			—			(227	)		—
Other		2			(1	)		—			—			1
Cash flows (used for) provided from financing    activities		(307	)		211			(153	)		—			(249	)
Net (decrease) increase in cash and cash equivalents		(30	)		(16	)		6			—			(40	)
Impact of foreign exchange on cash		—			—			(8	)		—			(8	)
Cash and cash equivalents at beginning of year		79			18			77			—			174
Cash and cash equivalents at end of year		49			2			75			—			126

126

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE. 25 SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)

CONDENSED CONSOLIDATING STATEMENT OF	Year ended
CASH FLOWS	December 31, 2014
							Non-
				Guarantor			Guarantor			Consolidating
	Parent			Subsidiaries			Subsidiaries			Adjustments			Consolidated
	$			$			$			$			$
Operating activities
Net earnings		431			512			167			(679	)		431
Changes in operating and intercompany assets    and liabilities and non-cash items, included in    net earnings		(220	)		(380	)		124			679			203
Cash flows from operating activities		211			132			291			—			634
Investing activities
Additions to property, plant and equipment		—			(139	)		(97	)		—			(236	)
Proceeds from disposals of property, plant and    equipment		—			—			1			—			1
Acquisition of business, net of cash acquired		—			—			(546	)		—			(546	)
Other		—			—			(5	)		—			(5	)
Cash flows used for investing activities		—			(139	)		(647	)		—			(786	)
Financing activities
Dividend payments		(84	)		—			—			—			(84	)
Stock repurchase		(38	)		—			—			—			(38	)
Net change in bank indebtedness		(1	)		(4	)		(1	)		—			(6	)
Change of revolving credit facility		(160	)		—			—			—			(160	)
Proceeds from receivables securitization facilities		—			—			90			—			90
Repayments of receivables securitization facilities		—			—			(129	)		—			(129	)
Repayments of long-term debt		—			(3	)		(1	)		—			(4	)
Increase in long-term advances to related parties		(292	)		—			—			292			—
Decrease in long-term advances to related parties		—			10			282			(292	)		—
Other		4			—			1			—			5
Cash flows (used for) provided from financing    activities		(571	)		3			242			—			(326	)
Net decrease in cash and cash equivalents		(360	)		(4	)		(114	)		—			(478	)
Impact of foreign exchange on cash		—			—			(3	)		—			(3	)
Cash and cash equivalents at beginning of year		439			22			194			—			655
Cash and cash equivalents at end of year		79			18			77			—			174

127

Domtar Corporation

Interim Financial Results (Unaudited)

(in millions of dollars, unless otherwise noted)

2016	1st Quarter			2nd Quarter			3rd Quarter			4th Quarter			Year
Sales	$	1,287		$	1,267		$	1,270		$	1,274		$	5,098
Operating income		18	(a)		39	(b)		92	(c)		74	(d)		223
Earnings before income taxes		1			24			75			57			157
Net earnings		4			18			59			47			128
Basic net earnings per common share		0.06			0.29			0.94			0.75			2.04
Diluted net earnings per common share		0.06			0.29			0.94			0.75			2.04

2015	1st Quarter			2nd Quarter			3rd Quarter				4th Quarter			Year
Sales	$	1,348		$	1,310		$	1,292			$	1,314		$	5,264
Operating income		71	(e)		62	(f)		61		(g)		94	(h)		288
Earnings (loss) before income taxes		45			37			(3	)			77			156
Net earnings		36			38			11				57			142
Basic net earnings per common share		0.56			0.60			0.17				0.91			2.24
Diluted net earnings per common share		0.56			0.60			0.17				0.91			2.24

(a) The operating income for the first Quarter of 2016 included closure and restructuring costs of $2 million related to our Pulp and Paper segment.

The Company also incurred an additional $21 million of accelerated depreciation at its Ashdown, Arkansas mill, as part of the conversion to the fluff pulp line.

(b) The operating income for the second Quarter of 2016 included closure and restructuring costs of $21 million and an additional $3 million of accelerated depreciation at its Ashdown, Arkansas mill, as part of the conversion to the fluff pulp line.

(c) The operating income for the third Quarter of 2016 included closure and restructuring costs of $5 million related to our Pulp and Paper segment.

The Company also incurred $5 million of closure and restructuring costs and an additional $5 million of accelerated depreciation at its Ashdown, Arkansas mill, as part of the conversion to the fluff pulp line.

(d) The operating income for the fourth Quarter of 2016 included closure and restructuring costs of $1 million related to our Personal Care segment and $(2) million related to our Pulp and Paper segment.

(e) The operating income for the first Quarter of 2015 included closure and restructuring costs of $1 million related to our Personal Care segment.

The Company also incurred a gain on disposal of property, plant and equipment of $1 million related to our Corporate segment.

In addition, the Company incurred $19 million of accelerated depreciation at its Ashdown, Arkansas mill, as part of the conversion to the fluff pulp line.

(f) The operating income for the second Quarter of 2015 included $1 million of closure and restructuring costs related to our Pulp and Paper segment.

The company also recorded a gain on disposal of property, plant and equipment of $14 million, mostly relating to the sale of its former Ottawa mill.

In addition, the Company incurred an additional $18 million of accelerated depreciation at its Ashdown, Arkansas mill.

(g) The operating income for the third Quarter of 2015 included closure and restructuring costs of $1 million related to our Pulp and Paper segment.

The Company also incurred an additional $20 million of accelerated depreciation at its Ashdown, Arkansas mill, as part of the conversion to the fluff pulp line.

128

(h) The operating income for the fourth Quarter of 2015 included closure and restructuring costs of $1 million related to our Pulp and Paper segment.

The Company also incurred an additional $20 million of accelerated depreciation at its Ashdown, Arkansas mill, as part of the conversion to the fluff pulp line.

129

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

The Company has nothing to report under this item.

ITEM 9A.  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 December 31, 2016, an evaluation was performed by members of management, at the direction and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Exchange Act). Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as at December 31, 2016, our disclosure controls and procedures were effective.

Management’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. In order to evaluate the effectiveness of internal control over financial reporting, management has conducted an assessment, including testing, using the criteria established in the 2013 Internal Control – Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s system of internal control over financial reporting is designed 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. The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.

Management has excluded Home Delivery Incontinent Supplies Co. from the assessment of internal control over financial reporting as of December 31, 2016 because it was acquired by the Company in a business combination during 2016. The assets and revenues of this business represent 1% and less than 1%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2016.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Based on its assessment, management has concluded that the Company maintained effective internal control over financial reporting as of December 31, 2016, based on criteria established in the 2013 Internal Control – Integrated Framework issued by the COSO.

The effectiveness of the Company’s internal control over financial reporting as at December 31, 2016 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report, which is included under Part II, Item 8, Financial Statements and Supplementary Data.

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 fourth quarter ended December 31, 2016.

ITEM 9B.  OTHER INFORMATION

The Company has nothing to report under this item.

130

PART III

ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information included under the captions “Governance of the Corporation”, “Election of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance” in our Proxy Statement for the 2017 Annual Meeting of Stockholders, to be filed on or about March 31, 2017, is incorporated herein by reference.

Information regarding our executive officers is presented in Part I, Item 1, Business, of this Form 10-K under the caption “Our Executive Officers”.

ITEM 11.  EXECUTIVE COMPENSATION

The information appearing under the caption “Compensation Discussion and Analysis”, “Executive Compensation” and “Director Compensation” in our Proxy Statement for the 2017 Annual Meeting of Stockholders, to be filed on or about March 31, 2017, is incorporated herein by reference.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information appearing under the caption “Security Ownership of Certain Beneficial Owners, Directors and Officers” in our Proxy Statement for the 2017 Annual Meeting of Stockholders, to be filed on or about March 31, 2017, is incorporated herein by reference.

The following table sets forth the number of shares of our stock reserved for issuance under our equity compensation plans as of December 31, 2016:

									Number of securities remaining
	Number of securities to								available for future issuance under
	be issued upon exercise								equity compensation
	of outstanding options,				Weighted average exercise price of outstanding				plans (excluding securities reflected
Plan Category	warrants and rights (#)				options, warrants and rights ($)				in column (a) (#)
	(a)				(b)				(c)
Equity compensation plans approved by security holders		1,559,801	(1	)	$	44.39	(2	)		1,793,095	(3	)
Equity compensation plans not approved by security holders	N/A				N/A				N/A
Total		1,559,801			$	44.39				1,793,095

⁽¹⁾ Represents the total number of shares associated with options, restricted stock units ("RSUs"), performance share units ("PSUs"), deferred share units ("DSUs") and dividends equivalent units ("DEUs") outstanding as of December 31, 2016 that may or will be settled in equity. This number assumes that PSUs will vest at the “maximum” performance level, and that any performance requirements applicable to options will be satisfied.

⁽²⁾ Represents the weighted average exercise price of options disclosed in column (a).

⁽³⁾ Represents the number of shares remaining available for issuance in settlement of future awards under the Omnibus Incentive Plan.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information appearing under the captions “Governance of the Corporation – Board Independence and Other Determinations” in our Proxy Statement for the 2017 Annual Meeting of Stockholders is incorporated herein by reference.

ITEM 14.  PRINCIPLE ACCOUNTANT FEES AND SERVICES

The information appearing under the caption “Ratification of Appointment of Independent Registered Public Accounting Firm” and “Independent Registered Public Accounting Firm Fees” in our Proxy Statement for the 2017 Annual Meeting of Stockholders is incorporated herein by reference.

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PART IV

ITEM 15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) 1. Financial Statements – See Part II, Item 8, Financial Statements and Supplementary Data. 

2. Schedule II – Valuation and Qualifying Accounts

All other schedules are omitted as the information required is either included elsewhere in the consolidated financial statements in Part II, Item 8 – or is not applicable.

3. Exhibits:

		Incorporated  by reference to:
Exhibit Number	Exhibit Description	Form	Exhibit	Filing Date
3.1	Amended and Restated Certificate of Incorporation	10-Q	3.1	08/08/2008
3.2	Certificate of Amendment of the Amended and Restated Certificate of Incorporation	8-K	3.1	06/08/2009
3.3	Amended and Restated By-Laws	8-K	3.2	02/24/2016
4.1	Form of Indenture among Domtar Corp., Domtar Paper Company, LLC and the Bank of New York, as trustee, relating to Domtar Corp.’s (i) 7.125% Notes due 2015, (ii) 5.375% Notes due 2013, (iii) 7.875% Notes due 2011, (iv) 9.5% Notes due 2016	S-4	4.2	10/16/2007
4.2	Supplemental Indenture, dated February 15, 2008, among Domtar Corp., Domtar Paper Company, LLC, The Bank of New York, as Trustee, and the new subsidiary guarantors parties thereto, relating to Domtar Corp.’s (i) 7.125% Notes due 2015, (ii) 5.375% Notes due 2013, (iii) 7.875% Notes due 2011, (iv) 9.5% Notes due 2016	8-K	4.1	02/21/2008
4.3	Supplemental Indenture, dated February 20, 2008, among Domtar Corp., Domtar Paper Company, LLC, The Bank of New York, as Trustee, and the new subsidiary guarantor party thereto, relating to Domtar Corp.’s (i) 7.125% Notes due 2015, (ii) 5.375% Notes due 2013, (iii) 7.875% Notes due 2011, (iv) 9.5% Notes due 2016	8-K	4.2	02/21/2008
4.4	Supplement Indenture, dated June 9, 2009, among Domtar Corp., The Bank of New York Mellon, as Trustee, and the subsidiary guarantors party thereto, relating to Domtar Corp.’s 10.75% Senior Notes due 2017	8-K	4.1	06/09/2009
4.5	Supplemental Indenture, dated September 7, 2011, among Domtar Corporation, Domtar Delaware Investments Inc. and Domtar Delaware Holdings, LLC, and The Bank of New York Melon, as trustee, relating to the Company’s 7.125% Notes due 2015, 5.375% Notes due 2013, 9.5% Notes due 2016 and 10.75% Notes due 2017	10-Q	4.1	11/04/2011
4.6	Supplemental Indenture, dated as of March 16, 2012, among Domtar Corporation, the subsidiary guarantors party thereto, and The Bank of New York Mellon (formerly known as The Bank of New York), as trustee, providing for Domtar Corporation’s 4.40% Notes due 2022	8-K	4.1	03/16/2012
4.7	Supplemental Indenture, dated May 21, 2012, among Domtar Corporation, EAM Corporation, and The Bank of New York Mellon, as trustee, relating to EAM Corporation’s guarantee of the obligations under the Indenture	S-3	4.8	08/20/2012
4.8	Supplemental Indenture, dated as of August 23, 2012, among Domtar Corporation, the subsidiary guarantors party thereto, and The Bank of New York Mellon (formerly the Bank of New York), as trustee, providing for Domtar Corporation’s 6.25% Notes due 2042	8-K	4.1	08/23/2012

132

		Incorporated  by reference to:
Exhibit Number	Exhibit Description	Form	Exhibit	Filing Date
4.9	Supplemental Indenture, dated as of July 31, 2013, among Domtar Corporation, the subsidiary guarantors party thereto, and The Bank of New York Mellon (formerly the Bank of New York), as trustee, relating to the guarantee by Associated Hygienic Products LLC of the obligations under the Indenture	S-3ASR	4.10	10/01/2013
4.10	Supplemental Indenture, dated as of November 26, 2013, among Domtar Corporation, the subsidiary guarantors party thereto, and The Bank of New York Mellon (formerly the Bank of New York), as trustee, providing for Domtar Corporation’s 6.75% Notes due 2044	8-K	4.1	11/26/2013
10.1*	Domtar Corporation Executive Deferred Share Unit Plan (applicable to members of the Management Committee of Domtar Inc. prior to March 7, 2007)	10-K	10.29	02/27/2009
10.2*	Domtar Corporation Deferred Share Unit Plan for Outside Directors (for former directors of Domtar Inc.)	10-K	10.30	02/27/2009
10.3*	Director Deferred Stock Unit Agreement	8-K	10.1	05/24/2007
10.4*	Non-Qualified Stock Option Agreement
10.5*	Restricted Stock Unit Agreement
10.6*	Performance Share Unit Agreement
10.7*	Severance Program for Management Committee Members
10.8*	Amended and Restated DB SERP for Management Committee Members of Domtar	10-K	10.27	02/27/2015
10.9*	Amended and Restated DC SERP for Designated Executives of Domtar	10-K	10.28	02/27/2015
10.10*	Form of Indemnification Agreement for members of Pension Administration Committee of Domtar Corporation	10-K	10.50	02/27/2009
10.11	Stock Purchase Agreement by and among Attends Healthcare Holdings, LLC, Attends Healthcare, Inc. and Domtar Corporation dated as of August 12, 2011	10-Q	2.1	11/04/2011
10.12	Amended and Restated Domtar Corporation 2007 Omnibus Incentive Plan	DEF 14A	Annex A	03/30/2012
10.13	Domtar Corporation Annual Incentive Plan for members of the Management Committee
10.14*	Employment agreement of Mr. Michael Fagan	10-K	10.48	02/28/2013
10.15*	Amended and Restated Supplementary Pension Plan for Designated Managers of Domtar Corporation (for certain designated management employees)	10-K	10.39	02/24/2014
10.16*	Amended and Restated Employment Agreement of Mr. John D. Williams	10-Q	10.1	08/02/2013
10.17*	DC SERP for Designated Executives of Domtar Personal Care	10-K	10.47	02/27/2015
10.18*	Employment agreement of Mr. Michael D. Garcia	10-Q	10.1	08/01/2014
10.19	Term Loan Credit Agreement, dated as of July 20, 2015, among Domtar Paper Company, LLC, Domtar Corporation, the lenders from time to time parties to this agreement, and Cobank, ACB, as Administrative Agent	10-Q	10.1	08/06/2015

133

		Incorporated  by reference to:
Exhibit Number	Exhibit Description	Form	Exhibit	Filing Date
10.20	Second Amended and Restated Credit Agreement dated as of August 18, 2016, among the Company, Domtar Inc, Domtar Pulp and Paper General Partnership, Laboratorios Indas, S.A.U., and Attends Healthcare AB, Bank of Montreal, Goldman Sachs Bank USA, Royal Bank of Canada and Wells Fargo Bank, N.A., as co-documentation agents, The Bank of Nova Scotia and Bank of America, N.A., as syndication agents and JP Morgan Chase Bank, N.A., as administrative agent.	10-Q	10.1	11/03/2016
12.1	Computation of Ratio of Earnings to Fixed Charges
21	Subsidiaries of Domtar Corporation
23	Consent of Independent Registered Public Accounting Firm
24.1	Powers of Attorney (included in signature page)
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 or compensatory arrangement

134

FINANCIAL STATEMENT SCHEDULE

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS

For the three years ended:

	Balance at		Charged to		Additions to / (Deductions) from			Balance at end
	beginnings of year		income		reserve			of year
	$		$		$			$
Allowances deducted from related asset accounts:
Doubtful accounts - Accounts receivable
2016		6		—		1			7
2015		6		5		(5	)		6
2014		4		2		—			6

	Balance at		Charged to			Deductions from			Balance at end
	beginnings of year		income			reserve			of year
	$		$			$			$
Valuation Allowance on Deferred Tax Assets
2016		23		(1	)		—			22
2015		25		(1	)		(1	)		23
2014		19		7			(1	)		25

135

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Fort Mill, South Carolina, United States, on February 24, 2017

	DOMTAR CORPORATION
by		/s/  John D. Williams
Name:		John D. Williams
Title:		President and Chief Executive Officer

We, the undersigned directors and officers of Domtar Corporation, hereby severally constitute Zygmunt Jablonski and Razvan L. Theodoru, and each of them singly, our true and lawful attorneys with full power to them and each of them to sign for us, in our names in the capacities indicated below, any and all amendments to this Annual Report on Form 10-K filed with the Securities and Exchange Commission.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ John D. Williams	President and Chief Executive Officer (Principal Executive Officer) and Director	February 24, 2017
John D. Williams
/s/ Daniel Buron	Senior Vice-President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)	February 24, 2017
Daniel Buron
/s/Giannella Alvarez	Director	February 24, 2017
Giannella Alvarez
/s/ Robert E. Apple	Director	February 24, 2017
Robert E. Apple
/s/  Louis P. Gignac	Director	February 24, 2017
Louis P. Gignac
/s/ David J. Illingworth	Director	February 24, 2017
David J. Illingworth
/s/ Brian M. Levitt	Director	February 24, 2017
Brian M. Levitt
/s/ David G. Maffucci	Director	February 24, 2017
David G. Maffucci
/s/ Robert J. Steacy	Director	February 24, 2017
Robert J. Steacy
/s/ Pamela B. Strobel	Director	February 24, 2017
Pamela B. Strobel
/s/ Denis Turcotte	Director	February 24, 2017
Denis Turcotte
/s/ Mary A. Winston	Director	February 24, 2017
Mary A. Winston

136

EX-10.4

Exhibit 10.4

STOCK OPTION AGREEMENT FOR AWARDS GRANTED IN 2016

STOCK OPTION AGREEMENT (the “Agreement”), dated as of the Grant Date set forth in the Notice of Grant (as defined below), between Domtar Corporation, a Delaware corporation (the “Company”), and the Participant whose name appears in the Notice of Grant (the “Participant”), pursuant to the Amended and Restated Domtar Corporation 2007 Omnibus Incentive Plan, as in effect and as amended from time to time (the “Plan”).  Capitalized terms that are not defined herein shall have the meanings given to such terms in the Plan.

1.Confirmation of Grant, Option Price.

(a)Confirmation of Grant.  The Company hereby evidences and confirms the grant to the Participant of options to purchase the number of shares of Stock (the “Options”) set forth in the Domtar Corporation 2007 Omnibus Incentive Plan Stock Option Grant Notice delivered by the Company to the Participant (the “Notice of Grant”).  The Options are not intended to be incentive stock options under the U.S. Internal Revenue Code of 1986, as amended.  This Agreement is entered into pursuant to, and the terms of the Options are subject to, the terms and conditions of the Plan, which is incorporated by reference herein.  If there is any inconsistency between this Agreement and the terms of the Plan, the terms of the Plan shall govern.  The Options shall be considered a Service Award under the Plan.

(b)Exercise Price.  The Options shall have the Exercise Price set forth in the Notice of Grant.

2.Vesting, Exercisability and Exercise.

(a)Vesting.  Except as otherwise provided in Section 3, the Options shall vest and become exercisable in three equal installments on the vesting dates set forth in the Notice of Grant, subject to the continuous employment of the Participant with the Company until the applicable vesting date.

(b)Exercise; Condition to Exercise.  Once vested and exercisable in accordance with the provisions of this Agreement, the Options may be exercised at any time and from time to time prior to the date such Options terminate pursuant to Section 3.  The Participant may exercise all or a portion of the Options by giving notice to the Company or a brokerage firm designated or approved by the Company, in form and substance satisfactory to the Company, which will state the Participant’s election to exercise the Options and the number of shares of Stock for which the Participant is exercising Options.  The notice must be accompanied by full payment of the exercise price for the number of shares of Stock the Participant is purchasing.  The Participant may make this payment in

any combination of the following: (a) by cash; (b) by check acceptable to the Company; (c) by tendering (either actually or by attestation) shares of Common Stock the Participant has owned for at least six months (if such holding period is necessary to avoid a charge to the Company’s earnings); (d) to the extent permitted by law, by instructing a broker to deliver to the Company the total payment required in accordance with procedures established by the Company; or (e) by any other method permitted by the Committee.

(c)Cashless Exercise.  In lieu of tendering the exercise price to the Company in accordance with Section 2(b), the Participant may elect to perform a “Cashless Exercise” of the Options, in whole or in part, by surrendering the Options to the Company, marked “Cashless Exercise” and designating the number of shares of Common Stock desired by the Participant out of the total for which Options are exercisable.  The Participant shall thereupon be entitled to receive the number of shares of Stock having a Fair Market Value equal to the excess of (i) the then Fair Market Value per share of Stock multiplied by the number of the shares of Stock into which the Options designated by the Participant would have been exercisable pursuant to Section 2(b) upon payment of the exercise price by the Participant over (ii) the exercise price the Participant would have been required to pay under Section 2(b) in respect of such an exercise.

3.Termination of Options

(a)Normal Expiration Date.  Unless earlier terminated pursuant to Section 3(b) or Section 3(c), the Options shall terminate on the seventh anniversary of the Grant Date (the “Normal Expiration Date”), if not exercised prior to such date.

(b)Termination of Employment.  

(i)  Death or Disability.  If the Participant’s employment with the Company terminates due to death or Disability, all of the Participant’s Options shall vest and become exercisable and shall remain outstanding until the first anniversary of the date of termination or the Normal Expiration Date, whichever is earlier, after which any unexercised Options shall immediately terminate.

(ii)  Retirement.  If the Participant’s employment with the Company terminates due to Retirement, the Participant’s Options shall vest and become exercisable to the extent of the number Options multiplied by a fraction, the numerator of which is the number of days elapsed from the Grant Date through the date of the Participant’s Retirement and the denominator of which is the number of days from the Grant Date to the date the Options would have vested had the Participant’s employment continued through the original vesting dates, and any remaining Options

2

shall be forfeited and canceled as of the date of Retirement.  All vested Options shall remain outstanding until the fifth anniversary of the date of termination or the Normal Expiration Date, whichever is earlier, after which any unexercised Options shall immediately terminate.  

(iii)  Termination for Cause.  If a Participant’s employment terminates for Cause, all Options, whether vested or unvested, exercisable or unexercisable, shall be immediately forfeited and canceled, effective as of the date of the Participant’s Termination of Service.

(iv)  Voluntary Termination by the Participant.  If a Participant terminates his or her employment with the Company for any reason other than death, Disability or Retirement, all of the Participant’s Options, whether vested or unvested, exercisable or unexercisable, shall be immediately forfeited and canceled, effective as of the date of the Participant’s Termination of Service.

(v)  Involuntary Termination for any Other Reason.  Except as otherwise provided in Section 3(b)(iv)  if a Participant’s employment is terminated by the Company for any reason other than death, Disability, Retirement or Cause, all vested Options shall remain outstanding until the 90th day after the date of Termination of Service or the Normal Expiration Date, whichever is earlier, after which any unexercised Options shall immediately terminate.

(c)Change in Control.  In the event of a change in control, the Options shall vest or continue as set forth in the Plan.

4.Securities Law Compliance.  Notwithstanding any other provision of this Agreement, the Participant may not sell the shares of Stock acquired upon exercise of the Options unless such shares are registered under the Securities Act of 1933, as amended (the “Securities Act”), or, if such shares are not then so registered, such sale would be exempt from the registration requirements of the Securities Act.  The sale of such shares must also comply with other applicable laws and regulations governing the shares and Participant may not sell the shares of Stock if the Company determines that such sale would not be in material compliance with such laws and regulations.

5.Participant’s Rights with Respect to the Options.

(a)Restrictions on Transferability.  The Options granted hereby are not assignable or transferable, in whole or in part, and may not, directly or indirectly, be offered, transferred, sold, pledged, assigned, alienated, hypothecated or otherwise disposed of or encumbered (including without limitation by gift, operation of law or otherwise) other than by will or by the laws of descent and

3

distribution to the estate of the Participant upon the Participant’s death; provided that the deceased Participant’s beneficiary or representative of the Participant’s estate shall acknowledge and agree in writing, in a form reasonably acceptable to the Company, to be bound by the provisions of this Agreement and the Plan as if such beneficiary or the estate were the Participant.

(b)No Rights as Stockholder.  The Participant shall not have any rights as a stockholder including any voting, dividend or other rights or privileges as a stockholder of the Company with respect to any Stock underlying the Options unless and until shares of Stock are issued to the Participant upon exercise thereof.  

6.Adjustments.  The number, class and Exercise Price of the shares of Stock covered by the Options shall be adjusted by the Board to reflect any extraordinary dividend, stock dividend, stock split or share combination or any recapitalization, business combination, merger, consolidation, spin-off, exchange of shares, liquidation or dissolution of the Company or other similar transaction affecting the Stock in such manner as the Board determines in its sole discretion.

7.Miscellaneous.

(a)Binding Effect; Benefits.  This Agreement shall be binding upon and inure to the benefit of the parties to this Agreement and their respective successors and assigns.  Nothing in this Agreement, express or implied, is intended or shall be construed to give any person other than the parties to this Agreement or their respective successors or assigns any legal or equitable right, remedy or claim under or in respect of any agreement or any provision contained herein.

(b)No Right to Continued Employment.  Nothing in the Plan or this Agreement shall interfere with or limit in any way the right of the Company or any of its Subsidiaries to terminate the Participant’s employment at any time, or confer upon the Participant any right to continue in the employ of the Company or any of its Subsidiaries.

(c)Interpretation.  The Committee shall have full power and discretion to construe and interpret the Plan (and any rules and regulations issued thereunder) and this Award.  Any determination or interpretation by the Committee under or pursuant to the Plan or this Award shall be final and binding and conclusive on all persons affected hereby.

(d)Tax Withholding.  The Company and its Subsidiaries shall have the right to deduct from all amounts paid to a Participant in cash (whether under the Plan or otherwise) any amount of taxes required by law to be withheld in respect of the Options as may be necessary in the opinion of the Employer to satisfy tax

4

withholding required under the laws of any country, state, province, city or other jurisdiction, including but not limited to income taxes, capital gains taxes, transfer taxes, and social security contributions that are required by law to be withheld.  The Company may require the recipient of the shares of Stock to remit to the Company an amount in cash sufficient to satisfy the amount of taxes required to be withheld as a condition to the issuance of such shares.  The Committee may, in its discretion, require the Participant to elect, subject to such conditions as the Committee shall impose, to meet such obligations by having the Company withhold or the Participant sell the least number of whole shares of Stock having a Fair Market Value sufficient to satisfy all or part of the amount required to be withheld.

(e)Forfeiture for Financial Reporting Misconduct.  If the Company is required to prepare an accounting restatement due to material noncompliance by the Company with any financial reporting requirement under the securities laws, and if the Participant knowingly or grossly negligently engaged in the misconduct or knowingly or grossly negligently failed to prevent the misconduct as determined by the Committee, or if the Participant is one of the individuals subject to automatic forfeiture under Section 304 of the Sarbanes-Oxley Act of 2002, then the Participant shall forfeit and disgorge to the Company (i) any Options granted or vested during the 12-month period following the filing of the financial document embodying such financial reporting requirement, (ii) all gains earned or accrued due to the exercise of the Options or sale of any Stock during the 12-month period following the filing of the financial document embodying such financial reporting requirement and (iii) if the Options vested based on the materially non- complying financial reporting, the Options.  The Company may also cancel or reduce, or require the Participant to forfeit and disgorge to the Company or reimburse the Company for, any Options granted or vested and any gains earned or accrued, due to the exercise, vesting or settlement of the Options or sale of any Stock acquired upon the exercise of the Options, to the extent permitted or required by, or pursuant to any Company policy implemented as required by, applicable law, regulation or stock exchange rule as from time to time may be in effect (including but not limited to The Dodd–Frank Wall Street Reform and Consumer Protection Act and regulations and stock exchange rules promulgated pursuant to or as a result of such Act).

(f)Applicable Law.  This Agreement shall be governed by and construed in accordance with the law of the State of Delaware regardless of the application of rules of conflict of law that would apply the laws of any other jurisdiction.

(g)Limitation on Rights; No Right to Future Grants; Extraordinary Item of Compensation.  By entering into this Agreement and accepting the Options evidenced hereby, the Participant acknowledges: (a) that the Plan is discretionary

5

in nature and may be suspended or terminated by the Company at any time; (b) that the Award does not create any contractual or other right to receive future grants of Awards; (c) that participation in the Plan is voluntary; (d) that the value of the Options is not part of normal or expected compensation for purposes of calculating any severance, resignation, redundancy, end of service payments, bonuses, long-service awards, pension or retirement benefits or similar payments; and (e) that the future value of the Stock is unknown and cannot be predicted with certainty.

(h)Employee Data Privacy.  By entering into this Agreement and accepting the Options evidenced hereby, the Participant: (a) authorizes the Company, the Participant’s employer, if different, and any agent of the Company administering the Plan or providing Plan recordkeeping services, to disclose to the Company or any of its affiliates any information and data the Company requests in order to facilitate the grant of the Award and the administration of the Plan; (b) waives any data privacy rights the Participant may have with respect to such information; and (c) authorizes the Company and its agents to store and transmit such information in electronic form.

(i)Consent to Electronic Delivery.  By entering into this Agreement and accepting the Options evidenced hereby, Participant hereby consents to the delivery of information (including, without limitation, information required to be delivered to the Participant pursuant to applicable securities laws) regarding the Company and the Subsidiaries, the Plan, this Agreement and the Options via Company web site or other electronic delivery.

(j)Headings and Captions.  The headings and captions herein are provided for reference and convenience only, shall not be considered part of this Agreement, and shall not be employed in the construction of this Agreement.

(k)Counterparts.  This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall constitute one and the same instrument.

6

EX-10.5

Exhibit 10.5

RESTRICTED STOCK UNIT AGREEMENT

FOR AWARDS GRANTED IN 2016

RESTRICTED STOCK UNIT AGREEMENT (the “Agreement”) dated as of the Grant Date set forth in the Notice of Grant (as defined below), by and between Domtar Corporation, a Delaware corporation (the “Company”), and the participant whose name appears in the Notice of Grant (the “Participant”).

1.  Grant of Restricted Stock Units.  The Company hereby evidences and confirms its grant to the Participant, effective as of the Grant Date, of the number of restricted stock units (the “Restricted Stock Units”) specified in the Domtar Corporation 2007 Omnibus Incentive Plan Restricted Stock Unit Grant Notice delivered by the Company to the Participant (the “Notice of Grant”).  This Agreement is subordinate to, and the terms and conditions of the Restricted Stock Units granted hereunder are subject to, the terms and conditions of the Amended and Restated Domtar Corporation 2007 Omnibus Incentive Plan (the “Plan”), which are incorporated by reference herein.  If there is any inconsistency between the terms hereof and the terms of the Plan, the terms of the Plan shall govern.  Any capitalized terms used herein without definition shall have the meanings set forth in the Plan.  The Restricted Stock Units shall be considered Service Awards under the Plan.

2.  Vesting of Restricted Stock Units.  

(a)  Vesting.  Except as otherwise provided in this Section 2, the Restricted Stock Units shall become vested, if at all, on the vesting date(s) set forth in the Notice of Grant (each, a “Vesting Date”), subject to the continued employment of the Participant by the Company or any Subsidiary thereof through such date.

(b)  Termination of Employment.  

(i)  Death or Disability.  If the Participant’s employment is terminated due to death or Disability prior to the Vesting Date, 100% of the Restricted Stock Units shall become fully vested and nonforfeitable and shall be paid as provided in Section 3.

(ii)  Retirement.  If the Participant’s employment is terminated due to Retirement prior to the Vesting Date, the Participant shall be deemed vested to the extent of the number of Restricted Stock Units that would have vested had the Participant’s Service continued until the Vesting Date, multiplied by a fraction, the numerator of which is the number of days elapsed from the Grant Date through the date of the Participant’s Retirement and the denominator of which is the number of days from the Grant Date to the Vesting Date, and any remaining Restricted Stock Units shall be forfeited and canceled as of the date of such

Retirement.  Vested Restricted Stock Units shall be settled as set forth in Section 3.  

(iii)  Any Other Reason.  If the Participant’s employment is terminated prior to the Vesting Date for any reason other than death, Disability or Retirement, all Restricted Stock Units shall immediately be forfeited and canceled effective as of the date of the Participant’s termination.

(c)  Change in Control.  In the event of a Change in Control, then the Restricted Stock Units shall vest or continue as set forth in the Plan.

(d)  Committee Discretion.  Notwithstanding anything contained in this Agreement to the contrary, the Committee, in its sole discretion, may accelerate the vesting with respect to any Restricted Stock Units under this Agreement, at such times and upon such terms and conditions as the Committee shall determine.

3.  Settlement of Restricted Stock Units.  Subject to Section 7(d), the Company shall deliver to the Participant the value of one share of Stock in settlement of each outstanding Restricted Stock Unit that has vested as provided in Section 2 on the first to occur of (i) the Vesting Date, (ii) in the event of a Termination of Service due to death, Disability or Retirement, (A) as soon as reasonably practicable after such Termination of Service or (B) notwithstanding the preceding clause (A), if the Participant is a United States citizen or resident or the Participant’s Restricted Stock Units are otherwise subject to United States federal income tax, on the later of (1) January 31 of the year following the Participant’s Termination of Service and (2) if the Participant is a Specified Employee and the Restricted Stock Units are a Specified Award, to the extent necessary to comply with, and avoid imposition on the Participant of any additional tax or interest imposed under, Section 409A of the Code, on the first business day following the six-month anniversary of the Participant’s Termination of Service (or, if earlier, upon the Participant’s death), or as soon thereafter as practicable (but no later than 90 days thereafter) (iii) with respect to Restricted Stock Units that are not a Specified Award, a Change in Control in which the Restricted Stock Units do not continue, and (iv) with respect to Restricted Stock Units that are a Specified Award, a Specified Change in Control, in each case (A) by a cash payment equal to the Fair Market Value of the Stock on the settlement date or (B) if the Participant is a member of the Management Committee, at the Company’s sole discretion, in Stock, by either (y) issuing one or more certificates evidencing the Stock to the Participant or (z) registering the issuance of the Stock in the name of the Participant through a book entry credit in the records of the Company’s transfer agent or (C) in the event of settlement upon a Change in Control or Specified Change in Control, as applicable, a cash payment equal to the Change in Control Price, multiplied by the number of vested Restricted Stock Units. No fractional shares of Stock shall be issued in settlement of Restricted Stock Units.  Fractional

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Restricted Stock Units shall be settled through a cash payment equal to the Fair Market Value of the Stock on the settlement date.

4.  Securities Law Compliance.  Notwithstanding any other provision of this Agreement, the Participant may not sell the shares of Stock acquired upon vesting of the Restricted Stock Units unless such shares are registered under the Securities Act of 1933, as amended (the “Securities Act”), or, if such shares are not then so registered, such sale would be exempt from the registration requirements of the Securities Act.  The sale of such shares must also comply with other applicable laws and regulations governing the shares and Participant may not sell the shares of Stock if the Company determines that such sale would not be in material compliance with such laws and regulations.

5.  Participant’s Rights with Respect to the Restricted Stock Units.

(a)  Restrictions on Transferability.  The Restricted Stock Units granted hereby are not assignable or transferable, in whole or in part, and may not, directly or indirectly, be offered, transferred, sold, pledged, assigned, alienated, hypothecated or otherwise disposed of or encumbered (including without limitation by gift, operation of law or otherwise) other than by will or by the laws of descent and distribution to the estate of the Participant upon the Participant’s death; provided that the deceased Participant’s beneficiary or representative of the Participant’s estate shall acknowledge and agree in writing, in a form reasonably acceptable to the Company, to be bound by the provisions of this Agreement and the Plan as if such beneficiary or the estate were the Participant.

(b)  No Rights as Stockholder.  The Participant shall not have any rights as a stockholder including any voting, dividend or other rights or privileges as a stockholder of the Company with respect to any Stock corresponding to the Restricted Stock Units granted hereby unless and until shares of Stock are issued to the Participant in respect thereof.  

(c)  Dividend Equivalents.  The Participant shall be credited with Dividend Equivalents in the form of additional Restricted Stock Units when cash dividends are paid on the Stock.  Such Dividend Equivalents shall be computed by dividing: (i) the amount obtained by multiplying the amount of the dividend declared and paid for each share of Stock by the number of Restricted Stock Units held by the Participant on the record date, by (ii) the Fair Market Value of the Stock on the dividend payment date for such dividend, with fractions computed to four decimal places.  Such additional Restricted Stock Units shall vest and be settled in the same manner as the Restricted Stock Units to which they relate.

6.  Adjustment in Capitalization.  The number, class or other terms of any outstanding Restricted Stock Units shall be adjusted by the Board to reflect any extraordinary dividend, stock dividend, stock split or share combination or any

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recapitalization, business combination, merger, consolidation, spin-off, exchange of shares, liquidation or dissolution of the Company or other similar transaction affecting the Stock in such manner as it determines in its sole discretion.

7.  Miscellaneous.

(a)  Binding Effect; Benefits.  This Agreement shall be binding upon and inure to the benefit of the parties to this Agreement and their respective successors and assigns.  Nothing in this Agreement, express or implied, is intended or shall be construed to give any person other than the parties to this Agreement or their respective successors or assigns any legal or equitable right, remedy or claim under or in respect of any agreement or any provision contained herein.

(b)  No Right to Continued Employment.  Nothing in the Plan or this Agreement shall interfere with or limit in any way the right of the Company or any of its Subsidiaries to terminate the Participant’s employment at any time, or confer upon the Participant any right to continue in the employ of the Company or any of its Subsidiaries.

(c)  Interpretation.  The Committee shall have full power and discretion to construe and interpret the Plan (and any rules and regulations issued thereunder) and this Award.  Any determination or interpretation by the Committee under or pursuant to the Plan or this Award shall be final and binding and conclusive on all persons affected hereby.

(d)  Tax Withholding.  The Company and its Subsidiaries shall have the right to deduct from all amounts paid to the Participant in cash (whether under the Plan or otherwise) any amount of taxes required by law to be withheld in respect of settlement of the Restricted Stock Units under the Plan as may be necessary in the opinion of the Employer to satisfy tax withholding required under the laws of any country, state, province, city or other jurisdiction, including but not limited to income taxes, capital gains taxes, transfer taxes, and social security contributions that are required by law to be withheld.  The Company may require the recipient of the cash or shares of Stock, as applicable, to remit to the Company an amount in cash sufficient to satisfy the amount of taxes required to be withheld as a condition to the payment of cash or issuance of shares in settlement of the Restricted Stock Units.  The Committee may, in its discretion, require the Participant, or permit the Participant to elect, subject to such conditions as the Committee shall impose, to meet such obligations by having the Company withhold from the cash payment in settlement of the Restricted Stock Units or withhold or sell the least number of whole shares of Stock having a Fair Market Value sufficient to satisfy all or part of the amount required to be withheld.  The Company may defer settlement until such requirements are satisfied.

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(e)  Forfeiture for Financial Reporting Misconduct.  If the Company is required to prepare an accounting restatement due to material noncompliance by the Company with any financial reporting requirement under the securities laws, and if the Participant knowingly or grossly negligently engaged in the misconduct or knowingly or grossly negligently failed to prevent the misconduct as determined by the Committee, or if the Participant is one of the individuals subject to automatic forfeiture under Section 304 of the Sarbanes-Oxley Act of 2002, then the Participant shall forfeit and disgorge to the Company (i) any Stock and cash received in respect of Restricted Stock Units granted or vested and all gains earned or accrued due to the sale of any Stock received in settlement of the Restricted Stock Units during the 12-month period following the filing of the financial document embodying such financial reporting requirement and (ii) any Stock and cash received in respect of Restricted Stock Units that vested based on the materially non- complying financial reporting.  The Company may also cancel or reduce, or require a Participant to forfeit and disgorge to the Company or reimburse the Company for, any Restricted Stock Units granted or vested and any gains earned or accrued, due to the vesting or settlement of Restricted Stock Units or sale of any Stock acquired in settlement of a Restricted Stock Unit, to the extent permitted or required by, or pursuant to any Company policy implemented as required by, applicable law, regulation or stock exchange rule as from time to time may be in effect (including but not limited to The Dodd–Frank Wall Street Reform and Consumer Protection Act and regulations and stock exchange rules promulgated pursuant to or as a result of such Act).

(f)  Applicable Law.  This Agreement shall be governed by and construed in accordance with the law of the State of Delaware regardless of the application of rules of conflict of law that would apply the laws of any other jurisdiction.

(g)  Limitation on Rights; No Right to Future Grants; Extraordinary Item of Compensation.  By entering into this Agreement and accepting the Restricted Stock Units evidenced hereby, the Participant acknowledges: (a) that the Plan is discretionary in nature and may be suspended or terminated by the Company at any time; (b) that the Award does not create any contractual or other right to receive future grants of Awards; (c) that participation in the Plan is voluntary; (d) that the value of the Restricted Stock Units is not part of normal or expected compensation for purposes of calculating any severance, resignation, redundancy, end of service payments, bonuses, long-service awards, pension or retirement benefits or similar payments; and (e) that the future value of the Stock is unknown and cannot be predicted with certainty.

(h)  Employee Data Privacy.  By entering into this Agreement and accepting the Restricted Stock Units evidenced hereby, the Participant: (a) authorizes the Company and the Participant’s employer, if different, any agent of the Company administering the Plan or providing Plan recordkeeping services, to disclose to the Company or any of its affiliates any information and data the Company requests in order to facilitate the grant of the Award and the administration of the Plan; (b) waives any data privacy rights the

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Participant may have with respect to such information; and (c) authorizes the Company and its agents to store and transmit such information in electronic form.

(i)  Consent to Electronic Delivery.  By entering into this Agreement and accepting the Restricted Stock Units evidenced hereby, Participant hereby consents to the delivery of information (including, without limitation, information required to be delivered to the Participant pursuant to applicable securities laws) regarding the Company and the Subsidiaries, the Plan, this Agreement and the Restricted Stock Units via Company web site or other electronic delivery.

(j)  Headings and Captions.  The section and other headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement.

(k)  Counterparts.  This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall constitute one and the same instrument.

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EX-10.6

Exhibit 10.6

PERFORMANCE SHARE UNIT AGREEMENT

FOR AWARDS GRANTED IN 2016

PERFORMANCE SHARE UNIT AGREEMENT (the “Agreement”) dated as of the Grant Date set forth in the Notice of Grant (as defined below), by and between Domtar Corporation, a Delaware corporation (the “Company”), and the participant whose name appears in the Notice of Grant (the “Participant”).

1.  Grant of Performance Share Units.  The Company hereby evidences and confirms its grant to the Participant, effective as of the Grant Date, of the number of performance-based restricted stock units (the “Performance Share Units”) specified in the Domtar Corporation 2007 Omnibus Incentive Plan Performance Share Unit Grant Notice delivered by the Company to the Participant (the “Notice of Grant”).  This Agreement is subordinate to, and the terms and conditions of the Performance Share Units granted hereunder are subject to, the terms and conditions of the Amended and Restated Domtar Corporation 2007 Omnibus Incentive Plan (the “Plan”), which are incorporated by reference herein.  If there is any inconsistency between the terms hereof and the terms of the Plan, the terms of the Plan shall govern.  Any capitalized terms used herein without definition shall have the meanings set forth in the Plan.  The Performance Share Units shall be considered Performance Awards under the Plan.

2.  Vesting of Performance Share Units.  

(a)  Vesting.  Except as otherwise provided in this Section 2, the Performance Share Units shall become vested, if at all, on the vesting date(s) set forth in the Notice of Grant (each, a “Vesting Date”), subject to the continued employment of the Participant by the Company or any Subsidiary thereof through such date, and to the achievement of the Performance Goals (the “Goals”) established by the Committee pursuant to the Plan for the Performance Share Units for the performance period(s) (each a “Performance Period”) set forth in the Notice of Grant.  As soon as feasible after the end of each Performance Period, the Committee will determine whether the Goals have been satisfied, in whole or in part.  Based upon the foregoing determination, the number of Performance Share Units will vest on the Vesting Date on a percentage basis, as set forth in the Notice of Grant.  Performance Share Units that have not vested by the Vesting Date in accordance with this Section 2 shall be forfeited.  

(b)  Termination of Employment.  

(i)  Death.  If the Participant’s employment is terminated due to death prior to the end of a Performance Period, 100% of the Performance Share Units relating to such Performance Period, multiplied by a fraction, the numerator of which is the number of days elapsed from the commencement of the Performance Period through the date of the Participant’s death and the denominator of which is the number of days in the Performance Period, shall become fully vested and

nonforfeitable and shall be paid as provided in Section 3.  If the Participant’s employment is terminated due to death after the end of any Performance Period but prior to the settlement date, the Participant shall be entitled to receive, and such Performance Share Units shall be deemed vested to the extent of, the number of shares of Stock that would have been payable with respect to the Performance Share Units relating to such Performance Period had the Participant’s Service continued until the settlement date, subject to achievement of the Goals, and the remainder of such Performance Share Units shall be forfeited and canceled as of the date of termination.

(ii)  Disability or Retirement.  If the Participant’s employment is terminated due to Disability or Retirement prior to the Vesting Date, then, on the Vesting Date the Participant shall be deemed vested to the extent of the number of Performance Share Units that would have vested had the Participant’s Service continued until the Vesting Date, subject to achievement of the Goals, multiplied by a fraction, the numerator of which is the number of days elapsed from the commencement of the Performance Period through the date of the Participant’s termination due to Disability or Retirement, as applicable, and the denominator of which is the number of days in the Performance Period, and the remainder of the Performance Share Units shall be forfeited and canceled as of the date of such termination due to Disability or Retirement, as applicable.  Vested Performance Share Units shall be settled as set forth in Section 3.

(iii)  Any Other Reason.  If the Participant’s employment is terminated prior to the Vesting Date for any reason other than death, Disability or Retirement, all Performance Share Units shall immediately be forfeited and canceled effective as of the date of the Participant’s termination.

(c)  Change in Control.  In the event of a Change in Control, then the Performance Share Units shall vest or continue as set forth in the Plan.

(d)  Committee Discretion.  Notwithstanding anything contained in this Agreement to the contrary, the Committee, in its sole discretion, may accelerate the vesting with respect to any Performance Share Units under this Agreement, at such times and upon such terms and conditions as the Committee shall determine.

3.  Settlement of Performance Share Units.  Subject to Section 7(d), the Company shall deliver to the Participant the value of one share of Stock in settlement of each outstanding Performance Share Unit that has vested as provided in Section 2 on the first to occur of (i) as soon as practicable after the date (the “Committee Determination Date”) that the Committee determines that the Goals for the last Performance Period(s) have been satisfied, but in no event later than 2½ months after the end of the Performance Period; (ii) in the event of a Termination of Service due to death, January 31 of the year following the Participant’s Termination of Service, (iii) with respect to Performance

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Share Units that are not a Specified Award, a Change in Control in which the Performance Share Units do not continue, and (iv) with respect to Performance Share Units that are a Specified Award, a Specified Change in Control, in each case (A) by a cash payment equal to the Fair Market Value of the Stock on the Committee Determination Date or (B) if the Participant is a member of the Management Committee, at the Company’s sole discretion, in Stock, by either (1) issuing one or more certificates evidencing the Stock to the Participant or (2) registering the issuance of the Stock in the name of the Participant through a book entry credit in the records of the Company’s transfer agent or (C) in the event of settlement upon a Change in Control or a Specified Change in Control, as applicable, a cash payment equal to the Change in Control Price, in each case, multiplied by the number of vested Performance Share Units.  With respect to Specified Awards, in the event of a Change in Control that is not a Specified Change in Control, if no Alternative Awards are available, or Alternative Awards may not be issued in a manner that complies with Section 409A of the Code or without the imposition of any additional taxes or interest under Section 409A of the Code, the Committee, as constituted immediately prior to the Change in Control, may determine that Specified Awards shall be settled through a cash payment equal to the Change in Control Price multiplied by the number of vested Specified Awards plus interest from the later of the Vesting Date and the Change in Control through the date of payment at a rate determined by the Committee as constituted immediately prior to the Change in Control to the extent that such settlement shall not subject the Participant to any additional taxes or interest under Section 409A of the Code or in such other manner that shall comply with Section 409A of the Code.  No fractional shares of Stock shall be issued in settlement of Performance Share Units.  Fractional Performance Share Units shall be settled through a cash payment equal to the Fair Market Value of the Stock on the  Committee Determination Date.

4.  Securities Law Compliance.  Notwithstanding any other provision of this Agreement, the Participant may not sell the shares of Stock acquired upon vesting of the Performance Share Units unless such shares are registered under the Securities Act of 1933, as amended (the “Securities Act”), or, if such shares are not then so registered, such sale would be exempt from the registration requirements of the Securities Act.  The sale of such shares must also comply with other applicable laws and regulations governing the shares and Participant may not sell the shares of Stock if the Company determines that such sale would not be in material compliance with such laws and regulations.

5.  Participant’s Rights with Respect to the Performance Share Units.

(a)  Restrictions on Transferability.  The Performance Share Units granted hereby are not assignable or transferable, in whole or in part, and may not, directly or indirectly, be offered, transferred, sold, pledged, assigned, alienated, hypothecated or otherwise disposed of or encumbered (including without limitation by gift, operation of law or otherwise) other than by will or by the laws of descent and distribution to the estate of the

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Participant upon the Participant’s death; provided that the deceased Participant’s beneficiary or representative of the Participant’s estate shall acknowledge and agree in writing, in a form reasonably acceptable to the Company, to be bound by the provisions of this Agreement and the Plan as if such beneficiary or the estate were the Participant.

(b)  No Rights as Stockholder.  The Participant shall not have any rights as a stockholder including any voting, dividend or other rights or privileges as a stockholder of the Company with respect to any Stock corresponding to the Performance Share Units granted hereby unless and until shares of Stock are issued to the Participant in respect thereof.  

6.  Adjustment in Capitalization.  The number, class, Performance Goals or other terms of any outstanding Performance Share Units shall be adjusted by the Board to reflect any extraordinary dividend, stock dividend, stock split or share combination or any recapitalization, business combination, merger, consolidation, spin-off, exchange of shares, liquidation or dissolution of the Company or other similar transaction affecting the Stock in such manner as it determines in its sole discretion.

7.  Miscellaneous.

(a)  Binding Effect; Benefits.  This Agreement shall be binding upon and inure to the benefit of the parties to this Agreement and their respective successors and assigns.  Nothing in this Agreement, express or implied, is intended or shall be construed to give any person other than the parties to this Agreement or their respective successors or assigns any legal or equitable right, remedy or claim under or in respect of any agreement or any provision contained herein.

(b)  No Right to Continued Employment.  Nothing in the Plan or this Agreement shall interfere with or limit in any way the right of the Company or any of its Subsidiaries to terminate the Participant’s employment at any time, or confer upon the Participant any right to continue in the employ of the Company or any of its Subsidiaries.

(c)  Interpretation.  The Committee shall have full power and discretion to construe and interpret the Plan (and any rules and regulations issued thereunder) and this Award.  Any determination or interpretation by the Committee under or pursuant to the Plan or this Award shall be final and binding and conclusive on all persons affected hereby.

(d)  Tax Withholding.  The Company and its Subsidiaries shall have the right to deduct from all amounts paid to the Participant in cash (whether under the Plan or otherwise) any amount of taxes required by law to be withheld in respect of settlement of the Performance Share Units under the Plan as may be necessary in the opinion of the Employer to satisfy tax withholding required under the laws of any country, state, province, city or other jurisdiction, including but not limited to income taxes, capital

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gains taxes, transfer taxes, and social security contributions that are required by law to be withheld.  The Company may require the recipient of the cash or shares of Stock, as applicable, to remit to the Company an amount in cash sufficient to satisfy the amount of taxes required to be withheld as a condition to the payment of cash or issuance of shares in settlement of the Performance Share Units.  The Committee may, in its discretion, require the Participant, or permit the Participant to elect, subject to such conditions as the Committee shall impose, to meet such obligations by having the Company withhold from the cash payment in settlement of the Performance Share Units or withhold or sell the least number of whole shares of Stock having a Fair Market Value sufficient to satisfy all or part of the amount required to be withheld.  The Company may defer settlement until such requirements are satisfied.

(e)  Forfeiture for Financial Reporting Misconduct.  If the Company is required to prepare an accounting restatement due to material noncompliance by the Company with any financial reporting requirement under the securities laws, and if the Participant knowingly or grossly negligently engaged in the misconduct or knowingly or grossly negligently failed to prevent the misconduct as determined by the Committee, or if the Participant is one of the individuals subject to automatic forfeiture under Section 304 of the Sarbanes-Oxley Act of 2002, then the Participant shall forfeit and disgorge to the Company (i) any Stock and cash received in respect of Performance Share Units granted or vested and all gains earned or accrued due to the sale of any Stock received in settlement of the Performance Share Units during the 12-month period following the filing of the financial document embodying such financial reporting requirement and (ii) any Stock and cash received in respect of Performance Share Units that vested based on the materially non- complying financial reporting.  The Company may also cancel or reduce, or require a Participant to forfeit and disgorge to the Company or reimburse the Company for, any Performance Share Units granted or vested and any gains earned or accrued, due to the vesting or settlement of Performance Share Units or sale of any Stock acquired in settlement of a Performance Share Unit, to the extent permitted or required by, or pursuant to any Company policy implemented as required by, applicable law, regulation or stock exchange rule as from time to time may be in effect (including but not limited to The Dodd–Frank Wall Street Reform and Consumer Protection Act and regulations and stock exchange rules promulgated pursuant to or as a result of such Act).

(f)  Applicable Law.  This Agreement shall be governed by and construed in accordance with the law of the State of Delaware regardless of the application of rules of conflict of law that would apply the laws of any other jurisdiction.

(g)  Limitation on Rights; No Right to Future Grants; Extraordinary Item of Compensation.  By entering into this Agreement and accepting the Performance Share Units evidenced hereby, the Participant acknowledges: (a) that the Plan is discretionary in nature and may be suspended or terminated by the Company at any time; (b) that the Award does not create any contractual or other right to receive future grants of Awards; (c) that participation in the Plan is voluntary; (d) that the value of the Performance Share

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Units is not part of normal or expected compensation for purposes of calculating any severance, resignation, redundancy, end of service payments, bonuses, long-service awards, pension or retirement benefits or similar payments; and (e) that the future value of the Stock is unknown and cannot be predicted with certainty.

(h)  Employee Data Privacy.  By entering into this Agreement and accepting the Performance Share Units evidenced hereby, the Participant: (a) authorizes the Company and the Participant’s employer, if different, any agent of the Company administering the Plan or providing Plan recordkeeping services, to disclose to the Company or any of its affiliates any information and data the Company requests in order to facilitate the grant of the Award and the administration of the Plan; (b) waives any data privacy rights the Participant may have with respect to such information; and (c) authorizes the Company and its agents to store and transmit such information in electronic form.

(i)  Consent to Electronic Delivery.  By entering into this Agreement and accepting the Performance Share Units evidenced hereby, Participant hereby consents to the delivery of information (including, without limitation, information required to be delivered to the Participant pursuant to applicable securities laws) regarding the Company and the Subsidiaries, the Plan, this Agreement and the Performance Share Units via Company web site or other electronic delivery.

(j)  Specified Employee Delay.  Notwithstanding anything to the contrary in this Agreement, if settlement is to occur upon a Termination of Service other than due to death or Disability and the Participant is a Specified Employee and the Performance Share Units are a Specified Award, to the extent necessary to comply with, and avoid imposition on the Participant of any additional tax or interest imposed under, Section 409A of the Code, settlement shall instead occur on the first business day following the six-month anniversary of the Participant’s Termination of Service (or, if earlier, upon the Participant’s death), or as soon thereafter as practicable (but no later than 90 days thereafter).

(k)  Headings and Captions.  The section and other headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement.

(l)  Counterparts.  This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall constitute one and the same instrument.

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EX-10.7

Exhibit 10.7

SEVERANCE PROGRAM FOR MANAGEMENT COMMITTEE MEMBERS

Purpose

1.1 This severance program is designed to provide eligible executives with guidelines relative to the benefits they would receive upon an involuntary termination of employment for business reasonswhether or not in connection with the occurrence of a Change in Control in order to allow for equitable, objective and uniform treatment of similar situations.

Key Elements

2.1 This severance program is composed of the following key elements which will be offered in whole or in part by Domtar Corporation or its subsidiaries (the “Corporation”), depending on each situation:

•Severance allowance;

•Maintenance of medical and dental benefits;

•Outplacement services.

Any entitlement to payments or benefits other than those specifically addressed in this severance policy shall be determined in accordance with the applicable plan or policy.  

Eligible Executives

3.1 An executive is eligible for this severance program if he or she is a member of the Management Committee of the Corporation (as duly appointed by the Board of Directors of the Corporation (the “Board”) upon recommendation of the Corporation’s Chief Executive Officer), if the executive’s employment (a) is involuntarily terminated for business reasons by the Corporation or (b) in connection with a Change in Control is involuntarily terminated by the Corporation without Cause or is terminated by the executive due to Good Reason, and in all cases the executive executes, delivers and does not revoke within the applicable statutory time period, a written release in a form satisfactory to the Human Resources Committee of the Board (such committee, the “HR Committee” and any such release, a “Release”);  provided that this program does not apply to those executives for whom another program, agreement or arrangement is applicable or has been approved.  An executive will no longer be eligible for this severance program upon cessation of his or her service as a member of the Management Committee for reasons other than those listed in this paragraph.

3.2 This severance program will not be offered if the executive:

• is dismissed for cause;

• terminates employment voluntarily (other than for Good Reason in connection with a Change in Control as contemplated by Section 7.5); or

• is offered continuous employment in a position with comparable terms and conditions of employment by a purchaser of a business from the Corporation.  

Effective Date of Program

4.1 This severance program will take effect March 7, 2007.

Restriction

5.1 If on the date an executive’s employment is terminated the executive is receiving benefits under the Corporation’s Short-Term or Long-Term Disability Plans, the executive will not be entitled to a severance allowance under this program.  However, if the executive ceases to be eligible for those benefits for reasons other than retirement, the executive will be entitled to the severance program if he or she regains the ability to carry out his or her duties prior to the effective date of his or her termination of employment.

Administration

6.1 This program will be administered by the HR Committee, whose actions and decisions will be conclusive and binding on the executive and on the Corporation.

6.2 Domtar reserves the right to terminate, delete, amend or add to this policy or any of its provisions at any time and from time to time.

Severance Allowance

7.1 An eligible executive shall be entitled to a severance allowance of 12 months of base salary, plus an additional 3 months of base salary for each full year of continuous service as a member of the Management Committee, up to a maximum of 24 months of base salary (the “Severance Period”), unless otherwise determined by the HR Committee, upon recommendation of the Corporation’s Chief Executive Officer.

7.2 The base salary used to calculate an executive’s severance allowance will be the executive’s base salary on the date his or her employment is terminated.  The minimum payments as outlined by the different provincial legislations will be paid within the time limit prescribed by the applicable legislation.  The remaining balance will be paid in a lump sum or in accordance with our normal payroll practices during the Severance Period, as decided upon by the person responsible for the termination, except if the executive’s severance allowance is subject to Section 409A, the remaining balance shall be paid as described below under the heading ”Provisions Applicable to U.S. Taxpayers.”

7.3 The severance allowance pursuant to this program shall not be less than that required by the applicable legislation.  However, this severance program shall not be interpreted or applied as a minimum severance allowance.

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7.4 The severance allowance pursuant to this program includes any pay in lieu of notice and severance pay required by law.  

7.5 Notwithstanding the allowance amounts described above, if,within 3 months prior to or 24 months following the occurrence of a Change in Control, an executive’s employment is involuntarily terminated without Cause or the executive voluntarily terminates his or her employment for Good Reason, the severance allowance will be equal to the sum of (A) 24 months of base salary and (B) two (2) times the executive’s target bonus award under the Domtar Corporation Annual Incentive Plan (“AIP), regardless of the employee’s actual continuous service as a member of the Management Committee. For this purpose, the Severance Period will be equal to 24 months, and base salary and target bonus award shall be as of the date of termination or the occurrence of the Change in Control, whichever is greater.

The following definitions apply:

(1) “Cause” will have the same definition as in the Domtar Corporation 2007 Omnibus Incentive Plan (“Omnibus Plan”).

(2) “Change in Control” will have the same definition as in the Omnibus Plan.

(3) “Good Reason” means the occurrence of any of the following after a Change in Control:

(a) a material reduction by the Corporation in the executive’s base salary or target annual bonus, as in effect immediately prior to the Change in Control or as increased from time to time. Executive shall not have a basis to resign for Good Reason if (i) such reduction is part of an across-the-board reduction in base salary rate or target annual incentive opportunity similarly affecting other Management Committee members or (ii) no bonus is paid, or the amount of the bonus is reduced as a result of the failure of the executive or the Corporation to achieve the applicable performance goals;

(b) a material diminution in the executive’s position, duties or responsibilities (including due to the assignment to the executive of duties materially inconsistent with his or her position, duties or responsibilities as in effect immediately prior to Change in Control), excluding for this purpose (i) a change in title or reporting relationship alone, and (ii) an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Corporation promptly after receipt of notice thereof given by the executive;

(c) a requirement that the executive move his or her principal place of business to a location that is (i) more than 50 miles from the location at which the executive was stationed immediately prior to a Change in Control, and (ii) farther from the executive’s primary residence than was the location at which the executive was stationed immediately prior to the Change in Control; and

(d) a material breach by the Corporation of any agreement under which the executive provides services:

in each case, provided that the executive provides written notice to the Corporation of the condition giving rise to good Reason within 90 days of the initial existence of the condition, such condition is not remedied within 30 days of receipt of such notice, and the executive terminates employment within two years of the occurrence of the Change in Control.

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(4) The term “Corporation” as used in this severance program shall mean the Corporation as hereinbefore defined and any successor or assignee to the business or assets which by reason hereof becomes bound by this severance program.

Annual Incentive Plan

8.1 An executive who has been involuntarily terminated by the Corporation for business reasons, whether or not in connection with a Change in Control, or who in the three months prior to or 24 months following a Change in Control has terminated his or her employment for Good Reason or has been terminated by the Corporation without Cause will be eligible for a prorated bonus under the Domtar Corporation Annual Incentive Plan (“AIP”) for the year in which the termination of employment occurred.  Payment will be based on the pre-established goals under the AIP for the applicable plan year and the executive’s performance.  It will be calculated prorated on base salary earned during the year of termination. Payment will be made the year following termination at the same time as payment is made to all other employees and in any event no later than March 15 of such calendar year.  In situations where an executive is terminated prior to the payment of the previous year’s AIP, he/she will also be eligible for payment of the previous year’s AIP, which will also be paid at the same time payment is made to all other employees under the AIP and in any event no later than March 15 of the year following the year in which the related services were performed.  

Other Benefits

9.1 A terminated executive’s coverage under the Corporation’s medical and dental insurance policies will remain in effect until the last day of the Severance Period, except if the executive’s benefits are subject to taxation in the United States, as described below under the heading “Provisions Applicable to U.S. Taxpayers.”  In the event that the executive obtains equivalent or better coverage elsewhere, this coverage will terminate.

9.2 Notwithstanding section 9.1 above, the group insurance coverage to which the executive was subject immediately prior to his/her termination will be maintained, to the extent provided by applicable law.

9.3 A terminated executive will be entitled to reasonable outplacement services.  This benefit will terminate in the event the executive obtains new employment.  In no event will this benefit continue beyond December 31 of the second year beginning after the date of termination.

Successors

10.1 Any successor of or to the Corporation, its assets or its businesses (whether direct or indirect, by purchase, merger, consolidation or otherwise), shall assume the obligations under this severance program in the same manner and to the same extent that the Corporation would be obligated under this severance program if no succession had taken place. In the case of any transaction in which a successor would not by the foregoing provision or by operation of law be bound by this severance program, the Corporation shall require such successor expressly and unconditionally to assume and agree to perform the Corporation’s obligations under this severance program, in the same manner and to the same extent that the Corporation would be required to perform if no such succession had taken place.

4

Provisions Applicable to U.S. Taxpayers

11.1 Any payment or benefit provided under this program that is subject to U.S. taxation and section 409A of the U.S. Internal Revenue Code of 1986, as amended (the “Code”) and the applicable rules, regulations and guidance promulgated thereunder (“Section 409A”), will only be paid or provided if the termination of an executive’s employment for business reasons by the Corporation or other termination entitling the executive to benefits under this severance program constitutes a “Separation from Service” within the meaning of Section 409A.  

11.2 Payments or benefits subject to Section 409A shall be administered and paid as follows:

Subject to the execution and delivery by the executive of a Release within 45 days of the date of his or her Separation from Service and such Release becoming irrevocable (such execution and revocation period, the “Release Period”):

• the portion of the executive’s severance allowance that is subject to Section 409A (after taking into account all exclusions applicable to the executive’s severance allowance under Section 409A) will be paid in a lump sum within 90 days of the date of the executive’s Separation from Service, but in no event later than March 15 of the calendar year following the calendar year in which the executive’s Separation from Service takes place provided that, if  such 90-day period spans more than one calendar year, the payment shall be made in the second calendar year.

• If the executive would otherwise be eligible to elect continued health coverage under Section 4980B of the Internal Revenue Code of 1986, as amended (the “Code”) (COBRA) (i) if permitted by the applicable plan and applicable law, the executive’s coverage under the applicable health insurance policies maintained by the Corporation will remain in effect or (ii) if not so permitted, the Corporation shall pay or reimburse the executive for the excess of the cost of COBRA coverage over what would have been the executive’s cost for continued coverage under the applicable health insurance policies had he or she been permitted to continue coverage, in each case until the earlier to occur of the last day of the Severance Period and the last day on which the executive would otherwise be eligible for COBRA coverage if he or she had elected such coverage and paid the applicable premiums.  In the event that the executive obtains equivalent or better coverage elsewhere, this coverage will terminate.

• If the executive would not otherwise be eligible to elect COBRA coverage, the executive’s coverage under the applicable health insurance policies maintained by the Corporation will remain in effect until the earlier to occur of the last day of the Severance Period and the 18-month anniversary of the date of the executive’s Separation from Service.  In the event that the executive obtains equivalent or better coverage elsewhere, this coverage will terminate.

11.3 The amount of any reimbursement or in-kind benefit provided under this program in one taxable year shall not affect the amount of any reimbursement or in-kind benefit provided in any other taxable year (except that a plan providing medical or health benefits may impose a generally applicable limit on the amount that may be reimbursed or paid).  Any reimbursement shall be paid to the executive on or before the last day of the taxable year following the taxable year in which the expense was incurred.  No entitlement to any reimbursement or in-kind benefit provided under this program shall be subject to liquidation or exchange for any other benefit.  

5

11.4 Notwithstanding anything to the contrary contained herein, if an executive is a “specified employee” within the meaning of any specified employee policy of the Corporation or, if no such policy is in effect at the time of termination, Section 409A, (i) any portion of an executive’s severance allowance under this policy that is subject to Section 409A (after taking into account all exclusions applicable to the executive’s severance allowance under Section 409A) and that would otherwise be payable or provided within six months following the date of the executive’s Separation from Service will be accumulated and paid on the first payroll date following the six-month anniversary of the date of the executive’s Separation from Service and (ii) the executive will pay the full cost of any non-COBRA health care benefits provided to him or her under Section 9.1 that are subject to Section 409A for the six-month period following the date of his or her Separation from Service, with the full amount of such costs to be reimbursed to the executive on the first payroll date following the six-month anniversary of the date of his or her Separation from Service, in each case to the extent necessary to comply with Section 409A.

11.5 Neither the Corporation nor any of its directors, officers or employees shall have any liability to an executive in the event Section 409A applies to any benefit provided pursuant to this policy in a manner that results in adverse tax consequences for such executive or any of his or her beneficiaries or transferees. The HR Committee may unilaterally amend, modify or terminate any benefit provided under this policy 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.

6

EX-12.1

Exhibit 12.1

Domtar Corporation

Computation of ratio of earnings to fixed charges

(In millions of dollars, unless otherwise noted)

	Year ended December 31,		Year ended December 31,		Year ended December 31,		Year ended December 31,		Year ended December 31,
	2012		2013		2014		2015		2016
	$		$		$		$		$
Available earnings:
Earnings before income taxes and equity earnings		236		72		261		156		157
Add fixed charges:
Interest expense incurred		75		83		99		87		64
Amortization of debt expense and discount		8		4		4		6		2
Interest portion of rental expense (1)		11		11		11		9		9
Total earnings as defined		330		170		375		258		232
Fixed charges:
Interest expense incurred		75		83		99		87		64
Amortization of debt expense and discount		8		4		4		6		2
Interest portion of rental expense (1)		11		11		11		9		9
Total fixed charges		94		98		114		102		75
Ratio of earnings to fixed charges		3.5		1.7		3.3		2.5		3.1

⁽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).

EX-21

Exhibit 21

DOMTAR CORPORATION – SUBSIDIARY COMPANIES

As of December 31, 2016

Domtar Corporation

Domtar Industries LLC

Domtar Funding Limited Liability Company

E.B. Eddy Paper, Inc.

Ariva Distribution Inc.

Domtar A.W. LLC

Domtar Wisconsin Dam Corp.

Domtar Europe Sprl

Domtar AI Inc.

Attends Healthcare Products, Inc.

Innovative Absorbent Technologies, LLC (60%)

EAM Corporation

Palmetto Enterprises LLC

Domtar Personal Care Absorbent Hygiene Inc.

Associated Hygienic Products LLC

Home Delivery Incontinent Supplies Co.

Reassure, LLC

Domtar Paper Company, LLC

Domtar Delaware Holdings, LLC

Domtar Delaware Investments Inc.

Domtar Delaware Holdings Inc.

Domtar Luxembourg Investments Sarl

Domtar Lux SA (85% Domtar Luxembourg Investments, 15% Domtar Luxembourg 2)

Domtar Lux Holdings Sarl

Task Moraza, S.L.U.

Laboratorios Indas, S.A.U.

Indas Portugal-Produtos de Saude Sociedade Unipessoal, LDA

Indas S.A.R.L. A.U.

Indas EURL

Domtar Pacific Papers ULC

Domtar (Canada) Paper Inc.

Domtar Pulp and Paper General Partnership (held 0.001% by DCPI and 99.999% by DInc)

Domtar Inc.

Domtar Asia Limited

Brompton Lands Limited

Domtar International Limited

Domtar Hong Kong Limited (held 34% by DInc. And 66% by DPC, LLC)

3260787 Nova Scotia Company

3269788 Nova Scotia Company

3260789 Nova Scotia Company

Domtar Financial Holdings, LLC

DPP Luxembourg Branch

Domtar Luxembourg 2 Sarl

Domtar Holdings Sweden AB

Domtar Finance Sweden AB

Domtar Sweden AB

Domtar Acquisition Sweden AB (held 89% by Domtar Finance Sweden AB and 11% by Domtar Sweden AB)

Attends Healthcare Holdings AB

Attends AB

Attends Healthcare AB

Attends AS

Attends Healthcare Ltd

Attends Healthcare Acquisitions Ltd

Attends Healthcare Finance Ltd

DOMTAR CORPORATION – SUBSIDIARY COMPANIES

As of December 31, 2016

Attends Healthcare Holdings Ltd

Attends Healthcare Investments Ltd

Attends Healthcare Group Ltd

Attends GmbH (Germany)

Conforele Hygien GmbH

Attends BVBA

Attends Ltd

Attends OY

Attends BV

Attends GmbH (Switzerland)

Attends GmbH (Austria)

Attends Europe GmbH

- 2 -

DOMTAR CORPORATION – SUBSIDIARY COMPANIES

As of December 31, 2016

AFFILIATED COMPANIES   -   (% held)

Celluforce Inc.		(45%)
Clergue Forest Management Inc.	—	(24%)
Forest Insurance Limited	—	(17%)
Red Lake Forest Management Inc.	—	(50% of class A shares)
Northshore Forest Inc.		(42%)
Vermilion Forest Management Co.		(24.17 class A shares)

- 3 -

EX-23

Exhibit 23

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-213800) and Form S-8 (No. 333-181181 and No. 333-141213) of Domtar Corporation of our report dated February 24, 2017 relating to the financial statements, financial statement schedule and the effectiveness of internal control over financial reporting, which appears in this Form 10‑K.

/s/PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP
Richmond, Virginia

February 24, 2017

1

EX-31.1

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 annual report on Form 10-K 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;

4. 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:

a) 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;

b) 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;

c) 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

d) 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):

a) 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

b) 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: February 24, 2017

/s/ John D. Williams

John D. Williams

President and Chief Executive Officer

EX-31.2

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 annual report on Form 10-K 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;

4. 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:

a) 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; and

b) 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;

c) 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

d) 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):

a) 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

b) 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: February 24, 2017

/s/ Daniel Buron

Daniel Buron

Senior Vice-President and Chief Financial Officer

EX-32.1

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 Annual Report on Form 10-K for the period ended  December 31, 2016 (the “Form 10-K”) 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-K fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ John D. Williams

John D. Williams

President and Chief Executive Officer

EX-32.2

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

The undersigned hereby certifies that to his knowledge, the Company’s Annual Report on Form 10-K for the period ended December 31, 2016 (the “Form 10-K”) 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-K fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Daniel Buron

Daniel Buron

Senior Vice-President  and Chief Financial Officer

XML

Document and Entity Information - USD ($)	12 Months Ended
	Dec. 31, 2016	Feb. 17, 2017	Jun. 30, 2016
Document And Entity Information [Abstract]
Document Type	10-K
Amendment Flag	false
Document Period End Date	Dec. 31, 2016
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	FY
Trading Symbol	UFS
Entity Registrant Name	Domtar CORP
Entity Central Index Key	0001381531
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	Yes
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		62,588,837
Entity Public Float			$ 2,191,112,523

XML

Consolidated Statements of Earnings and Comprehensive Income (Loss) - USD ($) shares in Millions, $ in Millions	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Income Statement [Abstract]
Sales	$ 5,098	$ 5,264	$ 5,563
Operating expenses
Cost of sales, excluding depreciation and amortization	4,035	4,147	4,396
Depreciation and amortization	348	359	384
Selling, general and administrative	427	394	416
Impairment of property, plant and equipment (NOTE 4)	29	77	4
Closure and restructuring costs (NOTE 16)	32	4	28
Other operating loss (income), net (NOTE 8)	4	(5)	(29)
Operating expenses	4,875	4,976	5,199
Operating income	223	288	364
Interest expense, net (NOTE 9)	66	132	103
Earnings before income taxes	157	156	261
Income tax expense (benefit) (NOTE 10)	29	14	(170)
Net earnings	$ 128	$ 142	$ 431
Per common share (in dollars) (NOTE 6)
Basic	$ 2.04	$ 2.24	$ 6.65
Diluted	$ 2.04	$ 2.24	$ 6.64
Weighted average number of common and exchangeable shares outstanding (millions)
Basic	62.6	63.3	64.8
Diluted	62.7	63.4	64.9
Cash dividends per common share	$ 1.63	$ 1.58	$ 1.30
Net derivative gains (losses) on cash flow hedges
Net gains (losses) arising during the period, net of tax $(15) (2015 - $28; 2014 - $15)	$ 27	$ (41)	$ (23)
Less: Reclassification adjustment of losses included in net earnings, net of tax of $(10) (2015 - $(18); 2014 - $(4))	14	26	8
Foreign currency translation adjustments	(7)	(223)	(200)
Change in unrecognized (losses) gains and prior service cost related to pension and post-retirement benefit plans, net of tax of $12 (2015 - $(2); 2014 - $(2))	(32)	5	12
Other comprehensive income (loss)	2	(233)	(203)
Comprehensive income (loss)	$ 130	$ (91)	$ 228

XML

Consolidated Statements of Earnings and Comprehensive Income (Loss) (Parenthetical) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Income Statement [Abstract]
Net gains (losses) arising during the period, tax	$ (15)	$ 28	$ 15
Reclassification adjustment of losses included in net earnings, tax	(10)	(18)	(4)
Change in unrecognized (losses) gains and prior service cost related to pension and post-retirement benefit plans, tax	$ 12	$ (2)	$ (2)

XML

Consolidated Balance Sheets - USD ($) $ in Millions	Dec. 31, 2016	Dec. 31, 2015
Current assets
Cash and cash equivalents	$ 125	$ 126
Receivables, less allowances of $7 and $6	613	627
Inventories (NOTE 11)	759	766
Prepaid expenses	40	21
Income and other taxes receivable	31	14
Total current assets	1,568	1,554
Property, plant and equipment, net (NOTE 13)	2,825	2,835
Goodwill (NOTE 12)	550	539
Intangible assets, net (NOTE 14)	608	601
Other assets (NOTE 15)	129	125
Total assets	5,680	5,654
Current liabilities
Bank indebtedness	12
Trade and other payables (NOTE 17)	656	720
Income and other taxes payable	22	27
Long-term debt due within one year (NOTE 19)	63	41
Total current liabilities	753	788
Long-term debt (NOTE 19)	1,218	1,210
Deferred income taxes and other (NOTE 10)	675	654
Other liabilities and deferred credits (NOTE 20)	358	350
Commitments and contingencies (NOTE 22)
Shareholders' equity (NOTE 21)
Common stock $0.01 par value; authorized 2,000,000,000 shares; issued 65,001,104 and 65,001,104 shares	1	1
Additional paid-in capital	1,963	1,966
Retained earnings	1,211	1,186
Accumulated other comprehensive loss	(499)	(501)
Total shareholders' equity	2,676	2,652
Total liabilities and shareholders' equity	$ 5,680	$ 5,654

XML

Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Millions	Dec. 31, 2016	Dec. 31, 2015
Statement Of Financial Position [Abstract]
Receivables, allowances	$ 7	$ 6
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	2,000,000,000	2,000,000,000
Common stock, shares issued	65,001,104	65,001,104
Treasury stock, par value	$ 0.01	$ 0.01
Treasury stock, shares	2,412,267	2,151,168

XML

Consolidated Statement of Shareholders' Equity - USD ($) $ in Millions	Total	Issued and Outstanding Common and Exchangeable Shares [Member]	Common Stock, at Par [Member]	Exchangeable Shares [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive Loss [Member]
Balance at Dec. 31, 2013	$ 2,782			$ 44	$ 1,999	$ 804	$ (65)
Balance, Shares at Dec. 31, 2013		32,400,000
Conversion of exchangeable shares				(12)	12
Stock split	1		$ 1
Stock split, Shares		32,500,000
Redemption of exchangeable shares				$ (32)	32
Stock-based compensation, net of tax	7				7
Stock-based compensation, shares		100,000
Net earnings	431					431
Net derivative gains (losses) on cash flow hedges:
Net gains (losses) arising during the period, net of tax	(23)						(23)
Less: Reclassification adjustments for losses included in net earnings, net of tax	8						8
Foreign currency translation adjustments	(200)						(200)
Change in unrecognized gains (losses) and prior service cost related to pension and post-retirement benefit plans, net of tax	12						12
Stock repurchase	$ (38)				(38)
Stock repurchase, shares	(996,967)	(1,000,000)
Cash dividends declared	$ (90)					(90)
Balance at Dec. 31, 2014	2,890		1		2,012	1,145	(268)
Balance, Shares at Dec. 31, 2014		64,000,000
Stock-based compensation, net of tax	4				4
Net earnings	142					142
Net derivative gains (losses) on cash flow hedges:
Net gains (losses) arising during the period, net of tax	(41)						(41)
Less: Reclassification adjustments for losses included in net earnings, net of tax	26						26
Foreign currency translation adjustments	(223)						(223)
Change in unrecognized gains (losses) and prior service cost related to pension and post-retirement benefit plans, net of tax	5						5
Stock repurchase	$ (50)				(50)
Stock repurchase, shares	(1,210,932)	(1,200,000)
Cash dividends declared	$ (101)					(101)
Balance at Dec. 31, 2015	2,652		1		1,966	1,186	(501)
Balance, Shares at Dec. 31, 2015		62,800,000
Stock-based compensation, net of tax	7				7
Stock-based compensation, shares		100,000
Net earnings	128					128
Net derivative gains (losses) on cash flow hedges:
Net gains (losses) arising during the period, net of tax	27						27
Less: Reclassification adjustments for losses included in net earnings, net of tax	14						14
Foreign currency translation adjustments	(7)						(7)
Change in unrecognized gains (losses) and prior service cost related to pension and post-retirement benefit plans, net of tax	(32)						(32)
Stock repurchase	$ (10)				(10)
Stock repurchase, shares	(304,915)	(300,000)
Cash dividends declared	$ (103)					(103)
Balance at Dec. 31, 2016	$ 2,676		$ 1		$ 1,963	$ 1,211	$ (499)
Balance, Shares at Dec. 31, 2016		62,600,000

XML

Consolidated Statement of Shareholders' Equity (Parenthetical) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Statement Of Stockholders Equity [Abstract]
Net gains (losses) arising during the period, tax	$ (15)	$ 28	$ 15
Reclassification adjustment of losses included in net earnings, tax	(10)	(18)	(4)
Change in unrecognized gains (losses) and prior service cost related to pension and post-retirement benefit plans, tax	$ 12	$ (2)	$ (2)

XML

Consolidated Statements of Cash Flows - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Operating activities
Net earnings	$ 128	$ 142	$ 431
Adjustments to reconcile net earnings to cash flows from operating activities
Depreciation and amortization	348	359	384
Deferred income taxes and tax uncertainties (NOTE 10)	9	(56)	(201)
Impairment of property, plant and equipment (NOTE 4)	29	77	4
Net gains on disposals of property, plant and equipment		(15)
Stock-based compensation expense	7	5	4
Other	(2)	4	3
Changes in assets and liabilities, excluding the effect of sale and acquisition of businesses
Receivables	18	(22)	39
Inventories	14	(84)	(29)
Prepaid expenses	5	5	1
Trade and other payables	(51)		(33)
Income and other taxes	(18)	38	12
Difference between employer pension and other post-retirement contributions and pension and other post-retirement expense	(21)	(1)	16
Other assets and other liabilities	(1)	1	3
Cash flows from operating activities	465	453	634
Investing activities
Additions to property, plant and equipment	(347)	(289)	(236)
Proceeds from disposals of property, plant and equipment and sale of business	1	36	1
Acquisition of businesses, net of cash acquired (NOTE 3)	(46)		(546)
Other	1	9	(5)
Cash flows used for investing activities	(391)	(244)	(786)
Financing activities
Dividend payments	(102)	(100)	(84)
Stock repurchase	(10)	(50)	(38)
Net change in bank indebtedness	12	(11)	(6)
Change in revolving credit facility		50	(160)
Proceeds from receivables securitization facility	140		90
Repayments of receivables securitization facility	(70)		(129)
Issuance of long-term debt		300
Repayments of long-term debt	(40)	(439)	(4)
Other	(3)	1	5
Cash flows provided from (used for) financing activities	(73)	(249)	(326)
Net increase (decrease) in cash and cash equivalents	1	(40)	(478)
Impact of foreign exchange on cash	(2)	(8)	(3)
Cash and cash equivalents at beginning of year	126	174	655
Cash and cash equivalents at end of year	125	126	174
Supplemental cash flow information
Interest (including $40 million of redemption premiums in 2015)	64	133	92
Income taxes	$ 40	$ 34	$ 18

XML

Consolidated Statements of Cash Flows (Parenthetical) $ in Millions	12 Months Ended
	Dec. 31, 2015 USD ($)
Statement Of Cash Flows [Abstract]
Redemption premium	$ 40

XML

Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2016

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 1.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS

Domtar designs, manufactures, markets and distributes a wide variety of fiber-based products including communication papers, specialty and packaging papers and absorbent hygiene products. The foundation of its business is a network of wood fiber converting assets that produce paper grade, fluff and specialty pulp. The majority of this pulp production is consumed internally to manufacture paper and other consumer products with the balance sold as market pulp. Domtar is 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. Domtar also designs, manufactures, markets and distributes a broad line of absorbent hygiene products, as well as infant diapers.

BASIS OF PRESENTATION

The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America which requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the year, the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements. On an ongoing basis, management reviews the estimates and assumptions, including but not limited to those related to environmental matters and asset retirement obligations, impairment and useful lives of long-lived assets, closure and restructuring costs, pension and other post-retirement benefit plans, income taxes, business combinations and contingencies, based on currently available information. Actual results could differ from those estimates.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Domtar and its controlled subsidiaries. Intercompany transactions have been eliminated on consolidation. Investment in an affiliated company, where the Company has joint control over their operations, is accounted for using the equity method.

TRANSLATION OF FOREIGN CURRENCIES

The Company determines its international subsidiaries’ functional currency by reviewing the currencies in which their respective operating activities occur. The Company translates assets and liabilities of its non-U.S. dollar functional currency subsidiaries into U.S. dollars using the rate in effect at the balance sheet date and revenues and expenses are translated at the average exchange rates during the year. Foreign currency translation gains and losses are included in Shareholders’ equity as a component of Accumulated other comprehensive loss in the accompanying Consolidated Balance Sheets.

Monetary assets and liabilities denominated in a currency that is different from a reporting entity’s functional currency must first be remeasured from the applicable currency to the legal entity’s functional currency. The effect of this remeasurement process is recognized in the Consolidated Statements of Earnings and Comprehensive Income (Loss) and is partially offset by our hedging program (refer to Note 23 “Derivatives and hedging activities and fair value measurement”).

At December 31, 2016, the accumulated translation adjustment accounts amounted to $(278) million (2015 – $(271) million).

REVENUE RECOGNITION

Domtar recognizes revenue when pervasive evidence of an arrangement exists, the customer takes title and assumes the risks and rewards of ownership, the sales price charged is fixed or determinable and when collection is reasonably assured. Revenue is recorded at the time of shipment for terms designated free on board (“f.o.b.”) shipping point. For sales transactions designated f.o.b. destination, revenue is recorded when the product is delivered to the customer’s delivery site, when the title and risk of loss are transferred.

SHIPPING AND HANDLING COSTS

The Company classifies shipping and handling costs as a component of Cost of sales in the Consolidated Statements of Earnings and Comprehensive Income (Loss).

CLOSURE AND RESTRUCTURING COSTS

Closure and restructuring costs are recognized as liabilities in the period when they are incurred and are measured at their fair value. For such recognition to occur, management, with the appropriate level of authority, must have approved and committed to a firm plan and appropriate communication to those affected must have occurred. These provisions may require an estimation of costs such as severance and termination benefits, pension and related curtailments, environmental remediation and may also include expenses related to demolition and outplacement. Actions taken may also require an evaluation of any remaining assets to determine required impairments, if any, and a review of estimated remaining useful lives which may lead to accelerated depreciation expense.

Estimates of cash flows and fair value relating to closures and restructurings require judgment. Closure and restructuring liabilities are based on management’s best estimates of future events at December 31, 2016. Although the Company does not anticipate significant changes, the actual costs may differ from these estimates due to subsequent developments such as the results of environmental studies, the ability to find a buyer for assets set to be dismantled and demolished and other business developments. As such, additional costs and further working capital adjustments may be required in future periods.

INCOME TAXES

Domtar uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined according to differences between the carrying amounts and tax bases of the assets and liabilities. The Company records its worldwide tax provision based on the respective tax rules and regulations for the jurisdictions in which it operates. The change in the net deferred tax asset or liability is included in Income tax expense (benefit) or in Other comprehensive income (loss) in the Consolidated Statements of Earnings and Comprehensive Income (Loss). Deferred tax assets and liabilities are measured using enacted tax rates and laws expected to apply in the years in which the assets and liabilities are expected to be recovered or settled. Uncertain tax positions are recorded based upon the Company’s evaluation of whether it is “more likely than not” (a probability level of more than 50 percent) that, based upon its technical merits, the tax position will be sustained upon examination by the taxing authorities. The Company establishes a valuation allowance for deferred tax assets when it is more likely than not that they will not be realized. In general, “realization” refers to the incremental benefit achieved through the reduction in future taxes payable or an increase in future taxes refundable from the deferred tax assets. Deferred tax assets and liabilities are classified as non-current items on the Consolidated Balance Sheets.

The Company recognizes interest and penalties related to income tax matters as a component of Income tax expense (benefit) in the Consolidated Statements of Earnings and Comprehensive Income (Loss).

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash and short-term investments with original maturities of less than three months and are presented at cost which approximates fair value.

RECEIVABLES

Receivables are recorded net of a provision for doubtful accounts that is based on expected collectability. The securitization of receivables is accounted for as secured borrowings. Accordingly, financing expenses related to the securitization of receivables are recognized in earnings as a component of Interest expense in the Consolidated Statements of Earnings and Comprehensive Income (Loss).

INVENTORIES

Inventories are stated at the lower of cost or market. Cost includes labor, materials and production overhead. The last-in, first-out (“LIFO”) method is used to account for certain domestic raw materials, in process and finished goods inventories. LIFO inventories were $268 million and $288 million at December 31, 2016 and 2015, respectively. The balance of domestic raw material inventories, all materials and supplies inventories and all foreign inventories are recorded at either the first-in, first-out (“FIFO”) or average cost methods. Had the inventories for which the LIFO method is used been valued under the FIFO method, the amounts at which product inventories are stated would have been $63 million and $66 million greater at December 31, 2016 and 2015, respectively.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at cost less accumulated depreciation including asset impairments. Costs for repair and maintenance activities are expensed as incurred under the direct expense method of accounting. Interest costs are capitalized for significant capital projects. For timberlands, the amortization is calculated using the unit of production method. For all other assets, depreciation is calculated using the straight-line method over the estimated useful lives of the assets. Buildings and improvements are depreciated over periods of 10 to 40 years and machinery and equipment over periods of 3 to 20 years. No depreciation is recorded on assets under construction.

IMPAIRMENT OF PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are reviewed for impairment upon the occurrence of events or changes in circumstances indicating that the carrying value of the assets may not be recoverable, as measured by comparing the net book value of the asset group to their estimated undiscounted future cash flows expected from their use and eventual disposition. Impaired assets are recorded at estimated fair value, determined principally by using the present value of estimated future cash flows expected from their use and eventual disposition (refer to Note 4 “Impairment of property, plant and equipment”).

GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill is not amortized and is evaluated for impairment at the beginning of the fourth quarter of every year or more frequently whenever indicators of potential impairment exist. The Company performs the impairment test of goodwill at its reporting unit’s level.

The Company has the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount including goodwill. In performing the qualitative assessment, the Company identifies the relevant drivers of fair value of a reporting unit and the relevant events and circumstances that may have an impact on those drivers of fair value and assesses their impact on the fair value of the reporting unit. To carry out the qualitative assessment, the Company considers elements such as the results of recent fair value assessments, macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, specific events affecting the Company and the business. The identification and impact assessment of events and circumstances on the fair value involves significant judgment and assumptions. If, a qualitative assessment is performed and after assessing the totality of events or circumstances, the Company determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill, then it performs Step I of the two-step impairment test. The Company can also elect to bypass the qualitative assessment and proceed directly to the Step I of the impairment test.

The first step is to compare the fair value of a reporting unit to its carrying amount, including goodwill. Significant judgment is required to estimate the fair value of a reporting unit.

The Company typically uses an income approach to determine the fair value of a reporting unit. Under the income approach, the Company estimates the fair value of a reporting unit based on the present value of estimated future cash flows. Key assumptions supporting the cash flow projections include, but are not limited to, estimates of future sales volumes, selling prices and costs, changes in working capital, investments in property, plant and equipment and discount rate.  Assumptions used in our impairment evaluations are consistent with internal projections and operating plans. Analysis of the sensitivities of the fair value estimate to changes in assumptions are also performed. Unanticipated market and macroeconomic events and circumstances may occur and could affect the accuracy and validity of management assumptions and estimates.

In the event that the net carrying amount, including goodwill, exceeds the fair value of the reporting unit, the second step of the impairment test must be performed in order to determine the amount of the impairment charge. Fair value of goodwill in Step II of the impairment test is estimated in the same way as goodwill was determined at the date of the acquisition in a business combination, that is, the excess of the fair value of the reporting unit over the fair value of the identifiable net assets of the business.

All goodwill as of December 31, 2016 resides in the Personal Care reporting segment.

Indefinite-lived intangible assets are not amortized and are evaluated individually at the beginning of the fourth quarter of every year, or more frequently whenever indicators of potential impairment exist. The Company has the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of indefinite-lived intangible assets are less than their carrying amounts. The qualitative assessment follows the same process as the one performed for goodwill, as described above. If, a qualitative assessment is performed and after assessing the qualitative factors, the Company determines that it is more likely than not that the indefinite-lived intangible assets are less than their carrying amounts, then a quantitative impairment test is required. The Company can also elect to proceed directly to the quantitative test. The quantitative impairment test consists of comparing the fair value of the indefinite-lived intangible assets determined using a variety of methodologies to their carrying amount. If the carrying amounts of the indefinite-lived intangible assets exceed their fair value, an impairment loss is recognized in an amount equal to that excess. Indefinite-lived intangible assets include trade names related to Attends^®, IncoPack^®, Indasec^® and Reassure^®, catalog rights related to Laboratorios Indas S.A.U., license rights related to Xerox and water rights. The Company reviews its indefinite-lived intangible assets each reporting period to determine whether events and circumstances continue to support indefinite useful lives.

Definite lived intangible assets are stated at cost less amortization and are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Definite lived intangible assets include water rights, customer relationships, technology, non-compete agreements as well as license rights, which are being amortized using the straight-line method over their respective estimated useful lives. Any potential impairment for definite lived intangible assets will be calculated in the same manner as disclosed under impairment of property, plant and equipment.

Amortization is based on the following useful lives:

	Useful life
Water rights	40 years
Customer relationships	10 to 40 years
Technology	7 to 20 years
Non-Compete agreements	9 years
Licence rights	12 years

OTHER ASSETS

Other assets are recorded at cost.

DEBT ISSUANCE COSTS

Debt issuance costs are presented in the Consolidated Balance Sheet as a direct deduction from the carrying value of long-term debt. Debt issuance costs associated with revolving credit arrangements are presented in Other assets in the Consolidated Balance Sheets. Debt issuance costs are amortized using the effective rate method over the term of the related debt and included in Interest expense, net in the Consolidated Statements of Earnings and Comprehensive Income (Loss).

ENVIRONMENTAL COSTS AND ASSET RETIREMENT OBLIGATIONS

Environmental expenditures for effluent treatment, air emission, silvicultural activities and site remediation (together referred to as environmental matters) are expensed or capitalized depending on their future economic benefit. In the normal course of business, Domtar incurs certain operating costs for environmental matters that are expensed as incurred. Expenditures for property, plant and equipment that prevent future environmental impacts are capitalized and amortized on a straight-line basis over 10 to 40 years. Provisions for environmental matters are not discounted, due to uncertainty with respect to timing of expenditures, and are recorded when remediation efforts are probable and can be reasonably estimated.

Asset retirement obligations are mainly associated with landfill operation and closure, asbestos containment and removal and bark pile management and are recognized, at fair value, in the period in which Domtar incurs a legal obligation associated with the retirement of an asset. Conditional asset retirement obligations are recognized, at fair value, when the fair value of the liability can be reasonably estimated or on a probability-weighted discounted cash flow estimate. The associated costs are capitalized as part of the carrying value of the related asset and depreciated over its remaining useful life. The liability is accreted using the credit adjusted risk-free interest rate used to discount the cash flow.

STOCK-BASED COMPENSATION AND OTHER STOCK-BASED PAYMENTS

Domtar recognizes the cost (net of estimated forfeitures) of employee services received in exchange for awards of equity instruments over the requisite service period, based on their grant date fair value for awards accounted for as equity and based on the quoted market value at the end of each reporting period for awards accounted for as liability. The Company awards are accounted for as compensation expense and presented in Additional paid-in capital on the Consolidated Balance Sheets for equity type awards and presented in Other liabilities and deferred credits on the Consolidated Balance Sheets for liability type awards.

The Company’s awards may be subject to market, performance and/or service conditions. Any consideration paid by plan participants on the exercise of stock options or the purchase of shares is credited to Additional paid-in capital on the Consolidated Balance Sheets. The par value included in the Additional paid-in capital component of stock-based compensation is transferred to Common stock upon the issuance of shares of common stock.

Unless otherwise determined at the time of the grant, awards subject to service conditions vest in approximately equal installments over three years beginning on the first anniversary of the grant date and performance-based awards vest based on achievement of pre-determined performance goals over performance periods of three years. The majority of non-qualified stock options and performance share units expire at various dates no later than seven years from the date of grant. Deferred Share Units vest immediately at the grant date and are remeasured at the end of each reporting period, until settlement, using the quoted market value.

Under the amended and restated Domtar Corporation 2007 Omnibus Incentive Plan (“Omnibus Plan”), a maximum of 1,793,095 shares are reserved for issuance in connection with awards granted or to be granted.

DERIVATIVE INSTRUMENTS

Derivative instruments are utilized by Domtar as part of the overall strategy to manage exposure to fluctuations in foreign currency, interest rate and commodity price on certain purchases. As a matter of policy, derivatives are not used for trading or speculative purposes. All derivatives are recorded at fair value either as assets or liabilities. When derivative instruments have been designated within a hedge relationship and are highly effective in offsetting the identified risk characteristics of specific financial assets and liabilities or group of financial assets and liabilities, hedge accounting is applied. In a fair value hedge, changes in fair value of derivatives are recognized in the Consolidated Statements of Earnings and Comprehensive Income (Loss). The change in fair value of the hedged item attributable to the hedged risk is also recorded in the Consolidated Statements of Earnings and Comprehensive Income (Loss) by way of a corresponding adjustment of the carrying amount of the hedged item recognized in the Consolidated Balance Sheets. In a cash flow hedge, changes in fair value of derivative instruments are recorded in Other comprehensive income (loss). These amounts are reclassified in the Consolidated Statements of Earnings and Comprehensive Income (Loss) in the periods in which results are affected by the cash flows of the hedged item within the same line item. Any hedge ineffectiveness is recorded in the Consolidated Statements of Earnings and Comprehensive Income (Loss) when incurred.

PENSION PLANS

Domtar’s plans include funded and unfunded defined benefit and defined contribution pension plans. Domtar recognizes the overfunded or underfunded status of defined benefit and underfunded defined contribution pension plans as an asset or liability in the Consolidated Balance Sheets. The net periodic benefit cost includes the following:

- The cost of pension benefits provided in exchange for employees’ services rendered during the period,

- The interest cost of pension obligations,

- The expected long-term return on pension fund assets based on a market value of pension fund assets,

- Gains or losses on settlements and curtailments,

- The straight-line amortization of past service costs and plan amendments over the average remaining service period of approximately eight years of the active employee group covered by the plans, and

- The amortization of cumulative net actuarial gains and losses in excess of 10% of the greater of the accrued benefit obligation or market value of plan assets at the beginning of the year over the average remaining service period of approximately eight years of the active employee group covered by the plans.

The defined benefit plan obligations are determined in accordance with the projected unit credit actuarial cost method.

OTHER POST-RETIREMENT BENEFIT PLANS

The Company recognizes the unfunded status of other post-retirement benefit plans (other than multiemployer plans) as a liability in the Consolidated Balance Sheets. These benefits, which are funded by Domtar as they become due, include life insurance programs, medical and dental benefits and short-term and long-term disability programs. The Company amortizes the cumulative net actuarial gains and losses in excess of 10% of the accrued benefit obligation at the beginning of the year over the average remaining service period of approximately 10 years of the active employee group covered by the plans.

BUSINESS COMBINATION

The Company applies the acquisition method of accounting in a business combination. This methodology requires companies to record assets acquired and liabilities assumed at their respective fair market values at the date of acquisition. The value is determined from the viewpoint of market participants. Any amount of the purchase price paid that is in excess of the estimated fair values of net assets acquired is recorded as Goodwill in the Consolidated Balance Sheets. Management's judgment is used to determine the estimated fair values assigned to assets acquired and liabilities assumed, as well as asset useful lives for property, plant and equipment and intangible assets, and can materially affect the Company's results of operations. Transaction costs, as well as costs to reorganize acquired companies, are expensed as incurred in the Company's Consolidated Statements of Earnings and Comprehensive Income (Loss).

GUARANTEES

A guarantee is a contract or an indemnification agreement that contingently requires Domtar to make payments to the other party of the contract or agreement, based on changes in an underlying item that is related to an asset, a liability or an equity security of the other party or on a third party’s failure to perform under an obligating agreement. It could also be an indirect guarantee of the indebtedness of another party, even though the payment to the other party may not be based on changes in an underlying item that is related to an asset, a liability or an equity security of the other party. Guarantees, when applicable, are accounted for at fair value.

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Recent Accounting Pronouncements

12 Months Ended

Dec. 31, 2016

Accounting Changes And Error Corrections [Abstract]

Recent Accounting Pronouncements

NOTE 2.

RECENT ACCOUNTING PRONOUNCEMENTS

ACCOUNTING CHANGES IMPLEMENTED

PRESENTATION OF DEBT ISSUANCE COSTS

In April 2015, the FASB issued Accounting Standard Update (“ASU”) 2015-03, “Simplifying the Presentation of Debt Issuance Costs,” which requires debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying value of the associated debt liability, consistent with the presentation of a debt discount. In August 2015, the FASB also issued ASU 2015-15, “Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements,” which allows debt issuance costs associated with line-of-credit arrangements to be presented as an asset.

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

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 has begun its assessment of 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 modified 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 of its revenue to remain the same.

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

INVENTORY

In July 2015, the FASB issued 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 costs 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 amendments in the update are effective for interim and annual periods beginning after December 15, 2016. The amendments should be applied prospectively and early adoption is permitted.

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

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, the Company will be required to make a cumulative-effect adjustment to beginning retained earnings as of the beginning of the fiscal year in which the guidance is effective. Early adoption is permitted.

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

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.

The Company is currently evaluating the impact of this guidance on the consolidated financial statements, including identifying and analyzing all contracts that contain a lease. 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 (Loss) 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.

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.  This ASU is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years, with early adoption permitted as of the beginning of an interim or annual reporting period.

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

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.

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 No. 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. 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 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 does not expect this new guidance to have a material impact on the consolidated financial statements.

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Acquisition of Businesses

12 Months Ended

Dec. 31, 2016

Business Combinations [Abstract]

Acquisition of Businesses

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 3.

ACQUISITION OF BUSINESSES

Acquisition of Home Delivery Incontinent Supplies Co.

On October 1, 2016, Domtar completed the acquisition of 100% of the outstanding shares of Home Delivery Incontinent Supplies Co. (“HDIS”). HDIS is a leading national direct-to-consumer provider of adult incontinence and related products. Based in Olivette, Missouri, HDIS provides customers with high-quality products and a personalized service for all of their incontinence needs. HDIS operates a distribution center in Olivette, Missouri, as well as two retail locations, in Texarkana, Arkansas and Daytona Beach, Florida and has approximately 240 employees. The results of HDIS’s operations are included in the Personal Care reportable segment starting on October 1, 2016. The purchase price was $52 million, net of cash acquired of $3 million and includes a potential earn-out payment of up to $10 million to be settled after the first anniversary of the acquisition.

The total purchase price was allocated to tangible and intangible assets acquired and liabilities assumed based on the Company’s estimates of their fair value, which are based on information currently available.

The table below illustrates the purchase price allocation:

Fair value of net assets acquired at the date of acquisition
Receivables		$	4
Inventory			4
Property, plant and equipment			1
Intangible assets
Customer relationships (1)	21
Trade names (2)	13
			34
Goodwill			17
Deferred income tax assets			2
Total assets			62
Less: Liabilities
Trade and other payables			10
Total liabilities			10
Fair value of net assets acquired at the date of    acquisition			52

⁽¹⁾ The useful life of the Customer relationships acquired is estimated at 10 years (as of the date of acquisition).

⁽²⁾ Indefinite useful life.

Acquisition of Laboratorios Indas

On January 2, 2014, Domtar completed the acquisition of 100% of the outstanding shares of Laboratorios Indas, S.A.U. (“Indas”), primarily a branded incontinence products manufacturer and marketer in Spain. Indas has approximately 570 employees and operates two manufacturing facilities in Spain. The results of Indas’ operations have been included in the Personal Care reportable segment as of January 2, 2014. The purchase price was $546 million (€399 million) in cash, net of cash acquired of $46 million (€34 million).

The total purchase price was allocated to tangible and intangible assets acquired and liabilities assumed based on the Company’s estimates of their fair value, which were based on information available at that time.

The table below illustrates the purchase price allocation:

Fair value of net assets acquired at the date of acquisition
Receivables		$	101
Inventory			28
Income and other taxes receivable			3
Property, plant and equipment			72
Intangible assets
Customer relationships (1)	142
Trade names (2)	140
Catalog rights (2)	46
			328
Goodwill			234
Deferred income tax assets			16
Total assets			782
Less: Liabilities
Trade and other payables			71
Income and other taxes payable			3
Long-term debt (including short-term portion)			42
Deferred income tax liabilities			119
Other liabilities and deferred credits			1
Total liabilities			236
Fair value of net assets acquired at the date of    acquisition			546

⁽¹⁾ The useful life of Customer relationships acquired is between 10-20 years (as of the date of acquisition).

⁽²⁾ Indefinite useful life.

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Impairment of Property, Plant and Equipment

12 Months Ended

Dec. 31, 2016

Goodwill And Intangible Assets Disclosure [Abstract]

Impairment of Property, Plant and Equipment

NOTE 4.

IMPAIRMENT OF PROPERTY, PLANT AND EQUIPMENT

The Company reviews property, plant and equipment for impairment upon the occurrence of events or changes in circumstances indicating that, at the lowest level of determinable cash flows, the carrying value of the asset group may not be recoverable.

Estimates of undiscounted future cash flows used to test the recoverability of the asset group includes key assumptions related to selling prices, inflation-adjusted cost projections, forecasted exchange rates when applicable and the estimated useful life of the asset group.

Ashdown, Arkansas pulp and paper mill - Conversion of a paper machine

In the fourth quarter of 2014, the Company announced the conversion of a paper machine at Ashdown, Arkansas pulp and paper mill to a high quality fluff pulp line. As a result, in 2016 the Company recognized $29 million of accelerated depreciation in Impairment of property, plant and equipment on the Consolidated Statement of Earnings and Comprehensive Income (Loss) (2015 – $77 million; 2014 – $4 million).

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Stock-Based Compensation

12 Months Ended

Dec. 31, 2016

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Stock-Based Compensation

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 5.

STOCK-BASED COMPENSATION

OMNIBUS PLAN

Under the Omnibus Plan, the Company may award to key employees and non-employee directors, at the discretion of the Human Resources Committee of the Board of Directors, non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock units, performance-conditioned restricted stock units, performance share units, deferred share units (“DSUs”) and other stock-based awards. The non-employee directors only receive DSUs. The Company generally grants awards annually and uses, when available, treasury stock to fulfill awards settled in common stock and option exercises.

PERFORMANCE SHARE UNITS (“PSUs”)

PSUs are granted to Management Committee and non-Management Committee members. These awards will be settled in shares for Management Committee members and in cash for non-Management Committee members, based on market conditions and/or performance and service conditions. These awards have an additional feature where the ultimate number of units that vest will be determined by the Company’s performance results or shareholder return in relation to a predetermined target over the vesting period. No awards vest when the minimum thresholds are not achieved. The performance measurement date will vary depending on the specific award. These awards will cliff vest at various dates up to December 31, 2018.

				Weighted
				average grant
PSUs	Number of units			date fair value
				$
Vested and non-vested at December 31, 2013		350,076			42.60
Granted		175,815			53.97
Forfeited		(33,076	)		45.29
Cancelled		(89,622	)		49.79
Vested and settled		(92,890	)		46.49
Vested and non-vested at December 31, 2014		310,303			45.52
Granted		219,453			44.22
Forfeited		(21,918	)		45.52
Cancelled		(60,768	)		35.40
Vested and settled		(20,991	)		51.48
Vested and non-vested at December 31, 2015		426,079			46.00
Granted		295,504			32.38
Forfeited		(28,523	)		39.81
Cancelled		(101,124	)		51.27
Vested and settled		(74,655	)		35.97
Vested and non-vested at December 31, 2016		517,281			38.93

The fair value of PSUs granted in 2016, 2015 and 2014 was estimated at the grant date using the Monte Carlo simulation methodology. The Monte Carlo simulation creates artificial futures by generating numerous sample paths of potential outcomes. The following assumptions were used in calculating the fair value of the units granted:

	2016			2015			2014
Dividend yield		4.740	%		3.220	%		1.980	%
Expected volatility 1 year		24	%		34	%		31	%
Expected volatility 3 years		30	%		30	%		31	%
Risk-free interest rate December 31, 2014		—			—			0.499	%
Risk-free interest rate December 31, 2015		—			0.732	%		0.447	%
Risk-free interest rate December 31, 2016		1.057	%		0.893	%		0.755	%
Risk-free interest rate December 31, 2017		0.860	%		1.200	%		—
Risk-free interest rate December 31, 2018		0.900	%		—			—

At December 31, 2016, of the total vested and non-vested PSUs, 231,071 are expected to be settled in shares and 286,210 will be settled in cash.

RESTRICTED STOCK UNITS (“RSUs”)

RSUs are granted to Management Committee and non-Management Committee members. These awards will be settled in shares for Management Committee members and in cash for non-Management Committee members, upon completing service conditions. The awards cliff vest after a service period of approximately three years. Additionally, the RSUs are credited with dividend equivalents in the form of additional RSUs when cash dividends are paid on the Company’s stock. The grant date fair value of RSUs is equal to the market value of the Company’s stock on the date the awards are granted.

				Weighted
				average grant
RSUs	Number of units			date fair value
				$
Non-vested at December 31, 2013		374,414			41.46
Granted/issued		130,045		49.95
Forfeited		(29,230	)	44.37
Vested and settled		(161,009	)	41.27
Non-vested at December 31, 2014		314,220			44.80
Granted/issued		164,879			43.21
Forfeited		(12,464	)		44.78
Vested and settled		(119,669	)		44.31
Non-vested at December 31, 2015		346,966			44.21
Granted/issued		196,786			34.04
Forfeited		(17,884	)		39.69
Vested and settled		(107,198	)		39.12
Non-vested at December 31, 2016		418,670			40.90

At December 31, 2016, of the total non-vested RSUs, 167,280 are expected to be settled in shares and 251,390 will be settled in cash.

DEFERRED SHARE UNITS

DSUs are granted to the Company’s Directors. The DSUs granted to the Directors vest immediately on the grant date. The DSUs are credited with dividend equivalents in the form of additional DSUs when cash dividends are paid on the Company’s stock. For Directors’ DSUs, the Company will deliver at the option of the holder either one share of common stock or the cash equivalent of the fair market value on settlement of each outstanding DSU (including dividend equivalents accumulated) upon termination of service. Directors who attained the share ownership requirements may elect to receive the equity component of their annual retainer in DSUs that may be settled in either cash or stock one year after the grant date. The grant date fair value of DSU awards is equal to the market value of the Company’s stock on the date the awards are granted.

Management Committee members may elect to defer awards earned under another program into DSUs. In 2016, no vested awards were deferred to DSUs (2015 – nil; 2014 – 6,799). Those DSUs can be settled in shares of common stock beginning February 2017.

				Weighted
				average grant
DSUs	Number of units			date fair value
				$
Vested at December 31, 2013		271,742			25.54
Granted/issued		39,165			44.25
Settled		(48,186	)		32.17
Vested at December 31, 2014		262,721			27.11
Granted/issued		40,494			39.92
Settled		(13,755	)		41.88
Vested at December 31, 2015		289,460			28.20
Granted/issued		46,737			37.43
Settled		(15,123	)		39.60
Vested at December 31, 2016		321,074			29.01

NON-QUALIFIED & PERFORMANCE STOCK OPTIONS

Stock options are granted to Management Committee and non-Management Committee members. The stock options vest at various dates up to February 22, 2019 subject to service conditions for non-qualified stock options and, for performance stock options, if certain market conditions are met in addition to the service period. The options expire at various dates no later than seven years from the date of grant.

The fair value of the stock options granted in 2016, 2015 and 2014 (except for the stock options granted on May 1, 2014) was estimated at the grant date using a Black-Scholes based option pricing model or an option pricing model that incorporated the market conditions when applicable. The following assumptions were used in calculating the fair value of the options granted:

	2016			2015			2014
Dividend yield		3.78	%		3.22	%		2.62	%
Expected volatility		30	%		32	%		32	%
Risk-free interest rate		1.17	%		1.47	%		1.34	%
Expected life	4.5 years			4.5 years			4.5 years
Strike price	$	33.78		$	43.42		$	53.12

The grant date fair value of the non-qualified options granted in 2016 was $5.95 (2015 – $8.96; 2014 – $11.60).

On May 1, 2014, the Company granted 22,448 options to Michael Garcia, President Pulp and Paper Division, as part of his employment conditions, and the following assumptions were used in calculating the fair value of the options granted:

	2014
Dividend yield		2.80	%
Expected volatility		33	%
Risk-free interest rate		1.485	%
Expected life	4.5 years
Strike price	$	47.08

The grant date fair value of the non-qualified options granted on May 1, 2014 was $10.52.

				Weighted average		Weighted average		Aggregate intrinsic
	Number			exercise		remaining life		value
OPTIONS (including Performance options)	of options			price		(in years)		(in millions)
				$				$
Outstanding at December 31, 2013		465,674			43.93		2.6		3.3
Granted		270,028			52.48		6.2		—
Exercised		(131,312	)		37.02		—		—
Forfeited/expired		(186,267	)		55.67		—		—
Outstanding at December 31, 2014		418,123			46.39		4.6		0.5
Options exercisable at December 31, 2014		93,027			37.40		2.0		0.3
Outstanding at December 31, 2014		418,123			46.39		4.6		0.5
Granted		82,885			43.42		6.2		—
Exercised		(35,924	)		43.13		—		—
Forfeited/expired		(13,782	)		34.08		—		—
Outstanding at December 31, 2015		451,302			46.48		4.8		0.1
Options exercisable at December 31, 2015		176,315			44.56		3.9		0.1
Outstanding at December 31, 2015		451,302			46.48		4.8		0.1
Granted		114,723			33.78		6.2		—
Exercised		(37,296	)		41.11		—		—
Forfeited/expired		(6,502	)		20.89		—		—
Outstanding at December 31, 2016		522,227			44.39		4.5		0.7
Options exercisable at December 31, 2016		286,011			46.50		3.9		0.1

The Company has no outstanding and exercisable stock appreciation rights at December 31, 2016 (2015 – 672 with a weighted average exercise price of $41.46).

The total intrinsic value of options exercised in 2016 was nil (2015 – nil; 2014 – $2 million). Based on the Company’s closing year-end stock price of $39.03 (2015 – $36.95; 2014 – $40.22), the aggregate intrinsic value of options outstanding and options exercisable is $1 million.

For the year ended December 31, 2016, stock-based compensation expense recognized in the Company’s results of operations was $16 million (2015 – $10 million; 2014 – $9 million) for all of the outstanding awards. Compensation costs not yet recognized amounted to $17 million (2015 – $16 million; 2014 – $14 million) and will be recognized over the remaining service period of approximately 26 months. The aggregate value of liability awards settled in 2016 was $4 million (2015 – $4 million; 2014 – $12 million). The total fair value of equity awards settled in 2016 was $2 million, representing the fair value at the time of settlement. The fair value at the grant date for these settled equity awards was $3 million. Compensation costs for performance awards are based on management’s best estimate of the final performance measurement.

CLAWBACK FOR FINANCIAL REPORTING MISCONDUCT

If a participant in the Omnibus Plan knowingly or grossly negligently engages in financial reporting misconduct, then all awards and gains from the exercise of options in the 12 months prior to the date the misleading financial statements were issued as well as any awards that vested based on the misleading financial statements will be disgorged to the Company. In addition, the Company may cancel or reduce, or require a participant to forfeit and disgorge to the Company or reimburse the Company for, any awards granted or vested, and bonus granted or paid, and any gains earned or accrued, due to the exercise, vesting or settlement of awards or sale of any common stock, to the extent permitted or required by, or pursuant to any Company policy implemented as required by applicable law, regulation or stock exchange rule as may from time to time be in effect.

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Earnings Per Common Share

12 Months Ended

Dec. 31, 2016

Earnings Per Share [Abstract]

Earnings Per Common Share

NOTE 6.

EARNINGS PER COMMON SHARE

On April 30, 2014, the Company’s Board of Directors approved a 2-for-1 split of its common stock that was effected through a stock dividend. Shareholders of record on June 10, 2014 received one additional share for every share they owned on that date.

The calculation of basic earnings per common share is based on the weighted average number of Domtar common shares outstanding during the year. The calculation for diluted earnings per common share recognizes the effect of all potential dilutive common securities.

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

	Year ended		Year ended		Year ended
	December 31,		December 31,		December 31,
	2016		2015		2014
Net earnings	$	128	$	142	$	431
Weighted average number of common    and exchangeable shares outstanding (millions)		62.6		63.3		64.8
Effect of dilutive securities (millions)		0.1		0.1		0.1
Weighted average number of diluted common    and exchangeable shares outstanding (millions)		62.7		63.4		64.9
Basic net earnings per common share (in dollars)	$	2.04	$	2.24	$	6.65
Diluted net earnings per common share (in dollars)	$	2.04	$	2.24	$	6.64

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:

	December 31,		December 31,		December 31,
	2016		2015		2014
Options		410,978		343,581		247,152

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Pension Plans and Other Post-Retirement Benefit Plans

12 Months Ended

Dec. 31, 2016

Compensation And Retirement Disclosure [Abstract]

Pension Plans and Other Post-Retirement Benefit Plans

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 7.

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 year ended December 31, 2016, the related pension expense was $37 million (2015 – $32 million; 2014 – $28 million).

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

Related pension and other post-retirement plan expenses and the corresponding obligations are actuarially determined using management’s most probable assumptions.

The Company’s pension plan funding policy is to contribute annually the amount required to provide for benefits earned in the year, and to fund solvency deficiencies, funding shortfalls and past service obligations over periods not exceeding those permitted by the applicable regulatory authorities. Past service obligations primarily arise from improvements to plan benefits. The other post-retirement benefit plans are not funded and contributions are made annually to cover benefit payments.

The Company expects to contribute a minimum total amount of $13 million in 2017 compared to $31 million in 2016 (2015 – $13 million; 2014 – $29 million) to the pension plans. The Company expects to contribute a minimum total amount of $4 million in 2017 compared to $5 million in 2016 to the other post-retirement benefit plans (2015 – $5 million; 2014 – $5 million).

CHANGE IN ACCRUED BENEFIT OBLIGATION

The following table represents the change in the accrued benefit obligation as of December 31, 2016 and December 31, 2015, the measurement date for each year:

	December 31, 2016						December 31, 2015
	Pension			Other post-retirement			Pension			Other post-retirement
	plans			benefit plans			plans			benefit plans
	$			$			$			$
Accrued benefit obligation at beginning of year		1,509			86			1,723			105
Service cost for the year		31			2			34			2
Interest expense		51			4			60			4
Plan participants' contributions		6			—			6			—
Actuarial loss (gain)		46			1			(25	)		(5	)
Plan amendments		—			—			10			—
Benefits paid		(83	)		—			(76	)		—
Direct benefit payments		(4	)		(5	)		(3	)		(5	)
Settlement		(6	)		—			(1	)		—
Effect of foreign currency exchange rate change		34			2			(219	)		(15	)
Accrued benefit obligation at end of year		1,584			90			1,509			86

CHANGE IN FAIR VALUE OF ASSETS

The following table represents the change in the fair value of assets reflecting the actual return on plan assets, the contributions and the benefits paid during the year:

	December 31, 2016			December 31, 2015
	Pension plans			Pension plans
	$			$
Fair value of assets at beginning of year		1,493			1,721
Actual return on plan assets		73			63
Employer contributions		31			13
Plan participants' contributions		6			6
Benefits paid		(87	)		(79	)
Settlement		(6	)		(1	)
Effect of foreign currency exchange rate change		36			(230	)
Fair value of assets at end of year		1,546			1,493

INVESTMENT POLICIES AND STRATEGIES OF THE PLAN ASSETS

The assets of the pension plans are held by a number of independent trustees and are accounted for separately in the Company’s pension funds. The investment strategy for the assets in the pension plans is to maintain a diversified portfolio of assets, invested in a prudent manner to maintain the security of funds while maximizing returns within the guidelines provided in the investment policy. Diversification of the pension plans’ holdings is maintained in order to reduce the pension plans’ annual return variability, reduce market and credit exposure to any single asset and to any single component of the capital markets, reduce exposure to unexpected inflation, enhance the long-term risk-adjusted return potential of the pension plans and reduce funding risk.

Over the long-term, the performance of the pension plans is primarily determined by the long-term asset mix decisions. To manage the long-term risk of not having sufficient funds to match the obligations of the pension plans, the Company conducts asset/liability studies. These studies lead to the recommendation and adoption of a long-term asset mix target that sets the expected rate of return and reduces the risk of adverse consequences to the plans from increases in liabilities and decreases in assets. In identifying the asset mix target that would best meet the investment objectives, consideration is given to various factors, including (a) each plan’s characteristics, (b) the duration of each plan’s liabilities, (c) the solvency and going concern financial position of each plan and their sensitivity to changes in interest rates and inflation, and (d) the long-term return and risk expectations for key asset classes.

The investments of each plan can be done directly through cash investments in equities or bonds or indirectly through derivatives or pooled funds. The use of derivatives must be in accordance with an approved mandate and cannot be used for speculative purposes.

The Company’s pension funds are not permitted to directly own any of the Company’s shares or debt instruments.

The following table shows the allocation of the plan assets, based on the fair value of the assets held and the target allocation for 2016:

			Percentage of			Percentage of
			plan assets at			plan assets at
			December 31,			December 31,
	Target allocation		2016			2015
Fixed income
Cash and cash equivalents	0% - 9%			3	%		2	%
Bonds	46%-56%			51	%		51	%
Insurance contracts		5%		5	%		6	%
Equity
Canadian Equity	3% - 11%			6	%		6	%
U.S. Equity	8% - 18%			13	%		15	%
International Equity	17%-27%			22	%		20	%
Total (1)				100	%		100	%

⁽¹⁾ Approximately 80% of the pension plans' assets relate to Canadian plans and 20% relate to U.S. plans.

RECONCILIATION OF FUNDED STATUS TO AMOUNTS RECOGNIZED IN THE CONSOLIDATED BALANCE SHEETS

The following table presents the difference between the fair value of assets and the actuarially determined accrued benefit obligation. This difference is also referred to as either the deficit or surplus, as the case may be, or the funded status of the plans. The table further reconciles the amount of the surplus or deficit (funded status) to the net amount recognized in the Consolidated Balance Sheets.

	December 31, 2016						December 31, 2015
	Pension			Other post-retirement			Pension			Other post-retirement
	plans			benefit plans			plans			benefit plans
	$			$			$			$
Accrued benefit obligation at end of year		(1,584	)		(90	)		(1,509	)		(86	)
Fair value of assets at end of year		1,546			—			1,493			—
Funded status		(38	)		(90	)		(16	)		(86	)

The funded status includes $48 million of accrued benefit obligation ($46 million at December 31, 2015) related to supplemental unfunded defined benefit and defined contribution plans.

	December 31, 2016						December 31, 2015
	Pension			Other post-retirement			Pension			Other post-retirement
	plans			benefit plans			plans			benefit plans
	$			$			$			$
Trade and other payables (Note 17)		—			(4	)		—			(4	)
Other liabilities and deferred credits (Note 20)		(141	)		(86	)		(129	)		(82	)
Other assets (Note 15)		103			—			113			—
Net amount recognized in the Consolidated    Balance Sheets		(38	)		(90	)		(16	)		(86	)

The following table presents the pre-tax amounts included in Other comprehensive income (loss):

	Year ended						Year ended					Year ended
	December 31, 2016						December 31, 2015					December 31, 2014
				Other post-						Other post-					Other post-
	Pension			retirement			Pension			retirement		Pension			retirement
	plans			benefit plans			plans			benefit plans		plans			benefit plans
	$			$			$			$		$			$
Prior service credit		—			—			(10	)		—		(1	)		—
Amortization of prior year service cost		5			—			3			—		3			—
Net (loss) gain		(53	)		(2	)		2			4		(8	)		(8	)
Amortization of net actuarial loss		6			—			7			1		28			—
Net amount recognized in other comprehensive    (loss) income (pre-tax)		(42	)		(2	)		2			5		22			(8	)

An estimated amount of $13 million for pension plans and nil for other post-retirement benefit plans will be amortized from Accumulated other comprehensive loss into net periodic benefit cost in 2017.

At December 31, 2016, the accrued benefit obligation and the fair value of defined benefit plan assets with an accrued benefit obligation in excess of fair value of plan assets were $765 million and $624 million, respectively (2015 – $405 million and $276 million, respectively).

	Year ended			Year ended			Year ended
	December 31,			December 31,			December 31,
Components of net periodic benefit cost for pension plans	2016			2015			2014
	$			$			$
Service cost for the year		31			34			35
Interest expense		51			60			77
Expected return on plan assets		(80	)		(86	)		(101	)
Amortization of net actuarial loss		5			7			9
Settlement loss(a)		1			—			19
Amortization of prior year service cost		5			3			3
Net periodic benefit cost		13			18			42

	Year ended December 31,		Year ended December 31,		Year ended December 31,
Components of net periodic benefit cost for other post-retirement benefit plans	2016		2015		2014
	$		$		$
Service cost for the year		2		2		2
Interest expense		4		4		5
Net periodic benefit cost		6		6		7

(a) The settlement loss of $19 million in the pension plans for the year ended December 31, 2014 is related to the previously closed Ottawa, Ontario paper mill (see Note 16 “Closure and restructuring costs and liability”).

WEIGHTED-AVERAGE ASSUMPTIONS

The Company used the following key assumptions to measure the accrued benefit obligation and the net periodic benefit cost. These assumptions are long-term, which is consistent with the nature of employee future benefits.

	December 31,			December 31,			December 31,
Pension plans	2016			2015			2014
Accrued benefit obligation
Discount rate		3.8	%		4.0	%		3.9	%
Rate of compensation increase		2.7	%		2.7	%		2.7	%
Net periodic benefit cost
Discount rate		4.1	%		3.9	%		4.8	%
Rate of compensation increase		2.8	%		2.8	%		2.7	%
Expected long-term rate of return on plan assets		5.3	%		5.6	%		6.3	%

Effective December 31, 2015, the Company changed the approach used to estimate the current service and interest cost components of net periodic benefit cost for Canadian pension plans and U.S. funded pension plans utilizing a yield curve approach. This change compared to the previous approach results in different current service and interest cost components of net periodic benefit cost (credit) in future periods. Previously, the current service and interest cost components were estimated using a single weighted-average discount rate derived from the yield curve used to measure the defined benefit obligation at the beginning of the year for each country. The Company elected to utilize a full yield curve approach in the estimation of these components by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows. The Company made this change to provide a more precise measurement of current service and interest cost components by improving the correlation between projected benefit cash flows to the corresponding spot yield curve rates. This change did not affect the measurement of the total defined benefit obligation, but affects the current service and interest cost components going forward. The Company has accounted for this change as a change in accounting estimate. 

For the U.S. unfunded pension plan and other post-retirement benefits, given materiality, the previous approach has continued to be applied except that discount rates were determined based on plans’ projected cash flows.

For Canadian plans, short-term yields to maturity are derived from actual AA rated corporate bond yield data. For longer terms, extrapolated data is used. The extrapolated data are created by adding a term-based spread over long provincial bond yields. For U.S. funded plans, the rates are taken from the Mercer Yield Curve which is based on bonds rated AA by Moody’s or Standard & Poor’s, excluding callable bonds, bonds of less than a minimum issue size, and certain other bonds. The universe of bonds also includes private placement (traded in reliance on Rule 144A and which are at least two years from issuance), make whole, and foreign corporation (denominated in U.S. dollars) bonds.

The discount rate for U.S. unfunded plans of 4.1% is obtained by incorporating the plans’ expected cash flows in the Mercer Yield Curve.

Effective January 1, 2017, the Company will use 5.4% (2016 – 5.3%; 2015 – 5.6%) as the expected return on plan assets, which reflects the current view of long-term investment returns. The overall expected long-term rate of return on plan assets is based on management's best estimate of the long-term returns of the major asset classes (cash and cash equivalents, equities, and bonds) weighted by the actual allocation of assets at the measurement date, net of expenses. This rate includes an equity risk premium over government bond returns for equity investments and a value-added premium for the contribution to returns from active management. The sources used to determine management's best estimate of long-term returns are numerous and include country specific bond yields, which may be derived from the market using local bond indices or by analysis of the local bond market, and country-specific inflation and investment market expectations derived from market data and analysts' or governments' expectations as applicable.

	December 31,			December 31,			December 31,
Other post-retirement benefit plans	2016			2015			2014
Accrued benefit obligation
Discount rate		3.9	%		4.1	%		3.9	%
Rate of compensation increase		2.8	%		2.8	%		2.8	%
Net periodic benefit cost
Discount rate		4.1	%		3.9	%		4.8	%
Rate of compensation increase		2.8	%		2.8	%		2.7	%

For measurement purposes, a 5.0% weighted average annual rate of increase in the per capita cost of covered health care benefits was assumed for 2016. The rate was assumed to decrease gradually to 4.1% by 2034 and remain at that level thereafter. An increase or decrease of 1% of this rate would have the following impact:

	Increase of 1%		Decrease of 1%
	$		$
Impact on net periodic benefit cost for other    post-retirement benefit plans		1		—
Impact on accrued benefit obligation		8		(7	)

FAIR VALUE MEASUREMENT

Fair Value Measurements and Disclosures Topic of FASB ASC 820 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 assets or liabilities.

The following table presents the fair value of the plan assets at December 31, 2016, by asset category:

	Fair Value Measurements at
	December 31, 2016
				Quoted Prices
				in Active		Significant			Significant
				Markets for		Observable			Unobservable
				Identical Assets		Inputs			Inputs
Asset Category	Total			(Level 1)		(Level 2)			(Level 3)
	$			$		$			$
Cash and short-term investments		80			80		—			—
Asset backed notes (1)		118			—		115			3
Canadian government bonds		81			81		—			—
Canadian corporate debt securities		3			2		1			—
Bond index funds (2 & 3)		585			—		585			—
Canadian equities (4)		100			100		—			—
U.S. equities (5)		77			77		—			—
International equities (6)		226			226		—			—
U.S. stock index funds (3 & 7)		193			—		193			—
Insurance contracts (8)		84			—		—			84
Derivative contracts (9)		(1	)		—		(1	)		—
Total		1,546			566		893			87

⁽¹⁾ This category is described in the section “Asset Backed Notes”.

⁽²⁾ This category represents two Canadian bond index funds not actively managed that track the FTSE TMX Long-term bond index, and the FTSE TMX Universe bond index and a U.S. actively managed bond fund that is benchmarked to the Barclays Capital Long-term Government/Credit index.

⁽³⁾ The fair value of these plan assets are classified as Level 2 (inputs that are observable, directly or indirectly) as they are measured based on quoted prices in active markets and can be redeemed at the measurement date or in the near term.

⁽⁴⁾ This category represents an active segregated large capitalization Canadian equity portfolio with the ability to purchase small and medium capitalized companies.

⁽⁵⁾ This category represents U.S. equities held within an active segregated global equity portfolio.

⁽⁶⁾ This category represents an active segregated non-North American multi-capitalization equity portfolio and the non-North American portion of an active segregated global equity portfolio.

⁽⁷⁾ This category represents two equity index funds, not actively managed, that track the Russell 3000 index.

⁽⁸⁾ This category includes: 1) two group annuity contracts totaling $76 million purchased through an insurance company that are held in the pension plans’ name as an asset within the pension plans. These insurance contracts cover pension entitlements associated with specific groups of retired members of the pension plans and 2) $8 million of insurance contracts with a minimum guarantee rate.

⁽⁹⁾ The fair value of the derivative contracts are classified as Level 2 (inputs that are observable, directly or indirectly) as they are measured using long-term bond indices.

The following table presents the fair value of the plan assets at December 31, 2015, by asset category:

	Fair Value Measurements at December 31, 2015
			Quoted Prices in Active Markets for Identical Assets		Significant Observable Inputs		Significant Unobservable Inputs
Asset Category	Total		(Level 1)		(Level 2)		(Level 3)
	$		$		$		$
Cash and short-term investments		67		67		—		—
Asset backed notes (1)		146		—		136		10
Canadian government bonds		141		141		—		—
Canadian corporate debt securities		3		2		1		—
Bond index funds (2 & 3)		466		—		466		—
Canadian equities (4)		96		96		—		—
U.S. equities (5)		37		37		—		—
International equities (6)		229		229		—		—
U.S. stock index funds (3 & 7)		218		—		218		—
Insurance contracts (8)		86		—		—		86
Derivative contracts (9)		4		—		4		—
Total		1,493		572		825		96

⁽¹⁾ This category is described in the section “Asset Backed Notes”.

⁽²⁾ This category represents two Canadian bond index fund not actively managed that track the FTSE TMX Long-term bond index, and the FTSE TMX Universe bond index and a U.S. actively managed bond fund that is benchmarked to the Barclays Capital Long-term Government/Credit index.

⁽³⁾ The fair value of these plan assets are classified as Level 2 (inputs that are observable, directly or indirectly) as they are measured based on quoted prices in active markets and can be redeemed at the measurement date or in the near term.

⁽⁴⁾ This category represents active segregated large capitalization Canadian equity portfolios with the ability to purchase small and medium capitalized companies and $4 million of Canadian equities held within an active segregated global equity portfolio.

⁽⁵⁾ This category represents U.S. equities held within an active segregated global equity portfolio.

⁽⁶⁾ This category represents an active segregated non-North American multi-capitalization equity portfolio and the non-North American portion of an active segregated global equity portfolio.

⁽⁷⁾ This category represents equity index funds, not actively managed, that track the Standard & Poor’s 500 (“S&P 500”) index and an equity index fund not actively managed that tracks the Russell 3000 index.

⁽⁸⁾ This category includes: 1) two group annuity contracts totaling $78 million purchased through an insurance company that are held in the pension plans’ name as an asset within the pension plans. These insurance contracts cover pension entitlements associated with specific groups of retired members of the pension plans and 2) $8 million of insurance contracts with a minimum guarantee rate.

⁽⁹⁾ The fair value of the derivative contracts are classified as Level 2 (inputs that are observable, directly or indirectly) as they are measured using long-term bond indices.

ASSET BACKED NOTES

At December 31, 2016, Domtar’s Canadian defined benefit pension funds held restructured asset backed notes (“ABN”) valued at $118 million (CDN $158 million). At December 31, 2015, the plans held ABN valued at $146 million (CDN $201 million). During 2016, the total value of ABN benefited from an increase in value of $8 million (CDN $10 million) and by a $4 million impact in the value of the Canadian dollar. For the same period, the total value of the ABN was reduced by repayments totalling $40 million (CDN $53 million).

These ABN were subject to restructuring under the court order governing the Montreal Accord that was completed in January 2009. About $116 million (CDN $154 million) of these notes were repaid in January 2017. These maturing notes were valued at a minimal discount to the repayment amount. The values for the $3 million of remaining ABN were sourced either from the asset manager of the ABN, or from trading values for similar securities of similar credit quality.

The following table presents changes during the period for Level 3 fair value measurements of plan assets:

	Fair Value Measurements Using Significant
	Unobservable Inputs (Level 3)
	ABN(1)			Insurance contracts			TOTAL
	$			$			$
Balance at December 31, 2014		15			8			23
(Settlements)/Purchases		(4	)		79			75
Return on plan assets		1			3			4
Effect of foreign currency exchange rate change		(2	)		(4	)		(6	)
Balance at December 31, 2015		10			86			96
(Settlements)/Purchases		(7	)		(5	)		(12	)
Return on plan assets		—			1			1
Effect of foreign currency exchange rate change		—			2			2
Balance at December 31, 2016		3			84			87

⁽¹⁾ Includes $3 million of Montreal Accord in 2016 (2015 – $4 million)

ESTIMATED FUTURE BENEFIT PAYMENTS FROM THE PLANS

Estimated future benefit payments from the plans for the next 10 years at December 31, 2016 are as follows:

.	Pension plans		Other post-retirement benefit plans
	$		$
2017		102		4
2018		100		4
2019		102		4
2020		102		5
2021		102		5
2022-2026		515		24

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Other Operating Loss (Income), Net

12 Months Ended

Dec. 31, 2016

Other Income And Expenses [Abstract]

Other Operating Loss (Income), Net

NOTE 8.

OTHER OPERATING LOSS (INCOME), NET

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

	Year ended December 31, 2016			Year ended December 31, 2015			Year ended December 31, 2014
	$			$			$
Alternative fuel tax credits (Note 10)		—			—			(18	)
Net gain on sale of property, plant and    equipment		—			(15	)		—
Bad debt expense		—			5			2
Environmental provision		2			4			1
Foreign exchange loss (gain)		6			(3	)		(1	)
Proceeds from insurance claims on machinery    and equipment		—			—			(11	)
Other		(4	)		4			(2	)
Other operating loss (income), net		4			(5	)		(29	)

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Interest Expense, Net

12 Months Ended

Dec. 31, 2016

Banking And Thrift Interest [Abstract]

Interest Expense, Net

NOTE 9.

INTEREST EXPENSE, NET

The following table presents the components of interest expense, net:

	Year ended		Year ended			Year ended
	December 31,		December 31,			December 31,
	2016		2015			2014
	$		$			$
Interest on long-term debt (1)		59		82			95
Premium paid on repurchase of long-term debt		—		40			—
Reversal of fair value increment on long-term debt		—		(1	)		—
Interest on receivables securitization		2		1			1
Interest on withdrawal liabilities for multiemployer plans		3		4			3
Amortization of debt issuance costs and other		2		6			4
		66		132			103

⁽¹⁾ The Company capitalized $5 million of interest expense in 2016 ($3 million in 2015 and 2014, respectively).

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Income Taxes

12 Months Ended

Dec. 31, 2016

Income Tax Disclosure [Abstract]

Income Taxes

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 10.

INCOME TAXES

The Company’s earnings before income taxes by taxing jurisdiction were:

	Year ended		Year ended		Year ended
	December 31,		December 31,		December 31,
	2016		2015		2014
	$		$		$
U.S. earnings		69		26		86
Foreign earnings		88		130		175
Earnings before income taxes		157		156		261

Provisions for income taxes include the following:

	Year ended		Year ended			Year ended
	December 31,		December 31,			December 31,
	2016		2015			2014
	$		$			$
U.S. Federal and State:
Current		10		61			20
Deferred		1		(78	)		(213	)
Foreign:
Current		10		9			11
Deferred		8		22			12
Income tax expense (benefit)		29		14			(170	)

The Company’s provision for income taxes differs from the amounts computed by applying the statutory income tax rate of 35% to earnings before income taxes due to the following:

	Year ended			Year ended			Year ended
	December 31,			December 31,			December 31,
	2016			2015			2014
	$			$			$
U.S. federal statutory income tax		55			55			91
Reconciling Items:
State and local income taxes, net of federal    income tax benefit		3			1			3
Foreign income tax rate differential		(14	)		(16	)		(18	)
Tax credits and special deductions		(18	)		(16	)		(18	)
Alternative fuel tax credit income		—			—			(6	)
Tax rate changes		—			(5	)		(16	)
Uncertain tax positions		2			1			(194	)
U.S. manufacturing deduction		(2	)		(6	)		(9	)
Functional currency differences		—			1			(5	)
Valuation allowance on deferred tax assets		(1	)		(1	)		7
Other		4			—			(5	)
Income tax expense (benefit)		29			14			(170	)

During 2016, the Company recorded $18 million of tax credits, mainly research and experimentation credits, which significantly impacted the effective tax rate. The effective tax rate for 2016 was also significantly impacted by the Company’s foreign operations being taxed at lower statutory tax rates.

During 2015, the Company recorded $16 million of tax credits, mainly research and experimentation credits, which significantly impacted the effective tax rate. The effective tax rate for 2015 was also impacted by the manufacturing deduction in the U.S., enacted law changes in various U.S. states, and the impact of the Company’s foreign operations being taxed at lower statutory tax rates.

In 2014, the Company settled its ongoing U.S. federal income tax audit for tax years 2009, 2010, and 2011, and the Company filed related amended state tax returns. As a result of the audit completion, the Company recognized previously unrecognized gross tax benefits of $223 million and reversed related deferred tax assets of $23 million for a net tax benefit of $200 million for 2014. This $200 million benefit, less $6 million of expense for other 2014 activity, impacted the 2014 effective tax rate and is included in the table above in the uncertain tax positions benefit of $194 million. The audit closure also resulted in an additional $7 million benefit related to the U.S. manufacturing deduction which impacted the effective tax rate for 2014 and is included in the $9 million for that line item above. The effective tax rate was also impacted by the recognition of $18 million of Alternative Fuel Tax Credits (“AFTC”) with no related tax expense.  During 2014, the Company recorded $18 million of tax credits, mainly research and experimentation credits pertaining to current and prior years. The effective tax rate for 2014 was also impacted by an enacted tax rate decrease in Spain and tax losses related to functional currency differences, and the impact of the Company’s foreign operations being taxed at lower statutory tax rates.

Deferred tax assets and liabilities are based on tax rates that are expected to be in effect in future periods when deferred items are expected to reverse. Changes in tax rates or tax laws affect the expected future benefit or expense. The effect of such changes that occurred during each of the last three fiscal years is included in “Tax rate changes” disclosed under the effective income tax rate reconciliation shown above.

DEFERRED TAX ASSETS AND LIABILITIES

The tax effects of significant temporary differences representing deferred tax assets and liabilities at December 31, 2016 and December 31, 2015 are comprised of the following:

	December 31,			December 31,
	2016			2015
	$			$
Accounting provisions		62			57
Net operating loss carryforwards and other deductions		43			48
Pension and other employee future benefit plans		65			59
Inventory		15			17
Tax credits		25			25
Other		—			16
Gross deferred tax assets		210			222
Valuation allowance		(22	)		(23	)
Net deferred tax assets		188			199
Property, plant and equipment		(648	)		(647	)
Impact of foreign exchange on long-term debt    and investments		(8	)		(6	)
Intangible assets		(152	)		(157	)
Other		(10	)		—
Total deferred tax liabilities		(818	)		(810	)
Net deferred tax liabilities		(630	)		(611	)
Included in:
Other assets (Note 15)		2			2
Deferred income taxes and other		(632	)		(613	)
Total		(630	)		(611	)

At December 31, 2016, the Company had less than $1 million of federal net operating loss carryforwards remaining which expire in 2032. These U.S. federal net operating losses are subject to annual limitations under Section 382 of the Internal Revenue Code of 1986, as amended (the "Code"), that can vary from year to year. The Company also has other foreign net operating losses and deduction limitations of $140 million, which may be carried forward indefinitely.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which temporary differences become deductible.

The Company evaluates the realization of deferred tax assets on a quarterly basis. Evaluating the need for an amount of a valuation allowance for deferred tax assets often requires significant judgment. All available evidence, both positive and negative, is considered when determining whether, based on the weight of that evidence, a valuation allowance is needed. Specifically, the Company evaluated the following items:

• Historical income / (losses) – particularly the most recent three-year period

• Reversals of future taxable temporary differences

• Projected future income / (losses)

• Tax planning strategies

• Divestitures

Management believes that it is more likely than not that the results of future operations will generate sufficient taxable income to realize the deferred tax assets, with the exception of certain state credits for which a valuation allowance of $4 million exists at December 31, 2016, and certain foreign loss carryforwards for which a valuation allowance of $18 million exists at December 31, 2016. Of this amount, $(1) million impacted tax expense and the effective tax rate for 2016 (2015 – $(1) million; 2014 – $7 million).

The Company does not provide for a U.S. income tax liability on undistributed earnings of our foreign subsidiaries. The earnings of the foreign subsidiaries, which reflect full provision for income taxes, are currently indefinitely reinvested in foreign operations. No provision is made for income taxes that would be payable upon the distribution of earnings from foreign subsidiaries as computation of these amounts is not practicable.

ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES

At December 31, 2016, the Company had gross unrecognized tax benefits of approximately $43 million ($41 million and $48 million for 2015 and 2014, respectively). If recognized in 2017, these tax benefits would impact the effective tax rate. These amounts represent the gross amount of exposure in individual jurisdictions and do not reflect any additional benefits expected to be realized if such positions were sustained, such as federal deduction that could be realized if an unrecognized state deduction was not sustained.

	December 31,			December 31,			December 31,
	2016			2015			2014
	$			$			$
Balance at beginning of year		41			48			259
Additions based on tax positions related to current year		3			3			3
Additions for tax positions of prior years		3			2			10
Reductions for tax positions of prior years		(2	)		(1	)		—
Reductions related to settlements with taxing authorities		—			(4	)		(223	)
Expirations of statutes of limitations		(3	)		(7	)		(4	)
Interest		1			1			4
Foreign exchange impact		—			(1	)		(1	)
Balance at end of year		43			41			48

As a result of the acquisition of Indas on January 2, 2014, the Company recorded unrecognized tax benefits which are shown as additions for tax positions of prior years in the table above.

The Company recorded $1 million of accrued interest associated with unrecognized tax benefits for the period ending December 31, 2016 ($1 million and $4 million for 2015 and 2014, respectively). The Company recognizes accrued interest and penalties, if any, related to unrecognized tax benefits as a component of tax expense. The Company believes it is reasonably possible that up to $12 million of its unrecognized tax benefits may be recognized by December 31, 2017, which could significantly impact the effective tax rate. However, the amount and timing of the recognition of these benefits is subject to some uncertainty.

The major jurisdictions where the Company and its subsidiaries will file tax returns for 2016, in addition to filing one consolidated U.S. federal income tax return, are Canada, Sweden and Spain. The Company and its subsidiaries will also file returns in various other countries in Europe and Asia as well as various U.S. states and Canadian provinces. At December 31, 2016, the Company’s subsidiaries are subject to foreign federal income tax examinations for the tax years 2007 through 2015, with federal years prior to 2013 being closed from a cash tax liability standpoint in the U.S., but the loss carryforwards can be adjusted in any open year where the loss has been utilized. The Company does not anticipate that adjustments stemming from these audits would result in a significant change to the results of its operations and financial condition.

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Inventories

12 Months Ended

Dec. 31, 2016

Inventory Disclosure [Abstract]

Inventories

NOTE 11.

INVENTORIES

The following table presents the components of inventories:

	December 31,		December 31,
	2016		2015
	$		$
Work in process and finished goods		413		432
Raw materials		132		130
Operating and maintenance supplies		214		204
		759		766

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Goodwill

12 Months Ended

Dec. 31, 2016

Goodwill And Intangible Assets Disclosure [Abstract]

Goodwill

NOTE 12.

GOODWILL

Changes in the carrying value of goodwill are as follows:

	December 31,			December 31,
	2016			2015
	$			$
Balance at beginning of year		539			567
Acquisition of HDIS (Note 3)		17			—
Effect of foreign currency exchange rate change		(6	)		(28	)
Balance at end of year		550			539

The goodwill at December 31, 2016 is entirely related to the Personal Care reporting segment.

The Company performed its annual goodwill impairment testing at October 1, 2016, 2015 and 2014 and determined that the estimated fair value of the Personal Care reporting unit exceeded its carrying value. As a result, no impairment charges were recorded during 2016, 2015 or 2014.

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Property, Plant and Equipment

12 Months Ended

Dec. 31, 2016

Property Plant And Equipment [Abstract]

Property, Plant and Equipment

NOTE 13.

PROPERTY, PLANT AND EQUIPMENT

The following table presents the components of property, plant and equipment:

	Range of		December 31,			December 31,
	useful lives		2016			2015
			$			$
Machinery and equipment	3-20			7,408			7,255
Buildings and improvements	10-40			1,007			975
Timberlands	(1)			200			196
Assets under construction		—		94			224
				8,709			8,650
Less: Accumulated depreciation				(5,884	)		(5,815	)
				2,825			2,835

⁽¹⁾ Amortization is calculated using the unit of production method.

Depreciation expense related to property, plant and equipment for the year ended December 31, 2016 was $329 million (2015 – $340 million; 2014 – $363 million).

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Intangible Assets

12 Months Ended

Dec. 31, 2016

Goodwill And Intangible Assets Disclosure [Abstract]

Intangible Assets

NOTE 14.

INTANGIBLE ASSETS

The following table presents the components of intangible assets:

	Estimated useful lives		December 31,							December 31,
	(in years)		2016							2015
			Gross carrying		Accumulated					Gross carrying		Accumulated
			amount		amortization			Net		amount		amortization			Net
Definite-lived intangible assets    subject to amortization			$		$			$		$		$			$
Water rights		40		3		(1	)		2		3		(1	)		2
Customer relationships	10 - 40			369		(60	)		309		354		(46	)		308
Technology	7 - 20			8		(3	)		5		8		(2	)		6
Non-Compete		9		1		—			1		1		—			1
License rights		12		28		(8	)		20		28		(6	)		22
				409		(72	)		337		394		(55	)		339
Indefinite-lived intangible assets    not subject to amortization
Water rights			4			—			4	4			—			4
Trade names				225		—			225		215		—			215
License rights				6		—			6		6		—			6
Catalog rights				36		—			36		37		—			37
Total				680		(72	)		608		656		(55	)		601

Amortization expense related to intangible assets for the year ended December 31, 2016 was $19 million (2015 – $19 million; 2014 – $21 million).

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		20		20		20		20

The Company performed its annual impairment test on its indefinite-lived intangible assets at October 1, 2016, 2015 and 2014, using a quantitative approach, except for the license rights and water rights, where the Company used a qualitative approach, and determined that the estimated fair values of its indefinite-lived intangible assets significantly exceeded their carrying amounts. No impairment charge was recorded for indefinite-lived intangible assets during 2016, 2015 or 2014.

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Other Assets

12 Months Ended

Dec. 31, 2016

Deferred Costs Capitalized Prepaid And Other Assets Disclosure [Abstract]

Other Assets

NOTE 15.

OTHER ASSETS

The following table presents the components of other assets:

	December 31,		December 31,
	2016		2015
	$		$
Pension asset - defined benefit pension plans (Note 7)		103		113
Investment tax credits receivable		4		—
Unamortized debt issuance costs		5		3
Deferred income tax assets (Note 10)		2		2
Derivative financial instruments (Note 23)		8		3
Other		7		4
		129		125

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Closure and Restructuring Costs and Liability

12 Months Ended

Dec. 31, 2016

Restructuring And Related Activities [Abstract]

Closure and Restructuring Costs and Liability

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 16.

CLOSURE AND RESTRUCTURING COSTS AND LIABILITY

In the fourth quarter of 2016, as a result of a revision in the Company’s estimated withdrawal liability for U.S. multiemployer plans, the Company recorded a credit of $4 million in Closure and restructuring costs on the Consolidated Statement of Earnings and Comprehensive Income (Loss). At December 31, 2016, the total provision for the withdrawal liabilities was $50 million.

Plymouth, North Carolina mill

On September 23, 2016, the Company announced a plan to optimize fluff pulp manufacturing at its Plymouth, North Carolina mill. The restructuring, which is expected to be completed by mid-2017, includes the permanent closure of a pulp dryer and idling of related assets, in addition to a workforce reduction of approximately 100 positions. The streamlining process will also right-size the mill to an annualized production target of approximately 380,000 metric tons of fluff pulp. The Company recorded $5 million of severance and termination costs under Closure and restructuring costs during the third quarter of 2016.

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 qualification period began in the fourth 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 $29 million for the year ended December 31, 2016, of accelerated depreciation under Impairment of property, plant and equipment on the Consolidated Statement of Earnings and Comprehensive Income (Loss). During 2016, the Company also recorded $26 million of costs related to the fluff pulp conversion outage and $1 million of severance and termination costs under Closure and restructuring costs.

The Company recorded $77 million for the year ended December 31, 2015, of accelerated depreciation under Impairment of property, plant and equipment on the Consolidated Statement of Earnings and Comprehensive Income (Loss). During 2015, the Company also recorded $3 million of severance and termination costs under Closure and restructuring costs.

In the fourth quarter of 2014, the Company recorded $4 million of accelerated depreciation under Impairment of property plant and equipment on the Consolidated Statement of Earnings and Comprehensive Income (Loss) and $3 million of inventory obsolescence under Closure and restructuring costs.

Indianapolis, Indiana Converting

On October 13, 2014, the Company announced the closure of its Indianapolis, Indiana plant and the shutdown affected approximately 60 employees. As a result, during the fourth quarter of 2014, the Company recorded $2 million of severance and termination costs and $1 million of inventory obsolescence.

Other costs

During 2016, other costs related to previous and ongoing closures included $3 million of severance and termination costs (2015 – $1 million; 2014 – $3 million) and $1 million of pension settlement (2015 and 2014 – nil).

The following tables provide the components of closure and restructuring costs by segment:

	Year ended
	December 31, 2016
	Pulp and Paper			Personal Care		Total
	$			$		$
Severance and termination costs		8			1		9
Pension settlement and withdrawal liability		(3	)		—		(3	)
Fluff pulp conversion outage		26			—		26
Closure and restructuring costs		31			1		32

	Year ended
	December 31, 2015
	Pulp and Paper		Personal Care		Total
	$		$		$
Severance and termination costs		3		1		4
Closure and restructuring costs		3		1		4

	Year Ended
	December 31, 2014
	Pulp and Paper			Personal Care		Total
	$			$		$
Severance and termination costs		4			1		5
Inventory write-down		4			—		4
Pension settlement and withdrawal liability		19	(a)		—		19
Closure and restructuring costs		27			1		28

^(a) Related to the previously closed Ottawa paper mill.

The following table provides the activity in the closure and restructuring liability:

	December 31,			December 31,
	2016			2015
	$			$
Balance at beginning of year		3			2
Additions		9			4
Payments		(5	)		(3	)
Balance at end of year		7			3

The $7 million provision is comprised of severance and termination costs of $6 million and $1 million in the Pulp and Paper segment and Personal Care segment, respectively.

Closure and restructuring costs are based on management’s best estimates at December 31, 2016. Actual costs may differ from these estimates due to subsequent developments such as the results of environmental studies, the ability to find a buyer for assets set to be dismantled and demolished and other business developments. As such, additional costs and further impairment charges may be required in future periods.

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Trade and Other Payables

12 Months Ended

Dec. 31, 2016

Payables And Accruals [Abstract]

Trade and Other Payables

NOTE 17.

TRADE AND OTHER PAYABLES

The following table presents the components of trade and other payables:

	December 31,		December 31,
	2016		2015
	$		$
Trade payables		332		350
Payroll-related accruals		160		160
Accrued interest		16		18
Payables on capital projects		13		16
Rebate accruals		62		66
Liability - pension and other post-retirement benefit    plans (Note 7)		4		4
Liability - multiemployer plan withdrawal		2		2
Provision for environment and other asset retirement    obligations (Note 22)		15		14
Closure and restructuring costs liability (Note 16)		7		3
Derivative financial instruments (Note 23)		11		53
Dividends payable (Note 21)		26		25
Stock-based compensation - liability awards		2		4
Other		6		5
		656		720

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Changes in Accumulated Other Comprehensive Loss by Component

12 Months Ended

Dec. 31, 2016

Equity [Abstract]

Changes in Accumulated Other Comprehensive Loss by Component

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 18.

CHANGES IN ACCUMULATED OTHER COMPREHENSIVE LOSS BY COMPONENT

The following table presents the changes in Accumulated other comprehensive loss by component⁽¹⁾ for the period ended  December 31, 2016 and 2015.

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

⁽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.

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

Details about Accumulated other comprehensive loss components	Amount reclassified from Accumulated other comprehensive loss(1)
	Year ended			Year ended			Year ended
	December 31,			December 31,			December 31,
	2016			2015			2014
	$			$			$
Net derivative gains (losses) on cash flow hedge
Natural gas swap contracts		12			16			(4	)	(2)
Currency options and forwards		12			28			16		(2)
Total before tax		24			44			12
Tax expense		(10	)		(18	)		(4	)
Net of tax		14			26			8
Amortization of defined benefit pension items
Amortization of prior year service cost		5			3			22		(3)
Amortization of net actuarial loss		6			7			9		(3)
Total before tax		11			10			31
Tax expense		(4	)		(3	)		(9	)
Net of tax		7			7			22

⁽¹⁾ Amounts in parentheses indicate losses.

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

⁽³⁾ These amounts are included in the computation of net periodic benefit cost (see Note 7 "Pension Plans and Other Post-Retirement Benefit Plans" for more details).

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Long-Term Debt

12 Months Ended

Dec. 31, 2016

Debt Disclosure [Abstract]

Long-Term Debt

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 19.

LONG-TERM DEBT

		Par			December 31,		December 31,
	Maturity	Amount		Currency	2016		2015
		$			$		$
Unsecured notes
9.5% Notes	2016		39	US		—		39
10.75% Notes	2017		63	US		63		63
4.4% Notes	2022		300	US		300		300
6.25% Notes	2042		250	US		249		249
6.75% Notes	2044		250	US		249		249
Revolving Credit Facility	2021		50	US		50		50
Term Loan	2025		300	US		300		300
Securitization	2019		70	US		70		—
Capital lease obligations and other	2016 - 2028					8		10
						1,289		1,260
Less: Unamortized debt issuance costs						8		9
Less: Due within one year						63		41
						1,218		1,210

Principal long-term debt repayments, including capital lease obligations, in each of the next five years will amount to:

	Long-term debt		Capital leases and other
	$		$
2017		63		1
2018		—		1
2019		70		1
2020		—		1
2021		50		1
Thereafter		1,100		6
		1,283		11
Less: Amounts representing interest		—		3
Total payments		1,283		8

UNSECURED NOTES

The Company’s 9.5% Notes, in the aggregate principal amount of $39 million, matured on August 1, 2016.

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

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

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

REVOLVING CREDIT FACILITY

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

Borrowings by the Company under the Credit Agreement are guaranteed by its significant domestic subsidiaries. Borrowings by foreign borrowers under the Credit Agreement are guaranteed by the Company, the Company’s significant domestic subsidiaries and certain of the Company’s 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 LIBOR, EURIBOR, Canadian bankers' acceptance or prime rate, as applicable, plus a margin linked to the Company’s credit rating. In addition, the Company pays facility fees quarterly at rates dependent on the Company's 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 December 31, 2016, the Company was in compliance with these financial covenants, and $50 million was borrowed (December 31, 2015 – $50 million).

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 with certain domestic banks.

The Company and certain significant domestic subsidiaries of the Company unconditionally guarantee any obligations from time to time arising under the Term Loan Agreement. On August 18, 2016, Domtar entered into an amendment to its Term Loan Agreement, pursuant to which, among other things, certain insignificant subsidiaries were released from their guarantees of the borrower’s obligations under the Term Loan Agreement.

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

The Term Loan Agreement contains customary covenants, including two financial covenants: (i) an interest coverage ratio, as defined in the Term Loan Agreement, that must be maintained at a level of not less than 3 to 1 and (ii) a leverage ratio, as defined in the Term Loan Agreement, that must be maintained at a level of not greater than 3.75 to 1. At December 31, 2016, the Company was in compliance with these financial covenants.

RECEIVABLES SECURITIZATION

The Company has a $150 million receivables securitization facility that matures in March 2019. The Company uses securitization of certain receivables to provide additional liquidity to fund its operations. Sales of receivables under this program are accounted for as secured borrowings. The costs under the program vary based on changes in interest rates and amounts borrowed.

The Company’s securitization program consists of the ongoing sale of most of the receivables of its domestic subsidiaries to a bankruptcy remote consolidated subsidiary which, in turn, transfers a senior beneficial interest in them to a special purpose entity managed by a financial institution for multiple sellers of receivables to support the issue of letters of credit or borrowings.

The program contains certain termination events, which include, but are not limited to, matters related to receivable performance, certain defaults occurring under the 2016 Credit Agreement, or the failure by Domtar to satisfy material obligations.

At December 31, 2016, $70 million was borrowed under this facility and $48 million of letters of credit were outstanding under the program (2015 – nil and $38 million, respectively).

In 2016, a net charge of $2 million (2015 – $1 million; 2014 – $1 million) resulted from the program described above and was included in Interest expense, net in the Consolidated Statements of Earnings and Comprehensive Income (Loss).

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Other Liabilities and Deferred Credits

12 Months Ended

Dec. 31, 2016

Other Liabilities Disclosure [Abstract]

Other Liabilities and Deferred Credits

NOTE 20.

OTHER LIABILITIES AND DEFERRED CREDITS

The following table presents the components of other liabilities and deferred credits:

.	December 31,		December 31,
	2016		2015
	$		$
Liability - other post-retirement benefit plans (Note 7)		86		82
Pension liability - defined benefit pension plans (Note 7)		141		129
Pension liability - multiemployer plan withdrawal		48		52
Provision for environmental and asset retirement    obligations (Note 22)		35		38
Stock-based compensation - liability awards		17		13
Derivative financial instruments (Note 23)		10		14
Other		21		22
		358		350

ASSET RETIREMENT OBLIGATIONS

The asset retirement obligations are principally linked to landfill capping obligations and demolition of certain abandoned buildings. At December 31, 2016, Domtar estimated the net present value of its asset retirement obligations to be $16 million (2015 – $16 million); the present value is based on probability weighted undiscounted cash outflows of $60 million (2015 – $61 million). The majority of the asset retirement obligations are estimated to be settled prior to December 31, 2056. Domtar’s credit adjusted risk-free rates were used to calculate the net present value of the asset retirement obligations. The rates used vary between 5.5% and 12.0%, based on the prevailing rate at the moment of recognition of the liability and on its settlement period.

The following table reconciles Domtar’s asset retirement obligations:

	December 31,			December 31,
	2016			2015
	$			$
Asset retirement obligations, beginning of year		16			20
Revisions to estimated cash flows		—			(3	)
Asset retirement obligation payments		(1	)		(1	)
Accretion expense		1			1
Effect of foreign currency exchange rate change		—			(1	)
Asset retirement obligations, end of year		16			16

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Shareholders' Equity

12 Months Ended

Dec. 31, 2016

Equity [Abstract]

Shareholders' Equity

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 21.

SHAREHOLDERS’ EQUITY

On April 30, 2014, the Company’s Board of Directors approved a 2-for-1 split of its common stock that was effected through a stock dividend. Shareholders of record on June 10, 2014 received one additional share for every share they owned on that date. As a result of the stock split, total shares of the Company’s common stock outstanding increased from approximately 32.5  million to 65 million.

During 2016, the Company declared one quarterly dividend of $0.40 per share and three quarterly dividends of $0.415 per share, to holders of the Company’s common stock. The total dividends of approximately $25 million, $26 million, $26 million and $26 million were paid on April 15, 2016, July 15, 2016, October 17, 2016 and January 17, 2017, respectively, to shareholders of record as of April 4, 2016, July 5, 2016, October 3, 2016 and January 3, 2017, respectively.

During 2015, the Company declared four quarterly dividends of $0.40 per share, to holders of the Company’s common stock. The total dividends of approximately $26 million, $25 million, $25 million and $25 million were paid on April 15, 2015, July 15, 2015, October 15, 2015 and January 15, 2016, respectively, to shareholders of record as of April 2, 2015, July 2, 2015, October 2, 2015 and January 4, 2016, respectively.

On February 21, 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 April 17, 2017 to shareholders of record on April 3, 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, from time to time, in part to reduce the dilutive effects of stock options and awards, and to improve shareholders’ returns.

The Company makes open market purchases of its common stock using general corporate funds. Additionally, the Company 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 2016, the Company repurchased 304,915 shares (2015 – 1,210,932; 2014 – 996,967) at an average price of $32.21 (2015 – $41.40; 2014 – $38.59) for a total cost of $10 million (2015 – $50 million; 2014 – $38 million).

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

The authorized stated capital consists of the following:

PREFERRED SHARES

The Company is authorized to issue 20 million preferred shares, par value $0.01 per share. The Board of Directors of the Company will determine the voting powers (if any) of the shares, and the preferences and relative, participating, optional or other special rights, if any, and any qualifications, limitations or restrictions thereof, of the shares at the time of issuance. No preferred shares were outstanding at December 31, 2016 or December 31, 2015.

COMMON STOCK

The Company is authorized to issue two billion shares of common stock, par value $0.01 per share. Holders of the Company’s common stock are entitled to one vote per share.

The changes in the number of outstanding common stock and their aggregate stated value during the years ended December 31, 2016 and December 31, 2015, were as follows:

	December 31,					December 31,
	2016					2015
	Number					Number
Common stock	of shares			$		of shares			$
Balance at beginning of year		62,849,936			1		64,010,087			1
Shares issued
Treasury stock (1)		(261,099	)		—		(1,160,151	)		—
Balance at end of year		62,588,837			1		62,849,936			1

⁽¹⁾ During 2016, the Company repurchased 304,915 shares through the Program (2015 – 1,210,932) and issued 43,816 shares (2015 – 50,781) out of Treasury stock in conjunction with the exercise of stock-based compensation awards.

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Commitments and Contingencies

12 Months Ended

Dec. 31, 2016

Commitments And Contingencies Disclosure [Abstract]

Commitments and Contingencies

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 22.

COMMITMENTS AND CONTINGENCIES

ENVIRONMENTAL MATTERS

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

In 2016, the Company’s operating expenses for environmental matters amounted to $65 million (2015 – $70 million; 2014 – $68 million).

The Company made capital expenditures for environmental matters of $4 million in 2016 (2015 – $7 million; 2014 – $14 million).

An action was commenced by Seaspan International Ltd. (“Seaspan”) in the Supreme Court of British Columbia, on March 31, 1999 against the Company and others with respect to alleged contamination of Seaspan’s site bordering Burrard Inlet in North Vancouver, British Columbia, including contamination of sediments in Burrard Inlet, due to the presence of creosote and heavy metals. On February 16, 2010, the government of British Columbia issued a Remediation Order to Seaspan and the Company, in order to define and implement an action plan to address soil, sediment and groundwater issues. Working with authorities, Seaspan and the Company selected a remedial plan and obtained permitting approval on May 14, 2015 from the Vancouver Fraser Port Authority. Construction began in January 2017. The Company has 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:

	December 31,			December 31,
	2016			2015
	$			$
Balance at beginning of year		52			60
Additions		2			1
Environmental spending		(5	)		(3	)
Accretion		—			1
Effect of foreign currency exchange rate change		1			(7	)
Balance at end of year (1)		50			52

⁽¹⁾ At December 31, 2016, $15 million is shown in Trade and other payables (see Note 17) and $35 million is shown in Other liabilities and deferred credits (see Note 20).

At December 31, 2016, anticipated undiscounted payments in each of the next five years are as follows:

	2017		2018		2019		2020		2021		Thereafter		Total
	$		$		$		$		$		$		$
Environmental provision and asset    retirement obligations		15		6		4		1		2		66		94

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 Paris Agreement was negotiated at the Conference of the Parties to the Kyoto Protocol in December 2015. Domtar does not expect to be disproportionately affected by the agreement compared with other pulp and paper producers in jurisdictions where the Company has operations.

In the United States, EPA’s Clean Power Plan requires states to develop compliance plans to reduce greenhouse gases (“GHG”) emissions beginning in 2022 from existing electric utilities. The Clean Power Plan requirements could result in significant changes to state energy resources and increase the cost of purchased energy in most states. The final rule is being litigated and on February 9, 2016, the U.S. Supreme Court stayed the implementation of the Clean Power Plan until the litigation is resolved. Oral argument was held before the U.S. Court of Appeals for the D.C. Circuit on September 27, 2016, and a final decision is expected within months, although subsequent appeals to the U.S. Supreme Court are likely. 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 EPA is also developing a biogenic carbon accounting framework to account for carbon dioxide emissions from biomass fuels for Clean Air Act permitting and other regulatory purposes. The Company does not expect to be disproportionately affected by any future EPA measures compared with other pulp and paper producers in the U.S.

The Government of Canada is reviewing national policies to further GHG reductions and has announced its intent to establish a national price on carbon emissions. The Company does not expect its facilities to be disproportionately affected by these measures compared with other pulp and paper producers in Canada.

The province of Quebec has a GHG cap-and-trade system with reduction targets. British Columbia has a carbon tax that applies to the purchase of fossil fuels within the province. The province of Ontario has finalized a cap-and-trade program with the first compliance period beginning January 1, 2017 through 2020. The Company does not expect to be disproportionately affected compared to the other large pulp and paper producers located in these provinces.

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

The Company has implemented its plans and is in compliance with EPA’s Boiler MACT rule. On December 23, 2016, The U.S. Court of Appeals for the D.C. Circuit granted EPA’s request to remand versus vacate certain standards in the Boiler MACT rule. The Court directed the EPA to identify the affected standards and issue the rulemaking to implement replacement standards expeditiously. Adjustments to compliance plans may be needed to accommodate any changes to the final rule.  It is not expected that any changes will require additional capital costs for compliance and/or additional operating costs.

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 December 31, 2016, cannot be predicted with certainty, it is management’s opinion that their resolution will not have a material adverse effect on the Company’s financial position, results of operations or cash flows.

Spanish Competition Investigation

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 channelin 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 (income), net.

On May 26, 2016, the CNMC rendered its final decision, which declared that a number of manufacturers of heavy adult 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 (income), 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 (income), 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.

LEASE AND OTHER COMMERCIAL COMMITMENTS

The Company has entered into operating leases for property, plant and equipment. The Company also has commitments to purchase property, plant and equipment, roundwood, wood chips, gas and certain chemicals. Purchase orders in the normal course of business are excluded from the table below. Any amounts for which the Company is liable under purchase orders are reflected in the Consolidated Balance Sheets as Trade and other payables. Minimum future payments under these operating leases and other commercial commitments, determined at December 31, 2016, were as follows:

	2017		2018		2019		2020		2021		Thereafter		Total
	$		$		$		$		$		$		$
Operating leases		25		23		18		16		13		38		133
Other commercial commitments		87		8		5		3		2		1		106

Total operating lease expense amounted to $28 million in 2016 (2015 – $28 million; 2014 – $32 million).

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 December 31, 2016, the Company is unable to estimate the potential maximum liabilities for these types of indemnification guarantees as the amounts are contingent upon the outcome of future events, the nature and likelihood of which cannot be reasonably estimated at this time. Accordingly, no provision has been recorded. These indemnifications have not yielded a significant expense in the past.

Pension Plans

The Company has indemnified and held harmless the trustees of its pension funds, and the respective officers, directors, employees and agents of such trustees, from any and all costs and expenses arising out of the performance of their obligations under the relevant trust agreements, including in respect of their reliance on authorized instructions from the Company or for failing to act in the absence of authorized instructions. These indemnifications survive the termination of such agreements. At December 31, 2016 the Company has not recorded a liability associated with these indemnifications, as it does not expect to make any payments pertaining to these indemnifications.

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Derivatives and Hedging Activities and Fair Value Measurement

12 Months Ended

Dec. 31, 2016

Derivative Instruments And Hedging Activities Disclosure [Abstract]

Derivatives and Hedging Activities and Fair Value Measurement

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 23.

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 years 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 December 31, 2016, one of Domtar’s Pulp and Paper segment customers located in the U.S. represented 12% or $74 million (2015 – 12% or $78 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. In December 2014, the Company entered into a $100 million notional 2.5 year fixed to floating interest rate swap. This swap was designated as a fair value hedge for a portion of its 10.75% Notes due June 2017. The changes in fair value of both the hedging and the hedged item were immediately recognized in interest expense. In August 2015, the Company terminated this swap simultaneously with the redemption of $215 million of its 10.75% Notes, with no significant impact on net earnings.

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.

The following table presents the volumes under derivative financial instruments for natural gas contracts outstanding as of December 31, 2016 to hedge forecasted purchases:

Commodity	Notional contractual quantity under derivative contracts MMBTU(1)	Notional contractual value under derivative contracts (in millions of dollars)			Percentage of forecasted purchases under derivative contracts
Natural gas
2017	8,980,000		$	28		35%
2018	5,085,000		$	15		20%
2019	6,560,000		$	20		26%
2020	5,750,000		$	18		23%
2021	3,920,000		$	12		15%

⁽¹⁾ MMBTU: Millions of British thermal units

The natural gas derivative contracts were fully effective as of December 31, 2016. There were no amounts reflected in the Consolidated Statements of Earnings and Comprehensive Income (Loss) for the year ended December 31, 2016 resulting from hedge ineffectiveness (2015 and 2014 – 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 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. Derivatives are currently used to hedge a portion of forecasted sales by its U.S. subsidiaries in Euros and in British pounds over a period of between 6 to 12 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 a period of between 12 to 18 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.

The following table presents the currency values under significant currency positions pursuant to currency derivatives outstanding as of December 31, 2016 to hedge forecasted purchases and sales:

				Percentage of
			Notional	forecastednet
	Business	Year of	contractual	exposures under		Average	Average
Currency exposure hedged	Segment	maturity	value	contracts		Protection rate	Obligation rate
		2017
CDN/USD	Pulp and Paper		511 CDN		66%	1 USD = 1.3045	1 USD = 1.3570
USD/Euro	Personal Care		55 USD		82%	1 Euro = 1.1336	1 Euro = 1.1336
Euro/USD	Pulp and Paper		19 EUR		31%	1 Euro = 1.1370	1 Euro = 1.1370
		2018
CDN/USD	Pulp and Paper		225 CDN		29%	1 USD = 1.2951	1 USD = 1.3519
USD/Euro	Personal Care		14 USD		20%	1 Euro = 1.1532	1 Euro = 1.1532

The foreign exchange derivative contracts were fully effective as of December 31, 2016. There were no amounts reflected in the Consolidated Statements of Earnings and Comprehensive Income (Loss) for the year ended December 31, 2016 resulting from hedge ineffectiveness (2015 and 2014 - 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.

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

			Quotedprices in		Significant		Significant
			active markets for		observable		unobservable
	December 31,		identical assets		inputs		inputs
Fair Value of financial instruments at:	2016		(Level 1)		(Level 2)		(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:
Long-term debt		1,313		—		1,313		—	(c)	Long-term debt

The net cumulative gain recorded in Accumulated other comprehensive loss relating to natural gas contracts is $3 million at December 31, 2016, of which $5 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 December 31, 2016.

The net cumulative gain recorded in Accumulated other comprehensive loss relating to currency options and forwards hedging forecasted purchases of $8 million at December 31, 2016, 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 December 31, 2016.

			Quoted prices in		Significant		Significant
			active markets for		observable		unobservable
	December 31,		identical assets		inputs		inputs
Fair Value of financial instruments at:	2015		(Level 1)		(Level 2)		(Level 3)			Balance sheet classification
	$		$		$		$
Derivatives designated as hedging instruments:
Asset derivatives
Currency derivatives		6		—		6		—	(a)	Prepaid expenses
Natural gas swap contracts		1		—		1		—	(a)	Prepaid expenses
Currency derivatives		2		—		2		—	(a)	Other assets
Natural gas swap contracts		1		—		1		—	(a)	Other assets
Total Assets		10		—		10		—
Liabilities derivatives
Currency derivatives		39		—		39		—	(a)	Trade and other payables
Natural gas swap contracts		14		—		14		—	(a)	Trade and other payables
Currency derivatives		10		—		10		—	(a)	Other liabilities and deferred credits
Natural gas swap contracts		4		—		4		—	(a)	Other liabilities and deferred credits
Total Liabilities		67		—		67		—
Other Instruments:
Asset backed notes ("ABN")		1		—		—		1	(b)	Other assets
Long-term debt		1,261		—		1,261		—	(c)	Long-term debt

^(a) Fair value of the Company’s derivatives is 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) ABN are reported at fair value utilizing Level 3 inputs. Fair value of ABN reported under Level 3 is based on the value of the collateral investments held in the conduit issuer, reduced by the negative value of credit default derivatives, with an additional discount applied for illiquidity. These ABN are held outside of the Company’s pension plans.

^(c) 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 December 31, 2016 and December 31, 2015. However, fair value disclosure is required. The carrying value of the Company’s long-term debt is $1,281 million and $1,251  million at December 31, 2016 and December 31, 2015, 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.

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Segment Disclosures

12 Months Ended

Dec. 31, 2016

Segment Reporting [Abstract]

Segment Disclosures

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 24.

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.

The accounting policies of the reportable segments are the same as described in Note 1. The Company evaluates segment performance based on operating income. Transfer prices between segments are based on market prices. Certain Corporate general and administrative costs are allocated to the segments. Corporate costs that are not related to segment activities, as well as the mark-to-market impact on stock based compensation awards, are presented on the Corporate line. The Company does not allocate interest expense and income taxes to the segments. Segment assets are those directly used in segment operations.

The Company attributes sales to customers in different geographical areas on the basis of the location of the customer.

Long-lived assets consist of property, plant and equipment, intangible assets and goodwill used in the generation of sales in the different geographical areas.

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

	Year ended			Year ended			Year ended
	December 31,			December 31,			December 31,
SEGMENT DATA	2016			2015			2014
	$			$			$
Sales
Pulp and Paper		4,239			4,458			4,674
Personal Care		917			869			928
Total for reportable segments		5,156			5,327			5,602
Intersegment sales		(58	)		(63	)		(39	)
Consolidated sales (1)		5,098			5,264			5,563
Depreciation and amortization    of property, plant and equipment
Pulp and Paper		284			297			319
Personal Care		64			62			65
Total for reportable segments		348			359			384
Impairment of property, plant and    equipment - Pulp and Paper		29			77			4
Consolidated depreciation and amortization and impairment    of property, plant and equipment		377			436			388
Operating income (loss)
Pulp and Paper		217			270			352
Personal Care		57			61			49
Corporate		(51	)		(43	)		(37	)
Consolidated operating income		223			288			364
Interest expense, net		66			132			103
Earnings before income taxes		157			156			261
Income tax expense (benefit)		29			14			(170	)
Net earnings		128			142			431

⁽¹⁾ In 2016 and 2015, Staples, one of the Company’s largest customers in the Pulp and Paper segment, represented approximately 11% (2015 – 10%) of the total sales.

	December 31,		December 31,
	2016		2015
	$		$
Segment assets
Pulp and Paper		3,637		3,667
Personal Care		1,884		1,822
Total for reportable segments		5,521		5,489
Corporate		159		165
Consolidated assets		5,680		5,654

	Year ended		Year ended		Year ended
	December 31,		December 31,		December 31,
SEGMENT DATA (CONTINUED)	2016		2015		2014
	$		$		$
Additions to property, plant and equipment
Pulp and Paper		287		221		161
Personal Care		55		57		86
Total for reportable segments		342		278		247
Corporate		4		6		5
Consolidated additions to property, plant and equipment		346		284		252
Add: Change in payables on capital projects		1		5		(16	)
Consolidated additions to property, plant and equipment    per Consolidated Statements of Cash Flows		347		289		236

	Year ended		Year ended		Year ended
	December 31,		December 31,		December 31,
	2016		2015		2014
	$		$		$
Geographic information
Sales
United States		3,571		3,776		3,910
Canada		493		492		591
Europe		605		561		659
Asia		351		302		257
Other foreign countries		78		133		146
		5,098		5,264		5,563

	December 31,		December 31,
	2016		2015
	$		$
Long-lived assets
United States		2,589		2,566
Canada		642		640
Europe		752		769
		3,983		3,975

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Supplemental Guarantor Financial Information

12 Months Ended

Dec. 31, 2016

Condensed Financial Information Of Parent Company Only Disclosure [Abstract]

Supplemental Guarantor Financial Information

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 25.

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 December 31, 2016 and 2015 and the Statements of Earnings and Comprehensive Income (Loss) and Cash Flows for the years ended December 31, 2016, 2015 and 2014 for Domtar Corporation (the “Parent”), and on a combined basis for the Guarantor Subsidiaries and, on a combined basis, the Non-Guarantor Subsidiaries. The supplemental condensed consolidating financial information reflects the investments of the Parent in the Guarantor Subsidiaries, as well as the investments of the Guarantor Subsidiaries in the Non-Guarantor Subsidiaries, using the equity method.

CONDENSED CONSOLIDATING STATEMENT OF EARNINGS	Year ended
AND COMPREHENSIVE INCOME	December 31, 2016
							Non-
				Guarantor			Guarantor			Consolidating
	Parent			Subsidiaries			Subsidiaries			Adjustments			Consolidated
	$			$			$			$			$
Sales		—			4,203			2,040			(1,145	)		5,098
Operating expenses
Cost of sales, excluding depreciation and    amortization		—			3,638			1,542			(1,145	)		4,035
Depreciation and amortization		—			256			92			—			348
Selling, general and administrative		17			93			317			—			427
Impairment of property, plant and equipment		—			29			—			—			29
Closure and restructuring costs		—			31			1			—			32
Other operating loss (income), net		1			(1	)		4			—			4
		18			4,046			1,956			(1,145	)		4,875
Operating (loss) income		(18	)		157			84			—			223
Interest expense (income), net		65			50			(49	)		—			66
(Loss) earnings before income taxes		(83	)		107			133			—			157
Income tax (benefit) expense		(43	)		36			36			—			29
Share in earnings of equity accounted investees		168			97			—			(265	)		—
Net earnings		128			168			97			(265	)		128
Other comprehensive income (loss)		2			(12	)		(35	)		47			2
Comprehensive income		130			156			62			(218	)		130

CONDENSED CONSOLIDATING STATEMENT OF EARNINGS	Year ended
AND COMPREHENSIVE LOSS	December 31, 2015
							Non-
				Guarantor			Guarantor			Consolidating
	Parent			Subsidiaries			Subsidiaries			Adjustments			Consolidated
	$			$			$			$			$
Sales		—			4,346			2,070			(1,152	)		5,264
Operating expenses
Cost of sales, excluding depreciation and    amortization		—			3,726			1,573			(1,152	)		4,147
Depreciation and amortization		—			256			103			—			359
Selling, general and administrative		11			105			278			—			394
Impairment of property, plant and equipment		—			77			—			—			77
Closure and restructuring costs		—			3			1			—			4
Other operating loss (income), net		5			(3	)		(7	)		—			(5	)
		16			4,164			1,948			(1,152	)		4,976
Operating (loss) income		(16	)		182			122			—			288
Interest expense (income), net		131			30			(29	)		—			132
(Loss) earnings before income taxes		(147	)		152			151			—			156
Income tax (benefit) expense		(63	)		38			39			—			14
Share in earnings of equity accounted investees		226			112			—			(338	)		—
Net earnings		142			226			112			(338	)		142
Other comprehensive loss		(233	)		(235	)		(215	)		450			(233	)
Comprehensive loss		(91	)		(9	)		(103	)		112			(91	)

CONDENSED CONSOLIDATING STATEMENT OF EARNINGS	Year ended
AND COMPREHENSIVE INCOME (LOSS)	December 31, 2014
							Non-
				Guarantor			Guarantor			Consolidating
	Parent			Subsidiaries			Subsidiaries			Adjustments			Consolidated
	$			$			$			$			$
Sales		—			4,440			2,250			(1,127	)		5,563
Operating expenses
Cost of sales, excluding depreciation and    amortization		—			3,762			1,761			(1,127	)		4,396
Depreciation and amortization		—			264			120			—			384
Selling, general and administrative		29			209			178			—			416
Impairment of property, plant and equipment		—			4			—			—			4
Closure and restructuring costs		—			7			21			—			28
Other operating loss (income), net		2			(26	)		(5	)		—			(29	)
		31			4,220			2,075			(1,127	)		5,199
Operating (loss) income		(31	)		220			175			—			364
Interest expense (income), net		101			26			(24	)		—			103
(Loss) earnings before income taxes		(132	)		194			199			—			261
Income tax (benefit) expense		(51	)		(151	)		32			—			(170	)
Share in earnings of equity accounted investees		512			167			—			(679	)		—
Net earnings		431			512			167			(679	)		431
Other comprehensive loss		(203	)		(194	)		(168	)		362			(203	)
Comprehensive income (loss)		228			318			(1	)		(317	)		228

CONDENSED CONSOLIDATING BALANCE SHEET	December 31, 2016
					Non-
			Guarantor		Guarantor		Consolidating
	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

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

CONDENSED CONSOLIDATING STATEMENT OF    CASH FLOWS	Year ended December 31, 2016
							Non-
				Guarantor			Guarantor			Consolidating
	Parent			Subsidiaries			Subsidiaries			Adjustments			Consolidated
	$			$			$			$			$
Operating activities
Net earnings		128			168			97			(265	)		128
Changes in operating and intercompany assets and    liabilities and non-cash items, included in net    earnings		(4,280	)		4,149			203			265			337
Cash flows (used for) provided from operating activities		(4,152	)		4,317			300			—			465
Investing activities
Additions to property, plant and equipment		—			(265	)		(82	)		—			(347	)
Proceeds from disposals of property, plant and    equipment and sale of business		—			—			1			—			1
Acquisition of businesses, net of cash acquired		—			(1	)		(45	)		—			(46	)
Other		—			—			1			—			1
Cash flows used for investing activities		—			(266	)		(125	)		—			(391	)
Financing activities
Dividend payments		(102	)		—			—			—			(102	)
Stock repurchase		(10	)		—			—			—			(10	)
Net change in bank indebtedness		—			12			—			—			12
Proceeds from receivables securitization facilities		—			—			140			—			140
Repayments of receivables securitization facilities		—			—			(70	)		—			(70	)
Repayments of long-term debt		(38	)		(1	)		(1	)		—			(40	)
Increase in long-term advances to related parties		—			(4,050	)		(223	)		4,273			—
Decrease in long-term advances to related parties		4,273			—			—			(4,273	)		—
Other		(3	)		—			—			—			(3	)
Cash flows provided from (used for) financing    activities		4,120			(4,039	)		(154	)		—			(73	)
Net (decrease) increase in cash and cash equivalents		(32	)		12			21			—			1
Impact of foreign exchange on cash		—			—			(2	)		—			(2	)
Cash and cash equivalents at beginning of year		49			2			75			—			126
Cash and cash equivalents at end of year		17			14			94			—			125

CONDENSED CONSOLIDATING STATEMENT OF    CASH FLOWS	Year ended December 31, 2015
							Non-
				Guarantor			Guarantor			Consolidating
	Parent			Subsidiaries			Subsidiaries			Adjustments			Consolidated
	$			$			$			$			$
Operating activities
Net earnings		142			226			112			(338	)		142
Changes in operating and intercompany assets and    liabilities and non-cash items, included in net    earnings		134			(250	)		89			338			311
Cash flows provided from (used for) operating activities		276			(24	)		201			—			453
Investing activities
Additions to property, plant and equipment		—			(210	)		(79	)		—			(289	)
Proceeds from disposals of property, plant and    equipment		1			7			28			—			36
Other		—			—			9			—			9
Cash flows provided from (used for) investing activities		1			(203	)		(42	)		—			(244	)
Financing activities
Dividend payments		(100	)		—			—			—			(100	)
Stock repurchase		(50	)		—			—			—			(50	)
Net change in bank indebtedness		—			(11	)		—			—			(11	)
Change of revolving credit facility		50			—			—			—			50
Issuance of long-term debt		—			300			—			—			300
Repayments of long-term debt		(436	)		(2	)		(1	)		—			(439	)
Increase in long-term advances to related parties		—			(75	)		(152	)		227			—
Decrease in long-term advances to related parties		227			—			—			(227	)		—
Other		2			(1	)		—			—			1
Cash flows (used for) provided from financing    activities		(307	)		211			(153	)		—			(249	)
Net (decrease) increase in cash and cash equivalents		(30	)		(16	)		6			—			(40	)
Impact of foreign exchange on cash		—			—			(8	)		—			(8	)
Cash and cash equivalents at beginning of year		79			18			77			—			174
Cash and cash equivalents at end of year		49			2			75			—			126

CONDENSED CONSOLIDATING STATEMENT OF	Year ended
CASH FLOWS	December 31, 2014
							Non-
				Guarantor			Guarantor			Consolidating
	Parent			Subsidiaries			Subsidiaries			Adjustments			Consolidated
	$			$			$			$			$
Operating activities
Net earnings		431			512			167			(679	)		431
Changes in operating and intercompany assets    and liabilities and non-cash items, included in    net earnings		(220	)		(380	)		124			679			203
Cash flows from operating activities		211			132			291			—			634
Investing activities
Additions to property, plant and equipment		—			(139	)		(97	)		—			(236	)
Proceeds from disposals of property, plant and    equipment		—			—			1			—			1
Acquisition of business, net of cash acquired		—			—			(546	)		—			(546	)
Other		—			—			(5	)		—			(5	)
Cash flows used for investing activities		—			(139	)		(647	)		—			(786	)
Financing activities
Dividend payments		(84	)		—			—			—			(84	)
Stock repurchase		(38	)		—			—			—			(38	)
Net change in bank indebtedness		(1	)		(4	)		(1	)		—			(6	)
Change of revolving credit facility		(160	)		—			—			—			(160	)
Proceeds from receivables securitization facilities		—			—			90			—			90
Repayments of receivables securitization facilities		—			—			(129	)		—			(129	)
Repayments of long-term debt		—			(3	)		(1	)		—			(4	)
Increase in long-term advances to related parties		(292	)		—			—			292			—
Decrease in long-term advances to related parties		—			10			282			(292	)		—
Other		4			—			1			—			5
Cash flows (used for) provided from financing    activities		(571	)		3			242			—			(326	)
Net decrease in cash and cash equivalents		(360	)		(4	)		(114	)		—			(478	)
Impact of foreign exchange on cash		—			—			(3	)		—			(3	)
Cash and cash equivalents at beginning of year		439			22			194			—			655
Cash and cash equivalents at end of year		79			18			77			—			174

1

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Interim Financial Results

12 Months Ended

Dec. 31, 2016

Quarterly Financial Information Disclosure [Abstract]

Interim Financial Results

Domtar Corporation

Interim Financial Results (Unaudited)

(in millions of dollars, unless otherwise noted)

2016	1st Quarter			2nd Quarter			3rd Quarter			4th Quarter			Year
Sales	$	1,287		$	1,267		$	1,270		$	1,274		$	5,098
Operating income		18	(a)		39	(b)		92	(c)		74	(d)		223
Earnings before income taxes		1			24			75			57			157
Net earnings		4			18			59			47			128
Basic net earnings per common share		0.06			0.29			0.94			0.75			2.04
Diluted net earnings per common share		0.06			0.29			0.94			0.75			2.04

2015	1st Quarter			2nd Quarter			3rd Quarter				4th Quarter			Year
Sales	$	1,348		$	1,310		$	1,292			$	1,314		$	5,264
Operating income		71	(e)		62	(f)		61		(g)		94	(h)		288
Earnings (loss) before income taxes		45			37			(3	)			77			156
Net earnings		36			38			11				57			142
Basic net earnings per common share		0.56			0.60			0.17				0.91			2.24
Diluted net earnings per common share		0.56			0.60			0.17				0.91			2.24

(a) The operating income for the first Quarter of 2016 included closure and restructuring costs of $2 million related to our Pulp and Paper segment.

The Company also incurred an additional $21 million of accelerated depreciation at its Ashdown, Arkansas mill, as part of the conversion to the fluff pulp line.

(b) The operating income for the second Quarter of 2016 included closure and restructuring costs of $21 million and an additional $3 million of accelerated depreciation at its Ashdown, Arkansas mill, as part of the conversion to the fluff pulp line.

(c) The operating income for the third Quarter of 2016 included closure and restructuring costs of $5 million related to our Pulp and Paper segment.

The Company also incurred $5 million of closure and restructuring costs and an additional $5 million of accelerated depreciation at its Ashdown, Arkansas mill, as part of the conversion to the fluff pulp line.

(d) The operating income for the fourth Quarter of 2016 included closure and restructuring costs of $1 million related to our Personal Care segment and $(2) million related to our Pulp and Paper segment.

(e) The operating income for the first Quarter of 2015 included closure and restructuring costs of $1 million related to our Personal Care segment.

The Company also incurred a gain on disposal of property, plant and equipment of $1 million related to our Corporate segment.

In addition, the Company incurred $19 million of accelerated depreciation at its Ashdown, Arkansas mill, as part of the conversion to the fluff pulp line.

(f) The operating income for the second Quarter of 2015 included $1 million of closure and restructuring costs related to our Pulp and Paper segment.

The company also recorded a gain on disposal of property, plant and equipment of $14 million, mostly relating to the sale of its former Ottawa mill.

In addition, the Company incurred an additional $18 million of accelerated depreciation at its Ashdown, Arkansas mill.

(g) The operating income for the third Quarter of 2015 included closure and restructuring costs of $1 million related to our Pulp and Paper segment.

The Company also incurred an additional $20 million of accelerated depreciation at its Ashdown, Arkansas mill, as part of the conversion to the fluff pulp line.

(h) The operating income for the fourth Quarter of 2015 included closure and restructuring costs of $1 million related to our Pulp and Paper segment.

The Company also incurred an additional $20 million of accelerated depreciation at its Ashdown, Arkansas mill, as part of the conversion to the fluff pulp line.

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Valuation and Qualifying Accounts

12 Months Ended

Dec. 31, 2016

Valuation And Qualifying Accounts [Abstract]

Valuation and Qualifying Accounts

FINANCIAL STATEMENT SCHEDULE

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS

For the three years ended:

	Balance at		Charged to		Additions to / (Deductions) from			Balance at end
	beginnings of year		income		reserve			of year
	$		$		$			$
Allowances deducted from related asset accounts:
Doubtful accounts - Accounts receivable
2016		6		—		1			7
2015		6		5		(5	)		6
2014		4		2		—			6

	Balance at		Charged to			Deductions from			Balance at end
	beginnings of year		income			reserve			of year
	$		$			$			$
Valuation Allowance on Deferred Tax Assets
2016		23		(1	)		—			22
2015		25		(1	)		(1	)		23
2014		19		7			(1	)		25

XML

Summary of Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2016

Basis of Presentation

BASIS OF PRESENTATION

The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America which requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the year, the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements. On an ongoing basis, management reviews the estimates and assumptions, including but not limited to those related to environmental matters and asset retirement obligations, impairment and useful lives of long-lived assets, closure and restructuring costs, pension and other post-retirement benefit plans, income taxes, business combinations and contingencies, based on currently available information. Actual results could differ from those estimates.

Principles of Consolidation

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Domtar and its controlled subsidiaries. Intercompany transactions have been eliminated on consolidation. Investment in an affiliated company, where the Company has joint control over their operations, is accounted for using the equity method.

Translation of Foreign Currencies

TRANSLATION OF FOREIGN CURRENCIES

The Company determines its international subsidiaries’ functional currency by reviewing the currencies in which their respective operating activities occur. The Company translates assets and liabilities of its non-U.S. dollar functional currency subsidiaries into U.S. dollars using the rate in effect at the balance sheet date and revenues and expenses are translated at the average exchange rates during the year. Foreign currency translation gains and losses are included in Shareholders’ equity as a component of Accumulated other comprehensive loss in the accompanying Consolidated Balance Sheets.

Monetary assets and liabilities denominated in a currency that is different from a reporting entity’s functional currency must first be remeasured from the applicable currency to the legal entity’s functional currency. The effect of this remeasurement process is recognized in the Consolidated Statements of Earnings and Comprehensive Income (Loss) and is partially offset by our hedging program (refer to Note 23 “Derivatives and hedging activities and fair value measurement”).

At December 31, 2016, the accumulated translation adjustment accounts amounted to $(278) million (2015 – $(271) million).

Revenue Recognition

REVENUE RECOGNITION

Domtar recognizes revenue when pervasive evidence of an arrangement exists, the customer takes title and assumes the risks and rewards of ownership, the sales price charged is fixed or determinable and when collection is reasonably assured. Revenue is recorded at the time of shipment for terms designated free on board (“f.o.b.”) shipping point. For sales transactions designated f.o.b. destination, revenue is recorded when the product is delivered to the customer’s delivery site, when the title and risk of loss are transferred.

Shipping and Handling Costs

SHIPPING AND HANDLING COSTS

The Company classifies shipping and handling costs as a component of Cost of sales in the Consolidated Statements of Earnings and Comprehensive Income (Loss).

Closure and Restructuring Costs

CLOSURE AND RESTRUCTURING COSTS

Closure and restructuring costs are recognized as liabilities in the period when they are incurred and are measured at their fair value. For such recognition to occur, management, with the appropriate level of authority, must have approved and committed to a firm plan and appropriate communication to those affected must have occurred. These provisions may require an estimation of costs such as severance and termination benefits, pension and related curtailments, environmental remediation and may also include expenses related to demolition and outplacement. Actions taken may also require an evaluation of any remaining assets to determine required impairments, if any, and a review of estimated remaining useful lives which may lead to accelerated depreciation expense.

Estimates of cash flows and fair value relating to closures and restructurings require judgment. Closure and restructuring liabilities are based on management’s best estimates of future events at December 31, 2016. Although the Company does not anticipate significant changes, the actual costs may differ from these estimates due to subsequent developments such as the results of environmental studies, the ability to find a buyer for assets set to be dismantled and demolished and other business developments. As such, additional costs and further working capital adjustments may be required in future periods.

Income Taxes

INCOME TAXES

Domtar uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined according to differences between the carrying amounts and tax bases of the assets and liabilities. The Company records its worldwide tax provision based on the respective tax rules and regulations for the jurisdictions in which it operates. The change in the net deferred tax asset or liability is included in Income tax expense (benefit) or in Other comprehensive income (loss) in the Consolidated Statements of Earnings and Comprehensive Income (Loss). Deferred tax assets and liabilities are measured using enacted tax rates and laws expected to apply in the years in which the assets and liabilities are expected to be recovered or settled. Uncertain tax positions are recorded based upon the Company’s evaluation of whether it is “more likely than not” (a probability level of more than 50 percent) that, based upon its technical merits, the tax position will be sustained upon examination by the taxing authorities. The Company establishes a valuation allowance for deferred tax assets when it is more likely than not that they will not be realized. In general, “realization” refers to the incremental benefit achieved through the reduction in future taxes payable or an increase in future taxes refundable from the deferred tax assets. Deferred tax assets and liabilities are classified as non-current items on the Consolidated Balance Sheets.

The Company recognizes interest and penalties related to income tax matters as a component of Income tax expense (benefit) in the Consolidated Statements of Earnings and Comprehensive Income (Loss).

Cash and Cash Equivalents

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash and short-term investments with original maturities of less than three months and are presented at cost which approximates fair value.

Receivables

RECEIVABLES

Receivables are recorded net of a provision for doubtful accounts that is based on expected collectability. The securitization of receivables is accounted for as secured borrowings. Accordingly, financing expenses related to the securitization of receivables are recognized in earnings as a component of Interest expense in the Consolidated Statements of Earnings and Comprehensive Income (Loss).

Inventories

INVENTORIES

Inventories are stated at the lower of cost or market. Cost includes labor, materials and production overhead. The last-in, first-out (“LIFO”) method is used to account for certain domestic raw materials, in process and finished goods inventories. LIFO inventories were $268 million and $288 million at December 31, 2016 and 2015, respectively. The balance of domestic raw material inventories, all materials and supplies inventories and all foreign inventories are recorded at either the first-in, first-out (“FIFO”) or average cost methods. Had the inventories for which the LIFO method is used been valued under the FIFO method, the amounts at which product inventories are stated would have been $63 million and $66 million greater at December 31, 2016 and 2015, respectively.

Property, Plant and Equipment

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at cost less accumulated depreciation including asset impairments. Costs for repair and maintenance activities are expensed as incurred under the direct expense method of accounting. Interest costs are capitalized for significant capital projects. For timberlands, the amortization is calculated using the unit of production method. For all other assets, depreciation is calculated using the straight-line method over the estimated useful lives of the assets. Buildings and improvements are depreciated over periods of 10 to 40 years and machinery and equipment over periods of 3 to 20 years. No depreciation is recorded on assets under construction.

Impairment of Property, Plant and Equipment

IMPAIRMENT OF PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are reviewed for impairment upon the occurrence of events or changes in circumstances indicating that the carrying value of the assets may not be recoverable, as measured by comparing the net book value of the asset group to their estimated undiscounted future cash flows expected from their use and eventual disposition. Impaired assets are recorded at estimated fair value, determined principally by using the present value of estimated future cash flows expected from their use and eventual disposition (refer to Note 4 “Impairment of property, plant and equipment”).

Goodwill and Other Intangible Assets

GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill is not amortized and is evaluated for impairment at the beginning of the fourth quarter of every year or more frequently whenever indicators of potential impairment exist. The Company performs the impairment test of goodwill at its reporting unit’s level.

The Company has the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount including goodwill. In performing the qualitative assessment, the Company identifies the relevant drivers of fair value of a reporting unit and the relevant events and circumstances that may have an impact on those drivers of fair value and assesses their impact on the fair value of the reporting unit. To carry out the qualitative assessment, the Company considers elements such as the results of recent fair value assessments, macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, specific events affecting the Company and the business. The identification and impact assessment of events and circumstances on the fair value involves significant judgment and assumptions. If, a qualitative assessment is performed and after assessing the totality of events or circumstances, the Company determines that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill, then it performs Step I of the two-step impairment test. The Company can also elect to bypass the qualitative assessment and proceed directly to the Step I of the impairment test.

The first step is to compare the fair value of a reporting unit to its carrying amount, including goodwill. Significant judgment is required to estimate the fair value of a reporting unit.

The Company typically uses an income approach to determine the fair value of a reporting unit. Under the income approach, the Company estimates the fair value of a reporting unit based on the present value of estimated future cash flows. Key assumptions supporting the cash flow projections include, but are not limited to, estimates of future sales volumes, selling prices and costs, changes in working capital, investments in property, plant and equipment and discount rate.  Assumptions used in our impairment evaluations are consistent with internal projections and operating plans. Analysis of the sensitivities of the fair value estimate to changes in assumptions are also performed. Unanticipated market and macroeconomic events and circumstances may occur and could affect the accuracy and validity of management assumptions and estimates.

In the event that the net carrying amount, including goodwill, exceeds the fair value of the reporting unit, the second step of the impairment test must be performed in order to determine the amount of the impairment charge. Fair value of goodwill in Step II of the impairment test is estimated in the same way as goodwill was determined at the date of the acquisition in a business combination, that is, the excess of the fair value of the reporting unit over the fair value of the identifiable net assets of the business.

All goodwill as of December 31, 2016 resides in the Personal Care reporting segment.

Indefinite-lived intangible assets are not amortized and are evaluated individually at the beginning of the fourth quarter of every year, or more frequently whenever indicators of potential impairment exist. The Company has the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of indefinite-lived intangible assets are less than their carrying amounts. The qualitative assessment follows the same process as the one performed for goodwill, as described above. If, a qualitative assessment is performed and after assessing the qualitative factors, the Company determines that it is more likely than not that the indefinite-lived intangible assets are less than their carrying amounts, then a quantitative impairment test is required. The Company can also elect to proceed directly to the quantitative test. The quantitative impairment test consists of comparing the fair value of the indefinite-lived intangible assets determined using a variety of methodologies to their carrying amount. If the carrying amounts of the indefinite-lived intangible assets exceed their fair value, an impairment loss is recognized in an amount equal to that excess. Indefinite-lived intangible assets include trade names related to Attends^®, IncoPack^®, Indasec^® and Reassure^®, catalog rights related to Laboratorios Indas S.A.U., license rights related to Xerox and water rights. The Company reviews its indefinite-lived intangible assets each reporting period to determine whether events and circumstances continue to support indefinite useful lives.

Definite lived intangible assets are stated at cost less amortization and are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. Definite lived intangible assets include water rights, customer relationships, technology, non-compete agreements as well as license rights, which are being amortized using the straight-line method over their respective estimated useful lives. Any potential impairment for definite lived intangible assets will be calculated in the same manner as disclosed under impairment of property, plant and equipment.

Amortization is based on the following useful lives:

	Useful life
Water rights	40 years
Customer relationships	10 to 40 years
Technology	7 to 20 years
Non-Compete agreements	9 years
Licence rights	12 years

Other Assets

OTHER ASSETS

Other assets are recorded at cost.

Debt Issuance Costs

DEBT ISSUANCE COSTS

Debt issuance costs are presented in the Consolidated Balance Sheet as a direct deduction from the carrying value of long-term debt. Debt issuance costs associated with revolving credit arrangements are presented in Other assets in the Consolidated Balance Sheets. Debt issuance costs are amortized using the effective rate method over the term of the related debt and included in Interest expense, net in the Consolidated Statements of Earnings and Comprehensive Income (Loss).

PRESENTATION OF DEBT ISSUANCE COSTS

In April 2015, the FASB issued Accounting Standard Update (“ASU”) 2015-03, “Simplifying the Presentation of Debt Issuance Costs,” which requires debt issuance costs to be presented in the balance sheet as a direct deduction from the carrying value of the associated debt liability, consistent with the presentation of a debt discount. In August 2015, the FASB also issued ASU 2015-15, “Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements,” which allows debt issuance costs associated with line-of-credit arrangements to be presented as an asset.

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

Environmental Costs and Asset Retirement Obligations

ENVIRONMENTAL COSTS AND ASSET RETIREMENT OBLIGATIONS

Environmental expenditures for effluent treatment, air emission, silvicultural activities and site remediation (together referred to as environmental matters) are expensed or capitalized depending on their future economic benefit. In the normal course of business, Domtar incurs certain operating costs for environmental matters that are expensed as incurred. Expenditures for property, plant and equipment that prevent future environmental impacts are capitalized and amortized on a straight-line basis over 10 to 40 years. Provisions for environmental matters are not discounted, due to uncertainty with respect to timing of expenditures, and are recorded when remediation efforts are probable and can be reasonably estimated.

Asset retirement obligations are mainly associated with landfill operation and closure, asbestos containment and removal and bark pile management and are recognized, at fair value, in the period in which Domtar incurs a legal obligation associated with the retirement of an asset. Conditional asset retirement obligations are recognized, at fair value, when the fair value of the liability can be reasonably estimated or on a probability-weighted discounted cash flow estimate. The associated costs are capitalized as part of the carrying value of the related asset and depreciated over its remaining useful life. The liability is accreted using the credit adjusted risk-free interest rate used to discount the cash flow.

Stock-Based Compensation and Other Stock-Based Payments

STOCK-BASED COMPENSATION AND OTHER STOCK-BASED PAYMENTS

Domtar recognizes the cost (net of estimated forfeitures) of employee services received in exchange for awards of equity instruments over the requisite service period, based on their grant date fair value for awards accounted for as equity and based on the quoted market value at the end of each reporting period for awards accounted for as liability. The Company awards are accounted for as compensation expense and presented in Additional paid-in capital on the Consolidated Balance Sheets for equity type awards and presented in Other liabilities and deferred credits on the Consolidated Balance Sheets for liability type awards.

The Company’s awards may be subject to market, performance and/or service conditions. Any consideration paid by plan participants on the exercise of stock options or the purchase of shares is credited to Additional paid-in capital on the Consolidated Balance Sheets. The par value included in the Additional paid-in capital component of stock-based compensation is transferred to Common stock upon the issuance of shares of common stock.

Unless otherwise determined at the time of the grant, awards subject to service conditions vest in approximately equal installments over three years beginning on the first anniversary of the grant date and performance-based awards vest based on achievement of pre-determined performance goals over performance periods of three years. The majority of non-qualified stock options and performance share units expire at various dates no later than seven years from the date of grant. Deferred Share Units vest immediately at the grant date and are remeasured at the end of each reporting period, until settlement, using the quoted market value.

Under the amended and restated Domtar Corporation 2007 Omnibus Incentive Plan (“Omnibus Plan”), a maximum of 1,793,095 shares are reserved for issuance in connection with awards granted or to be granted.

Derivative Instruments

DERIVATIVE INSTRUMENTS

Derivative instruments are utilized by Domtar as part of the overall strategy to manage exposure to fluctuations in foreign currency, interest rate and commodity price on certain purchases. As a matter of policy, derivatives are not used for trading or speculative purposes. All derivatives are recorded at fair value either as assets or liabilities. When derivative instruments have been designated within a hedge relationship and are highly effective in offsetting the identified risk characteristics of specific financial assets and liabilities or group of financial assets and liabilities, hedge accounting is applied. In a fair value hedge, changes in fair value of derivatives are recognized in the Consolidated Statements of Earnings and Comprehensive Income (Loss). The change in fair value of the hedged item attributable to the hedged risk is also recorded in the Consolidated Statements of Earnings and Comprehensive Income (Loss) by way of a corresponding adjustment of the carrying amount of the hedged item recognized in the Consolidated Balance Sheets. In a cash flow hedge, changes in fair value of derivative instruments are recorded in Other comprehensive income (loss). These amounts are reclassified in the Consolidated Statements of Earnings and Comprehensive Income (Loss) in the periods in which results are affected by the cash flows of the hedged item within the same line item. Any hedge ineffectiveness is recorded in the Consolidated Statements of Earnings and Comprehensive Income (Loss) when incurred.

Pension Plans

PENSION PLANS

Domtar’s plans include funded and unfunded defined benefit and defined contribution pension plans. Domtar recognizes the overfunded or underfunded status of defined benefit and underfunded defined contribution pension plans as an asset or liability in the Consolidated Balance Sheets. The net periodic benefit cost includes the following:

- The cost of pension benefits provided in exchange for employees’ services rendered during the period,

- The interest cost of pension obligations,

- The expected long-term return on pension fund assets based on a market value of pension fund assets,

- Gains or losses on settlements and curtailments,

- The straight-line amortization of past service costs and plan amendments over the average remaining service period of approximately eight years of the active employee group covered by the plans, and

- The amortization of cumulative net actuarial gains and losses in excess of 10% of the greater of the accrued benefit obligation or market value of plan assets at the beginning of the year over the average remaining service period of approximately eight years of the active employee group covered by the plans.

The defined benefit plan obligations are determined in accordance with the projected unit credit actuarial cost method.

Other Post-Retirement Benefit Plans

OTHER POST-RETIREMENT BENEFIT PLANS

The Company recognizes the unfunded status of other post-retirement benefit plans (other than multiemployer plans) as a liability in the Consolidated Balance Sheets. These benefits, which are funded by Domtar as they become due, include life insurance programs, medical and dental benefits and short-term and long-term disability programs. The Company amortizes the cumulative net actuarial gains and losses in excess of 10% of the accrued benefit obligation at the beginning of the year over the average remaining service period of approximately 10 years of the active employee group covered by the plans.

Business Combination

BUSINESS COMBINATION

The Company applies the acquisition method of accounting in a business combination. This methodology requires companies to record assets acquired and liabilities assumed at their respective fair market values at the date of acquisition. The value is determined from the viewpoint of market participants. Any amount of the purchase price paid that is in excess of the estimated fair values of net assets acquired is recorded as Goodwill in the Consolidated Balance Sheets. Management's judgment is used to determine the estimated fair values assigned to assets acquired and liabilities assumed, as well as asset useful lives for property, plant and equipment and intangible assets, and can materially affect the Company's results of operations. Transaction costs, as well as costs to reorganize acquired companies, are expensed as incurred in the Company's Consolidated Statements of Earnings and Comprehensive Income (Loss).

Guarantees

GUARANTEES

A guarantee is a contract or an indemnification agreement that contingently requires Domtar to make payments to the other party of the contract or agreement, based on changes in an underlying item that is related to an asset, a liability or an equity security of the other party or on a third party’s failure to perform under an obligating agreement. It could also be an indirect guarantee of the indebtedness of another party, even though the payment to the other party may not be based on changes in an underlying item that is related to an asset, a liability or an equity security of the other party. Guarantees, when applicable, are accounted for at fair value.

Future Accounting Changes [Member]

Revenue Recognition

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 has begun its assessment of 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 modified 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 of its revenue to remain the same.

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

Cash and Cash Equivalents

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.

Inventories

INVENTORY

In July 2015, the FASB issued 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 costs 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 amendments in the update are effective for interim and annual periods beginning after December 15, 2016. The amendments should be applied prospectively and early adoption is permitted.

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

Stock-Based Compensation and Other Stock-Based Payments

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.  This ASU is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years, with early adoption permitted as of the beginning of an interim or annual reporting period.

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

Derivative Instruments

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.

Financial Instruments

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, the Company will be required to make a cumulative-effect adjustment to beginning retained earnings as of the beginning of the fiscal year in which the guidance is effective. Early adoption is permitted.

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

Leases

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.

The Company is currently evaluating the impact of this guidance on the consolidated financial statements, including identifying and analyzing all contracts that contain a lease. 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 (Loss) 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.

Goodwill Impairment

GOODWILL IMPAIRMENT

In January 2017, the FASB issued ASU No. 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. 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 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 does not expect this new guidance to have a material impact on the consolidated financial statements.

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Summary of Significant Accounting Policies (Tables)

12 Months Ended

Dec. 31, 2016

Accounting Changes And Error Corrections [Abstract]

Amortization Period of Finite Lived Assets

Amortization is based on the following useful lives:

	Useful life
Water rights	40 years
Customer relationships	10 to 40 years
Technology	7 to 20 years
Non-Compete agreements	9 years
Licence rights	12 years

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Acquisition of Businesses (Tables)

12 Months Ended

Dec. 31, 2016

Home Delivery Incontinent Supplies Co. [Member]

Fair Value of Assets Acquired

The table below illustrates the purchase price allocation:

Fair value of net assets acquired at the date of acquisition
Receivables		$	4
Inventory			4
Property, plant and equipment			1
Intangible assets
Customer relationships (1)	21
Trade names (2)	13
			34
Goodwill			17
Deferred income tax assets			2
Total assets			62
Less: Liabilities
Trade and other payables			10
Total liabilities			10
Fair value of net assets acquired at the date of    acquisition			52

⁽¹⁾ The useful life of the Customer relationships acquired is estimated at 10 years (as of the date of acquisition).

⁽²⁾ Indefinite useful life.

Laboratorios Indas [Member]

Fair Value of Assets Acquired

The table below illustrates the purchase price allocation:

Fair value of net assets acquired at the date of acquisition
Receivables		$	101
Inventory			28
Income and other taxes receivable			3
Property, plant and equipment			72
Intangible assets
Customer relationships (1)	142
Trade names (2)	140
Catalog rights (2)	46
			328
Goodwill			234
Deferred income tax assets			16
Total assets			782
Less: Liabilities
Trade and other payables			71
Income and other taxes payable			3
Long-term debt (including short-term portion)			42
Deferred income tax liabilities			119
Other liabilities and deferred credits			1
Total liabilities			236
Fair value of net assets acquired at the date of    acquisition			546

⁽¹⁾ The useful life of Customer relationships acquired is between 10-20 years (as of the date of acquisition).

⁽²⁾ Indefinite useful life.

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Stock-Based Compensation (Tables)

12 Months Ended

Dec. 31, 2016

Monte Carlo Simulation [Member]

Assumptions Used in Calculating Fair Value of Options Granted

The following assumptions were used in calculating the fair value of the units granted:

	2016			2015			2014
Dividend yield		4.740	%		3.220	%		1.980	%
Expected volatility 1 year		24	%		34	%		31	%
Expected volatility 3 years		30	%		30	%		31	%
Risk-free interest rate December 31, 2014		—			—			0.499	%
Risk-free interest rate December 31, 2015		—			0.732	%		0.447	%
Risk-free interest rate December 31, 2016		1.057	%		0.893	%		0.755	%
Risk-free interest rate December 31, 2017		0.860	%		1.200	%		—
Risk-free interest rate December 31, 2018		0.900	%		—			—

Black-Scholes Based Option Pricing Model [Member]

Assumptions Used in Calculating Fair Value of Options Granted

The following assumptions were used in calculating the fair value of the options granted:

	2016			2015			2014
Dividend yield		3.78	%		3.22	%		2.62	%
Expected volatility		30	%		32	%		32	%
Risk-free interest rate		1.17	%		1.47	%		1.34	%
Expected life	4.5 years			4.5 years			4.5 years
Strike price	$	33.78		$	43.42		$	53.12

On May 1, 2014, the Company granted 22,448 options to Michael Garcia, President Pulp and Paper Division, as part of his employment conditions, and the following assumptions were used in calculating the fair value of the options granted:

	2014
Dividend yield		2.80	%
Expected volatility		33	%
Risk-free interest rate		1.485	%
Expected life	4.5 years
Strike price	$	47.08

Performance Share Units [Member]

Summary of Outstanding Awards

These awards will cliff vest at various dates up to December 31, 2018.

				Weighted
				average grant
PSUs	Number of units			date fair value
				$
Vested and non-vested at December 31, 2013		350,076			42.60
Granted		175,815			53.97
Forfeited		(33,076	)		45.29
Cancelled		(89,622	)		49.79
Vested and settled		(92,890	)		46.49
Vested and non-vested at December 31, 2014		310,303			45.52
Granted		219,453			44.22
Forfeited		(21,918	)		45.52
Cancelled		(60,768	)		35.40
Vested and settled		(20,991	)		51.48
Vested and non-vested at December 31, 2015		426,079			46.00
Granted		295,504			32.38
Forfeited		(28,523	)		39.81
Cancelled		(101,124	)		51.27
Vested and settled		(74,655	)		35.97
Vested and non-vested at December 31, 2016		517,281			38.93

Restricted Stock Units [Member]

Summary of Outstanding Awards

The grant date fair value of RSUs is equal to the market value of the Company’s stock on the date the awards are granted.

				Weighted
				average grant
RSUs	Number of units			date fair value
				$
Non-vested at December 31, 2013		374,414			41.46
Granted/issued		130,045		49.95
Forfeited		(29,230	)	44.37
Vested and settled		(161,009	)	41.27
Non-vested at December 31, 2014		314,220			44.80
Granted/issued		164,879			43.21
Forfeited		(12,464	)		44.78
Vested and settled		(119,669	)		44.31
Non-vested at December 31, 2015		346,966			44.21
Granted/issued		196,786			34.04
Forfeited		(17,884	)		39.69
Vested and settled		(107,198	)		39.12
Non-vested at December 31, 2016		418,670			40.90

Deferred Share Units [Member]

Summary of Outstanding Awards

In 2016, no vested awards were deferred to DSUs (2015 – nil; 2014 – 6,799). Those DSUs can be settled in shares of common stock beginning February 2017.

				Weighted
				average grant
DSUs	Number of units			date fair value
				$
Vested at December 31, 2013		271,742			25.54
Granted/issued		39,165			44.25
Settled		(48,186	)		32.17
Vested at December 31, 2014		262,721			27.11
Granted/issued		40,494			39.92
Settled		(13,755	)		41.88
Vested at December 31, 2015		289,460			28.20
Granted/issued		46,737			37.43
Settled		(15,123	)		39.60
Vested at December 31, 2016		321,074			29.01

Stock Options [Member]

Summary of Outstanding Awards

The grant date fair value of the non-qualified options granted on May 1, 2014 was $10.52.

				Weighted average		Weighted average		Aggregate intrinsic
	Number			exercise		remaining life		value
OPTIONS (including Performance options)	of options			price		(in years)		(in millions)
				$				$
Outstanding at December 31, 2013		465,674			43.93		2.6		3.3
Granted		270,028			52.48		6.2		—
Exercised		(131,312	)		37.02		—		—
Forfeited/expired		(186,267	)		55.67		—		—
Outstanding at December 31, 2014		418,123			46.39		4.6		0.5
Options exercisable at December 31, 2014		93,027			37.40		2.0		0.3
Outstanding at December 31, 2014		418,123			46.39		4.6		0.5
Granted		82,885			43.42		6.2		—
Exercised		(35,924	)		43.13		—		—
Forfeited/expired		(13,782	)		34.08		—		—
Outstanding at December 31, 2015		451,302			46.48		4.8		0.1
Options exercisable at December 31, 2015		176,315			44.56		3.9		0.1
Outstanding at December 31, 2015		451,302			46.48		4.8		0.1
Granted		114,723			33.78		6.2		—
Exercised		(37,296	)		41.11		—		—
Forfeited/expired		(6,502	)		20.89		—		—
Outstanding at December 31, 2016		522,227			44.39		4.5		0.7
Options exercisable at December 31, 2016		286,011			46.50		3.9		0.1

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Earnings Per Common Share (Tables)

12 Months Ended

Dec. 31, 2016

Earnings Per Share [Abstract]

Reconciliation Between Basic and Diluted Earnings Per Common Share

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

	Year ended		Year ended		Year ended
	December 31,		December 31,		December 31,
	2016		2015		2014
Net earnings	$	128	$	142	$	431
Weighted average number of common    and exchangeable shares outstanding (millions)		62.6		63.3		64.8
Effect of dilutive securities (millions)		0.1		0.1		0.1
Weighted average number of diluted common    and exchangeable shares outstanding (millions)		62.7		63.4		64.9
Basic net earnings per common share (in dollars)	$	2.04	$	2.24	$	6.65
Diluted net earnings per common share (in dollars)	$	2.04	$	2.24	$	6.64

Securities that Could Potentially Dilute Basic Earnings Per Common Share in Future

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:

	December 31,		December 31,		December 31,
	2016		2015		2014
Options		410,978		343,581		247,152

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Pension Plans and Other Post-Retirement Benefit Plans (Tables)

12 Months Ended

Dec. 31, 2016

Compensation And Retirement Disclosure [Abstract]

Change in Accrued Benefit Obligation

The following table represents the change in the accrued benefit obligation as of December 31, 2016 and December 31, 2015, the measurement date for each year:

	December 31, 2016						December 31, 2015
	Pension			Other post-retirement			Pension			Other post-retirement
	plans			benefit plans			plans			benefit plans
	$			$			$			$
Accrued benefit obligation at beginning of year		1,509			86			1,723			105
Service cost for the year		31			2			34			2
Interest expense		51			4			60			4
Plan participants' contributions		6			—			6			—
Actuarial loss (gain)		46			1			(25	)		(5	)
Plan amendments		—			—			10			—
Benefits paid		(83	)		—			(76	)		—
Direct benefit payments		(4	)		(5	)		(3	)		(5	)
Settlement		(6	)		—			(1	)		—
Effect of foreign currency exchange rate change		34			2			(219	)		(15	)
Accrued benefit obligation at end of year		1,584			90			1,509			86

Change in Fair Value of Assets

The following table represents the change in the fair value of assets reflecting the actual return on plan assets, the contributions and the benefits paid during the year:

	December 31, 2016			December 31, 2015
	Pension plans			Pension plans
	$			$
Fair value of assets at beginning of year		1,493			1,721
Actual return on plan assets		73			63
Employer contributions		31			13
Plan participants' contributions		6			6
Benefits paid		(87	)		(79	)
Settlement		(6	)		(1	)
Effect of foreign currency exchange rate change		36			(230	)
Fair value of assets at end of year		1,546			1,493

Allocation of Plan Assets, Based on Fair Value of Assets Held and Target Allocation

The following table shows the allocation of the plan assets, based on the fair value of the assets held and the target allocation for 2016:

			Percentage of			Percentage of
			plan assets at			plan assets at
			December 31,			December 31,
	Target allocation		2016			2015
Fixed income
Cash and cash equivalents	0% - 9%			3	%		2	%
Bonds	46%-56%			51	%		51	%
Insurance contracts		5%		5	%		6	%
Equity
Canadian Equity	3% - 11%			6	%		6	%
U.S. Equity	8% - 18%			13	%		15	%
International Equity	17%-27%			22	%		20	%
Total (1)				100	%		100	%

⁽¹⁾ Approximately 80% of the pension plans' assets relate to Canadian plans and 20% relate to U.S. plans.

Funded Status of Plans

The following table presents the difference between the fair value of assets and the actuarially determined accrued benefit obligation. This difference is also referred to as either the deficit or surplus, as the case may be, or the funded status of the plans. The table further reconciles the amount of the surplus or deficit (funded status) to the net amount recognized in the Consolidated Balance Sheets.

	December 31, 2016						December 31, 2015
	Pension			Other post-retirement			Pension			Other post-retirement
	plans			benefit plans			plans			benefit plans
	$			$			$			$
Accrued benefit obligation at end of year		(1,584	)		(90	)		(1,509	)		(86	)
Fair value of assets at end of year		1,546			—			1,493			—
Funded status		(38	)		(90	)		(16	)		(86	)

Amount Recognized in Consolidated Balance Sheets

The funded status includes $48 million of accrued benefit obligation ($46 million at December 31, 2015) related to supplemental unfunded defined benefit and defined contribution plans.

	December 31, 2016						December 31, 2015
	Pension			Other post-retirement			Pension			Other post-retirement
	plans			benefit plans			plans			benefit plans
	$			$			$			$
Trade and other payables (Note 17)		—			(4	)		—			(4	)
Other liabilities and deferred credits (Note 20)		(141	)		(86	)		(129	)		(82	)
Other assets (Note 15)		103			—			113			—
Net amount recognized in the Consolidated    Balance Sheets		(38	)		(90	)		(16	)		(86	)

Pre-Tax Amounts Included in Other Comprehensive Income (Loss)

The following table presents the pre-tax amounts included in Other comprehensive income (loss):

	Year ended						Year ended					Year ended
	December 31, 2016						December 31, 2015					December 31, 2014
				Other post-						Other post-					Other post-
	Pension			retirement			Pension			retirement		Pension			retirement
	plans			benefit plans			plans			benefit plans		plans			benefit plans
	$			$			$			$		$			$
Prior service credit		—			—			(10	)		—		(1	)		—
Amortization of prior year service cost		5			—			3			—		3			—
Net (loss) gain		(53	)		(2	)		2			4		(8	)		(8	)
Amortization of net actuarial loss		6			—			7			1		28			—
Net amount recognized in other comprehensive    (loss) income (pre-tax)		(42	)		(2	)		2			5		22			(8	)

Components of Net Periodic Benefit Cost for Pension Plans and Other Post-Retirement Benefit Plans

At December 31, 2016, the accrued benefit obligation and the fair value of defined benefit plan assets with an accrued benefit obligation in excess of fair value of plan assets were $765 million and $624 million, respectively (2015 – $405 million and $276 million, respectively).

	Year ended			Year ended			Year ended
	December 31,			December 31,			December 31,
Components of net periodic benefit cost for pension plans	2016			2015			2014
	$			$			$
Service cost for the year		31			34			35
Interest expense		51			60			77
Expected return on plan assets		(80	)		(86	)		(101	)
Amortization of net actuarial loss		5			7			9
Settlement loss(a)		1			—			19
Amortization of prior year service cost		5			3			3
Net periodic benefit cost		13			18			42

	Year ended December 31,		Year ended December 31,		Year ended December 31,
Components of net periodic benefit cost for other post-retirement benefit plans	2016		2015		2014
	$		$		$
Service cost for the year		2		2		2
Interest expense		4		4		5
Net periodic benefit cost		6		6		7

(a) The settlement loss of $19 million in the pension plans for the year ended December 31, 2014 is related to the previously closed Ottawa, Ontario paper mill (see Note 16 “Closure and restructuring costs and liability”).

Key Assumptions to Measure Accrued Benefit Obligation and Net Periodic Benefit Cost

The Company used the following key assumptions to measure the accrued benefit obligation and the net periodic benefit cost. These assumptions are long-term, which is consistent with the nature of employee future benefits.

	December 31,			December 31,			December 31,
Pension plans	2016			2015			2014
Accrued benefit obligation
Discount rate		3.8	%		4.0	%		3.9	%
Rate of compensation increase		2.7	%		2.7	%		2.7	%
Net periodic benefit cost
Discount rate		4.1	%		3.9	%		4.8	%
Rate of compensation increase		2.8	%		2.8	%		2.7	%
Expected long-term rate of return on plan assets		5.3	%		5.6	%		6.3	%

	December 31,			December 31,			December 31,
Other post-retirement benefit plans	2016			2015			2014
Accrued benefit obligation
Discount rate		3.9	%		4.1	%		3.9	%
Rate of compensation increase		2.8	%		2.8	%		2.8	%
Net periodic benefit cost
Discount rate		4.1	%		3.9	%		4.8	%
Rate of compensation increase		2.8	%		2.8	%		2.7	%

Effect of One Percent Change in Assumed Health Care Cost

For measurement purposes, a 5.0% weighted average annual rate of increase in the per capita cost of covered health care benefits was assumed for 2016. The rate was assumed to decrease gradually to 4.1% by 2034 and remain at that level thereafter. An increase or decrease of 1% of this rate would have the following impact:

	Increase of 1%		Decrease of 1%
	$		$
Impact on net periodic benefit cost for other    post-retirement benefit plans		1		—
Impact on accrued benefit obligation		8		(7	)

Schedule Of Fair Value Of Plan Asset By Asset Category Table Text Block

The following table presents the fair value of the plan assets at December 31, 2016, by asset category:

	Fair Value Measurements at
	December 31, 2016
				Quoted Prices
				in Active		Significant			Significant
				Markets for		Observable			Unobservable
				Identical Assets		Inputs			Inputs
Asset Category	Total			(Level 1)		(Level 2)			(Level 3)
	$			$		$			$
Cash and short-term investments		80			80		—			—
Asset backed notes (1)		118			—		115			3
Canadian government bonds		81			81		—			—
Canadian corporate debt securities		3			2		1			—
Bond index funds (2 & 3)		585			—		585			—
Canadian equities (4)		100			100		—			—
U.S. equities (5)		77			77		—			—
International equities (6)		226			226		—			—
U.S. stock index funds (3 & 7)		193			—		193			—
Insurance contracts (8)		84			—		—			84
Derivative contracts (9)		(1	)		—		(1	)		—
Total		1,546			566		893			87

⁽¹⁾ This category is described in the section “Asset Backed Notes”.

⁽²⁾ This category represents two Canadian bond index funds not actively managed that track the FTSE TMX Long-term bond index, and the FTSE TMX Universe bond index and a U.S. actively managed bond fund that is benchmarked to the Barclays Capital Long-term Government/Credit index.

⁽³⁾ The fair value of these plan assets are classified as Level 2 (inputs that are observable, directly or indirectly) as they are measured based on quoted prices in active markets and can be redeemed at the measurement date or in the near term.

⁽⁴⁾ This category represents an active segregated large capitalization Canadian equity portfolio with the ability to purchase small and medium capitalized companies.

⁽⁵⁾ This category represents U.S. equities held within an active segregated global equity portfolio.

⁽⁶⁾ This category represents an active segregated non-North American multi-capitalization equity portfolio and the non-North American portion of an active segregated global equity portfolio.

⁽⁷⁾ This category represents two equity index funds, not actively managed, that track the Russell 3000 index.

⁽⁸⁾ This category includes: 1) two group annuity contracts totaling $76 million purchased through an insurance company that are held in the pension plans’ name as an asset within the pension plans. These insurance contracts cover pension entitlements associated with specific groups of retired members of the pension plans and 2) $8 million of insurance contracts with a minimum guarantee rate.

⁽⁹⁾ The fair value of the derivative contracts are classified as Level 2 (inputs that are observable, directly or indirectly) as they are measured using long-term bond indices.

The following table presents the fair value of the plan assets at December 31, 2015, by asset category:

	Fair Value Measurements at December 31, 2015
			Quoted Prices in Active Markets for Identical Assets		Significant Observable Inputs		Significant Unobservable Inputs
Asset Category	Total		(Level 1)		(Level 2)		(Level 3)
	$		$		$		$
Cash and short-term investments		67		67		—		—
Asset backed notes (1)		146		—		136		10
Canadian government bonds		141		141		—		—
Canadian corporate debt securities		3		2		1		—
Bond index funds (2 & 3)		466		—		466		—
Canadian equities (4)		96		96		—		—
U.S. equities (5)		37		37		—		—
International equities (6)		229		229		—		—
U.S. stock index funds (3 & 7)		218		—		218		—
Insurance contracts (8)		86		—		—		86
Derivative contracts (9)		4		—		4		—
Total		1,493		572		825		96

⁽¹⁾ This category is described in the section “Asset Backed Notes”.

⁽²⁾ This category represents two Canadian bond index fund not actively managed that track the FTSE TMX Long-term bond index, and the FTSE TMX Universe bond index and a U.S. actively managed bond fund that is benchmarked to the Barclays Capital Long-term Government/Credit index.

⁽³⁾ The fair value of these plan assets are classified as Level 2 (inputs that are observable, directly or indirectly) as they are measured based on quoted prices in active markets and can be redeemed at the measurement date or in the near term.

⁽⁴⁾ This category represents active segregated large capitalization Canadian equity portfolios with the ability to purchase small and medium capitalized companies and $4 million of Canadian equities held within an active segregated global equity portfolio.

⁽⁵⁾ This category represents U.S. equities held within an active segregated global equity portfolio.

⁽⁶⁾ This category represents an active segregated non-North American multi-capitalization equity portfolio and the non-North American portion of an active segregated global equity portfolio.

⁽⁷⁾ This category represents equity index funds, not actively managed, that track the Standard & Poor’s 500 (“S&P 500”) index and an equity index fund not actively managed that tracks the Russell 3000 index.

⁽⁸⁾ This category includes: 1) two group annuity contracts totaling $78 million purchased through an insurance company that are held in the pension plans’ name as an asset within the pension plans. These insurance contracts cover pension entitlements associated with specific groups of retired members of the pension plans and 2) $8 million of insurance contracts with a minimum guarantee rate.

⁽⁹⁾ The fair value of the derivative contracts are classified as Level 2 (inputs that are observable, directly or indirectly) as they are measured using long-term bond indices.

Changes in Level 3 Fair Value Measurements of Plan Assets

The following table presents changes during the period for Level 3 fair value measurements of plan assets:

	Fair Value Measurements Using Significant
	Unobservable Inputs (Level 3)
	ABN(1)			Insurance contracts			TOTAL
	$			$			$
Balance at December 31, 2014		15			8			23
(Settlements)/Purchases		(4	)		79			75
Return on plan assets		1			3			4
Effect of foreign currency exchange rate change		(2	)		(4	)		(6	)
Balance at December 31, 2015		10			86			96
(Settlements)/Purchases		(7	)		(5	)		(12	)
Return on plan assets		—			1			1
Effect of foreign currency exchange rate change		—			2			2
Balance at December 31, 2016		3			84			87

⁽¹⁾ Includes $3 million of Montreal Accord in 2016 (2015 – $4 million)

Estimated Future Benefit Payments from Plans

Estimated future benefit payments from the plans for the next 10 years at December 31, 2016 are as follows:

.	Pension plans		Other post-retirement benefit plans
	$		$
2017		102		4
2018		100		4
2019		102		4
2020		102		5
2021		102		5
2022-2026		515		24

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Other Operating Loss (Income), Net (Tables)

12 Months Ended

Dec. 31, 2016

Other Income And Expenses [Abstract]

Components of Other Operating Loss (Income), Net

The Company’s other operating loss (income), net includes the following:

	Year ended December 31, 2016			Year ended December 31, 2015			Year ended December 31, 2014
	$			$			$
Alternative fuel tax credits (Note 10)		—			—			(18	)
Net gain on sale of property, plant and    equipment		—			(15	)		—
Bad debt expense		—			5			2
Environmental provision		2			4			1
Foreign exchange loss (gain)		6			(3	)		(1	)
Proceeds from insurance claims on machinery    and equipment		—			—			(11	)
Other		(4	)		4			(2	)
Other operating loss (income), net		4			(5	)		(29	)

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Interest Expense, Net (Tables)

12 Months Ended

Dec. 31, 2016

Banking And Thrift Interest [Abstract]

Components of Interest Expense, Net

The following table presents the components of interest expense, net:

	Year ended		Year ended			Year ended
	December 31,		December 31,			December 31,
	2016		2015			2014
	$		$			$
Interest on long-term debt (1)		59		82			95
Premium paid on repurchase of long-term debt		—		40			—
Reversal of fair value increment on long-term debt		—		(1	)		—
Interest on receivables securitization		2		1			1
Interest on withdrawal liabilities for multiemployer plans		3		4			3
Amortization of debt issuance costs and other		2		6			4
		66		132			103

⁽¹⁾ The Company capitalized $5 million of interest expense in 2016 ($3 million in 2015 and 2014, respectively).

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Income Taxes (Tables)

12 Months Ended

Dec. 31, 2016

Income Tax Disclosure [Abstract]

Components of Earnings Before Income Taxes

The Company’s earnings before income taxes by taxing jurisdiction were:

	Year ended		Year ended		Year ended
	December 31,		December 31,		December 31,
	2016		2015		2014
	$		$		$
U.S. earnings		69		26		86
Foreign earnings		88		130		175
Earnings before income taxes		157		156		261

Provisions for Income Taxes

Provisions for income taxes include the following:

	Year ended		Year ended			Year ended
	December 31,		December 31,			December 31,
	2016		2015			2014
	$		$			$
U.S. Federal and State:
Current		10		61			20
Deferred		1		(78	)		(213	)
Foreign:
Current		10		9			11
Deferred		8		22			12
Income tax expense (benefit)		29		14			(170	)

Reconciliation of Income Tax Expense (Benefit) to U.S. Federal Statutory Income Tax

The Company’s provision for income taxes differs from the amounts computed by applying the statutory income tax rate of 35% to earnings before income taxes due to the following:

	Year ended			Year ended			Year ended
	December 31,			December 31,			December 31,
	2016			2015			2014
	$			$			$
U.S. federal statutory income tax		55			55			91
Reconciling Items:
State and local income taxes, net of federal    income tax benefit		3			1			3
Foreign income tax rate differential		(14	)		(16	)		(18	)
Tax credits and special deductions		(18	)		(16	)		(18	)
Alternative fuel tax credit income		—			—			(6	)
Tax rate changes		—			(5	)		(16	)
Uncertain tax positions		2			1			(194	)
U.S. manufacturing deduction		(2	)		(6	)		(9	)
Functional currency differences		—			1			(5	)
Valuation allowance on deferred tax assets		(1	)		(1	)		7
Other		4			—			(5	)
Income tax expense (benefit)		29			14			(170	)

Deferred Tax Assets and Liabilities

The tax effects of significant temporary differences representing deferred tax assets and liabilities at December 31, 2016 and December 31, 2015 are comprised of the following:

	December 31,			December 31,
	2016			2015
	$			$
Accounting provisions		62			57
Net operating loss carryforwards and other deductions		43			48
Pension and other employee future benefit plans		65			59
Inventory		15			17
Tax credits		25			25
Other		—			16
Gross deferred tax assets		210			222
Valuation allowance		(22	)		(23	)
Net deferred tax assets		188			199
Property, plant and equipment		(648	)		(647	)
Impact of foreign exchange on long-term debt    and investments		(8	)		(6	)
Intangible assets		(152	)		(157	)
Other		(10	)		—
Total deferred tax liabilities		(818	)		(810	)
Net deferred tax liabilities		(630	)		(611	)
Included in:
Other assets (Note 15)		2			2
Deferred income taxes and other		(632	)		(613	)
Total		(630	)		(611	)

Gross Unrecognized Tax Benefits

At December 31, 2016, the Company had gross unrecognized tax benefits of approximately $43 million ($41 million and $48 million for 2015 and 2014, respectively). If recognized in 2017, these tax benefits would impact the effective tax rate. These amounts represent the gross amount of exposure in individual jurisdictions and do not reflect any additional benefits expected to be realized if such positions were sustained, such as federal deduction that could be realized if an unrecognized state deduction was not sustained.

	December 31,			December 31,			December 31,
	2016			2015			2014
	$			$			$
Balance at beginning of year		41			48			259
Additions based on tax positions related to current year		3			3			3
Additions for tax positions of prior years		3			2			10
Reductions for tax positions of prior years		(2	)		(1	)		—
Reductions related to settlements with taxing authorities		—			(4	)		(223	)
Expirations of statutes of limitations		(3	)		(7	)		(4	)
Interest		1			1			4
Foreign exchange impact		—			(1	)		(1	)
Balance at end of year		43			41			48

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Inventories (Tables)

12 Months Ended

Dec. 31, 2016

Inventory Disclosure [Abstract]

Components of Inventories

The following table presents the components of inventories:

	December 31,		December 31,
	2016		2015
	$		$
Work in process and finished goods		413		432
Raw materials		132		130
Operating and maintenance supplies		214		204
		759		766

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Goodwill (Tables)

12 Months Ended

Dec. 31, 2016

Goodwill And Intangible Assets Disclosure [Abstract]

Changes in Carrying Value of Goodwill

Changes in the carrying value of goodwill are as follows:

	December 31,			December 31,
	2016			2015
	$			$
Balance at beginning of year		539			567
Acquisition of HDIS (Note 3)		17			—
Effect of foreign currency exchange rate change		(6	)		(28	)
Balance at end of year		550			539

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Property, Plant and Equipment (Tables)

12 Months Ended

Dec. 31, 2016

Property Plant And Equipment [Abstract]

Components of Property, Plant and Equipment

The following table presents the components of property, plant and equipment:

	Range of		December 31,			December 31,
	useful lives		2016			2015
			$			$
Machinery and equipment	3-20			7,408			7,255
Buildings and improvements	10-40			1,007			975
Timberlands	(1)			200			196
Assets under construction		—		94			224
				8,709			8,650
Less: Accumulated depreciation				(5,884	)		(5,815	)
				2,825			2,835

⁽¹⁾ Amortization is calculated using the unit of production method.

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Intangible Assets (Tables)

12 Months Ended

Dec. 31, 2016

Goodwill And Intangible Assets Disclosure [Abstract]

Components of Intangible Assets

The following table presents the components of intangible assets:

	Estimated useful lives		December 31,							December 31,
	(in years)		2016							2015
			Gross carrying		Accumulated					Gross carrying		Accumulated
			amount		amortization			Net		amount		amortization			Net
Definite-lived intangible assets    subject to amortization			$		$			$		$		$			$
Water rights		40		3		(1	)		2		3		(1	)		2
Customer relationships	10 - 40			369		(60	)		309		354		(46	)		308
Technology	7 - 20			8		(3	)		5		8		(2	)		6
Non-Compete		9		1		—			1		1		—			1
License rights		12		28		(8	)		20		28		(6	)		22
				409		(72	)		337		394		(55	)		339
Indefinite-lived intangible assets    not subject to amortization
Water rights			4			—			4	4			—			4
Trade names				225		—			225		215		—			215
License rights				6		—			6		6		—			6
Catalog rights				36		—			36		37		—			37
Total				680		(72	)		608		656		(55	)		601

Amortization Expense Related to Intangible Assets

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		20		20		20		20

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Other Assets (Tables)

12 Months Ended

Dec. 31, 2016

Deferred Costs Capitalized Prepaid And Other Assets Disclosure [Abstract]

Components of Other Assets

The following table presents the components of other assets:

	December 31,		December 31,
	2016		2015
	$		$
Pension asset - defined benefit pension plans (Note 7)		103		113
Investment tax credits receivable		4		—
Unamortized debt issuance costs		5		3
Deferred income tax assets (Note 10)		2		2
Derivative financial instruments (Note 23)		8		3
Other		7		4
		129		125

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Closure and Restructuring Costs and Liability (Tables)

12 Months Ended

Dec. 31, 2016

Restructuring And Related Activities [Abstract]

Components of Closure and Restructuring Costs by Segment

The following tables provide the components of closure and restructuring costs by segment:

	Year ended
	December 31, 2016
	Pulp and Paper			Personal Care		Total
	$			$		$
Severance and termination costs		8			1		9
Pension settlement and withdrawal liability		(3	)		—		(3	)
Fluff pulp conversion outage		26			—		26
Closure and restructuring costs		31			1		32

	Year ended
	December 31, 2015
	Pulp and Paper		Personal Care		Total
	$		$		$
Severance and termination costs		3		1		4
Closure and restructuring costs		3		1		4

	Year Ended
	December 31, 2014
	Pulp and Paper			Personal Care		Total
	$			$		$
Severance and termination costs		4			1		5
Inventory write-down		4			—		4
Pension settlement and withdrawal liability		19	(a)		—		19
Closure and restructuring costs		27			1		28

^(a) Related to the previously closed Ottawa paper mill.

Activity in Closure and Restructuring Liability

The following table provides the activity in the closure and restructuring liability:

	December 31,			December 31,
	2016			2015
	$			$
Balance at beginning of year		3			2
Additions		9			4
Payments		(5	)		(3	)
Balance at end of year		7			3

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Trade and Other Payables (Tables)

12 Months Ended

Dec. 31, 2016

Payables And Accruals [Abstract]

Components of Trade and Other Payables

The following table presents the components of trade and other payables:

	December 31,		December 31,
	2016		2015
	$		$
Trade payables		332		350
Payroll-related accruals		160		160
Accrued interest		16		18
Payables on capital projects		13		16
Rebate accruals		62		66
Liability - pension and other post-retirement benefit    plans (Note 7)		4		4
Liability - multiemployer plan withdrawal		2		2
Provision for environment and other asset retirement    obligations (Note 22)		15		14
Closure and restructuring costs liability (Note 16)		7		3
Derivative financial instruments (Note 23)		11		53
Dividends payable (Note 21)		26		25
Stock-based compensation - liability awards		2		4
Other		6		5
		656		720

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Changes in Accumulated Other Comprehensive Loss by Component (Tables)

12 Months Ended

Dec. 31, 2016

Equity [Abstract]

Schedule of Changes in Accumulated Other Comprehensive Loss by Component

The following table presents the changes in Accumulated other comprehensive loss by component⁽¹⁾ for the period ended  December 31, 2016 and 2015.

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

⁽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.

Schedule of Reclassifications Out of Accumulated Other Comprehensive Loss

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

Details about Accumulated other comprehensive loss components	Amount reclassified from Accumulated other comprehensive loss(1)
	Year ended			Year ended			Year ended
	December 31,			December 31,			December 31,
	2016			2015			2014
	$			$			$
Net derivative gains (losses) on cash flow hedge
Natural gas swap contracts		12			16			(4	)	(2)
Currency options and forwards		12			28			16		(2)
Total before tax		24			44			12
Tax expense		(10	)		(18	)		(4	)
Net of tax		14			26			8
Amortization of defined benefit pension items
Amortization of prior year service cost		5			3			22		(3)
Amortization of net actuarial loss		6			7			9		(3)
Total before tax		11			10			31
Tax expense		(4	)		(3	)		(9	)
Net of tax		7			7			22

⁽¹⁾ Amounts in parentheses indicate losses.

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

⁽³⁾ These amounts are included in the computation of net periodic benefit cost (see Note 7 "Pension Plans and Other Post-Retirement Benefit Plans" for more details).

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Long-Term Debt (Tables)

12 Months Ended

Dec. 31, 2016

Debt Disclosure [Abstract]

Components of Long-Term Debt

		Par			December 31,		December 31,
	Maturity	Amount		Currency	2016		2015
		$			$		$
Unsecured notes
9.5% Notes	2016		39	US		—		39
10.75% Notes	2017		63	US		63		63
4.4% Notes	2022		300	US		300		300
6.25% Notes	2042		250	US		249		249
6.75% Notes	2044		250	US		249		249
Revolving Credit Facility	2021		50	US		50		50
Term Loan	2025		300	US		300		300
Securitization	2019		70	US		70		—
Capital lease obligations and other	2016 - 2028					8		10
						1,289		1,260
Less: Unamortized debt issuance costs						8		9
Less: Due within one year						63		41
						1,218		1,210

Principal Long-Term Debt Repayments, Including Capital Lease Obligations

Principal long-term debt repayments, including capital lease obligations, in each of the next five years will amount to:

	Long-term debt		Capital leases and other
	$		$
2017		63		1
2018		—		1
2019		70		1
2020		—		1
2021		50		1
Thereafter		1,100		6
		1,283		11
Less: Amounts representing interest		—		3
Total payments		1,283		8

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Other Liabilities and Deferred Credits (Tables)

12 Months Ended

Dec. 31, 2016

Other Liabilities Disclosure [Abstract]

Schedule Of Components Of Other Liabilities And Deferred Credits Table Text Block

The following table presents the components of other liabilities and deferred credits:

.	December 31,		December 31,
	2016		2015
	$		$
Liability - other post-retirement benefit plans (Note 7)		86		82
Pension liability - defined benefit pension plans (Note 7)		141		129
Pension liability - multiemployer plan withdrawal		48		52
Provision for environmental and asset retirement    obligations (Note 22)		35		38
Stock-based compensation - liability awards		17		13
Derivative financial instruments (Note 23)		10		14
Other		21		22
		358		350

Domtar's Asset Retirement Obligations

The following table reconciles Domtar’s asset retirement obligations:

	December 31,			December 31,
	2016			2015
	$			$
Asset retirement obligations, beginning of year		16			20
Revisions to estimated cash flows		—			(3	)
Asset retirement obligation payments		(1	)		(1	)
Accretion expense		1			1
Effect of foreign currency exchange rate change		—			(1	)
Asset retirement obligations, end of year		16			16

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Shareholders' Equity (Tables)

12 Months Ended

Dec. 31, 2016

Equity [Abstract]

Changes in Number of Outstanding Common Stock and Their Aggregate Stated Value

The changes in the number of outstanding common stock and their aggregate stated value during the years ended December 31, 2016 and December 31, 2015, were as follows:

	December 31,					December 31,
	2016					2015
	Number					Number
Common stock	of shares			$		of shares			$
Balance at beginning of year		62,849,936			1		64,010,087			1
Shares issued
Treasury stock (1)		(261,099	)		—		(1,160,151	)		—
Balance at end of year		62,588,837			1		62,849,936			1

⁽¹⁾ During 2016, the Company repurchased 304,915 shares through the Program (2015 – 1,210,932) and issued 43,816 shares (2015 – 50,781) out of Treasury stock in conjunction with the exercise of stock-based compensation awards.

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Commitments and Contingencies (Tables)

12 Months Ended

Dec. 31, 2016

Environmental Remediation Obligations [Abstract]

Changes in Reserve for Environmental Remediation and Asset Retirement Obligations

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

	December 31,			December 31,
	2016			2015
	$			$
Balance at beginning of year		52			60
Additions		2			1
Environmental spending		(5	)		(3	)
Accretion		—			1
Effect of foreign currency exchange rate change		1			(7	)
Balance at end of year (1)		50			52

⁽¹⁾ At December 31, 2016, $15 million is shown in Trade and other payables (see Note 17) and $35 million is shown in Other liabilities and deferred credits (see Note 20).

Anticipated Undiscounted Payments

At December 31, 2016, anticipated undiscounted payments in each of the next five years are as follows:

	2017		2018		2019		2020		2021		Thereafter		Total
	$		$		$		$		$		$		$
Environmental provision and asset    retirement obligations		15		6		4		1		2		66		94

Minimum Future Payments under Operating Leases and Other Commercial Commitments

Minimum future payments under these operating leases and other commercial commitments, determined at December 31, 2016, were as follows:

	2017		2018		2019		2020		2021		Thereafter		Total
	$		$		$		$		$		$		$
Operating leases		25		23		18		16		13		38		133
Other commercial commitments		87		8		5		3		2		1		106

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Derivatives and Hedging Activities and Fair Value Measurement (Tables)

12 Months Ended

Dec. 31, 2016

Derivative Instruments And Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments for Natural Gas Contracts Outstanding

The following table presents the volumes under derivative financial instruments for natural gas contracts outstanding as of December 31, 2016 to hedge forecasted purchases:

Commodity	Notional contractual quantity under derivative contracts MMBTU(1)	Notional contractual value under derivative contracts (in millions of dollars)			Percentage of forecasted purchases under derivative contracts
Natural gas
2017	8,980,000		$	28		35%
2018	5,085,000		$	15		20%
2019	6,560,000		$	20		26%
2020	5,750,000		$	18		23%
2021	3,920,000		$	12		15%

⁽¹⁾ MMBTU: Millions of British thermal units

Currency Values under Significant Contracts Pursuant to Currency Options Outstanding

The following table presents the currency values under significant currency positions pursuant to currency derivatives outstanding as of December 31, 2016 to hedge forecasted purchases and sales:

				Percentage of
			Notional	forecastednet
	Business	Year of	contractual	exposures under		Average	Average
Currency exposure hedged	Segment	maturity	value	contracts		Protection rate	Obligation rate
		2017
CDN/USD	Pulp and Paper		511 CDN		66%	1 USD = 1.3045	1 USD = 1.3570
USD/Euro	Personal Care		55 USD		82%	1 Euro = 1.1336	1 Euro = 1.1336
Euro/USD	Pulp and Paper		19 EUR		31%	1 Euro = 1.1370	1 Euro = 1.1370
		2018
CDN/USD	Pulp and Paper		225 CDN		29%	1 USD = 1.2951	1 USD = 1.3519
USD/Euro	Personal Care		14 USD		20%	1 Euro = 1.1532	1 Euro = 1.1532

Fair Value of Financial Instruments

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

			Quotedprices in		Significant		Significant
			active markets for		observable		unobservable
	December 31,		identical assets		inputs		inputs
Fair Value of financial instruments at:	2016		(Level 1)		(Level 2)		(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:
Long-term debt		1,313		—		1,313		—	(c)	Long-term debt

The net cumulative gain recorded in Accumulated other comprehensive loss relating to natural gas contracts is $3 million at December 31, 2016, of which $5 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 December 31, 2016.

The net cumulative gain recorded in Accumulated other comprehensive loss relating to currency options and forwards hedging forecasted purchases of $8 million at December 31, 2016, 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 December 31, 2016.

			Quoted prices in		Significant		Significant
			active markets for		observable		unobservable
	December 31,		identical assets		inputs		inputs
Fair Value of financial instruments at:	2015		(Level 1)		(Level 2)		(Level 3)			Balance sheet classification
	$		$		$		$
Derivatives designated as hedging instruments:
Asset derivatives
Currency derivatives		6		—		6		—	(a)	Prepaid expenses
Natural gas swap contracts		1		—		1		—	(a)	Prepaid expenses
Currency derivatives		2		—		2		—	(a)	Other assets
Natural gas swap contracts		1		—		1		—	(a)	Other assets
Total Assets		10		—		10		—
Liabilities derivatives
Currency derivatives		39		—		39		—	(a)	Trade and other payables
Natural gas swap contracts		14		—		14		—	(a)	Trade and other payables
Currency derivatives		10		—		10		—	(a)	Other liabilities and deferred credits
Natural gas swap contracts		4		—		4		—	(a)	Other liabilities and deferred credits
Total Liabilities		67		—		67		—
Other Instruments:
Asset backed notes ("ABN")		1		—		—		1	(b)	Other assets
Long-term debt		1,261		—		1,261		—	(c)	Long-term debt

^(a) Fair value of the Company’s derivatives is 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) ABN are reported at fair value utilizing Level 3 inputs. Fair value of ABN reported under Level 3 is based on the value of the collateral investments held in the conduit issuer, reduced by the negative value of credit default derivatives, with an additional discount applied for illiquidity. These ABN are held outside of the Company’s pension plans.

^(c) 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 December 31, 2016 and December 31, 2015. However, fair value disclosure is required. The carrying value of the Company’s long-term debt is $1,281 million and $1,251  million at December 31, 2016 and December 31, 2015, respectively.

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Segment Disclosures (Tables)

12 Months Ended

Dec. 31, 2016

Analysis and Reconciliation of Reportable Segment Information

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

	Year ended			Year ended			Year ended
	December 31,			December 31,			December 31,
SEGMENT DATA	2016			2015			2014
	$			$			$
Sales
Pulp and Paper		4,239			4,458			4,674
Personal Care		917			869			928
Total for reportable segments		5,156			5,327			5,602
Intersegment sales		(58	)		(63	)		(39	)
Consolidated sales (1)		5,098			5,264			5,563
Depreciation and amortization    of property, plant and equipment
Pulp and Paper		284			297			319
Personal Care		64			62			65
Total for reportable segments		348			359			384
Impairment of property, plant and    equipment - Pulp and Paper		29			77			4
Consolidated depreciation and amortization and impairment    of property, plant and equipment		377			436			388
Operating income (loss)
Pulp and Paper		217			270			352
Personal Care		57			61			49
Corporate		(51	)		(43	)		(37	)
Consolidated operating income		223			288			364
Interest expense, net		66			132			103
Earnings before income taxes		157			156			261
Income tax expense (benefit)		29			14			(170	)
Net earnings		128			142			431

⁽¹⁾ In 2016 and 2015, Staples, one of the Company’s largest customers in the Pulp and Paper segment, represented approximately 11% (2015 – 10%) of the total sales.

Consolidated Assets

	December 31,		December 31,
	2016		2015
	$		$
Segment assets
Pulp and Paper		3,637		3,667
Personal Care		1,884		1,822
Total for reportable segments		5,521		5,489
Corporate		159		165
Consolidated assets		5,680		5,654

Schedule Of Segment Reporting Information Expenditures For Additions To Long Lived Assets Table Text Block

	Year ended		Year ended		Year ended
	December 31,		December 31,		December 31,
SEGMENT DATA (CONTINUED)	2016		2015		2014
	$		$		$
Additions to property, plant and equipment
Pulp and Paper		287		221		161
Personal Care		55		57		86
Total for reportable segments		342		278		247
Corporate		4		6		5
Consolidated additions to property, plant and equipment		346		284		252
Add: Change in payables on capital projects		1		5		(16	)
Consolidated additions to property, plant and equipment    per Consolidated Statements of Cash Flows		347		289		236

Long-Lived Assets

	December 31,		December 31,
	2016		2015
	$		$
Long-lived assets
United States		2,589		2,566
Canada		642		640
Europe		752		769
		3,983		3,975

Sales [Member]

Geographic Information on Sales

	Year ended		Year ended		Year ended
	December 31,		December 31,		December 31,
	2016		2015		2014
	$		$		$
Geographic information
Sales
United States		3,571		3,776		3,910
Canada		493		492		591
Europe		605		561		659
Asia		351		302		257
Other foreign countries		78		133		146
		5,098		5,264		5,563

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Supplemental Guarantor Financial Information (Tables)

12 Months Ended

Dec. 31, 2016

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Condensed Consolidating Statement of Earnings and Comprehensive Income (Loss)

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

CONDENSED CONSOLIDATING STATEMENT OF EARNINGS	Year ended
AND COMPREHENSIVE INCOME	December 31, 2016
							Non-
				Guarantor			Guarantor			Consolidating
	Parent			Subsidiaries			Subsidiaries			Adjustments			Consolidated
	$			$			$			$			$
Sales		—			4,203			2,040			(1,145	)		5,098
Operating expenses
Cost of sales, excluding depreciation and    amortization		—			3,638			1,542			(1,145	)		4,035
Depreciation and amortization		—			256			92			—			348
Selling, general and administrative		17			93			317			—			427
Impairment of property, plant and equipment		—			29			—			—			29
Closure and restructuring costs		—			31			1			—			32
Other operating loss (income), net		1			(1	)		4			—			4
		18			4,046			1,956			(1,145	)		4,875
Operating (loss) income		(18	)		157			84			—			223
Interest expense (income), net		65			50			(49	)		—			66
(Loss) earnings before income taxes		(83	)		107			133			—			157
Income tax (benefit) expense		(43	)		36			36			—			29
Share in earnings of equity accounted investees		168			97			—			(265	)		—
Net earnings		128			168			97			(265	)		128
Other comprehensive income (loss)		2			(12	)		(35	)		47			2
Comprehensive income		130			156			62			(218	)		130

CONDENSED CONSOLIDATING STATEMENT OF EARNINGS	Year ended
AND COMPREHENSIVE LOSS	December 31, 2015
							Non-
				Guarantor			Guarantor			Consolidating
	Parent			Subsidiaries			Subsidiaries			Adjustments			Consolidated
	$			$			$			$			$
Sales		—			4,346			2,070			(1,152	)		5,264
Operating expenses
Cost of sales, excluding depreciation and    amortization		—			3,726			1,573			(1,152	)		4,147
Depreciation and amortization		—			256			103			—			359
Selling, general and administrative		11			105			278			—			394
Impairment of property, plant and equipment		—			77			—			—			77
Closure and restructuring costs		—			3			1			—			4
Other operating loss (income), net		5			(3	)		(7	)		—			(5	)
		16			4,164			1,948			(1,152	)		4,976
Operating (loss) income		(16	)		182			122			—			288
Interest expense (income), net		131			30			(29	)		—			132
(Loss) earnings before income taxes		(147	)		152			151			—			156
Income tax (benefit) expense		(63	)		38			39			—			14
Share in earnings of equity accounted investees		226			112			—			(338	)		—
Net earnings		142			226			112			(338	)		142
Other comprehensive loss		(233	)		(235	)		(215	)		450			(233	)
Comprehensive loss		(91	)		(9	)		(103	)		112			(91	)

CONDENSED CONSOLIDATING STATEMENT OF EARNINGS	Year ended
AND COMPREHENSIVE INCOME (LOSS)	December 31, 2014
							Non-
				Guarantor			Guarantor			Consolidating
	Parent			Subsidiaries			Subsidiaries			Adjustments			Consolidated
	$			$			$			$			$
Sales		—			4,440			2,250			(1,127	)		5,563
Operating expenses
Cost of sales, excluding depreciation and    amortization		—			3,762			1,761			(1,127	)		4,396
Depreciation and amortization		—			264			120			—			384
Selling, general and administrative		29			209			178			—			416
Impairment of property, plant and equipment		—			4			—			—			4
Closure and restructuring costs		—			7			21			—			28
Other operating loss (income), net		2			(26	)		(5	)		—			(29	)
		31			4,220			2,075			(1,127	)		5,199
Operating (loss) income		(31	)		220			175			—			364
Interest expense (income), net		101			26			(24	)		—			103
(Loss) earnings before income taxes		(132	)		194			199			—			261
Income tax (benefit) expense		(51	)		(151	)		32			—			(170	)
Share in earnings of equity accounted investees		512			167			—			(679	)		—
Net earnings		431			512			167			(679	)		431
Other comprehensive loss		(203	)		(194	)		(168	)		362			(203	)
Comprehensive income (loss)		228			318			(1	)		(317	)		228

1

Condensed Consolidating Balance Sheet

CONDENSED CONSOLIDATING BALANCE SHEET	December 31, 2016
					Non-
			Guarantor		Guarantor		Consolidating
	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

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

Condensed Consolidating Statement of Cash Flows

CONDENSED CONSOLIDATING STATEMENT OF    CASH FLOWS	Year ended December 31, 2016
							Non-
				Guarantor			Guarantor			Consolidating
	Parent			Subsidiaries			Subsidiaries			Adjustments			Consolidated
	$			$			$			$			$
Operating activities
Net earnings		128			168			97			(265	)		128
Changes in operating and intercompany assets and    liabilities and non-cash items, included in net    earnings		(4,280	)		4,149			203			265			337
Cash flows (used for) provided from operating activities		(4,152	)		4,317			300			—			465
Investing activities
Additions to property, plant and equipment		—			(265	)		(82	)		—			(347	)
Proceeds from disposals of property, plant and    equipment and sale of business		—			—			1			—			1
Acquisition of businesses, net of cash acquired		—			(1	)		(45	)		—			(46	)
Other		—			—			1			—			1
Cash flows used for investing activities		—			(266	)		(125	)		—			(391	)
Financing activities
Dividend payments		(102	)		—			—			—			(102	)
Stock repurchase		(10	)		—			—			—			(10	)
Net change in bank indebtedness		—			12			—			—			12
Proceeds from receivables securitization facilities		—			—			140			—			140
Repayments of receivables securitization facilities		—			—			(70	)		—			(70	)
Repayments of long-term debt		(38	)		(1	)		(1	)		—			(40	)
Increase in long-term advances to related parties		—			(4,050	)		(223	)		4,273			—
Decrease in long-term advances to related parties		4,273			—			—			(4,273	)		—
Other		(3	)		—			—			—			(3	)
Cash flows provided from (used for) financing    activities		4,120			(4,039	)		(154	)		—			(73	)
Net (decrease) increase in cash and cash equivalents		(32	)		12			21			—			1
Impact of foreign exchange on cash		—			—			(2	)		—			(2	)
Cash and cash equivalents at beginning of year		49			2			75			—			126
Cash and cash equivalents at end of year		17			14			94			—			125

CONDENSED CONSOLIDATING STATEMENT OF    CASH FLOWS	Year ended December 31, 2015
							Non-
				Guarantor			Guarantor			Consolidating
	Parent			Subsidiaries			Subsidiaries			Adjustments			Consolidated
	$			$			$			$			$
Operating activities
Net earnings		142			226			112			(338	)		142
Changes in operating and intercompany assets and    liabilities and non-cash items, included in net    earnings		134			(250	)		89			338			311
Cash flows provided from (used for) operating activities		276			(24	)		201			—			453
Investing activities
Additions to property, plant and equipment		—			(210	)		(79	)		—			(289	)
Proceeds from disposals of property, plant and    equipment		1			7			28			—			36
Other		—			—			9			—			9
Cash flows provided from (used for) investing activities		1			(203	)		(42	)		—			(244	)
Financing activities
Dividend payments		(100	)		—			—			—			(100	)
Stock repurchase		(50	)		—			—			—			(50	)
Net change in bank indebtedness		—			(11	)		—			—			(11	)
Change of revolving credit facility		50			—			—			—			50
Issuance of long-term debt		—			300			—			—			300
Repayments of long-term debt		(436	)		(2	)		(1	)		—			(439	)
Increase in long-term advances to related parties		—			(75	)		(152	)		227			—
Decrease in long-term advances to related parties		227			—			—			(227	)		—
Other		2			(1	)		—			—			1
Cash flows (used for) provided from financing    activities		(307	)		211			(153	)		—			(249	)
Net (decrease) increase in cash and cash equivalents		(30	)		(16	)		6			—			(40	)
Impact of foreign exchange on cash		—			—			(8	)		—			(8	)
Cash and cash equivalents at beginning of year		79			18			77			—			174
Cash and cash equivalents at end of year		49			2			75			—			126

CONDENSED CONSOLIDATING STATEMENT OF	Year ended
CASH FLOWS	December 31, 2014
							Non-
				Guarantor			Guarantor			Consolidating
	Parent			Subsidiaries			Subsidiaries			Adjustments			Consolidated
	$			$			$			$			$
Operating activities
Net earnings		431			512			167			(679	)		431
Changes in operating and intercompany assets    and liabilities and non-cash items, included in    net earnings		(220	)		(380	)		124			679			203
Cash flows from operating activities		211			132			291			—			634
Investing activities
Additions to property, plant and equipment		—			(139	)		(97	)		—			(236	)
Proceeds from disposals of property, plant and    equipment		—			—			1			—			1
Acquisition of business, net of cash acquired		—			—			(546	)		—			(546	)
Other		—			—			(5	)		—			(5	)
Cash flows used for investing activities		—			(139	)		(647	)		—			(786	)
Financing activities
Dividend payments		(84	)		—			—			—			(84	)
Stock repurchase		(38	)		—			—			—			(38	)
Net change in bank indebtedness		(1	)		(4	)		(1	)		—			(6	)
Change of revolving credit facility		(160	)		—			—			—			(160	)
Proceeds from receivables securitization facilities		—			—			90			—			90
Repayments of receivables securitization facilities		—			—			(129	)		—			(129	)
Repayments of long-term debt		—			(3	)		(1	)		—			(4	)
Increase in long-term advances to related parties		(292	)		—			—			292			—
Decrease in long-term advances to related parties		—			10			282			(292	)		—
Other		4			—			1			—			5
Cash flows (used for) provided from financing    activities		(571	)		3			242			—			(326	)
Net decrease in cash and cash equivalents		(360	)		(4	)		(114	)		—			(478	)
Impact of foreign exchange on cash		—			—			(3	)		—			(3	)
Cash and cash equivalents at beginning of year		439			22			194			—			655
Cash and cash equivalents at end of year		79			18			77			—			174

XML

Interim Financial Results (Tables)

12 Months Ended

Dec. 31, 2016

Quarterly Financial Information Disclosure [Abstract]

Schedule of Interim Financial Results

Interim Financial Results (Unaudited)

(in millions of dollars, unless otherwise noted)

2016	1st Quarter			2nd Quarter			3rd Quarter			4th Quarter			Year
Sales	$	1,287		$	1,267		$	1,270		$	1,274		$	5,098
Operating income		18	(a)		39	(b)		92	(c)		74	(d)		223
Earnings before income taxes		1			24			75			57			157
Net earnings		4			18			59			47			128
Basic net earnings per common share		0.06			0.29			0.94			0.75			2.04
Diluted net earnings per common share		0.06			0.29			0.94			0.75			2.04

2015	1st Quarter			2nd Quarter			3rd Quarter				4th Quarter			Year
Sales	$	1,348		$	1,310		$	1,292			$	1,314		$	5,264
Operating income		71	(e)		62	(f)		61		(g)		94	(h)		288
Earnings (loss) before income taxes		45			37			(3	)			77			156
Net earnings		36			38			11				57			142
Basic net earnings per common share		0.56			0.60			0.17				0.91			2.24
Diluted net earnings per common share		0.56			0.60			0.17				0.91			2.24

(a) The operating income for the first Quarter of 2016 included closure and restructuring costs of $2 million related to our Pulp and Paper segment.

The Company also incurred an additional $21 million of accelerated depreciation at its Ashdown, Arkansas mill, as part of the conversion to the fluff pulp line.

(b) The operating income for the second Quarter of 2016 included closure and restructuring costs of $21 million and an additional $3 million of accelerated depreciation at its Ashdown, Arkansas mill, as part of the conversion to the fluff pulp line.

(c) The operating income for the third Quarter of 2016 included closure and restructuring costs of $5 million related to our Pulp and Paper segment.

The Company also incurred $5 million of closure and restructuring costs and an additional $5 million of accelerated depreciation at its Ashdown, Arkansas mill, as part of the conversion to the fluff pulp line.

(d) The operating income for the fourth Quarter of 2016 included closure and restructuring costs of $1 million related to our Personal Care segment and $(2) million related to our Pulp and Paper segment.

(e) The operating income for the first Quarter of 2015 included closure and restructuring costs of $1 million related to our Personal Care segment.

The Company also incurred a gain on disposal of property, plant and equipment of $1 million related to our Corporate segment.

In addition, the Company incurred $19 million of accelerated depreciation at its Ashdown, Arkansas mill, as part of the conversion to the fluff pulp line.

(f) The operating income for the second Quarter of 2015 included $1 million of closure and restructuring costs related to our Pulp and Paper segment.

The company also recorded a gain on disposal of property, plant and equipment of $14 million, mostly relating to the sale of its former Ottawa mill.

In addition, the Company incurred an additional $18 million of accelerated depreciation at its Ashdown, Arkansas mill.

(g) The operating income for the third Quarter of 2015 included closure and restructuring costs of $1 million related to our Pulp and Paper segment.

The Company also incurred an additional $20 million of accelerated depreciation at its Ashdown, Arkansas mill, as part of the conversion to the fluff pulp line.

(h) The operating income for the fourth Quarter of 2015 included closure and restructuring costs of $1 million related to our Pulp and Paper segment.

The Company also incurred an additional $20 million of accelerated depreciation at its Ashdown, Arkansas mill, as part of the conversion to the fluff pulp line.

XML

Summary of Significant Accounting Policies - Additional Information (Detail) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Summary Of Significant Accounting Policies [Line Items]
Accumulated translation adjustment accounts	$ (278,000,000)	$ (271,000,000)
LIFO inventories	268,000,000	288,000,000
Excess amount of inventory if valued under FIFO instead of LIFO	$ 63,000,000	$ 66,000,000
Other Post-Retirement Benefit Plans [Member]
Summary Of Significant Accounting Policies [Line Items]
Average remaining service period (in years)	10 years
Amortization of cumulative net actuarial gains and losses, excess percentage greater of accrued benefit obligation or market value of plan assets	10.00%
Omnibus Plan [Member]
Summary Of Significant Accounting Policies [Line Items]
Shares reserved for issuance in connection with stock awards grants	1,793,095
Pension Plans [Member]
Summary Of Significant Accounting Policies [Line Items]
Average remaining service period (in years)	8 years
Amortization of cumulative net actuarial gains and losses, excess percentage greater of accrued benefit obligation or market value of plan assets	10.00%
Time-Based Awards [Member]
Summary Of Significant Accounting Policies [Line Items]
Vesting period (in years)	3 years
Performance-Based Awards [Member]
Summary Of Significant Accounting Policies [Line Items]
Vesting period (in years)	3 years
Construction in Progress [Member]
Summary Of Significant Accounting Policies [Line Items]
Depreciation	$ 0
Minimum [Member]
Summary Of Significant Accounting Policies [Line Items]
Amortization period of capitalized environmental cost (in years)	10 years
Minimum [Member] | Buildings and Improvements [Member]
Summary Of Significant Accounting Policies [Line Items]
Property, plant and equipment, depreciation period (in years)	10 years
Minimum [Member] | Machinery and Equipment [Member]
Summary Of Significant Accounting Policies [Line Items]
Property, plant and equipment, depreciation period (in years)	3 years
Maximum [Member]
Summary Of Significant Accounting Policies [Line Items]
Amortization period of capitalized environmental cost (in years)	40 years
Majority of non-qualified stock options and performance share units expiration period from date of grant	7 years
Maximum [Member] | Buildings and Improvements [Member]
Summary Of Significant Accounting Policies [Line Items]
Property, plant and equipment, depreciation period (in years)	40 years
Maximum [Member] | Machinery and Equipment [Member]
Summary Of Significant Accounting Policies [Line Items]
Property, plant and equipment, depreciation period (in years)	20 years

XML

Summary of Significant Accounting Policies - Amortization Period of Finite Lived Assets (Detail)	12 Months Ended
	Dec. 31, 2016
Water Rights [Member]
Finite-Lived Intangible Assets [Line Items]
Estimated useful lives (in years)	40 years
Non-Compete [Member]
Finite-Lived Intangible Assets [Line Items]
Estimated useful lives (in years)	9 years
License Rights [Member]
Finite-Lived Intangible Assets [Line Items]
Estimated useful lives (in years)	12 years
Minimum [Member] | Customer Relationships [Member]
Finite-Lived Intangible Assets [Line Items]
Estimated useful lives (in years)	10 years
Minimum [Member] | Technology [Member]
Finite-Lived Intangible Assets [Line Items]
Estimated useful lives (in years)	7 years
Maximum [Member] | Customer Relationships [Member]
Finite-Lived Intangible Assets [Line Items]
Estimated useful lives (in years)	40 years
Maximum [Member] | Technology [Member]
Finite-Lived Intangible Assets [Line Items]
Estimated useful lives (in years)	20 years

XML

Recent Accounting Pronouncements - Additional Information (Detail) - Accounting Standards Update 2015-03 [Member] $ in Millions	Dec. 31, 2015 USD ($)
Change In Accounting Estimate [Line Items]
Other assets	$ (9)
Long-term debt	$ (9)

XML

Acquisition of Businesses - Additional Information (Detail) € in Millions, $ in Millions				12 Months Ended
	Oct. 01, 2016 USD ($) Retail Employees	Jan. 02, 2014 USD ($) Employees Facility	Jan. 02, 2014 EUR (€) Employees Facility	Dec. 31, 2016 USD ($)	Dec. 31, 2014 USD ($)
Business Acquisition [Line Items]
Purchase price				$ 46	$ 546
Home Delivery Incontinent Supplies Co. [Member]
Business Acquisition [Line Items]
Acquisition completion date				Oct. 01, 2016
Acquisition percentage	100.00%
Acquisition of business, number of employees | Employees	240
Purchase price	$ 52
Cash acquired in acquisition	$ 3
Home Delivery Incontinent Supplies Co. [Member] | Olivette, Missouri [Member]
Business Acquisition [Line Items]
Number of retail locations acquired | Retail	2
Home Delivery Incontinent Supplies Co. [Member] | Maximum [Member]
Business Acquisition [Line Items]
Business acquisition possible earn out payment	$ 10
Laboratorios Indas [Member]
Business Acquisition [Line Items]
Acquisition completion date				Jan. 02, 2014
Acquisition percentage		100.00%	100.00%
Acquisition of business, number of employees | Employees		570	570
Purchase price		$ 546	€ 399
Cash acquired in acquisition		$ 46	€ 34
Number of facilities | Facility		2	2

XML

Acquisition of Businesses - Fair Value of Assets Acquired - Home Delivery Incontinent Supplies Co (Detail) - USD ($) $ in Millions	Dec. 31, 2016	Oct. 01, 2016	Dec. 31, 2015	Dec. 31, 2014
Intangible assets
Goodwill	$ 550		$ 539	$ 567
Home Delivery Incontinent Supplies Co. [Member]
Business Acquisition [Line Items]
Receivables		$ 4
Inventory		4
Property, plant and equipment		1
Intangible assets
Intangible assets		34
Goodwill		17
Deferred income tax assets		2
Total assets		62
Less: Liabilities
Trade and other payables		10
Total liabilities		10
Fair value of net assets acquired at the date of acquisition		52
Home Delivery Incontinent Supplies Co. [Member] | Customer Relationships [Member]
Intangible assets
Intangible assets		21
Home Delivery Incontinent Supplies Co. [Member] | Trade Names [Member]
Intangible assets
Intangible assets		$ 13

XML

Acquisition of Businesses - Fair Value of Assets Acquired - Home Delivery Incontinent Supplies Co (Parenthetical) (Detail)	Oct. 01, 2016
Home Delivery Incontinent Supplies Co. [Member] | Customer Relationships [Member]
Business Acquisition [Line Items]
Useful life of the finite lived intangible assets acquired	10 years

XML

Acquisition of Businesses - Fair Value of Assets Acquired - Laboratorios Indas (Detail) - USD ($) $ in Millions	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014	Jan. 02, 2014
Intangible assets
Goodwill	$ 550	$ 539	$ 567
Laboratorios Indas [Member]
Business Acquisition [Line Items]
Receivables				$ 101
Inventory				28
Income and other taxes receivable				3
Property, plant and equipment				72
Intangible assets
Intangible assets				328
Goodwill				234
Deferred income tax assets				16
Total assets				782
Less: Liabilities
Trade and other payables				71
Income and other taxes payable				3
Long-term debt (including short-term portion)				42
Deferred income tax liabilities				119
Other liabilities and deferred credits				1
Total liabilities				236
Fair value of net assets acquired at the date of acquisition				546
Laboratorios Indas [Member] | Trade Names [Member]
Intangible assets
Intangible assets				140
Laboratorios Indas [Member] | Catalog Rights [Member]
Intangible assets
Intangible assets				46
Laboratorios Indas [Member] | Customer Relationships [Member]
Intangible assets
Intangible assets				$ 142

XML

Acquisition of Businesses - Fair Value of Assets Acquired - Laboratorios Indas (Parenthetical) (Detail) - Customer Relationships [Member]		12 Months Ended
	Jan. 02, 2014	Dec. 31, 2016
Minimum [Member]
Business Acquisition [Line Items]
Useful life of the finite lived intangible assets acquired		10 years
Minimum [Member] | Laboratorios Indas [Member]
Business Acquisition [Line Items]
Useful life of the finite lived intangible assets acquired	10 years
Maximum [Member]
Business Acquisition [Line Items]
Useful life of the finite lived intangible assets acquired		40 years
Maximum [Member] | Laboratorios Indas [Member]
Business Acquisition [Line Items]
Useful life of the finite lived intangible assets acquired	20 years

XML

Impairment of Property, Plant and Equipment - Additional Information (Detail) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Ashdown, Arkansas Pulp And Paper Mill-Conversion of Paper Machine [Member]
Property Plant And Equipment [Line Items]
Accelerated depreciation	$ 29	$ 77	$ 4

XML

Stock-Based Compensation - Summary of Outstanding Awards (Detail) - $ / shares	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Performance Share Units [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Beginning balance, Number of units	426,079	310,303	350,076
Granted, Number of units	295,504	219,453	175,815
Forfeited, Number of units	(28,523)	(21,918)	(33,076)
Cancelled, Number of units	(101,124)	(60,768)	(89,622)
Settled, Number of units	(74,655)	(20,991)	(92,890)
Ending balance, Number of units	517,281	426,079	310,303
Beginning balance, Weighted average grant date fair value	$ 46.00	$ 45.52	$ 42.60
Granted, Weighted average grant date fair value	32.38	44.22	53.97
Forfeited, Weighted average grant date fair value	39.81	45.52	45.29
Cancelled, Weighted average grant date fair value	51.27	35.40	49.79
Settled, Weighted average grant date fair value	35.97	51.48	46.49
Ending balance, Weighted average grant date fair value	$ 38.93	$ 46.00	$ 45.52
Restricted Stock Unit [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Granted, Number of units	196,786	164,879	130,045
Beginning balance, Weighted average grant date fair value	$ 44.21	$ 44.80	$ 41.46
Granted, Weighted average grant date fair value	34.04	43.21	49.95
Forfeited, Weighted average grant date fair value	39.69	44.78	44.37
Ending balance, Weighted average grant date fair value	$ 40.90	$ 44.21	$ 44.80
Beginning balance, Number of units	346,966	314,220	374,414
Forfeited, Number of units	(17,884)	(12,464)	(29,230)
Vested/Settled, Number of units	(107,198)	(119,669)	(161,009)
Ending balance, Number of units	418,670	346,966	314,220
Vested/Settled, Weighted average grant date fair value	$ 39.12	$ 44.31	$ 41.27
Deferred Share Units [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Granted, Number of units	46,737	40,494	39,165
Granted, Weighted average grant date fair value	$ 37.43	$ 39.92	$ 44.25
Settled, Weighted average grant date fair value	$ 39.60	$ 41.88	$ 32.17
Beginning balance, Number of units	289,460	262,721	271,742
Settled, Number of units	(15,123)	(13,755)	(48,186)
Ending balance, Number of units	321,074	289,460	262,721
Beginning balance, Weighted average grant date fair value	$ 28.20	$ 27.11	$ 25.54
Ending balance, Weighted average grant date fair value	$ 29.01	$ 28.20	$ 27.11

XML

Stock-Based Compensation - Assumptions Used in Calculating Fair Value of Options Granted (Detail) - $ / shares		12 Months Ended
	May 01, 2014	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Black-Scholes Based Option Pricing Model [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Dividend yield	2.80%	3.78%	3.22%	2.62%
Expected volatility	33.00%	30.00%	32.00%	32.00%
Risk-free interest rate	1.485%	1.17%	1.47%	1.34%
Expected life	4 years 6 months	4 years 6 months	4 years 6 months	4 years 6 months
Strike price	$ 47.08	$ 33.78	$ 43.42	$ 53.12
Monte Carlo Simulation [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Dividend yield		4.74%	3.22%	1.98%
Monte Carlo Simulation [Member] | One Year [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Expected volatility		24.00%	34.00%	31.00%
Monte Carlo Simulation [Member] | Three Years [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Expected volatility		30.00%	30.00%	31.00%
Monte Carlo Simulation [Member] | December 31, 2014 [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Risk-free interest rate				0.499%
Monte Carlo Simulation [Member] | December 31, 2015 [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Risk-free interest rate			0.732%	0.447%
Monte Carlo Simulation [Member] | December 31, 2016 [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Risk-free interest rate		1.057%	0.893%	0.755%
Monte Carlo Simulation [Member] | December 31, 2017 [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Risk-free interest rate		0.86%	1.20%
Monte Carlo Simulation [Member] | December 31, 2018 [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Risk-free interest rate		0.90%

XML

Stock-Based Compensation - Additional Information (Detail) - USD ($) $ / shares in Units, $ in Millions		12 Months Ended
	May 01, 2014	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Aggregate intrinsic value, Options exercised		$ 0.0	$ 0.0	$ 2.0
Aggregate intrinsic value, Options outstanding		1.0
Aggregate intrinsic value, Options exercisable		$ 1.0
Closing stock price		$ 39.03	$ 36.95	$ 40.22
Stock-based compensation expense recognized		$ 16.0	$ 10.0	$ 9.0
Compensation costs not yet recognized		$ 17.0	16.0	14.0
Compensation costs not yet recognized, period of recognition		26 months
Aggregate value of liability awards settled		$ 4.0	$ 4.0	$ 12.0
Total fair value of equity awards settled		$ 2.0
Performance Stock Options [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Expected to be settled in shares		231,071
Expected to be settled in cash		286,210
Performance Stock Options [Member] | Maximum [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Options expire at various dates from the date of grant		7 years
Restricted Stock Unit [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Expected to be settled in shares		167,280
Expected to be settled in cash		251,390
Vesting period (in years)		3 years
Granted, Weighted average grant date fair value		$ 34.04	$ 43.21	$ 49.95
Deferred Share Units [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Share-based payment award, vested in period		0	0	6,799
Granted, Weighted average grant date fair value		$ 37.43	$ 39.92	$ 44.25
Non-Qualified Options [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Granted, Weighted average grant date fair value	$ 10.52	$ 5.95	$ 8.96	$ 11.60
Stock Options [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Number of options, Granted		114,723	82,885	270,028
Aggregate intrinsic value, Options outstanding		$ 0.7	$ 0.1	$ 0.5	$ 3.3
Aggregate intrinsic value, Options exercisable		$ 0.1	$ 0.1	$ 0.3
Stock Options [Member] | Michael Garcia, President Pulp and Paper [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Number of options, Granted	22,448
Stock Appreciation Rights [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Options outstanding and exercisable		0	672
Options outstanding and exercisable, weighted average exercise price			$ 41.46

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Stock-Based Compensation - Summary of Outstanding Awards, Options (Detail) - USD ($) $ / shares in Units, $ in Millions	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Aggregate intrinsic value, Exercised	$ 0.0	$ 0.0	$ 2.0
Aggregate intrinsic value Outstanding, Ending	1.0
Aggregate intrinsic value, Exercisable	$ 1.0
Stock Options [Member]
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Number of options Outstanding, Beginning	451,302	418,123	465,674
Number of options, Granted	114,723	82,885	270,028
Number of options, Exercised	(37,296)	(35,924)	(131,312)
Number of options, Forfeited/expired	(6,502)	(13,782)	(186,267)
Number of options Outstanding Ending	522,227	451,302	418,123	465,674
Number of options, Exercisable	286,011	176,315	93,027
Weighted average exercise price Outstanding, Beginning Balance	$ 46.48	$ 46.39	$ 43.93
Weighted average exercise price, Granted	33.78	43.42	52.48
Weighted average exercise price, Exercised	41.11	43.13	37.02
Weighted average exercise Price, Forfeited/expired	20.89	34.08	55.67
Weighted average exercise price Outstanding, Ending Balance	44.39	46.48	46.39	$ 43.93
Weighted average exercise price, Exercisable	$ 46.50	$ 44.56	$ 37.40
Weighted average remaining life (in years), Outstanding	4 years 6 months	4 years 9 months 18 days	4 years 7 months 6 days	2 years 7 months 6 days
Weighted average remaining life (in years), Granted	6 years 2 months 12 days	6 years 2 months 12 days	6 years 2 months 12 days
Weighted average remaining life (in years), Options exercisable	3 years 10 months 24 days	3 years 10 months 24 days	2 years
Aggregate intrinsic value Outstanding, Beginning	$ 0.1	$ 0.5	$ 3.3
Aggregate intrinsic value Outstanding, Ending	0.7	0.1	0.5	$ 3.3
Aggregate intrinsic value, Exercisable	$ 0.1	$ 0.1	$ 0.3

XML

Earnings Per Common Share - Additional Information (Detail)		12 Months Ended
	Apr. 30, 2014	Dec. 31, 2016
Earnings Per Share [Abstract]
Stock split, description		On April 30, 2014, the Company’s Board of Directors approved a 2-for-1 split of its common stock that was effected through a stock dividend. Shareholders of record on June 10, 2014 received one additional share for every share they owned on that date.
Stock split ratio	2

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Earnings Per Common Share - Reconciliation Between Basic and Diluted Earnings Per Common Share (Detail) - USD ($) $ / shares in Units, shares in Millions, $ in Millions	3 Months Ended								12 Months Ended
	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Earnings Per Share [Abstract]
Net earnings	$ 47	$ 59	$ 18	$ 4	$ 57	$ 11	$ 38	$ 36	$ 128	$ 142	$ 431
Weighted average number of common and exchangeable shares outstanding (millions)									62.6	63.3	64.8
Effect of dilutive securities (millions)									0.1	0.1	0.1
Weighted average number of diluted common and exchangeable shares outstanding (millions)									62.7	63.4	64.9
Basic net earnings per common share (in dollars)	$ 0.75	$ 0.94	$ 0.29	$ 0.06	$ 0.91	$ 0.17	$ 0.60	$ 0.56	$ 2.04	$ 2.24	$ 6.65
Diluted net earnings per common share (in dollars)	$ 0.75	$ 0.94	$ 0.29	$ 0.06	$ 0.91	$ 0.17	$ 0.60	$ 0.56	$ 2.04	$ 2.24	$ 6.64

XML

Earnings Per Common Share - Securities that Could Potentially Dilute Basic Earnings Per Common Share in Future (Detail) - shares	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Options [Member]
Antidilutive Securities Excluded From Computation Of Earnings Per Share [Line Items]
Anti-dilutive securities excluded from computation of earnings per common share amount	410,978	343,581	247,152

XML

Pension Plans and Other Post-Retirement Benefit Plans - Additional Information (Detail) CAD in Millions		12 Months Ended
	Jan. 01, 2017	Dec. 31, 2016 USD ($)	Dec. 31, 2016 CAD	Dec. 31, 2015 USD ($)	Dec. 31, 2014 USD ($)	Dec. 31, 2016 CAD	Dec. 31, 2015 CAD
Deferred Compensation Arrangement with Individual, Postretirement Benefits [Line Items]
Pension expense		$ 37,000,000		$ 32,000,000	$ 28,000,000
Accrued benefit obligation		765,000,000		405,000,000
Fair value of defined benefit plan assets with an accrued benefit obligation in excess of fair value of plan assets		$ 624,000,000		$ 276,000,000
Expected return on plan assets, percentage		5.30%	5.30%	5.60%
Weighted-average annual rate increase in per capita cost of covered health care benefits assumed		5.00%	5.00%
Weighted-average annual rate assumed to decrease in per capita cost of covered health care benefits assumed		4.10%	4.10%
Weighted-average annual rate assumed to decrease in per capita cost of covered health care benefits, assumed year of impact		2034				2034
Restructured asset backed notes, value		$ 118,000,000		$ 146,000,000		CAD 158	CAD 201
Increase in dollar value		8,000,000				CAD 10
Asset backed commercial paper, repayments and sales		40,000,000	CAD 53
Increase in dollar value		$ 4,000,000
Asset backed notes expected maturity period		2017-01	2017-01
Subsequent Event [Member]
Deferred Compensation Arrangement with Individual, Postretirement Benefits [Line Items]
Expected return on plan assets, percentage	5.40%
United States Plans [Member]
Deferred Compensation Arrangement with Individual, Postretirement Benefits [Line Items]
Discount rate		4.10%				4.10%
Minimum number of years from issuance of private placement bonds		2 years	2 years
Pension Plans [Member]
Deferred Compensation Arrangement with Individual, Postretirement Benefits [Line Items]
Expected minimum contribution in 2017		$ 13,000,000
Plan contributions		31,000,000		$ 13,000,000	$ 29,000,000
Amount to be amortized from accumulated other comprehensive loss into net periodic benefit cost in 2017		$ 13,000,000
Discount rate		3.80%		4.00%	3.90%	3.80%	4.00%
Expected return on plan assets, percentage		5.30%	5.30%	5.60%	6.30%
Other Post-Retirement Benefit Plans [Member]
Deferred Compensation Arrangement with Individual, Postretirement Benefits [Line Items]
Expected minimum contribution in 2017		$ 4,000,000
Plan contributions		5,000,000		$ 5,000,000	$ 5,000,000
Amount to be amortized from accumulated other comprehensive loss into net periodic benefit cost in 2017		$ 0
Discount rate		3.90%		4.10%	3.90%	3.90%	4.10%
Supplemental Nonqualified Unfunded Retirement Plan [Member]
Deferred Compensation Arrangement with Individual, Postretirement Benefits [Line Items]
Accrued benefit obligation		$ 48,000,000		$ 46,000,000
Separately Restructured [Member]
Deferred Compensation Arrangement with Individual, Postretirement Benefits [Line Items]
Restructured asset backed notes, value		$ 116,000,000				CAD 154
Period of completion of ABN restructuring under the Montreal Accord		2009-01	2009-01
Asset Backed Notes [Member]
Deferred Compensation Arrangement with Individual, Postretirement Benefits [Line Items]
Restructured asset backed notes, value		$ 3,000,000

XML

Pension Plans and Other Post-Retirement Benefit Plans - Change in Accrued Benefit Obligation (Detail) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Pension Plans [Member]
Defined Benefit Plan Disclosure [Line Items]
Accrued benefit obligation at beginning of year	$ 1,509	$ 1,723
Service cost for the year	31	34	$ 35
Interest expense	51	60	77
Plan participants' contributions	6	6
Actuarial loss (gain)	46	(25)
Plan amendments		10
Benefits paid	(83)	(76)
Direct benefit payments	(4)	(3)
Settlement	(6)	(1)
Effect of foreign currency exchange rate change	34	(219)
Accrued benefit obligation at end of year	1,584	1,509	1,723
Other Post-Retirement Benefit Plans [Member]
Defined Benefit Plan Disclosure [Line Items]
Accrued benefit obligation at beginning of year	86	105
Service cost for the year	2	2	2
Interest expense	4	4	5
Actuarial loss (gain)	1	(5)
Direct benefit payments	(5)	(5)
Effect of foreign currency exchange rate change	2	(15)
Accrued benefit obligation at end of year	$ 90	$ 86	$ 105

XML

Pension Plans and Other Post-Retirement Benefit Plans - Change in Fair Value of Assets (Detail) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Defined Benefit Plan Disclosure [Line Items]
Fair value of assets at beginning of year	$ 1,493
Settlement	(1)	$ 0	$ 0
Fair value of assets at end of year	1,546	1,493
Pension Plans [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of assets at beginning of year	1,493	1,721
Actual return on plan assets	73	63
Employer contributions	31	13	29
Plan participants' contributions	6	6
Benefits paid	(87)	(79)
Settlement	(6)	(1)
Effect of foreign currency exchange rate change	36	(230)
Fair value of assets at end of year	$ 1,546	$ 1,493	$ 1,721

XML

Pension Plans and Other Post-Retirement Benefit Plans - Allocation of Plan Assets, Based on Fair Value of Assets Held and Target Allocation (Detail)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Defined Benefit Plan Disclosure [Line Items]
Percentage of plan assets	100.00%	100.00%
Cash and Cash Equivalents [Member]
Defined Benefit Plan Disclosure [Line Items]
Target allocation on equity, percentage of plan assets, range minimum	0.00%
Target allocation on equity, percentage of plan assets, range maximum	9.00%
Fixed income and Equity, Percentage of plan assets	3.00%	2.00%
Bonds [Member]
Defined Benefit Plan Disclosure [Line Items]
Target allocation on equity, percentage of plan assets, range minimum	46.00%
Target allocation on equity, percentage of plan assets, range maximum	56.00%
Fixed income and Equity, Percentage of plan assets	51.00%	51.00%
Insurance Contracts
Defined Benefit Plan Disclosure [Line Items]
Target allocation on equity, percentage of plan assets	5.00%
Fixed income and Equity, Percentage of plan assets	5.00%	6.00%
Canadian Equities [Member]
Defined Benefit Plan Disclosure [Line Items]
Target allocation on equity, percentage of plan assets, range minimum	3.00%
Target allocation on equity, percentage of plan assets, range maximum	11.00%
Fixed income and Equity, Percentage of plan assets	6.00%	6.00%
U.S. Equities [Member]
Defined Benefit Plan Disclosure [Line Items]
Target allocation on equity, percentage of plan assets, range minimum	8.00%
Target allocation on equity, percentage of plan assets, range maximum	18.00%
Fixed income and Equity, Percentage of plan assets	13.00%	15.00%
International Equities [Member]
Defined Benefit Plan Disclosure [Line Items]
Target allocation on equity, percentage of plan assets, range minimum	17.00%
Target allocation on equity, percentage of plan assets, range maximum	27.00%
Fixed income and Equity, Percentage of plan assets	22.00%	20.00%

XML

Pension Plans and Other Post-Retirement Benefit Plans - Allocation of Plan Assets, Based on Fair Value of Assets Held and Target Allocation (Parenthetical) (Detail)	Dec. 31, 2016	Dec. 31, 2015
Defined Benefit Plan Disclosure [Line Items]
Percentage of plan assets	100.00%	100.00%
Canadian Plans [Member]
Defined Benefit Plan Disclosure [Line Items]
Percentage of plan assets	80.00%
U.S. Plans [Member]
Defined Benefit Plan Disclosure [Line Items]
Percentage of plan assets	20.00%

XML

Pension Plans and Other Post-Retirement Benefit Plans - Funded Status of Plans (Detail) - USD ($) $ in Millions	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Defined Benefit Plan Disclosure [Line Items]
Fair value of assets at end of year	$ 1,546	$ 1,493
Pension Plans [Member]
Defined Benefit Plan Disclosure [Line Items]
Accrued benefit obligation at end of year	(1,584)	(1,509)	$ (1,723)
Fair value of assets at end of year	1,546	1,493	1,721
Funded status	(38)	(16)
Other Post-Retirement Benefit Plans [Member]
Defined Benefit Plan Disclosure [Line Items]
Accrued benefit obligation at end of year	(90)	(86)	$ (105)
Funded status	$ (90)	$ (86)

XML

Pension Plans and Other Post-Retirement Benefit Plans - Amount Recognized in Consolidated Balance Sheets (Detail) - USD ($) $ in Millions	Dec. 31, 2016	Dec. 31, 2015
Defined Benefit Plan Disclosure [Line Items]
Other assets (Note 15)	$ 103	$ 113
Pension Plans [Member]
Defined Benefit Plan Disclosure [Line Items]
Other liabilities and deferred credits (Note 20)	(141)	(129)
Other assets (Note 15)	103	113
Net amount recognized in the Consolidated Balance Sheets	(38)	(16)
Other Post-Retirement Benefit Plans [Member]
Defined Benefit Plan Disclosure [Line Items]
Trade and other payables (Note 17)	(4)	(4)
Other liabilities and deferred credits (Note 20)	(86)	(82)
Net amount recognized in the Consolidated Balance Sheets	$ (90)	$ (86)

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Pension Plans and Other Post-Retirement Benefit Plans - Pre-Tax Amounts Included in Other Comprehensive Income (Loss) (Detail) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Pension Plans [Member]
Defined Benefit Plan Disclosure [Line Items]
Prior service credit		$ (10)	$ (1)
Amortization of prior year service cost	$ 5	3	3
Net (loss) gain	(53)	2	(8)
Amortization of net actuarial loss	6	7	28
Net amount recognized in other comprehensive (loss) income (pre-tax)	(42)	2	22
Other Post-Retirement Benefit Plans [Member]
Defined Benefit Plan Disclosure [Line Items]
Net (loss) gain	(2)	4	(8)
Amortization of net actuarial loss		1
Net amount recognized in other comprehensive (loss) income (pre-tax)	$ (2)	$ 5	$ (8)

XML

Pension Plans and Other Post-Retirement Benefit Plans - Components of Net Periodic Benefit Cost for Pension Plans and Other Post-Retirement Benefit Plans (Detail) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Pension Plans [Member]
Defined Benefit Plan Disclosure [Line Items]
Service cost for the year	$ 31	$ 34	$ 35
Interest expense	51	60	77
Expected return on plan assets	(80)	(86)	(101)
Amortization of net actuarial loss	5	7	9
Settlement loss	1		19
Amortization of prior year service cost	5	3	3
Net periodic benefit cost	13	18	42
Other Post-Retirement Benefit Plans [Member]
Defined Benefit Plan Disclosure [Line Items]
Service cost for the year	2	2	2
Interest expense	4	4	5
Net periodic benefit cost	$ 6	$ 6	$ 7

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Pension Plans and Other Post-Retirement Benefit Plans - Components of Net Periodic Benefit Cost for Pension Plans and Other Post-Retirement Benefit Plans (Parenthetical) (Detail) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2014
Pension Plans [Member]
Defined Benefit Plan Disclosure [Line Items]
Settlement loss	$ 1	$ 19

XML

Pension Plans and Other Post-Retirement Benefit Plans - Key Assumptions to Measure Accrued Benefit Obligation and Net Periodic Benefit Cost (Detail)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Defined Benefit Plan Disclosure [Line Items]
Net periodic benefit cost, Expected long-term rate of return on plan assets	5.30%	5.60%
Pension Plans [Member]
Defined Benefit Plan Disclosure [Line Items]
Accrued benefit obligation, Discount rate	3.80%	4.00%	3.90%
Accrued benefit obligation, Rate of compensation increase	2.70%	2.70%	2.70%
Net periodic benefit cost, Discount rate	4.10%	3.90%	4.80%
Net periodic benefit cost, Rate of compensation increase	2.80%	2.80%	2.70%
Net periodic benefit cost, Expected long-term rate of return on plan assets	5.30%	5.60%	6.30%
Other Post-Retirement Benefit Plans [Member]
Defined Benefit Plan Disclosure [Line Items]
Accrued benefit obligation, Discount rate	3.90%	4.10%	3.90%
Accrued benefit obligation, Rate of compensation increase	2.80%	2.80%	2.80%
Net periodic benefit cost, Discount rate	4.10%	3.90%	4.80%
Net periodic benefit cost, Rate of compensation increase	2.80%	2.80%	2.70%

XML

Pension Plans and Other Post-Retirement Benefit Plans - Effect of One Percent Change in Assumed Health Care Cost (Detail)	12 Months Ended
	Dec. 31, 2016 USD ($)
Compensation And Retirement Disclosure [Abstract]
Impact on net periodic benefit cost for other post-retirement benefit plans, Increase of 1%	$ 1,000,000
Impact on accrued benefit obligation, Increase of 1%	8,000,000
Impact on net periodic benefit cost for other post-retirement benefit plans, Decrease of 1%	0
Impact on accrued benefit obligation, Decrease of 1%	$ (7,000,000)

XML

Pension Plans and Other Post-Retirement Benefit Plans - Fair Value of Plan Asset by Assets Category (Detail) - USD ($) $ in Millions	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Defined Benefit Plan Disclosure [Line Items]
Fair value of the plan assets	$ 1,546	$ 1,493
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of the plan assets	566	572
Significant Observable Inputs (Level 2) [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of the plan assets	893	825
Significant Unobservable Inputs (Level 3) [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of the plan assets	87	96	$ 23
Cash and Short-term Investments [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of the plan assets	80	67
Cash and Short-term Investments [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of the plan assets	80	67
Asset Backed Notes [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of the plan assets	118	146
Asset Backed Notes [Member] | Significant Observable Inputs (Level 2) [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of the plan assets	115	136
Asset Backed Notes [Member] | Significant Unobservable Inputs (Level 3) [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of the plan assets	3	10	15
Canadian Government Bonds [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of the plan assets	81	141
Canadian Government Bonds [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of the plan assets	81	141
Canadian Corporate Debt Securities [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of the plan assets	3	3
Canadian Corporate Debt Securities [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of the plan assets	2	2
Canadian Corporate Debt Securities [Member] | Significant Observable Inputs (Level 2) [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of the plan assets	1	1
Bond Index Funds [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of the plan assets	585	466
Bond Index Funds [Member] | Significant Observable Inputs (Level 2) [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of the plan assets	585	466
Canadian Equities [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of the plan assets	100	96
Canadian Equities [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of the plan assets	100	96
U.S. Equities [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of the plan assets	77	37
U.S. Equities [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of the plan assets	77	37
International Equities [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of the plan assets	226	229
International Equities [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of the plan assets	226	229
U.S. Stock Index Funds [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of the plan assets	193	218
U.S. Stock Index Funds [Member] | Significant Observable Inputs (Level 2) [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of the plan assets	193	218
Insurance Contracts
Defined Benefit Plan Disclosure [Line Items]
Fair value of the plan assets	84	86
Insurance Contracts | Significant Unobservable Inputs (Level 3) [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of the plan assets	84	86	$ 8
Gain (Loss) on Derivative Contract [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of the plan assets	(1)	4
Gain (Loss) on Derivative Contract [Member] | Significant Observable Inputs (Level 2) [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of the plan assets	$ (1)	$ 4

XML

Pension Plans and Other Post-Retirement Benefit Plans - Fair Value of Plan Asset by Assets Category (Parenthetical) (Detail) - USD ($) $ in Millions	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Defined Benefit Plan Disclosure [Line Items]
Fair value of the plan assets	$ 1,546	$ 1,493
Pension Plans [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of the plan assets	1,546	1,493	$ 1,721
Insurance Contracts
Defined Benefit Plan Disclosure [Line Items]
Fair value of the plan assets	84	86
Insurance Contracts | Minimum Guarantee Rate [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of the plan assets	8	8
Insurance Contracts | Pension Plans [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of the plan assets	76	78
Canadian Equities [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of the plan assets	$ 100	96
Canadian Equities [Member] | Active Segregated Global Equity Portfolio [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of the plan assets		$ 4

XML

Pension Plans and Other Post-Retirement Benefit Plans - Changes in Level 3 Fair Value Measurements of Plan Assets (Detail) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Defined Benefit Plan Disclosure [Line Items]
Fair value of assets at beginning of year	$ 1,493
(Settlements)/Purchases	(1)	$ 0	$ 0
Fair value of assets at end of year	1,546	1,493
Asset Backed Notes [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of assets at beginning of year	146
Fair value of assets at end of year	118	146
Insurance Contracts
Defined Benefit Plan Disclosure [Line Items]
Fair value of assets at beginning of year	86
Fair value of assets at end of year	84	86
Significant Unobservable Inputs (Level 3) [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of assets at beginning of year	96	23
(Settlements)/Purchases	(12)	75
Return on plan assets	1	4
Effect of foreign currency exchange rate change	2	(6)
Fair value of assets at end of year	87	96	23
Significant Unobservable Inputs (Level 3) [Member] | Asset Backed Notes [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of assets at beginning of year	10	15
(Settlements)/Purchases	(7)	(4)
Return on plan assets		1
Effect of foreign currency exchange rate change		(2)
Fair value of assets at end of year	3	10	15
Significant Unobservable Inputs (Level 3) [Member] | Insurance Contracts
Defined Benefit Plan Disclosure [Line Items]
Fair value of assets at beginning of year	86	8
(Settlements)/Purchases	(5)	79
Return on plan assets	1	3
Effect of foreign currency exchange rate change	2	(4)
Fair value of assets at end of year	$ 84	$ 86	$ 8

XML

Pension Plans and Other Post-Retirement Benefit Plans - Changes in Level 3 Fair Value Measurements of Plan Assets (Parenthetical) (Detail) - USD ($) $ in Millions	Dec. 31, 2016	Dec. 31, 2015
Defined Benefit Plan Disclosure [Line Items]
Fair value of assets	$ 1,546	$ 1,493
ABN Montreal Accord [Member]
Defined Benefit Plan Disclosure [Line Items]
Fair value of assets	$ 3	$ 4

XML

Pension Plans and Other Post-Retirement Benefit Plans - Estimated Future Benefit Payments from Plans (Detail) $ in Millions	Dec. 31, 2016 USD ($)
Pension Plans [Member]
Defined Benefit Plan Disclosure [Line Items]
2017	$ 102
2018	100
2019	102
2020	102
2021	102
2022-2026	515
Other Post-Retirement Benefit Plans [Member]
Defined Benefit Plan Disclosure [Line Items]
2017	4
2018	4
2019	4
2020	5
2021	5
2022-2026	$ 24

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Other Operating Loss (Income), Net - Components of Other Operating Loss (Income), Net (Detail) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Other Income And Expenses [Abstract]
Alternative fuel tax credits			$ (18)
Net gains on disposals of property, plant and equipment		$ (15)
Bad debt expense		5	2
Environmental provision	$ 2	4	1
Foreign exchange loss (gain)	6	(3)	(1)
Proceeds from insurance claims on machinery and equipment			(11)
Other	(4)	4	(2)
Other operating loss (income), net	$ 4	$ (5)	$ (29)

XML

Interest Expense, Net - Components of Interest Expense, Net (Detail) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Banking And Thrift Interest [Abstract]
Interest on long-term debt	$ 59	$ 82	$ 95
Premium paid on repurchase of long-term debt		40
Reversal of fair value increment on long-term debt		(1)
Interest on receivables securitization	2	1	1
Interest on withdrawal liabilities for multiemployer plans	3	4	3
Amortization of debt issuance costs and other	2	6	4
Interest expense net	$ 66	$ 132	$ 103

XML

Interest Expense, Net - Components of Interest Expense, Net (Parenthetical) (Detail) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Banking And Thrift Interest [Abstract]
Capitalized interest expense	$ 5	$ 3	$ 3

XML

Income Taxes - Components of Earnings Before Income Taxes (Detail) - USD ($) $ in Millions	3 Months Ended								12 Months Ended
	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Income Tax Disclosure [Abstract]
U.S. earnings									$ 69	$ 26	$ 86
Foreign earnings									88	130	175
Earnings before income taxes and equity loss	$ 57	$ 75	$ 24	$ 1	$ 77	$ (3)	$ 37	$ 45	$ 157	$ 156	$ 261

XML

Income Taxes - Provisions for Income Taxes (Detail) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Income Tax Disclosure [Abstract]
U.S. Federal and State, Current	$ 10	$ 61	$ 20
U.S. Federal and State, Deferred	1	(78)	(213)
Foreign, Current	10	9	11
Foreign, Deferred	8	22	12
Income tax expense (benefit)	$ 29	$ 14	$ (170)

XML

Income Taxes - Additional Information (Detail) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2017	Dec. 31, 2013
Income Taxes [Line Items]
Statutory income tax rate	35.00%	35.00%	35.00%
Tax credit recorded for research and experimentation	$ 18,000,000	$ 16,000,000	$ 18,000,000
Uncertain tax positions	3,000,000	3,000,000	3,000,000
Income tax (benefit) expense	29,000,000	14,000,000	(170,000,000)
U.S. manufacturing deduction	2,000,000	6,000,000	9,000,000
Alternative Fuel Tax Credits			(18,000,000)
Alternative Fuel Tax Credits ("AFTC") income, tax expense			0
Valuation allowance	22,000,000	23,000,000
Foreign loss carryforwards for valuation allowance	18,000,000
Impacted tax expenses	(1,000,000)	(1,000,000)	7,000,000
Gross unrecognized tax benefits	43,000,000	41,000,000	48,000,000		$ 259,000,000
Accrued interest on uncertain tax positions	1,000,000	$ 1,000,000	4,000,000
Scenario Forecast [Member]
Income Taxes [Line Items]
Gross unrecognized tax benefits				$ 12,000,000
Expires in 2032 [Member] | Maximum [Member]
Income Taxes [Line Items]
Operating loss carryforwards	1,000,000
State Credits [Member]
Income Taxes [Line Items]
Valuation allowance	$ 4,000,000
Federal [Member]
Income Taxes [Line Items]
Operating loss carryforward expiry year	2032
US Federal Income Tax Audit [Member]
Income Taxes [Line Items]
Gross unrecognized tax benefits			223,000,000
Deferred tax asset			23,000,000
Income tax benefit after-tax			200,000,000
Recognition of tax benefits would impact the effective tax rate			6,000,000
Uncertain tax positions			194,000,000
Income tax (benefit) expense			$ 7,000,000
Indefinitely Carried Forward and Deduction Limitations [Member]
Income Taxes [Line Items]
Operating loss carryforwards	$ 140,000,000

XML

Income Taxes - Reconciliation of Income Tax Expense (Benefit) to U.S. Federal Statutory Income Tax (Detail) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Income Tax Disclosure [Abstract]
U.S. federal statutory income tax	$ 55	$ 55	$ 91
State and local income taxes, net of federal income tax benefit	3	1	3
Foreign income tax rate differential	(14)	(16)	(18)
Tax credits and special deductions	(18)	(16)	(18)
Alternative fuel tax credit income			(6)
Tax rate changes		(5)	(16)
Uncertain tax positions	2	1	(194)
U.S. manufacturing deduction	(2)	(6)	(9)
Functional currency differences		1	(5)
Valuation allowance on deferred tax assets	(1)	(1)	7
Other	4		(5)
Income tax expense (benefit)	$ 29	$ 14	$ (170)

XML

Income Taxes - Deferred Tax Assets and Liabilities (Detail) - USD ($) $ in Millions	Dec. 31, 2016	Dec. 31, 2015
Income Tax Disclosure [Abstract]
Accounting provisions	$ 62	$ 57
Net operating loss carryforwards and other deductions	43	48
Pension and other employee future benefit plans	65	59
Inventory	15	17
Tax credits	25	25
Other		16
Gross deferred tax assets	210	222
Valuation allowance	(22)	(23)
Net deferred tax assets	188	199
Property, plant and equipment	(648)	(647)
Impact of foreign exchange on long-term debt and investments	(8)	(6)
Intangible assets	(152)	(157)
Other	(10)
Total deferred tax liabilities	(818)	(810)
Net deferred tax liabilities	(630)	(611)
Other assets (Note 15)	2	2
Deferred income taxes and other	(632)	(613)
Total	$ (630)	$ (611)

XML

Income Taxes - Gross Unrecognized Tax Benefits (Detail) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Income Tax Disclosure [Abstract]
Balance at beginning of year	$ 41	$ 48	$ 259
Additions based on tax positions related to current year	3	3	3
Additions for tax positions of prior years	3	2	10
Reductions for tax positions of prior years	(2)	(1)
Reductions related to settlements with taxing authorities		(4)	(223)
Expirations of statutes of limitations	(3)	(7)	(4)
Interest	1	1	4
Foreign exchange impact		(1)	(1)
Balance at end of year	$ 43	$ 41	$ 48

XML

Inventories - Components of Inventories (Detail) - USD ($) $ in Millions	Dec. 31, 2016	Dec. 31, 2015
Inventory Disclosure [Abstract]
Work in process and finished goods	$ 413	$ 432
Raw materials	132	130
Operating and maintenance supplies	214	204
Total inventories	$ 759	$ 766

XML

Goodwill - Changes in Carrying Value of Goodwill (Detail) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Goodwill Roll Forward
Balance at beginning of year	$ 539	$ 567
Effect of foreign currency exchange rate change	(6)	(28)
Balance at end of year	550	$ 539
Home Delivery Incontinent Supplies Co. [Member]
Goodwill Roll Forward
Goodwill acquired during period (Note 3)	$ 17

XML

Goodwill - Additional Information (Detail) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Goodwill And Intangible Assets Disclosure [Abstract]
Goodwill impairment test date	October 1, 2016
Goodwill impairment charges	$ 0	$ 0	$ 0

XML

Property, Plant and Equipment - Components of Property, Plant and Equipment (Detail) - USD ($) $ in Millions		12 Months Ended
		Dec. 31, 2016	Dec. 31, 2015
Property Plant And Equipment [Line Items]
Machinery and equipment		$ 7,408	$ 7,255
Buildings and improvements		1,007	975
Timberlands	[1]	200	196
Assets under construction		94	224
Property, plant and equipment, gross		8,709	8,650
Less: Accumulated depreciation		5,884	5,815
Net property, plant and equipment		$ 2,825	$ 2,835
Minimum [Member] | Machinery and Equipment [Member]
Property Plant And Equipment [Line Items]
Range of useful lives		3 years
Minimum [Member] | Buildings and Improvements [Member]
Property Plant And Equipment [Line Items]
Range of useful lives		10 years
Maximum [Member] | Machinery and Equipment [Member]
Property Plant And Equipment [Line Items]
Range of useful lives		20 years
Maximum [Member] | Buildings and Improvements [Member]
Property Plant And Equipment [Line Items]
Range of useful lives		40 years

[1] Amortization is calculated using the unit of production method.

XML

Property, Plant and Equipment - Additional Information (Detail) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Property Plant And Equipment [Abstract]
Depreciation expense related to property, plant and equipment	$ 329	$ 340	$ 363

XML

Intangible Assets - Components of Intangible Assets (Detail) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Intangible Assets Excluding Goodwill [Line Items]
Definite-lived intangible assets subject to amortization, gross carrying amount	$ 409	$ 394
Accumulated amortization	(72)	(55)
Intangible assets, net	337	339
Total, Gross carrying amount	680	656
Intangible assets, net of amortization	608	601
Water Rights [Member]
Intangible Assets Excluding Goodwill [Line Items]
Indefinite-lived intangible assets not subject to amortization	4	4
Trade Names [Member]
Intangible Assets Excluding Goodwill [Line Items]
Indefinite-lived intangible assets not subject to amortization	225	215
License Rights [Member]
Intangible Assets Excluding Goodwill [Line Items]
Indefinite-lived intangible assets not subject to amortization	6	6
Catalog Rights [Member]
Intangible Assets Excluding Goodwill [Line Items]
Indefinite-lived intangible assets not subject to amortization	$ 36	37
Water Rights [Member]
Intangible Assets Excluding Goodwill [Line Items]
Estimated useful lives (in years)	40 years
Definite-lived intangible assets subject to amortization, gross carrying amount	$ 3	3
Accumulated amortization	(1)	(1)
Intangible assets, net	2	2
Customer Relationships [Member]
Intangible Assets Excluding Goodwill [Line Items]
Definite-lived intangible assets subject to amortization, gross carrying amount	369	354
Accumulated amortization	(60)	(46)
Intangible assets, net	$ 309	308
Customer Relationships [Member] | Minimum [Member]
Intangible Assets Excluding Goodwill [Line Items]
Estimated useful lives (in years)	10 years
Customer Relationships [Member] | Maximum [Member]
Intangible Assets Excluding Goodwill [Line Items]
Estimated useful lives (in years)	40 years
Technology [Member]
Intangible Assets Excluding Goodwill [Line Items]
Definite-lived intangible assets subject to amortization, gross carrying amount	$ 8	8
Accumulated amortization	(3)	(2)
Intangible assets, net	$ 5	6
Technology [Member] | Minimum [Member]
Intangible Assets Excluding Goodwill [Line Items]
Estimated useful lives (in years)	7 years
Technology [Member] | Maximum [Member]
Intangible Assets Excluding Goodwill [Line Items]
Estimated useful lives (in years)	20 years
Non-Compete [Member]
Intangible Assets Excluding Goodwill [Line Items]
Estimated useful lives (in years)	9 years
Definite-lived intangible assets subject to amortization, gross carrying amount	$ 1	1
Intangible assets, net	$ 1	1
License Rights [Member]
Intangible Assets Excluding Goodwill [Line Items]
Estimated useful lives (in years)	12 years
Definite-lived intangible assets subject to amortization, gross carrying amount	$ 28	28
Accumulated amortization	(8)	(6)
Intangible assets, net	$ 20	$ 22

XML

Intangible Assets - Additional Information (Detail) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Goodwill And Intangible Assets Disclosure [Abstract]
Amortization expense	$ 19,000,000	$ 19,000,000	$ 21,000,000
Impairment charges of indefinite-lived intangible assets	$ 0	$ 0	$ 0

XML

Intangible Assets - Amortization Expense Related to Intangible Assets (Detail) $ in Millions	Dec. 31, 2016 USD ($)
Goodwill And Intangible Assets Disclosure [Abstract]
Amortization expense related to intangible assets, 2017	$ 21
Amortization expense related to intangible assets, 2018	20
Amortization expense related to intangible assets, 2019	20
Amortization expense related to intangible assets, 2020	20
Amortization expense related to intangible assets, 2021	$ 20

XML

Other Assets - Components of Other Assets (Detail) - USD ($) $ in Millions	Dec. 31, 2016	Dec. 31, 2015
Deferred Costs Capitalized Prepaid And Other Assets Disclosure [Abstract]
Pension asset - defined benefit pension plans (Note 7)	$ 103	$ 113
Investment tax credits receivable	4
Unamortized debt issuance costs	5	3
Deferred income tax assets (Note 10)	2	2
Derivative financial instruments (Note 23)	8	3
Other	7	4
Other assets	$ 129	$ 125

XML

Closure and Restructuring Costs and Liability - Additional Information (Detail) $ in Millions					3 Months Ended									12 Months Ended
	Sep. 23, 2016 Position t	Mar. 31, 2016 t	Dec. 10, 2014 t	Oct. 13, 2014 Employees	Dec. 31, 2016 USD ($)	Sep. 30, 2016 USD ($)	Jun. 30, 2016 USD ($)	Mar. 31, 2016 USD ($)	Dec. 31, 2015 USD ($)	Sep. 30, 2015 USD ($)	Jun. 30, 2015 USD ($)	Mar. 31, 2015 USD ($)	Dec. 31, 2014 USD ($)	Dec. 31, 2016 USD ($)	Dec. 31, 2015 USD ($)	Dec. 31, 2014 USD ($)
Restructuring Cost And Reserve [Line Items]
Severance and termination costs						$ 5	$ 21							$ 32	$ 4	$ 28
Other costs														26
Pension settlement														1	0	0
Provision for closure and restructuring costs					$ 7									7
Pulp and Paper [Member]
Restructuring Cost And Reserve [Line Items]
Severance and termination costs					(2)	5		$ 2	$ 1	$ 1	$ 1			31	3	27
Other costs														26
Provision for closure and restructuring costs					6									6
Personal Care [Member]
Restructuring Cost And Reserve [Line Items]
Severance and termination costs					1							$ 1		1	1	1
Provision for closure and restructuring costs					1									1
Previous and Ongoing Closures [Member]
Restructuring Cost And Reserve [Line Items]
Severance and termination costs														3	1	$ 3
Indianapolis, Indiana Converting [Member]
Restructuring Cost And Reserve [Line Items]
Severance and termination costs													$ 2
Inventory obsolescence													1
Number of employees reduced | Employees				60
Plymouth, North Carolina Mill [Member]
Restructuring Cost And Reserve [Line Items]
Expected number of positions eliminated | Position	100
Production capacity of pulp machine | t	380,000
Severance and termination costs						$ 5
Ashdown, Arkansas Mill [Member]
Restructuring Cost And Reserve [Line Items]
Severance and termination costs														1	3
Permanent reduction of annual uncoated freesheet production capacity | t		364,000
Accelerated depreciation													4	29	$ 77
Other costs														26
Inventory obsolescence													$ 3
Ashdown, Arkansas Mill [Member] | Maximum [Member]
Restructuring Cost And Reserve [Line Items]
Production capacity of pulp machine | t			516,000
Multiemployer Pension Plans [Member]
Restructuring Cost And Reserve [Line Items]
Multiemployer plans gain due to revision in estimated withdrawal liability														4
Provision for the withdrawal liabilities					$ 50									$ 50

XML

Closure and Restructuring Costs and Liability - Components of Closure and Restructuring Costs by Segment (Detail) - USD ($) $ in Millions	3 Months Ended								12 Months Ended
	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Restructuring Cost And Reserve [Line Items]
Severance and termination costs									$ 9	$ 4	$ 5
Inventory write-down											4
Pension settlement and withdrawal liability									(3)		19
Fluff pulp conversion outage									26
Closure and restructuring costs		$ 5	$ 21						32	4	28
Pulp and Paper [Member]
Restructuring Cost And Reserve [Line Items]
Severance and termination costs									8	3	4
Inventory write-down											4
Pension settlement and withdrawal liability									(3)		19
Fluff pulp conversion outage									26
Closure and restructuring costs	$ (2)	$ 5		$ 2	$ 1	$ 1	$ 1		31	3	27
Personal Care [Member]
Restructuring Cost And Reserve [Line Items]
Severance and termination costs									1	1	1
Closure and restructuring costs	$ 1							$ 1	$ 1	$ 1	$ 1

XML

Closure and Restructuring Costs and Liability - Activity in Closure and Restructuring Liability (Detail) - USD ($) $ in Millions	3 Months Ended		12 Months Ended
	Sep. 30, 2016	Jun. 30, 2016	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Restructuring Cost And Reserve [Line Items]
Closure and restructuring costs (NOTE 16)	$ 5	$ 21	$ 32	$ 4	$ 28
Balance at end of year			7
Closure And Restructuring Liability [Member]
Restructuring Cost And Reserve [Line Items]
Balance at beginning of year			3	2
Closure and restructuring costs (NOTE 16)			9	4
Payments			(5)	(3)
Balance at end of year			$ 7	$ 3	$ 2

XML

Trade and Other Payables - Components of Trade and Other Payables (Detail) - USD ($) $ in Millions	Dec. 31, 2016	Dec. 31, 2015
Payables And Accruals [Abstract]
Trade payables	$ 332	$ 350
Payroll-related accruals	160	160
Accrued interest	16	18
Payables on capital projects	13	16
Rebate accruals	62	66
Liability - pension and other post-retirement benefit plans	4	4
Liability - multiemployer plan withdrawal	2	2
Provision for environment and other asset retirement obligations	15	14
Closure and restructuring costs liability	7	3
Derivative financial instruments	11	53
Dividends payable	26	25
Stock-based compensation - liability awards	2	4
Other	6	5
Trade and other payables	$ 656	$ 720

XML

Changes in Accumulated Other Comprehensive Loss by Component - Schedule of Changes in Accumulated Other Comprehensive Loss by Component (Detail) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Accumulated Other Comprehensive Income Loss [Line Items]
Beginning balance	$ (501)	$ (268)
Other comprehensive (loss) income before reclassifications	(19)	(266)
Amounts reclassified from Accumulated other comprehensive loss	21	33
Other comprehensive income (loss)	2	(233)	$ (203)
Ending balance	(499)	(501)	(268)
Natural Gas Swap Contracts [Member]
Accumulated Other Comprehensive Income Loss [Line Items]
Other comprehensive (loss) income before reclassifications	4	(8)
Currency Options [Member]
Accumulated Other Comprehensive Income Loss [Line Items]
Other comprehensive (loss) income before reclassifications	8	(40)
Foreign Exchange Forward Contracts [Member]
Accumulated Other Comprehensive Income Loss [Line Items]
Other comprehensive (loss) income before reclassifications	16	7
Foreign Currency Items [Member]
Accumulated Other Comprehensive Income Loss [Line Items]
Other comprehensive (loss) income before reclassifications	(7)	(223)
Net (Gain) Loss [Member]
Accumulated Other Comprehensive Income Loss [Line Items]
Other comprehensive (loss) income before reclassifications	(39)	(2)
Net Investment Hedging [Member]
Accumulated Other Comprehensive Income Loss [Line Items]
Other comprehensive (loss) income before reclassifications	(1)
Net Derivative (Losses) Gains on Cash Flow Hedges [Member]
Accumulated Other Comprehensive Income Loss [Line Items]
Beginning balance	(30)	(15)
Other comprehensive (loss) income before reclassifications	27	(41)
Amounts reclassified from Accumulated other comprehensive loss	14	26
Other comprehensive income (loss)	41	(15)
Ending balance	11	(30)	(15)
Net Derivative (Losses) Gains on Cash Flow Hedges [Member] | Natural Gas Swap Contracts [Member]
Accumulated Other Comprehensive Income Loss [Line Items]
Other comprehensive (loss) income before reclassifications	4	(8)
Net Derivative (Losses) Gains on Cash Flow Hedges [Member] | Currency Options [Member]
Accumulated Other Comprehensive Income Loss [Line Items]
Other comprehensive (loss) income before reclassifications	8	(40)
Net Derivative (Losses) Gains on Cash Flow Hedges [Member] | Foreign Exchange Forward Contracts [Member]
Accumulated Other Comprehensive Income Loss [Line Items]
Other comprehensive (loss) income before reclassifications	16	7
Net Derivative (Losses) Gains on Cash Flow Hedges [Member] | Net Investment Hedging [Member]
Accumulated Other Comprehensive Income Loss [Line Items]
Other comprehensive (loss) income before reclassifications	(1)
Accumulated Defined Benefit Plans Adjustment [Member] | Pension Plans [Member]
Accumulated Other Comprehensive Income Loss [Line Items]
Beginning balance	(190)	(192)
Other comprehensive (loss) income before reclassifications	(38)	(5)
Amounts reclassified from Accumulated other comprehensive loss	7	7
Other comprehensive income (loss)	(31)	2
Ending balance	(221)	(190)	(192)
Accumulated Defined Benefit Plans Adjustment [Member] | Pension Plans [Member] | Net (Gain) Loss [Member]
Accumulated Other Comprehensive Income Loss [Line Items]
Other comprehensive (loss) income before reclassifications	(38)	(5)
Accumulated Defined Benefit Plans Adjustment [Member] | Other Post-Retirement Benefit Plans [Member]
Accumulated Other Comprehensive Income Loss [Line Items]
Beginning balance	(10)	(13)
Other comprehensive (loss) income before reclassifications	(1)	3
Other comprehensive income (loss)	(1)	3
Ending balance	(11)	(10)	(13)
Accumulated Defined Benefit Plans Adjustment [Member] | Other Post-Retirement Benefit Plans [Member] | Net (Gain) Loss [Member]
Accumulated Other Comprehensive Income Loss [Line Items]
Other comprehensive (loss) income before reclassifications	(1)	3
Foreign Currency Items [Member]
Accumulated Other Comprehensive Income Loss [Line Items]
Beginning balance	(271)	(48)
Other comprehensive (loss) income before reclassifications	(7)	(223)
Other comprehensive income (loss)	(7)	(223)
Ending balance	(278)	(271)	$ (48)
Foreign Currency Items [Member] | Foreign Currency Items [Member]
Accumulated Other Comprehensive Income Loss [Line Items]
Other comprehensive (loss) income before reclassifications	$ (7)	$ (223)

XML

Changes in Accumulated Other Comprehensive Loss by Component - Schedule of Reclassifications Out of Accumulated Other Comprehensive Loss (Detail) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Reclassification Adjustment Out Of Accumulated Other Comprehensive Income [Line Items]
Earnings before income taxes	$ 157	$ 156	$ 261
Tax expense	(29)	(14)	170
Reclassification Out of Accumulated Other Comprehensive Income [Member] | Net Derivative (Losses) Gains on Cash Flow Hedges [Member]
Reclassification Adjustment Out Of Accumulated Other Comprehensive Income [Line Items]
Earnings before income taxes	24	44	12
Tax expense	(10)	(18)	(4)
Net of tax	14	26	8
Reclassification Out of Accumulated Other Comprehensive Income [Member] | Net Derivative (Losses) Gains on Cash Flow Hedges [Member] | Natural Gas Swap Contracts [Member]
Reclassification Adjustment Out Of Accumulated Other Comprehensive Income [Line Items]
Cost of Sales	12	16	(4)
Reclassification Out of Accumulated Other Comprehensive Income [Member] | Net Derivative (Losses) Gains on Cash Flow Hedges [Member] | Currency Options and Forwards [Member]
Reclassification Adjustment Out Of Accumulated Other Comprehensive Income [Line Items]
Cost of Sales	12	28	16
Reclassification Out of Accumulated Other Comprehensive Income [Member] | Accumulated Defined Benefit Plans Adjustment [Member]
Reclassification Adjustment Out Of Accumulated Other Comprehensive Income [Line Items]
Amortization of prior year service cost	5	3	22
Amortization of net actuarial loss	6	7	9
Earnings before income taxes	11	10	31
Tax expense	(4)	(3)	(9)
Net of tax	$ 7	$ 7	$ 22

XML

Long-Term Debt - Components of Long-Term Debt (Detail) - USD ($)	12 Months Ended
	Dec. 31, 2016	Aug. 01, 2016	Dec. 31, 2015	Sep. 30, 2015
Debt Instrument [Line Items]
Revolving Credit Facility	$ 50,000,000		$ 50,000,000
Securitization	70,000,000
Capital lease obligations and other	8,000,000		10,000,000
Long-term debt	1,289,000,000		1,260,000,000
Less: Unamortized debt issuance costs	8,000,000		9,000,000
Less: Due within one year	63,000,000		41,000,000
Long-term debt, excluding current maturities	$ 1,218,000,000		1,210,000,000
9.5% Notes [Member]
Debt Instrument [Line Items]
Par Amount		$ 39,000,000
9.5% Notes [Member] | 2016 [Member]
Debt Instrument [Line Items]
Long-term debt, Maturity	2016
Par Amount	$ 39,000,000
Unsecured notes			39,000,000
10.75% Notes [Member] | 2017 [Member]
Debt Instrument [Line Items]
Long-term debt, Maturity	2017
Par Amount	$ 63,000,000
Unsecured notes	$ 63,000,000		63,000,000
4.4% Notes [Member] | 2022 [Member]
Debt Instrument [Line Items]
Long-term debt, Maturity	2022
Par Amount	$ 300,000,000
Unsecured notes	$ 300,000,000		300,000,000
6.25% Notes [Member] | 2042 [Member]
Debt Instrument [Line Items]
Long-term debt, Maturity	2042
Par Amount	$ 250,000,000
Unsecured notes	$ 249,000,000		249,000,000
6.75% Notes [Member] | 2044 [Member]
Debt Instrument [Line Items]
Long-term debt, Maturity	2044
Par Amount	$ 250,000,000
Unsecured notes	$ 249,000,000		249,000,000
Revolving Credit Facility [Member]
Debt Instrument [Line Items]
Long-term debt, Maturity	2021
Par Amount	$ 50,000,000
Securitization [Member]
Debt Instrument [Line Items]
Long-term debt, Maturity	2019
Par Amount	$ 70,000,000
Revolving Credit Facility	$ 150,000,000
Term Loan [Member]
Debt Instrument [Line Items]
Long-term debt, Maturity	2025
Par Amount	$ 300,000,000			$ 300,000,000
Unsecured notes	$ 300,000,000		$ 300,000,000
Capital Lease Obligations [Member] | Minimum [Member]
Debt Instrument [Line Items]
Long-term debt, Maturity	2016
Capital Lease Obligations [Member] | Maximum [Member]
Debt Instrument [Line Items]
Long-term debt, Maturity	2028

XML

Long-Term Debt - Components of Long-Term Debt (Parenthetical) (Detail)	Dec. 31, 2016	Aug. 01, 2016	Dec. 31, 2015
9.5% Notes [Member]
Debt Instrument [Line Items]
Long-term debt, interest rate	9.50%	9.50%	9.50%
10.75% Notes [Member]
Debt Instrument [Line Items]
Long-term debt, interest rate	10.75%		10.75%
4.4% Notes [Member]
Debt Instrument [Line Items]
Long-term debt, interest rate	4.40%		4.40%
6.25% Notes [Member]
Debt Instrument [Line Items]
Long-term debt, interest rate	6.25%		6.25%
6.75% Notes [Member]
Debt Instrument [Line Items]
Long-term debt, interest rate	6.75%		6.75%

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Long-Term Debt - Principal Long-Term Debt Repayments, Including Capital Lease Obligations (Detail) $ in Millions	Dec. 31, 2016 USD ($)
Debt Disclosure [Abstract]
2017, Long-term debt	$ 63
2019, Long-term debt	70
2021, Long-term debt	50
Thereafter, Long-term debt	1,100
Long-term debt	1,283
Total payments, Long-term debt	1,283
2017, Capital leases and other	1
2018, Capital leases and other	1
2019, Capital leases and other	1
2020, Capital leases and other	1
2021, Capital leases and other	1
Thereafter, Capital leases and other	6
Capital leases and other obligations repayment	11
Less: Amounts representing interest, Capital leases and other	3
Total payments, Capital leases and other	$ 8

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Long-Term Debt - Additional Information (Detail) - USD ($)			3 Months Ended	12 Months Ended
	Aug. 20, 2015	Jul. 20, 2015	Sep. 30, 2015	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014	Aug. 18, 2016	Aug. 01, 2016	Aug. 15, 2015	Oct. 03, 2014
Debt Instrument [Line Items]
Debt instrument, redemption price, percentage	100.00%
Debt instrument, make-whole premium			$ 42,000,000
Revolving credit facility/Receivables securitization facility				$ 50,000,000	$ 50,000,000
Borrowings				70,000,000	0
Letters of credit outstanding				48,000,000	38,000,000
Interest on receivables securitization				$ 2,000,000	$ 1,000,000	$ 1,000,000
Credit Agreement [Member]
Debt Instrument [Line Items]
Debt instrument maturity date				Aug. 18, 2021
Maximum aggregate amount							$ 700,000,000			$ 600,000,000
Credit facility extendable term				1 year
Debt Instrument Covenant Description				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 December 31, 2016, the Company was in compliance with these financial covenants, and $50 million was borrowed (December 31, 2015 – $50 million).
Credit Agreement [Member] | Maximum [Member]
Debt Instrument [Line Items]
Lender commitments				$ 400,000,000
Leverage level				375.00%
Leverage ratio upon certain material acquisition				400.00%
Credit Agreement [Member] | Minimum [Member]
Debt Instrument [Line Items]
Interest coverage level				300.00%
Amended Credit Agreement [Member]
Debt Instrument [Line Items]
Maturity date of credit agreement before amendments				Oct. 03, 2019
Secured Debt
Debt Instrument [Line Items]
Debt instrument principal amount				$ 70,000,000
Revolving credit facility/Receivables securitization facility				150,000,000
Term Loan [Member]
Debt Instrument [Line Items]
Debt instrument principal amount			$ 300,000,000	$ 300,000,000
Term loan agreement period			10 years	10 years
Debt Instrument Covenant Description				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 December 31, 2016, the Company was in compliance with these financial covenants
Term Loan [Member] | LIBOR [Member]
Debt Instrument [Line Items]
Debt instrument interest rate stated percentage		1.875%
Term Loan [Member] | Maximum [Member]
Debt Instrument [Line Items]
Leverage level		375.00%
Term Loan [Member] | Minimum [Member]
Debt Instrument [Line Items]
Interest coverage level		300.00%
9.5% Notes [Member]
Debt Instrument [Line Items]
Debt instrument maturity date				Aug. 01, 2016
Debt instrument principal amount								$ 39,000,000
Debt instrument interest rate stated percentage				9.50%	9.50%			9.50%
9.5% Notes Due 2016 [Member]
Debt Instrument [Line Items]
Debt instrument interest rate stated percentage	9.50%
Debt instrument redeemed	$ 55,000,000
Debt instrument, redemption price, percentage of principal amount redeemed	59.00%
10.75% Notes Due 2017 [Member]
Debt Instrument [Line Items]
Debt instrument interest rate stated percentage	10.75%
Debt instrument redeemed	$ 215,000,000
Debt instrument, redemption price, percentage of principal amount redeemed	77.00%
7.125% Notes [Member]
Debt Instrument [Line Items]
Debt instrument principal amount									$ 167,000,000
Debt instrument interest rate stated percentage									7.125%

XML

Other Liabilities and Deferred Credits - Components of Other Liabilities and Deferred Credits (Detail) - USD ($) $ in Millions	Dec. 31, 2016	Dec. 31, 2015
Other Liabilities Disclosure [Abstract]
Liability - other post-retirement benefit plans (Note 7)	$ 86	$ 82
Pension liability - defined benefit pension plans (Note 7)	141	129
Pension liability - multiemployer plan withdrawal	48	52
Provision for environmental and asset retirement obligations (Note 22)	35	38
Stock-based compensation - liability awards	17	13
Derivative financial instruments (Note 23)	10	14
Other	21	22
Other liabilities and deferred credits	$ 358	$ 350

XML

Other Liabilities and Deferred Credits - Additional Information (Detail) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Asset Retirement Obligations [Line Items]
Present value of asset retirement obligations	$ 16	$ 16	$ 20
Undiscounted cash outflows	$ 60	$ 61
Asset retirement obligation, expected settlement date	Dec. 31, 2056
Minimum [Member]
Asset Retirement Obligations [Line Items]
Credit adjusted risk-free rates used to evaluate the present value of asset retirement obligations	5.50%
Maximum [Member]
Asset Retirement Obligations [Line Items]
Credit adjusted risk-free rates used to evaluate the present value of asset retirement obligations	12.00%

XML

Other Liabilities and Deferred Credits - Domtar's Asset Retirement Obligations (Detail) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Other Liabilities Disclosure [Abstract]
Asset retirement obligations, beginning of year	$ 16	$ 20
Revisions to estimated cash flows		(3)
Asset retirement obligation payments	(1)	(1)
Accretion expense	1	1
Effect of foreign currency exchange rate change		(1)
Asset retirement obligations, end of year	$ 16	$ 16

XML

Shareholders' Equity - Additional Information (Detail)											3 Months Ended								12 Months Ended			79 Months Ended
	Feb. 21, 2017 $ / shares	Jan. 17, 2017 USD ($)	Oct. 17, 2016 USD ($)	Jul. 15, 2016 USD ($)	Apr. 15, 2016 USD ($)	Oct. 15, 2015 USD ($)	Jul. 15, 2015 USD ($)	Apr. 15, 2015 USD ($)	Jan. 15, 2015 USD ($)	Apr. 30, 2014 shares	Dec. 31, 2016 USD ($) $ / shares shares	Sep. 30, 2016 $ / shares	Jun. 30, 2016 $ / shares	Mar. 31, 2016 $ / shares	Dec. 31, 2015 $ / shares shares	Sep. 30, 2015 $ / shares	Jun. 30, 2015 $ / shares	Mar. 31, 2015 $ / shares	Dec. 31, 2016 USD ($) $ / shares shares	Dec. 31, 2015 USD ($) $ / shares shares	Dec. 31, 2014 USD ($) $ / shares shares	Dec. 31, 2016 USD ($) $ / shares shares
Shareholders' Equity [Line Items]
Stock split, description																			On April 30, 2014, the Company’s Board of Directors approved a 2-for-1 split of its common stock that was effected through a stock dividend. Shareholders of record on June 10, 2014 received one additional share for every share they owned on that date.
Stock split ratio										2
Common stock outstanding											62,588,837				62,849,936				62,588,837	62,849,936	64,010,087	62,588,837
Dividend per share | $ / shares											$ 0.415	$ 0.415	$ 0.415	$ 0.40	$ 0.40	$ 0.40	$ 0.40	$ 0.40
Dividends paid | $			$ 26,000,000	$ 26,000,000	$ 25,000,000	$ 25,000,000	$ 25,000,000	$ 26,000,000	$ 25,000,000
Record date											Jan. 03, 2017	Oct. 03, 2016	Jul. 05, 2016	Apr. 04, 2016	Jan. 04, 2016	Oct. 02, 2015	Jul. 02, 2015	Apr. 02, 2015
Payment date											Jan. 17, 2017	Oct. 17, 2016	Jul. 15, 2016	Apr. 15, 2016	Jan. 15, 2016	Oct. 15, 2015	Jul. 15, 2015	Apr. 15, 2015
Stock repurchased, shares																			304,915	1,210,932	996,967	24,853,827
Stock repurchased, average price | $ / shares																			$ 32.21	$ 41.40	$ 38.59	$ 39.33
Stock repurchased, value | $																			$ 10,000,000	$ 50,000,000	$ 38,000,000	$ 977,000,000
Treasury stock, par value | $ / shares											$ 0.01				$ 0.01				$ 0.01	$ 0.01		$ 0.01
Preferred shares authorized to issue											20,000,000								20,000,000			20,000,000
Preferred stock, par value | $ / shares											$ 0.01								$ 0.01			$ 0.01
Preferred shares, outstanding											0				0				0	0		0
Common stock, shares authorized											2,000,000,000				2,000,000,000				2,000,000,000	2,000,000,000		2,000,000,000
Common stock, par value | $ / shares											$ 0.01				$ 0.01				$ 0.01	$ 0.01		$ 0.01
Maximum [Member]
Shareholders' Equity [Line Items]
Stock repurchase program authorized amount | $											$ 1,300,000,000								$ 1,300,000,000			$ 1,300,000,000
Subsequent Event [Member]
Shareholders' Equity [Line Items]
Dividend per share | $ / shares	$ 0.415
Dividends paid | $		$ 26,000,000
Record date	Apr. 03, 2017
Payment date	Apr. 17, 2017
Declared date	Feb. 21, 2017
Stock Split [Member]
Shareholders' Equity [Line Items]
Common stock outstanding										32,500,000
Common stock outstanding											65,000,000								65,000,000			65,000,000

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Shareholders' Equity - Changes in Number of Outstanding Common Stock and Their Aggregate Stated Value (Detail) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Statement Of Stockholders Equity [Abstract]
Balance at beginning of year, Number of shares	62,849,936	64,010,087
Treasury stock, Number of shares	(261,099)	(1,160,151)
Treasury stock	$ 0	$ 0
Balance at end of year, Number of shares	62,588,837	62,849,936
Balance at beginning of year	$ 1	$ 1
Balance at end of year	$ 1	$ 1

XML

Shareholders' Equity - Changes in Number of Outstanding Common Stock and Their Aggregate Stated Value (Parenthetical) (Detail) - shares	12 Months Ended			79 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2016
Statement Of Stockholders Equity [Abstract]
Treasury stock, shares repurchased	304,915	1,210,932	996,967	24,853,827
Treasury stock issues in conjunction with exercise of stock-based compensation awards	43,816	50,781

XML

Commitments and Contingencies - Additional Information (Detail) € in Millions	1 Months Ended	3 Months Ended				12 Months Ended
	Jan. 31, 2014 Affiliate	Jun. 30, 2016 USD ($)	Jun. 30, 2016 EUR (€)	Dec. 31, 2015 USD ($)	Dec. 31, 2015 EUR (€)	Dec. 31, 2016 USD ($)	Dec. 31, 2016 EUR (€)	Dec. 31, 2015 USD ($)	Dec. 31, 2014 USD ($)	Dec. 31, 2016 EUR (€)	May 26, 2016 USD ($)	May 26, 2016 EUR (€)
Commitments And Contingencies [Line Items]
Capital expenditures for environmental matters						$ 4,000,000		$ 7,000,000	$ 14,000,000
Number of affiliated companies acquired | Affiliate	2
Retained Purchase Price						3,300,000				€ 3.0
Bank guarantees						9,900,000				€ 9.0
Recoveries from retained purchase price and bank guarantees		$ 13,200,000	€ 12.0
Remaining recoveries from retained purchase price and bank guarantees						1,700,000	€ 1.5
Operating lease expense						28,000,000		28,000,000	32,000,000
Indas and Affiliates [Member]
Commitments And Contingencies [Line Items]
Penalties for violations of competition laws											$ 14,900,000	€ 13.5
Environmental Matters
Commitments And Contingencies [Line Items]
Operating expenses for environmental matters						65,000,000		$ 70,000,000	$ 68,000,000
Spanish Competition Investigation [Member]
Commitments And Contingencies [Line Items]
Provision for liability		$ 14,700,000	€ 13.3	$ 200,000	€ 0.2
Indemnification Guarantee [Member]
Commitments And Contingencies [Line Items]
Provision for liability						$ 0

XML

Commitments and Contingencies - Changes in Reserve for Environmental Remediation and Asset Retirement Obligations (Detail) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Accrual for Environmental Loss Contingencies [Roll Forward]
Balance at beginning of year	$ 52	$ 60
Additions	2	1
Environmental spending	(5)	(3)
Accretion		1
Effect of foreign currency exchange rate change	1	(7)
Balance at end of year	$ 50	$ 52

XML

Commitments and Contingencies - Changes in Reserve for Environmental Remediation and Asset Retirement Obligations (Parenthetical) (Detail) - USD ($) $ in Millions	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Environmental Remediation Obligations [Line Items]
Accrual For Environmental Loss Contingencies	$ 50	$ 52	$ 60
Accounts Payable And Accrued Liabilities [Member]
Environmental Remediation Obligations [Line Items]
Accrual For Environmental Loss Contingencies	15
Other Noncurrent Liabilities [Member]
Environmental Remediation Obligations [Line Items]
Accrual For Environmental Loss Contingencies	$ 35

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Commitments and Contingencies - Anticipated Undiscounted Payments (Detail) $ in Millions	Dec. 31, 2016 USD ($)
Environmental Remediation Obligations [Abstract]
2017	$ 15
2018	6
2019	4
2020	1
2021	2
Thereafter	66
Total	$ 94

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Commitments and Contingencies - Minimum Future Payments under Operating Leases and Other Commercial Commitments (Detail) $ in Millions	Dec. 31, 2016 USD ($)
Environmental Remediation Obligations [Abstract]
Operating leases, 2017	$ 25
Operating leases, 2018	23
Operating leases, 2019	18
Operating leases, 2020	16
Operating leases, 2021	13
Thereafter	38
Operating leases, Total	133
Other commercial commitments, 2017	87
Other commercial commitments, 2018	8
Other commercial commitments, 2019	5
Other commercial commitments, 2020	3
Other commercial commitments, 2021	2
Other commercial commitments, Thereafter	1
Other commercial commitments, Total	$ 106

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Derivatives and Hedging Activities and Fair Value Measurement - Additional Information (Detail)	1 Months Ended	12 Months Ended
	Dec. 31, 2014 USD ($)	Dec. 31, 2016 USD ($) Customer	Dec. 31, 2015 USD ($) Customer	Dec. 31, 2014 USD ($)	Aug. 20, 2015 USD ($)
Derivative [Line Items]
Number of major customers | Customer		1	1
Receivables from major customers		$ 74,000,000	$ 78,000,000
Maximum [Member] | Canadian Subsidiary [Member] | Canadian Dollars [Member]
Derivative [Line Items]
Length of time current hedges cover		24 months
Maximum [Member] | U S Subsidiaries [Member] | Euros [Member]
Derivative [Line Items]
Length of time current hedges cover		12 months
Maximum [Member] | U S Subsidiaries [Member] | British Pounds [Member]
Derivative [Line Items]
Length of time current hedges cover		12 months
Maximum [Member] | European Subsidiaries [Member] | US Dollars [Member]
Derivative [Line Items]
Length of time current hedges cover		18 months
Maximum [Member] | European Subsidiaries [Member] | Swedish Krona [Member]
Derivative [Line Items]
Length of time current hedges cover		18 months
Minimum [Member] | U S Subsidiaries [Member] | Euros [Member]
Derivative [Line Items]
Length of time current hedges cover		6 months
Minimum [Member] | U S Subsidiaries [Member] | British Pounds [Member]
Derivative [Line Items]
Length of time current hedges cover		6 months
Minimum [Member] | European Subsidiaries [Member] | US Dollars [Member]
Derivative [Line Items]
Length of time current hedges cover		12 months
Minimum [Member] | European Subsidiaries [Member] | Swedish Krona [Member]
Derivative [Line Items]
Length of time current hedges cover		12 months
10.75% Notes Due 2017 [Member]
Derivative [Line Items]
Debt instrument interest rate stated percentage					10.75%
Debt instrument redeemed					$ 215,000,000
Forecasted Natural Gas and Oil Purchases [Member] | Maximum [Member]
Derivative [Line Items]
Length of time current hedges cover		60 months
Natural Gas Swap Contracts [Member]
Derivative [Line Items]
Earnings hedge ineffectiveness		$ 0	0	$ 0
Net cumulative gain recorded in accumulated other comprehensive loss		$ 3,000,000
Recognition of OCI in Cost of sales		12 months
Natural Gas Swap Contracts [Member] | Cost of Sale [Member]
Derivative [Line Items]
Net cumulative gain recorded in accumulated other comprehensive loss		$ 5,000,000
Foreign Currency Investment [Member]
Derivative [Line Items]
Length of time current hedges cover		3 years
Currency Derivatives [Member]
Derivative [Line Items]
Earnings hedge ineffectiveness		$ 0	$ 0	0
Net cumulative gain recorded in accumulated other comprehensive loss		$ 8,000,000
Recognition of OCI in Cost of sales		12 months
2017 [Member] | Designated as Hedging [Member] | 10.75% Notes Due 2017 [Member]
Derivative [Line Items]
Derivative swap interest rate description		$100 million notional 2.5 year fixed to floating interest rate swap
2017 [Member] | Interest Rate Swap [Member] | Designated as Hedging [Member] | 10.75% Notes Due 2017 [Member]
Derivative [Line Items]
Derivative notional amount	$ 100,000,000			$ 100,000,000
Derivative contract, term	2 years 6 months
Debt instrument interest rate stated percentage	10.75%			10.75%
Debt maturity year		2017-06
Accounts Receivable [Member] | Credit Concentration Risk [Member]
Derivative [Line Items]
Maximum percentage of receivables a single customer represents		12.00%	12.00%

XML

Derivatives and Hedging Activities and Fair Value Measurement - Derivative Financial Instruments for Natural Gas Contracts Outstanding (Detail)	Dec. 31, 2016 USD ($) MMBTU
2017 [Member]
Derivative [Line Items]
Notional contractual quantity under derivative contracts | MMBTU	8,980,000
Notional contractual value under derivative contracts | $	$ 28,000,000
Percentage of forecasted purchases under derivative contracts	35.00%
2018 [Member]
Derivative [Line Items]
Notional contractual quantity under derivative contracts | MMBTU	5,085,000
Notional contractual value under derivative contracts | $	$ 15,000,000
Percentage of forecasted purchases under derivative contracts	20.00%
2019 [Member]
Derivative [Line Items]
Notional contractual quantity under derivative contracts | MMBTU	6,560,000
Notional contractual value under derivative contracts | $	$ 20,000,000
Percentage of forecasted purchases under derivative contracts	26.00%
2020 [Member]
Derivative [Line Items]
Notional contractual quantity under derivative contracts | MMBTU	5,750,000
Notional contractual value under derivative contracts | $	$ 18,000,000
Percentage of forecasted purchases under derivative contracts	23.00%
2021 [Member]
Derivative [Line Items]
Notional contractual quantity under derivative contracts | MMBTU	3,920,000
Notional contractual value under derivative contracts | $	$ 12,000,000
Percentage of forecasted purchases under derivative contracts	15.00%

XML

Derivatives and Hedging Activities and Fair Value Measurement - Currency Values under Significant Currency Positions Pursuant to Currency Derivatives Outstanding (Detail) - Long [Member]	12 Months Ended
	Dec. 31, 2016 USD ($)	Dec. 31, 2016 EUR (€)	Dec. 31, 2016 CAD
Pulp and Paper [Member] | CDN/USD Denominated Notional Contractual Value For 2017 [Member]
Derivative [Line Items]
Notional contractual value | CAD			CAD 511,000,000
Percentage of forecasted net exposures under contracts	66.00%
Currency exposure hedged, Average Protection rate	1.3045	1.3045	1.3045
Currency exposure hedged, Average Obligation rate	1.3570	1.3570	1.3570
Pulp and Paper [Member] | Euro/USD Denominated Notional Contractual Value For 2017 [Member]
Derivative [Line Items]
Notional contractual value | €		€ 19,000,000
Percentage of forecasted net exposures under contracts	31.00%
Currency exposure hedged, Average Protection rate	1.1370	1.1370	1.1370
Currency exposure hedged, Average Obligation rate	1.1370	1.1370	1.1370
Pulp and Paper [Member] | CDN/USD Denominated Notional Contractual Value For 2018 [Member]
Derivative [Line Items]
Notional contractual value | CAD			CAD 225,000,000
Percentage of forecasted net exposures under contracts	29.00%
Currency exposure hedged, Average Protection rate	1.2951	1.2951	1.2951
Currency exposure hedged, Average Obligation rate	1.3519	1.3519	1.3519
Personal Care [Member] | USD/Euro Denominated Notional Contractual Value For 2017 [Member]
Derivative [Line Items]
Notional contractual value | $	$ 55,000,000
Percentage of forecasted net exposures under contracts	82.00%
Currency exposure hedged, Average Protection rate	1.1336	1.1336	1.1336
Currency exposure hedged, Average Obligation rate	1.1336	1.1336	1.1336
Personal Care [Member] | USD/Euro Denominated Notional Contractual Value For 2018 [Member]
Derivative [Line Items]
Notional contractual value | $	$ 14,000,000
Percentage of forecasted net exposures under contracts	20.00%
Currency exposure hedged, Average Protection rate	1.1532	1.1532	1.1532
Currency exposure hedged, Average Obligation rate	1.1532	1.1532	1.1532

XML

Derivatives and Hedging Activities and Fair Value Measurement - Fair Value of Financial Instruments (Detail) - USD ($) $ in Millions	Dec. 31, 2016	Dec. 31, 2015
Derivative [Line Items]
Total Assets	$ 32	$ 10
Total Liabilities	21	67
Long-term debt	1,313	1,261
Other Assets [Member]
Derivative [Line Items]
Asset backed notes ("ABN")		1
Currency Derivatives [Member] | Prepaid Expenses [Member]
Derivative [Line Items]
Total Assets	18	6
Currency Derivatives [Member] | Other Assets [Member]
Derivative [Line Items]
Total Assets	6	2
Currency Derivatives [Member] | Trade and Other Payables [Member]
Derivative [Line Items]
Total Liabilities	10	39
Currency Derivatives [Member] | Other Liabilities and Deferred Credits [Member]
Derivative [Line Items]
Total Liabilities	6	10
Natural Gas Swap Contracts [Member] | Prepaid Expenses [Member]
Derivative [Line Items]
Total Assets	6	1
Natural Gas Swap Contracts [Member] | Other Assets [Member]
Derivative [Line Items]
Total Assets	2	1
Natural Gas Swap Contracts [Member] | Trade and Other Payables [Member]
Derivative [Line Items]
Total Liabilities	1	14
Natural Gas Swap Contracts [Member] | Other Liabilities and Deferred Credits [Member]
Derivative [Line Items]
Total Liabilities	4	4
Significant Observable Inputs (Level 2) [Member]
Derivative [Line Items]
Total Assets	32	10
Total Liabilities	21	67
Long-term debt	1,313	1,261
Significant Observable Inputs (Level 2) [Member] | Currency Derivatives [Member] | Prepaid Expenses [Member]
Derivative [Line Items]
Total Assets	18	6
Significant Observable Inputs (Level 2) [Member] | Currency Derivatives [Member] | Other Assets [Member]
Derivative [Line Items]
Total Assets	6	2
Significant Observable Inputs (Level 2) [Member] | Currency Derivatives [Member] | Trade and Other Payables [Member]
Derivative [Line Items]
Total Liabilities	10	39
Significant Observable Inputs (Level 2) [Member] | Currency Derivatives [Member] | Other Liabilities and Deferred Credits [Member]
Derivative [Line Items]
Total Liabilities	6	10
Significant Observable Inputs (Level 2) [Member] | Natural Gas Swap Contracts [Member] | Prepaid Expenses [Member]
Derivative [Line Items]
Total Assets	6	1
Significant Observable Inputs (Level 2) [Member] | Natural Gas Swap Contracts [Member] | Other Assets [Member]
Derivative [Line Items]
Total Assets	2	1
Significant Observable Inputs (Level 2) [Member] | Natural Gas Swap Contracts [Member] | Trade and Other Payables [Member]
Derivative [Line Items]
Total Liabilities	1	14
Significant Observable Inputs (Level 2) [Member] | Natural Gas Swap Contracts [Member] | Other Liabilities and Deferred Credits [Member]
Derivative [Line Items]
Total Liabilities	$ 4	4
Significant Unobservable Inputs (Level 3) [Member] | Other Assets [Member]
Derivative [Line Items]
Asset backed notes ("ABN")		$ 1

XML

Derivatives and Hedging Activities and Fair Value Measurement - Fair Value of Financial Instruments (Parenthetical) (Detail) - USD ($) $ in Millions	Dec. 31, 2016	Dec. 31, 2015
Derivative Instruments And Hedging Activities Disclosure [Abstract]
The carrying value of the Company's long-term debt	$ 1,281	$ 1,251

XML

Segment Disclosures - Additional Information (Detail)	12 Months Ended
	Dec. 31, 2016 Segment
Segment Reporting [Abstract]
Number of reportable segments	2
Number of operating segments	2

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Segment Disclosures - Analysis and Reconciliation of Reportable Segment Information (Detail) - USD ($) $ in Millions	3 Months Ended								12 Months Ended
	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Segment Reporting Information [Line Items]
Sales	$ 1,274	$ 1,270	$ 1,267	$ 1,287	$ 1,314	$ 1,292	$ 1,310	$ 1,348	$ 5,098	$ 5,264	$ 5,563
Depreciation and amortization of property, plant and equipment									348	359	384
Impairment of property, plant and equipment									29	77	4
Consolidated depreciation and amortization and impairment of property, plant and equipment									377	436	388
Consolidated operating income (loss)	74	92	39	18	94	61	62	71	223	288	364
Interest expense, net									66	132	103
Earnings before income taxes									157	156	261
Income tax expense (benefit) (NOTE 10)									29	14	(170)
Net earnings	$ 47	$ 59	$ 18	$ 4	$ 57	$ 11	$ 38	$ 36	128	142	431
Pulp and Paper [Member]
Segment Reporting Information [Line Items]
Depreciation and amortization of property, plant and equipment									284	297	319
Impairment of property, plant and equipment									29	77	4
Personal Care [Member]
Segment Reporting Information [Line Items]
Depreciation and amortization of property, plant and equipment									64	62	65
Operating Segments [Member]
Segment Reporting Information [Line Items]
Sales									5,156	5,327	5,602
Operating Segments [Member] | Pulp and Paper [Member]
Segment Reporting Information [Line Items]
Sales									4,239	4,458	4,674
Consolidated operating income (loss)									217	270	352
Operating Segments [Member] | Personal Care [Member]
Segment Reporting Information [Line Items]
Sales									917	869	928
Consolidated operating income (loss)									57	61	49
Intersegment Sales [Member]
Segment Reporting Information [Line Items]
Sales									(58)	(63)	(39)
Corporate [Member]
Segment Reporting Information [Line Items]
Consolidated operating income (loss)									$ (51)	$ (43)	$ (37)

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Segment Disclosures - Analysis and Reconciliation of Reportable Segment Information (Parenthetical) (Detail)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Customer Concentration Risk [Member] | Sales [Member]
Segment Reporting Information [Line Items]
Percentage of total sales represented by Company's largest customers	11.00%	10.00%

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Segment Disclosures - Consolidated Assets (Detail) - USD ($) $ in Millions	Dec. 31, 2016	Dec. 31, 2015
Segment Reporting, Asset Reconciling Item [Line Items]
Consolidated assets	$ 5,680	$ 5,654
Operating Segments [Member]
Segment Reporting, Asset Reconciling Item [Line Items]
Consolidated assets	5,521	5,489
Operating Segments [Member] | Pulp and Paper [Member]
Segment Reporting, Asset Reconciling Item [Line Items]
Consolidated assets	3,637	3,667
Operating Segments [Member] | Personal Care [Member]
Segment Reporting, Asset Reconciling Item [Line Items]
Consolidated assets	1,884	1,822
Corporate [Member]
Segment Reporting, Asset Reconciling Item [Line Items]
Consolidated assets	$ 159	$ 165

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Segment Disclosures - Additions to Property, Plant and Equipment (Detail) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Revenues from External Customers and Long-Lived Assets [Line Items]
Additions to property, plant and equipment	$ 346	$ 284	$ 252
Add: Change in payables on capital projects	1	5	(16)
Consolidated additions to property, plant and equipment per Consolidated Statements of Cash Flows	347	289	236
Operating Segments [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Additions to property, plant and equipment	342	278	247
Operating Segments [Member] | Pulp and Paper [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Additions to property, plant and equipment	287	221	161
Operating Segments [Member] | Personal Care [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Additions to property, plant and equipment	55	57	86
Corporate [Member]
Revenues from External Customers and Long-Lived Assets [Line Items]
Additions to property, plant and equipment	$ 4	$ 6	$ 5

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Segment Disclosures - Geographic Information on Sales (Detail) - USD ($) $ in Millions	3 Months Ended								12 Months Ended
	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Schedule Of Net Sales By Geographical Segment [Line Items]
Sales	$ 1,274	$ 1,270	$ 1,267	$ 1,287	$ 1,314	$ 1,292	$ 1,310	$ 1,348	$ 5,098	$ 5,264	$ 5,563
United States [Member]
Schedule Of Net Sales By Geographical Segment [Line Items]
Sales									3,571	3,776	3,910
Canada [Member]
Schedule Of Net Sales By Geographical Segment [Line Items]
Sales									493	492	591
Europe [Member]
Schedule Of Net Sales By Geographical Segment [Line Items]
Sales									605	561	659
Asia [Member]
Schedule Of Net Sales By Geographical Segment [Line Items]
Sales									351	302	257
Other Foreign Countries [Member]
Schedule Of Net Sales By Geographical Segment [Line Items]
Sales									$ 78	$ 133	$ 146

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Segment Disclosures - Long-Lived Assets (Detail) - USD ($) $ in Millions	Dec. 31, 2016	Dec. 31, 2015
Schedule Of Assets By Geographical Segment [Line Items]
Long-lived assets	$ 3,983	$ 3,975
United States [Member]
Schedule Of Assets By Geographical Segment [Line Items]
Long-lived assets	2,589	2,566
Canada [Member]
Schedule Of Assets By Geographical Segment [Line Items]
Long-lived assets	642	640
Europe [Member]
Schedule Of Assets By Geographical Segment [Line Items]
Long-lived assets	$ 752	$ 769

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Supplemental Guarantor Financial Information - Additional Information (Detail)	12 Months Ended
	Dec. 31, 2016
Domtar (Canada) Paper Company, LLC [Member]
Condensed Financial Statements Captions [Line Items]
Ownership percentage	100.00%
Guarantor Subsidiaries [Member]
Condensed Financial Statements Captions [Line Items]
Ownership percentage	100.00%
Non-Guarantor Subsidiaries [Member]
Condensed Financial Statements Captions [Line Items]
Ownership percentage	100.00%

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Supplemental Guarantor Financial Information - Condensed Consolidating Statement of Earnings and Comprehensive Income (Loss) (Detail) - USD ($) $ in Millions	3 Months Ended								12 Months Ended
	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Condensed Income Statements Captions [Line Items]
Sales	$ 1,274	$ 1,270	$ 1,267	$ 1,287	$ 1,314	$ 1,292	$ 1,310	$ 1,348	$ 5,098	$ 5,264	$ 5,563
Operating expenses
Cost of sales, excluding depreciation and amortization									4,035	4,147	4,396
Depreciation and amortization									348	359	384
Selling, general and administrative									427	394	416
Impairment of property, plant and equipment									29	77	4
Closure and restructuring costs		5	21						32	4	28
Other operating loss (income), net									4	(5)	(29)
Operating expenses									4,875	4,976	5,199
Operating income	74	92	39	18	94	61	62	71	223	288	364
Interest expense, net									66	132	103
Earnings before income taxes and equity loss	57	75	24	1	77	(3)	37	45	157	156	261
Income tax (benefit) expense									29	14	(170)
Net earnings	$ 47	$ 59	$ 18	$ 4	$ 57	$ 11	$ 38	$ 36	128	142	431
Other comprehensive income (loss)									2	(233)	(203)
Comprehensive income (loss)									130	(91)	228
Consolidating Adjustments [Member]
Condensed Income Statements Captions [Line Items]
Sales									(1,145)	(1,152)	(1,127)
Operating expenses
Cost of sales, excluding depreciation and amortization									(1,145)	(1,152)	(1,127)
Operating expenses									(1,145)	(1,152)	(1,127)
Share in earnings of equity accounted investees									(265)	(338)	(679)
Net earnings									(265)	(338)	(679)
Other comprehensive income (loss)									47	450	362
Comprehensive income (loss)									(218)	112	(317)
Parent [Member]
Operating expenses
Selling, general and administrative									17	11	29
Other operating loss (income), net									1	5	2
Operating expenses									18	16	31
Operating income									(18)	(16)	(31)
Interest expense, net									65	131	101
Earnings before income taxes and equity loss									(83)	(147)	(132)
Income tax (benefit) expense									(43)	(63)	(51)
Share in earnings of equity accounted investees									168	226	512
Net earnings									128	142	431
Other comprehensive income (loss)									2	(233)	(203)
Comprehensive income (loss)									130	(91)	228
Guarantor Subsidiaries [Member]
Condensed Income Statements Captions [Line Items]
Sales									4,203	4,346	4,440
Operating expenses
Cost of sales, excluding depreciation and amortization									3,638	3,726	3,762
Depreciation and amortization									256	256	264
Selling, general and administrative									93	105	209
Impairment of property, plant and equipment									29	77	4
Closure and restructuring costs									31	3	7
Other operating loss (income), net									(1)	(3)	(26)
Operating expenses									4,046	4,164	4,220
Operating income									157	182	220
Interest expense, net									50	30	26
Earnings before income taxes and equity loss									107	152	194
Income tax (benefit) expense									36	38	(151)
Share in earnings of equity accounted investees									97	112	167
Net earnings									168	226	512
Other comprehensive income (loss)									(12)	(235)	(194)
Comprehensive income (loss)									156	(9)	318
Non-Guarantor Subsidiaries [Member]
Condensed Income Statements Captions [Line Items]
Sales									2,040	2,070	2,250
Operating expenses
Cost of sales, excluding depreciation and amortization									1,542	1,573	1,761
Depreciation and amortization									92	103	120
Selling, general and administrative									317	278	178
Closure and restructuring costs									1	1	21
Other operating loss (income), net									4	(7)	(5)
Operating expenses									1,956	1,948	2,075
Operating income									84	122	175
Interest expense, net									(49)	(29)	(24)
Earnings before income taxes and equity loss									133	151	199
Income tax (benefit) expense									36	39	32
Net earnings									97	112	167
Other comprehensive income (loss)									(35)	(215)	(168)
Comprehensive income (loss)									$ 62	$ (103)	$ (1)

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Supplemental Guarantor Financial Information - Condensed Consolidating Balance Sheet (Detail) - USD ($) $ in Millions	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Current assets
Cash and cash equivalents	$ 125	$ 126	$ 174	$ 655
Receivables	613	627
Inventories	759	766
Prepaid expenses	40	21
Income and other taxes receivable	31	14
Total current assets	1,568	1,554
Property, plant and equipment, net	2,825	2,835
Goodwill	550	539	567
Intangible assets, net	608	601
Other assets	129	125
Total assets	5,680	5,654
Current liabilities
Bank indebtedness	12
Trade and other payables	656	720
Income and other taxes payable	22	27
Long-term debt due within one year	63	41
Total current liabilities	753	788
Long-term debt	1,218	1,210
Deferred income taxes and other	675	654
Other liabilities and deferred credits (NOTE 20)	358	350
Shareholders' equity	2,676	2,652	2,890	2,782
Total liabilities and shareholders' equity	5,680	5,654
Consolidating Adjustments [Member]
Current assets
Income and other taxes receivable		(10)
Intercompany accounts	(562)	(5,556)
Total current assets	(562)	(5,566)
Investments in affiliates	(6,654)	(10,055)
Intercompany long-term advances	(1,497)	(715)
Other assets	(7)	(15)
Total assets	(8,720)	(16,351)
Current liabilities
Intercompany accounts	(562)	(5,556)
Income and other taxes payable		(10)
Total current liabilities	(562)	(5,566)
Intercompany long-term loans	(1,497)	(715)
Deferred income taxes and other	(7)	(12)
Other liabilities and deferred credits (NOTE 20)		(3)
Shareholders' equity	(6,654)	(10,055)
Total liabilities and shareholders' equity	(8,720)	(16,351)
Parent [Member]
Current assets
Cash and cash equivalents	17	49	79	439
Prepaid expenses	15	8
Intercompany accounts	331	764
Total current assets	363	821
Investments in affiliates	3,976	8,005
Intercompany long-term advances	6	6
Other assets	15	15
Total assets	4,360	8,847
Current liabilities
Trade and other payables	48	61
Intercompany accounts	136	4,685
Income and other taxes payable	16	4
Long-term debt due within one year	63	38
Total current liabilities	263	4,788
Long-term debt	841	901
Intercompany long-term loans	560	490
Other liabilities and deferred credits (NOTE 20)	20	16
Shareholders' equity	2,676	2,652
Total liabilities and shareholders' equity	4,360	8,847
Guarantor Subsidiaries [Member]
Current assets
Cash and cash equivalents	14	2	18	22
Receivables	305	384
Inventories	548	556
Prepaid expenses	19	7
Income and other taxes receivable	16	13
Intercompany accounts	184	4,776
Total current assets	1,086	5,738
Property, plant and equipment, net	2,000	2,018
Goodwill	313	296
Intangible assets, net	279	254
Investments in affiliates	2,678	2,050
Intercompany long-term advances	80	88
Other assets	18	10
Total assets	6,454	10,454
Current liabilities
Bank indebtedness	12
Trade and other payables	391	456
Intercompany accounts	115	722
Income and other taxes payable		24
Long-term debt due within one year		1
Total current liabilities	518	1,203
Long-term debt	299	301
Intercompany long-term loans	937	225
Deferred income taxes and other	556	535
Other liabilities and deferred credits (NOTE 20)	168	185
Shareholders' equity	3,976	8,005
Total liabilities and shareholders' equity	6,454	10,454
Non-Guarantor Subsidiaries [Member]
Current assets
Cash and cash equivalents	94	75	$ 77	$ 194
Receivables	308	243
Inventories	211	210
Prepaid expenses	6	6
Income and other taxes receivable	15	11
Intercompany accounts	47	16
Total current assets	681	561
Property, plant and equipment, net	825	817
Goodwill	237	243
Intangible assets, net	329	347
Intercompany long-term advances	1,411	621
Other assets	103	115
Total assets	3,586	2,704
Current liabilities
Trade and other payables	217	203
Intercompany accounts	311	149
Income and other taxes payable	6	9
Long-term debt due within one year		2
Total current liabilities	534	363
Long-term debt	78	8
Deferred income taxes and other	126	131
Other liabilities and deferred credits (NOTE 20)	170	152
Shareholders' equity	2,678	2,050
Total liabilities and shareholders' equity	$ 3,586	$ 2,704

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Supplemental Guarantor Financial Information - Condensed Consolidating Statement of Cash Flows (Detail) - USD ($) $ in Millions	3 Months Ended								12 Months Ended
	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Operating activities
Net earnings	$ 47	$ 59	$ 18	$ 4	$ 57	$ 11	$ 38	$ 36	$ 128	$ 142	$ 431
Changes in operating and intercompany assets and liabilities and non-cash items, included in net earnings									337	311	203
Cash flows from operating activities									465	453	634
Investing activities
Additions to property, plant and equipment									(347)	(289)	(236)
Proceeds from disposals of property, plant and equipment and sale of business									1	36	1
Acquisition of businesses, net of cash acquired									(46)		(546)
Other									1	9	(5)
Cash flows used for investing activities									(391)	(244)	(786)
Financing activities
Dividend payments									(102)	(100)	(84)
Stock repurchase									(10)	(50)	(38)
Net change in bank indebtedness									12	(11)	(6)
Change of revolving credit facility										50	(160)
Proceeds from receivables securitization facility									140		90
Repayments of receivables securitization facility									(70)		(129)
Issuance of long-term debt										300
Repayments of long-term debt									(40)	(439)	(4)
Other									(3)	1	5
Cash flows provided from (used for) financing activities									(73)	(249)	(326)
Net increase (decrease) in cash and cash equivalents									1	(40)	(478)
Impact of foreign exchange on cash									(2)	(8)	(3)
Cash and cash equivalents at beginning of year				126				174	126	174	655
Cash and cash equivalents at end of year	125				126				125	126	174
Consolidating Adjustments [Member]
Operating activities
Net earnings									(265)	(338)	(679)
Changes in operating and intercompany assets and liabilities and non-cash items, included in net earnings									265	338	679
Financing activities
Increase in long-term advances to related parties									4,273	227	292
Decrease in long-term advances to related parties									(4,273)	(227)	(292)
Parent [Member]
Operating activities
Net earnings									128	142	431
Changes in operating and intercompany assets and liabilities and non-cash items, included in net earnings									(4,280)	134	(220)
Cash flows from operating activities									(4,152)	276	211
Investing activities
Proceeds from disposals of property, plant and equipment and sale of business										1
Cash flows used for investing activities										1
Financing activities
Dividend payments									(102)	(100)	(84)
Stock repurchase									(10)	(50)	(38)
Net change in bank indebtedness											(1)
Change of revolving credit facility										50	(160)
Repayments of long-term debt									(38)	(436)
Increase in long-term advances to related parties											(292)
Decrease in long-term advances to related parties									4,273	227
Other									(3)	2	4
Cash flows provided from (used for) financing activities									4,120	(307)	(571)
Net increase (decrease) in cash and cash equivalents									(32)	(30)	(360)
Cash and cash equivalents at beginning of year				49				79	49	79	439
Cash and cash equivalents at end of year	17				49				17	49	79
Guarantor Subsidiaries [Member]
Operating activities
Net earnings									168	226	512
Changes in operating and intercompany assets and liabilities and non-cash items, included in net earnings									4,149	(250)	(380)
Cash flows from operating activities									4,317	(24)	132
Investing activities
Additions to property, plant and equipment									(265)	(210)	(139)
Proceeds from disposals of property, plant and equipment and sale of business										7
Acquisition of businesses, net of cash acquired									(1)
Cash flows used for investing activities									(266)	(203)	(139)
Financing activities
Net change in bank indebtedness									12	(11)	(4)
Issuance of long-term debt										300
Repayments of long-term debt									(1)	(2)	(3)
Increase in long-term advances to related parties									(4,050)	(75)
Decrease in long-term advances to related parties											10
Other										(1)
Cash flows provided from (used for) financing activities									(4,039)	211	3
Net increase (decrease) in cash and cash equivalents									12	(16)	(4)
Cash and cash equivalents at beginning of year				2				18	2	18	22
Cash and cash equivalents at end of year	14				2				14	2	18
Non-Guarantor Subsidiaries [Member]
Operating activities
Net earnings									97	112	167
Changes in operating and intercompany assets and liabilities and non-cash items, included in net earnings									203	89	124
Cash flows from operating activities									300	201	291
Investing activities
Additions to property, plant and equipment									(82)	(79)	(97)
Proceeds from disposals of property, plant and equipment and sale of business									1	28	1
Acquisition of businesses, net of cash acquired									(45)		(546)
Other									1	9	(5)
Cash flows used for investing activities									(125)	(42)	(647)
Financing activities
Net change in bank indebtedness											(1)
Proceeds from receivables securitization facility									140		90
Repayments of receivables securitization facility									(70)		(129)
Repayments of long-term debt									(1)	(1)	(1)
Increase in long-term advances to related parties									(223)	(152)
Decrease in long-term advances to related parties											282
Other											1
Cash flows provided from (used for) financing activities									(154)	(153)	242
Net increase (decrease) in cash and cash equivalents									21	6	(114)
Impact of foreign exchange on cash									(2)	(8)	(3)
Cash and cash equivalents at beginning of year				$ 75				$ 77	75	77	194
Cash and cash equivalents at end of year	$ 94				$ 75				$ 94	$ 75	$ 77

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Interim Financial Results - Schedule of Interim Financial Results (Detail) - USD ($) $ / shares in Units, $ in Millions	3 Months Ended								12 Months Ended
	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Quarterly Financial Information Disclosure [Abstract]
Sales	$ 1,274	$ 1,270	$ 1,267	$ 1,287	$ 1,314	$ 1,292	$ 1,310	$ 1,348	$ 5,098	$ 5,264	$ 5,563
Operating income	74	92	39	18	94	61	62	71	223	288	364
Earnings (loss) before income taxes	57	75	24	1	77	(3)	37	45	157	156	261
Net earnings	$ 47	$ 59	$ 18	$ 4	$ 57	$ 11	$ 38	$ 36	$ 128	$ 142	$ 431
Basic net earnings per common share	$ 0.75	$ 0.94	$ 0.29	$ 0.06	$ 0.91	$ 0.17	$ 0.60	$ 0.56	$ 2.04	$ 2.24	$ 6.65
Diluted net earnings per common share	$ 0.75	$ 0.94	$ 0.29	$ 0.06	$ 0.91	$ 0.17	$ 0.60	$ 0.56	$ 2.04	$ 2.24	$ 6.64

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Interim Financial Results - Schedule of Interim Financial Results (Parenthetical) (Detail) - USD ($) $ in Millions	3 Months Ended								12 Months Ended
	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Subsequent Event [Line Items]
Closure and restructuring costs		$ 5	$ 21						$ 32	$ 4	$ 28
Net gain on sale of property, plant and equipment										15
Ottawa [Member]
Subsequent Event [Line Items]
Net gain on sale of property, plant and equipment							$ 14
Ashdown, Arkansas Mill [Member]
Subsequent Event [Line Items]
Accelerated depreciation		5	$ 3	$ 21	$ 20	$ 20	18	$ 19
Pulp and Paper [Member]
Subsequent Event [Line Items]
Closure and restructuring costs	$ (2)	$ 5		$ 2	$ 1	$ 1	$ 1		31	3	27
Personal Care [Member]
Subsequent Event [Line Items]
Closure and restructuring costs	$ 1							1	$ 1	$ 1	$ 1
Corporate [Member]
Subsequent Event [Line Items]
Net gain on sale of property, plant and equipment								$ 1

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Schedule II - Valuation and Qualifying Accounts (Detail) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Valuation And Qualifying Accounts Disclosure [Line Items]
Balance at beginnings of year	$ 6	$ 6	$ 4
Charged to income		5	2
Additions to / (Deductions) from reserve	1	(5)
Balance at end of year	7	6	6
Valuation Allowance on Deferred Tax Assets [Member]
Valuation And Qualifying Accounts Disclosure [Line Items]
Balance at beginnings of year	23	25	19
Charged to income	(1)	(1)	7
Deductions from reserve		(1)	(1)
Balance at end of year	$ 22	$ 23	$ 25