Domtar Corporation

2014

ANNUAL 
REPORT

D

O

M

T

A

R

C

O

R

P

O

R

A

T

I

O

N

2

0

1

4

A

n

n

u

a

l

R

e

p

o

r

t

o

n

F

o

r

m

1

0

-

K

 
 
 
 
 
 
 
About Domtar

Domtar Corporation (NYSE: UFS) (TSX: UFS) 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 our business is a network of 

world-class, wood fiber-converting assets that produce papergrade, 

fluff and specialty pulp. The majority of our pulp production is consumed 

internally to manufacture paper and consumer products. Domtar is the 

largest integrated marketer and manufacturer of uncoated freesheet paper 

in North America with recognized brands such as Cougar®, Lynx® Opaque 

Ultra, Husky® Opaque Offset, First Choice®, EarthChoice® and Xerox® Paper 

and Specialty Media. Domtar is also a marketer and producer of a broad 

line of absorbent hygiene products marketed primarily under the Attends®, 

IncoPack® and Indasec® brand names. In 2014, Domtar had sales of 

$5.6 billion from some 50 countries. The Company employs approximately 

9,800 people. To learn more, visit domtar.com.

NUMBERS

SALESBy region70% U.S.12% Europe11% Canada5% Asia2% OtherSALESBy business segment83% Pulp and Paper17% Personal CareEMPLOYEESBy region60% U.S.29% Canada11% EuropeSALES
(In millions of dollars)

OPERATING 
INCOME
(In millions of dollars)

EBITDA  
BEFORE ITEMS1
(In millions of dollars)

NET DEBT-TO-TOTAL 
CAPITALIZATION1
(As a percentage)

5,482

5,391

5,563

367

364

799

765

658

29

24

16

161

12

13

14

12

13

14

12

13

14

12

13

14

3% GROWTH  
WHEN COMPARED  
TO 2013

$5.6
BILLION IN SALES 

Selected Financial Figures

(In millions of dollars unless otherwise noted)

Sales per segment

Pulp and Paper

Intersegment sales—Pulp and Paper

Personal Care

Consolidated sales

Operating income (loss) per segment

Pulp and paper

Personal care

Corporate

Operating income 

Net earnings

Cash flow provided from operating activities

Capital expenditures

Free cash flow1

Total assets

Long-term debt, including current portion

Net debt-to-total capitalization ratio1

Total shareholders’ equity

2012

2013

2014

5,088

4,843

4,674

(5)

399

(18)

566

(39)

928

5,482

5,391

5,563

330

45

(8)

367

172

551

236

315

6,123

1,207

16%

2,877

171

43

(53)

161

91

411

242

169

6,278

1,514

24%

2,782

323

54

(13)

364

431

634

236

398

6,185

1,350

29%

2,890

Weighted average number of common and exchangeable shares 

outstanding in millions (diluted)

72.1

66.7

64.9

s
e
r
u
s
a
e
M

l

i

i

a
c
n
a
n
F
P
A
A
G
-
n
o
N

f
o
n
o
i
t
a

i
l
i

c
n
o
c
e
R
e
h
t

t
l
u
s
n
o
C

.
e
r
u
s
a
e
m

l

i

a
c
n
a
n
fi
P
A
A
G
-
n
o
N

1

.

m
o
c
.
r
a
t
m
o
d
t
a

r
o
t
n
e
m
u
c
o
d
s
i
h
t

f
o
d
n
e

e
h
t

t
a

DOMTAR  •  2014 ANNUAL REPORT  1 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
MEETING
OUR 
COMMITMENTS

MESSAGE TO  
SHAREHOLDERS 

JOHN D.
WILLIAMS

PRESIDENT AND  
CHIEF EXECUTIVE  
OFFICER

FOCUSED EXECUTION DEFINED DOMTAR 
IN 2014. WE SUCCESSFULLY DELIVERED 
ON OUR PLAN TO ACHIEVE MEANINGFUL 
PERFORMANCE IMPROVEMENTS 
COMPARED TO 2013, AND WE MADE 
SIGNIFICANT PROGRESS IN EXECUTING  
OUR GROWTH STRATEGY FOR THE 
COMPANY’S FUTURE.

With consolidated sales of $5.6 billion, we generated 

EXECUTING OUR GROWTH STRATEGY

$765 million of EBITDA before items, a considerable 

improvement when compared to 2013. This 

performance, combined with our confidence in the 

execution of our growth strategy, enabled us to 

increase our dividend by 36% in April 2014 and to 

further execute on our share buyback program.

Since the start of 2011 we have returned a combined 

$1.1 billion, or 70% of our free cash flow, to our 

shareholders through dividends and share buybacks. 

Looking specifically at 2014, cash flows from operating 

activities amounted to $634 million and free cash flow 

amounted to $398 million. 

Our progress in growing new fiber-based businesses 

reached a convincing “tipping point” in 2014. We 

realized our most significant progress thus far in our 

plan to deliver between $300 and $500 million of 

annual EBITDA from fiber-based businesses for which 

there is growing market demand.

In 2014, Indas, one of Spain’s leading manufacturers  

of adult incontinence products and baby diapers, 

became the fifth business to join Domtar’s Personal 

Care division. By adding the deep brand equity  

of Indas to our already strong product mix, we are  

now well positioned to expand our share of the 

European market.

DOMTAR  •  2014 ANNUAL REPORT  3We successfully advanced the integration of five 

acquired businesses with some 2,000 employees 

and seven manufacturing and distribution sites 

into our Personal Care division in 2014. We are now 

executing our plans to provide our customers with 

innovative, differentiated product solutions supported 

by an expanded, state-of-the-art, low-cost, global 

manufacturing platform. We successfully installed four 

new production lines at three locations in 2014, and we 

are excited to launch several innovative products in our 

core markets.

WE BELIEVE OUR STRATEGY 
OF IMPROVING OUR OWN 
COMPETITIVE POSITION 
THROUGH EFFICIENCY GAINS 
WHILE KEEPING THE PLAYING 
FIELD LEVEL IS THE WAY TO WIN.

Our Pulp and Paper business continues to be central 

This combination of expanded, low-cost production 

to our value proposition. Despite a continuing trend 

capacity and innovation is building our momentum. 

in 2014 of softer demand for uncoated freesheet, our 

We realized growth with channel leaders in both 

shipments trended better than those of the industry. 

North America and Europe, and we gained national 

Moreover, our specialty paper volumes grew compared 

distribution at major North American retailers with 

to 2013, mostly driven by strong sales to Appvion, and 

shipments set to begin in early 2015.

we realized additional EBITDA from our rebranded 

Also in 2014, we announced our plans for additional 

Xerox® Paper and Specialty Media Products.

capacity expansions in our Personal Care division, 

Despite a recent influx of imported cut-size paper in 

and we began the significant work of transforming 

the North American market, we remain convinced 

our largest paper-making machine at our Ashdown, 

that our Pulp and Paper business will continue to be 

Arkansas, mill to the production of high-quality fluff 

a strong generator of cash for our shareholders and a 

pulp to meet growing global demand.

provider of a sustainable livelihood for our employees. 

This converted machine at Ashdown will come on-line 

in the fall of 2016, and will have the capacity to produce 

more than half-a-million metric tons of high-quality 

fluff pulp or baled market softwood pulp in line with 

changing market conditions. This strategic repurposing 

of assets, combined with our reliable network of 

That is why we continue to pursue efficiency 

improvements to make our manufacturing operations 

more sustainable, and it is why Domtar joined the 

United Steel Workers and other U.S. producers in filing 

a trade case to address foreign government subsidies 

and unfairly priced paper products.

softwood suppliers in the southeastern United States 

We believe our strategy of improving our own 

and our longstanding relationships with the world’s 

competitive position through efficiency gains while 

leading absorbent hygiene product manufacturers, will 

keeping the playing field level is the way to win. It 

make Domtar one of the world’s largest suppliers to 

also prompts us to ask the marketplace the thought-

this market.

provoking question: “Where does your paper  

Our approach to the transformation of our Ashdown 

come from?” 

mill also signals our commitment to remaining the 

Sustainable sourcing of certified wood fiber and 

supplier of choice in North American uncoated 

transparent business practices have long been part 

freesheet paper markets. The $160 million asset 

of our Company’s fiber. This record now serves as 

conversion plan we are now executing leverages the 

a compelling point of differentiation. For example, 

flexibility of Ashdown’s two remaining paper machines 

Domtar’s direct greenhouse gas emissions to produce 

to produce both paper and papergrade pulp in line 

a ton of pulp and paper products are approximately 

with changing demand.

half that of many Asian producers.

4  DOMTAR  •  2014 ANNUAL REPORTMESSAGE TO SHAREHOLDERS

Moreover, we are not resting on our laurels. In 2014, 

we commissioned a new biomass boiler built in a 

partnership with We Energies at our Rothschild, 

Wisconsin, mill. The cogeneration power plant uses 

One year after start-up, we are now selling 100% of 

waste wood and bark from our mill and surrounding 

our production from our commercial-scale BioChoiceTM 

communities as fuel to generate renewable steam  

lignin extraction plant in Plymouth, North Carolina 

and electricity. This enabled us to shut down two less-

to internal and external customers. This material, 

efficient boilers, improving the mill’s cost position and 

refined from renewable wood fiber, is being used as 

reducing our overall emissions.

an intermediary chemical by a number of customers 

It is worth noting, while we were improving our 

in a number of new and innovative products.

sustainability and protecting our competitive 

Similarly, our involvement in CelluForce, a 50-50 joint 

position, 2014 also became the second consecutive 

venture with FPInnovations, is identifying how the 

year in which we achieved a total injury frequency 

renewable and non-toxic nanocrystalline cellulose 

rate below 1.0 – world-class safety performance in 

bioproduct produced from wood fiber can be used to 

our industry sector. It is clear evidence of highly 

make new products and improve existing ones.

engaged employees, now numbering nearly 10,000, 

differentiating themselves and our Company 

in a number of important ways from the global 

competition.

At the same time we are focused on innovation in 

wood fiber technology, we celebrate what is already 

working well. A number of different, independent 

research initiatives released in 2014 confirm that the 

We believe that in today’s world of hyper-transparency, 

cognitive and memory retention benefits of reading 

these differences matter – and they serve Domtar 

and writing on paper compared to our electronic 

well. That is why we updated our award-winning tool, 

screens are compelling. That is why educators, 

The Paper Trail website, to provide our customers 

students and even professional sports teams are 

with unparalleled insights into the impacts we make 

turning to paper for teaching and learning the material 

on our communities. It is also why Domtar has looked 

and the plays that matter most.

to its own employees to tell the story of why it really 

does matter where your paper comes from. I hope 

you agree that the story told in the video found at 

domtar.com/PaperMadeHere makes you proud to be 

an investor in and a user of Paper Made Here.

EVOLVING FOR THE FUTURE

Helping to meet the world’s growing material needs 

of the future is rewarding. Being able to do so by 

leveraging our experience and know-how in turning 

sustainable wood fiber into useful products that 

everyone uses every day is fulfilling.

While caring for personal hygiene needs has been part 

of the human condition for millennia, the innovations 

we are driving today are offering affordable solutions 

that deliver meaningful quality-of-life improvements  

to millions.

With the execution of our growth strategy on course 

and the competitiveness of our Pulp and Paper 

business being sustained, we think it is useful to reflect 

on what is being accomplished today at Domtar in 

a historical context. Today’s work is in line with what 

Domtar has successfully done since our founding in 

1848 – evolve and adapt to meet changing market 

demands. 

We are reminded daily of the connection that exists 

between the values we hold and the value we create. 

We believe our success in managing this evolution, 

concurrently generating returns for our shareholders 

while delivering on our commitment to sustainable 

growth, can be traced back to our core values of 

Agility, Caring and Innovation – what we call the fiber  

of Domtar.

Reference to EBITDA before items 

and free cash flow in this message are 

NON‑GAAP financial measures. Consult 

the Reconciliation of NON‑GAAP 

Financial Measures at the end of this 

document or at domtar.com.

John D. Williams

President and  

Chief Executive Officer

DOMTAR  •  2014 ANNUAL REPORT  5BUSINESS SEGMENTS

LINKED BY 
FIBER

BUSINESS SEGMENTS

PULP &  
PAPER

DOMTAR IS THE LARGEST INTEGRATED 
MARKETER AND MANUFACTURER 
OF UNCOATED FREESHEET PAPER IN 
NORTH AMERICA, WITH A GROWING 
BUSINESS IN SPECIALTY AND PACKAGING 
PAPERS. OUR 13 PULP AND PAPER MILLS 
ARE LOCATED IN THE UNITED STATES 
AND CANADA.

PAPER
Uncoated freesheet 
manufacturing capacity 
3.4 million short tons

Production capacity 
by region

U.S.: 79%
Canada: 21%

Shipments by region

U.S.: 83%
Canada: 10%
Overseas: 7%

Shipments by grade

Communication 
papers: 84%
Specialty and 
packaging papers: 16%

PAPER

Our communication, specialty and packaging papers 

a 4.5% decrease compared to 2013. Global demand for 

uncoated freesheet was estimated at 45.1 million short 

tons, flat compared to the previous year.

are sold to a variety of customers in the United States, 

While North American demand for uncoated freesheet 

Canada and overseas, including merchants, retailers, 

paper has declined at an annual rate of about 3.8% 

stationers, printers, publishers, converters and 

since 2000, global demand has increased at a rate of 

end users. We sell a combination of private labels 

about 0.2% per year over the same period.

and well-recognized branded products such as  

Xerox Paper and Specialty Media, Cougar, Lynx 

Opaque Ultra, Husky Opaque Offset, First Choice 

and the EarthChoice product lines of environmentally 

and socially responsible papers.

Market conditions1

In 2014, 8.6 million short tons of uncoated freesheet 

paper were manufactured in North America, an 

8.9% decline compared to the previous year. North 

According to RISI2, global demand is expected  

to grow at an annual rate of 0.25% during the next five 

years, buoyed by strong demand in Southeast Asia  

and increased consumption in Eastern Europe and 

Latin America.

.

d
e
t
a
c
d
n

i

i

e
s
i
w
r
e
h
t
o
s
s
e
n
u
)
C
P
P
P
(

l

l
i

c
n
u
o
C
s
t
c
u
d
o
r
P
r
e
p
a
P
d
n
a
p
u
P
e
h
t

l

m
o
r
f

s
e
r
u
g
fi

l
l

A

.
y
r
t
s
u
d
n

i

s
t
c
u
d
o
r
p
t
s
e
r
o
f

l

l

a
b
o
g
e
h
t

r
o
f

i

r
e
d
v
o
r
p
n
o
i
t
a
m
r
o
f
n

i

i

g
n
d
a
e

l

e
h
t

,
I

I

S
R

1

2

American demand was about 9.1 million short tons, 

DOMTAR  •  2014 ANNUAL REPORT  7 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
What’s Domtar 
doing in the kitchen?  
Our pulp is used to 
make baking cups.

PULP

We sell softwood, fluff and hardwood market pulp 

produced in excess of our internal needs. This pulp is 

marketed and sold overseas, in the United States and in 

Canada. Sales to overseas customers are made directly 

or through commission agents, while North American 

customers are served mainly through our own sales 

force. Domtar is the fourth-largest chemical market 

pulp producer in North America.

Market conditions1

North American production of chemical market 

pulp was 15 million metric tons in 2014, a 2% 

decrease compared to 2013. Global production was 

approximately 56.1 million metric tons, a 2.2% increase 

over the previous year.

PULP
Market pulp production capacity  
1.6 million metric tons (ADMT) 

Production capacity  
by region

U.S.: 53%
Canada: 47%

Shipments 
by region

Shipments  
by grade

Overseas: 57%
U.S.: 36%
Canada: 7%

Softwood: 61%
Fluff: 27%
Hardwood: 12%

s
e
r
u
s
a
e
M

.

d
e
t
a
c
d
n

i

i

e
s
i
w
r
e
h
t
o
s
s
e
n
u
)
C
P
P
P
(

l

l
i

c
n
u
o
C
s
t
c
u
d
o
r
P
r
e
p
a
P
d
n
a
p
u
P
e
h
t

l

m
o
r
f

s
e
r
u
g
fi

l
l

A

l

i

i

a
c
n
a
n
F
P
A
A
G
-
n
o
N

f
o
n
o
i
t
a

i
l
i

c
n
o
c
e
R
e
h
t

t
l
u
s
n
o
C

.
e
r
u
s
a
e
m

l

i

a
c
n
a
n
fi
P
A
A
G
-
n
o
N

.

m
o
c
.
r
a
t
m
o
d
t
a

r
o
t
n
e
m
u
c
o
d
s
i
h
t

f
o
d
n
e

e
h
t

t
a

1

2

Review

We manufacture pulp and paper products in nine mills 

Key numbers 
• Sales decreased by 3.5% to $4.7 billion compared 

in the United States and four in Canada. In addition, 

to 2013, mainly driven by lower pulp and 

our manufacturing operations are supported by 

paper shipments

10 converting and forms manufacturing facilities and 

a divisional head office in Fort Mill, South Carolina. 

Our pulp and paper products are sold in more than 

50 countries. In 2014, we continued our efforts to size 

the business appropriately with the closure of two of 

• EBITDA before items2 of $655 million
• Capital investments of $161 million in our mill system
• Health and safety performance as measured by the 

total frequency rate (TFR) was 1.06 compared to 

our converting assets. The closure of our Indianapolis, 

0.95 in 2013, Domtar’s best-ever year on record

Indiana, facility will allow us to optimize and increase 

utilization rates at other locations. In addition, 

we closed our Guangzhou paper converting operation 

in order to focus our sales capabilities on our growing 

pulp customer base in China.

8  DOMTAR  •  2014 ANNUAL REPORT 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 HIGHLIGHTS

PULP  
& PAPER

 2014

RE-LAUNCHED 
OUR XEROX® 
PAPER AND 
SPECIALTY MEDIA 
PRODUCT LINE

SOLD OUR  
5 MILLIONTH 
TON OF FOREST 
STEWARDSHIP 
COUNCIL® (FSC®)  
CERTIFIED PAPER

Key figures

Years ended December 31

2012

2013

2014

(In millions of dollars unless otherwise noted)

Sales

Operating income

Depreciation and amortization

EBITDA before items2

Capital expenditures

5,088

4,843

4,674

330

365

740

183

171

345

582

147

323

319

655

161

Total assets

4,637

4,363

4,102

Paper shipments (‘000 ST)

3,320

3,260

3,145

Pulp shipments (‘000 ADMT)

1,557

1,445

1,391

Announced plans to convert a paper machine at our 
Ashdown, Arkansas, mill to produce fluff pulp.  
By the fall of 2016, we will have capacity to  
produce some 1 million metric tons of high-quality 
fluff pulp between the Ashdown mill and Plymouth,  
North Carolina, mill.

Re-launched our Xerox Paper and Specialty Media 
Product Line with a clear positioning of the brand and 
product mix, and a series of product enhancements 
and impactful new packaging to broaden the brand’s 
appeal across new consumers and in new channels.

Selected UPM as the exclusive European distributor 
of our BioChoice™ lignin (produced at our Plymouth, 
North Carolina, mill). BioChoice is a 100% biobased 
sustainable alternative to fossil fuels and holds the 
USDA BioPreferred ecolabel.

Completed the commissioning of the We Energies  
biomass boiler project at our Rothschild, Wisconsin, 
mill. It has the capacity to convert biomass material  
that produces up to 50 megawatts of power.

Sold our 5 millionth ton of Forest Stewardship Council® 
(FSC®) certified paper, a first for the North American 
market and another milestone in our commitment 
to sustainability.*

Continued our efforts to size the business appropriately 
with the closure of two of our converting sites: 
Indianapolis, Indiana, and Guangzhou, China, enabling 
us to optimize and increase utilization rates and focus 
our sales capabilities on our growing pulp customer 
base in China.

Won two 2014 Pulp and Paper International awards:

• Environmental Strategy of the Year  

Our Windsor, Quebec, mill, for steadfast dedication 
to reducing greenhouse gas emissions, water 
consumption, and energy use and waste. 

•

Innovative Printing and Writing
Campaign of the Year 
Our Paper Fun Truck, part of our PAPERbecause 
campaign showing how paper remains  
fun and valuable.

Completed the softwood streamlining project at our 
Espanola, Ontario, mill, that will enable us to further 
transition out of market hardwood pulp to softwood 
and improve our overall market pulp mix.

Successfully completed the conversion to natural gas 
of three coal boilers at our Nekoosa, Wisconsin, mill —  
a project aimed at reducing air emissions and 
production costs. 

.
s
r
e
n
w
o
d
n
a

l

e
t
a
v
i
r
p
g
n
o
m
a
n
o
i
t
a
c
fi
i
t
r
e
c
d
n
a

l

e
g
a
r
u
o
c
n
e

t
a
h
t

s
t
r
o
ff
e

s
u
o
r
e
m
u
n
o
t

s
e
t
u
b
i
r
t
n
o
c

r
a
t
m
o
D

,
r
e
b
fi
d
e
fi
i
t
r
e
c

f
o
y
t
i
l
i

b
a

l
i

a
v
a
d
e
t
i

m

i
l

e
h
t

s
s
e
r
d
d
a
d
n
a
d
n
e
r
t

e
h
t

e
u
n
i
t
n
o
c
o
T
*

DOMTAR  •  2014 ANNUAL REPORT  9 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 HIGHLIGHTS

BUSINESS SEGMENTS

PERSONAL  
CARE 

OUR PERSONAL CARE BUSINESS 
ENCOMPASSES THE DESIGN, MANUFACTURE, 
MARKETING AND DISTRIBUTION OF ADULT 
INCONTINENCE (AI) PRODUCTS, INFANT 
DIAPERS AND OTHER ABSORBENT HYGIENE 
PRODUCTS. WE SELL A COMBINATION OF 
BRANDED AND PRIVATE-LABEL PRODUCTS, 
INCLUDING BRIEFS, PROTECTIVE UNDERWEAR, 
UNDERPADS, PADS, WASHCLOTHS, BABY 
DIAPERS, INFANT TRAINING PANTS AND 
RELATED PRODUCTS.

s
e
r
u
s
a
e
M

Sales by region

Europe: 51%
North America: 46%
Other: 3%

Sales by 
product category

AI: 66%
Baby: 25%
Other: 9%

Sales by channel 
(AI and Baby products only)

Healthcare: 61%
Retail: 39%

l

i

i

a
c
n
a
n
F
P
A
A
G
-
n
o
N

f
o
n
o
i
t
a

i
l
i

c
n
o
c
e
R
e
h
t

t
l
u
s
n
o
C

.
e
r
u
s
a
e
m

l

i

a
c
n
a
n
fi
P
A
A
G
-
n
o
N

1

.

m
o
c
.
r
a
t
m
o
d
t
a

r
o
t
n
e
m
u
c
o
d
s
i
h
t

f
o
d
n
e

e
h
t

t
a

Review

We distribute our products in healthcare and retail 

channels. In both North America and Europe, we supply 

AI products in the healthcare channel, and have a 

growing presence in retail. Our early 2014 acquisition of 

Indas, Spain’s largest branded AI supplier, increased our 

AI position in southern Europe in both healthcare and 

retail channels and established our position in infant 

care in European retail. In North America, we continue 

to increase our presence in retail channels from our 

acquisition of AHP in 2013, a leading store-brand 

manufacturer of infant diapers.

Our Personal Care products are manufactured in 

six facilities in North America and Europe. The Jesup, 

Georgia, facility has research and development 

capabilities and production lines that manufacture high-

quality, airlaid and ultrathin laminated absorbent cores. 

We additionally have group research and development 

activities at the divisional head office in Raleigh, 

North Carolina. Our absorbent hygiene products and 

absorbent cores are sold in some 50 countries.

Key numbers
• Sales increased nearly 64% over 2013 to reach  

$928 million. The increase was mainly attributable to 

the acquisition and inclusion of the financial results 

of Indas for a full year

• EBITDA before items1 increased 54% to $123 million 

compared to $80 million in 2013

10  DOMTAR  •  2014 ANNUAL REPORT 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 HIGHLIGHTS

 2014

PERSONAL 
CARE

Key figures

Years ended December 31

2012

2013

2014

(In millions of dollars unless otherwise noted)

Sales

Operating income

Depreciation and amortization

EBITDA before items1

Capital expenditures

399

566

928

45

20

67

44

43

31

80

91

54

65

123

86

Total assets

841

1,272

1,967

Record safety levels in 2014. Posted our best safety 
record since the division was created in 2011 —  
a TFR of 0.76.

Completed our acquisition of Indas, the branded 
healthcare incontinence leader in Spain. Indas 
continued to deliver strong performance and receive 
recognition for industry-leading innovation.

Won the 2014 ECOEMBES award for Best Business 
Initiative in Ecodesign for IncoPak brand’s high-
compression packaging process that reduces the 
volume of packaging by 30%, saving energy and 
reducing our carbon footprint.

Installed and started up four new production lines 
and expanded two manufacturing plants.

Expanded our Materials Group facility in Jesup, 
Georgia, with an investment of some $11 million in 
safety and manufacturing equipment, adding to our 
production capacity and creating 25 new jobs.

Launched several new and completely restyled 
branded products, including Comfees® infant  
diaper in North America and Indasec® Pant  
in southern Europe. 

Built on the healthcare heritage of our global Attends 
brand and launched new products and innovations in 
the second half of 2014.

Rolled out a major TV campaign (viewed by 13 million 
households) to promote our Indasec brand in Spain. 
The campaign highlighted our light incontinence 
products for women and aimed to reduce the stigma 
associated with incontinence.

Expanded our global footprint into new areas, 
including the Australian pharmacy channel with our 
Attends brand through a local distribution partnership. 

Gained national distribution at several major North 
American retailers, with shipments set to begin in 2015.

DOMTAR  •  2014 ANNUAL REPORT  11 
2014 WAS A TRANSITIONAL YEAR IN DOMTAR’S SUSTAINABILITY  LEADERSHIP JOURNEY.Our journey began in 2000, when Domtar made the decision to become the first forest products company in North America to achieve Forest Stewardship Council® (FSC®) certification of its forestlands. Further progress was made in 2005, when we launched EarthChoice®, which has grown into the widest range of environmentally responsible products in the marketplace and now accounts for nearly 30% of Domtar’s total paper sales.SUSTAINABILITYThis accomplishment would not have been possible without the collaboration of our partners: private owners who pursued certification of their small-scale forestlands; market-leading customers who relied on Domtar to green their supply chains; Rainforest Alliance, which brought critical independent review to our programs; and  World Wildlife Fund, which challenged us to think broadly about defining and measuring our sustainable resource base.Recognizing we had only scratched the surface of what is possible by more comprehensively integrating sustainability principles into our daily operations, we turned to these partners and others in 2014 with the question, “What’s next?” The result of this consultation is a comprehensive agenda of projects and programs that further integrate sustainability into the fiber of Domtar. Through our expanded EarthChoice Ambassador program, Domtar employees around the world are more deeply engaged in developing and executing plans that improve the ecosystems upon which we depend and the communities of which we are a part. Sustainability at Domtar is not simply about producing 

•  Commissioning the We Energies biomass boiler 

an annual report. It is an analytical framework for 

project at our Rothschild, Wisconsin, mill, allowing 

assessing complex risks and opportunities and 

the mill to shut down two less-efficient boilers by 

understanding the trade-offs they entail. It is a 

purchasing steam directly from the new facility

commitment to better using data to make decisions 

that preserve and enhance long-term shareholder value. 

It is the practical work necessary for bringing our values 

of Agility, Caring and Innovation to life.

•  Converting three power boilers at our Nekoosa, 

Wisconsin, mill from coal to natural gas, which will 

significantly reduce the mill’s greenhouse gas and air 

emissions, and save the mill money on fuel costs and 

Practical examples from 2014 of how we are leveraging 

reduced maintenance expenses 

the concept of sustainability to improve our competitive 

position include:

•  Modifying an evaporator train at the Ashdown, 

Arkansas, mill, to achieve significant operational and 

energy efficiency improvements

•  Processing manufacturing residuals to be beneficially 

used as fertilizers for forests and farmlands, reducing 

the need to rely on landfills for disposal

•  Updating The Paper Trail® (domtarpapertrail.com), 

our award-winning, interactive website that helps  

our customers understand the environmental, social 

and economic impacts of their paper choices

We think one of the participants in our examination 

of the future of sustainability at Domtar may have 

captured it best when he observed: “By integrating 

sustainability into its core business, Domtar is 

overtly using sustainability best practices to gain 

competitive advantage, to innovate, to increase value 

for shareholders and to increase value for other 

stakeholders.” We aspire to live up to that observation.

DOMTAR  •  2014 ANNUAL REPORT  13 
PAPER 
ADVOCACY 

PAPER IS A SUSTAINABLE, RENEWABLE, 
RECYCLABLE, PLANT-BASED PRODUCT 
THAT CONNECTS US IN SO MANY WAYS 
TO THE IMPORTANT THINGS IN LIFE. 
GREAT IDEAS ARE STARTED ON PAPER. 
THE WORLD IS EDUCATED ON PAPER. 
BUSINESSES ARE FOUNDED ON 
PAPER. LOVE IS PROFESSED ON PAPER. 
IMPORTANT NEWS IS SPREAD ON PAPER.

THAT’S WHY WE LOVE PAPER. 

In the midst of today’s technology-driven world, Domtar 

remains committed to the printed page — especially 

in the classroom. Evidence is mounting that reading a 

book on paper is faster and allows readers to focus and 

retain more information compared to reading on screen. We also know that handwriting 

plays a vital role in cognitive development in children. That’s why Domtar, as part of our 

commitment to support the sustainable development of our communities, works to 

promote education and emphasize literacy through a variety of projects and partnerships 
across North America. We call this initiative Powerful Pages.

We engage with organizations and schools across North America to 

share the gift of reading and to equip students for learning. 

Highlights include:

•  A partnership with First Book (firstbook.org)  

that to date has supplied nearly 160,000 books  

to kids in need in the United States and Canada

•  Continued support of the Carson Reading Room with Carson 

Scholars Fund (carsonscholars.org) at Johnsonburg Elementary 
School in Johnsonburg, Pennsylvania

•  The support of Classroom Central (classroomcentral.org), 
which provides school supplies to underprivileged students

•  The promotion of The Forest Academy (theforestacademy.com) 

learning website to share information about trees and 

forest ecology

Together, Domtar and our partners are transforming the lives of 

children by providing the critical educational materials they need 

to read, learn and succeed. 

DOMTAR  •  2014 ANNUAL REPORT  15PAPER: FOREVER FUN 

We all need a sweet reminder sometimes that it is fun to use 

paper. Inspired by the ice cream truck that most of us remember 

chasing down the street when we were young, we launched a 

short film about the whimsically decorated Paper Fun Truck and 

its visits to schools, businesses, retirement communities and even 

a Los Angeles – area beach. People received gifts – ranging from 

office paper to coloring books, best-selling novels to cupcakes 

wrapped in paper – from the truck’s window and beamed as they 

showed their friends. The video marks the latest addition to Domtar’s 

award-winning PAPERbecause campaign, which uses humor and 

facts to debunk myths about the paperless society. The campaign videos have been viewed more than half a million times. 

The campaign has also been written about by The New York Times, honored by readers of Newsweek and named a finalist for 

an award at the Cannes Lions International Festival of Creativity for marketing excellence. 

So check out the Paper Fun Truck on paperbecause.com and see why paper is forever fun. 

LEARNING BY HAND

With many schools eliminating handwriting from classroom curricula, 

we saw an opportunity to enrich the learning experience with a 

blend of old-school and new-school methods. So, we picked up 

our pens and got to work. Guided by Domtar’s value of Agility 

and our commitment to education, we launched Project Learning 

Curve in September 2014. To build awareness of the importance of 

handwriting to cognitive development, we produced a brief video 

depicting the research that supports how teachers can adapt today’s 

technology with long-standing educational practices. We worked 

with software developers on a specialized app, Project Learning 

Curve, to connect a digital pen to a computer, allowing teachers to 

measure students’ progress. The teachers can track how long students spend on 

handwriting or set classroom goals for students, such as writing enough characters 

to cross the Golden Gate Bridge. It’s a fun way to encourage students to spend 

more time handwriting, to engage both students and parents, and to help teachers 

monitor the progress being made at home. Project Learning Curve illustrates how 

print and pixels can complement each other in the classroom, giving students the 

best chance to succeed.

To learn more and to watch our video, visit paperbecause.com/projectlearningcurve.

16  DOMTAR  •  2014 ANNUAL REPORTMILE-LONG CONVEYOR  
DEMONSTRATES AGILITY

The mile-long conveyor belt that runs from the banks of the 

Ohio River straight into our Hawesville, Kentucky, mill enables 

a more efficient delivery of wood chips directly to the mill. 

This new creative solution eliminated some 54,000 wood chip 

delivery truck trips per year and drastically reduced traffic-

related congestion and pollution.

CONVERSION KEEPS DOMTAR 
COMPETITIVE

Adapting to new opportunities has long 

been part of Domtar’s history. In late 2014, 

we announced plans to convert one of our 

paper machines in Ashdown, Arkansas, to 

manufacture fluff pulp. This converted paper 

machine will come on-line in the fall of 2016  

and will have the capacity to produce  

more than a half-million metric tons of  

high-quality fluff pulp annually.

IT’S IN OUR  FIBER TO BEAGILEOUR INDUSTRY IS CONSTANTLY CHANGING, AND WE WILL BE THE ONES LEADING THE WAY. WHEN WE NEED TO CHANGE COURSE, WE DO IT. WE ARE DOERS, NOT TALKERS. BUT WHEN WE ACT, WE ACT THOUGHTFULLY. WE HAVE THE POWER TO MAKE DECISIONS FOR THE BENEFIT OF OUR COMPANY AND OUR CUSTOMERS. WE’RE ALWAYS LOOKING FOR SIMPLER, MORE EFFICIENT WAYS TO WORK.IT’S IN OUR  
FIBER TO BE
CARING

THE PEOPLE OF DOMTAR CARE FOR 
EACH OTHER. WE TREAT EACH OTHER 
WITH COMPASSION AND RESPECT. 
WE LOOK OUT FOR EACH OTHER’S 
SAFETY AS WELL AS OUR OWN. WE 
NEVER FORGET THAT OUR COMPANY 
IS WOVEN INTO THE FABRIC OF 
OUR COMMUNITIES, AND WE TREAT 
ENVIRONMENTAL STEWARDSHIP AS 
A SACRED TRUST. WE CARE DEEPLY 
FOR OUR CUSTOMERS AND INVEST 
OURSELVES FULLY IN THEIR SUCCESS. 

PHOTO  

TO COME

A SAFE PLACE TO WORK

We take pride in having a safety-conscious work 

environment across the Company. In 2014, twelve  

Domtar mills won awards from the Pulp and Paper 

Safety Association, seven of these for having no 

OSHA recordable safety incidents. 

A HEALTHY PLACE TO LIVE 

We take our commitment seriously to care 

for the earth we share and will leave to our 

children and grandchildren. Throughout 

the year, Domtar employees, and often 

their families, lead efforts to preserve and 

improve the landscape of our communities 

through our EarthChoice Ambassador 

program. In 2014, Domtar employees took 

part in cleanups around community parks 

and playgrounds, greenways and shorelines 

in Ashdown, Arkansas; Nekoosa, Wisconsin; 

Fort Mill, South Carolina; and Montreal, 

Quebec. In addition to cleanups, groups have 

planted trees, hosted conservation programs 

for students and championed recycling in 

local settings. One of Domtar’s commitments 

to sustainability is to have the program at all 

of our sites by 2020.

COMMERCIALIZING NEW USES FOR FIBER

Leading the way in fiber-based innovation, we have formed 

many strategic partnerships to develop new products and 

applications for fiber-based materials. Revolutionizing 

aspects of lignin separation and identifying new applications 

through our BioChoice business has led to many exciting 

breakthroughs. We have only begun to tap the potential. 

IT’S IN OUR FIBER TO BE
INNOVATIVE

EXPERTS IN FLUID 
MECHANICS  
AND ABSORPTION 
TECHNOLOGY

Growing our Personal Care 

division means staying ahead  

of the competition. We continue 

to invest in advanced research 

and development facilities 

to create breakthroughs in 

absorbent-product technology. 

We are proud of the many 

patented technologies generated 

by Domtar scientists and 

engineers, and we remain 

optimistic in patents pending to 

continue our presence as a global 

industry leader.

BUILDING THE 21ST CENTURY 
WORKFORCE

At the heart of innovation is the 

understanding that one must 

never stop learning. Domtar has 

partnered with many top research 

and development universities and 

organizations to build a pipeline of 

new ideas. For example, in Kingsport, 

Tennessee, our mill works with 

the Regional Center for Advanced 

Manufacturing (RCAM) to help build 

the workforce of the 21st century. 

Innovation never graduates.

WE ALWAYS LOOK TO THE FUTURE BEYOND THE HORIZON. WE’RE NEVER SATISFIED WITH THINGS AS THEY ARE; WE ALWAYS WANT TO MAKE THEM BETTER, AND WE WORK TOGETHER TO DO IT. WE BRING OUR RESOURCEFULNESS AND CREATIVITY TO BEAR FOR LONG-TERM SUCCESS. WE RELISH CHALLENGES OF ALL KINDS, WHETHER THEY COME FROM OUR CLIENTS OR FROM WITHIN, AND NEVER REST UNTIL WE’VE SOLVED THEM.DOMTAR  •  2014 ANNUAL REPORT  19We have a network of 13 pulp and paper 

mills across North America. This production 

system is supported by 10 converting and forms 

manufacturing operations, an extensive distribution 

network and regional replenishment centers, 

and a divisional head office in Fort Mill, South 

Carolina. This network includes Enterprise Group®,  

a Domtar business that primarily sells and 

distributes Domtar-branded cut-size business 

paper and continuous forms, as well as digital 

paper, converting rolls and specialty products. 

We also have a representative office in Hong 

Kong that provides customer service support 

to Asian pulp customers.

Ariva sells and distributes a wide range of paper 

products from Domtar and other manufacturers. 

Ariva serves a diverse customer base through 

six locations in Canada.

Our Personal Care business produces a wide  

range of absorbent hygiene products. These 

products are manufactured and shipped out 

of seven production and distribution facilities 

located in the United States and Europe. Research 

and development activities for Domtar Personal 

Care are centralized in the divisional head office 

in Raleigh, North Carolina, while research and 

development activities undertaken for EAM 

customers are conducted at our operations in 

Jesup, Georgia. 

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, 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, 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

Enterprise 
Group – United States
Addison, Illinois
Albuquerque, New Mexico
Altoona, Iowa
Antioch, Tennessee
Atlanta, Georgia
Birmingham, Alabama
Brookpark, Ohio
Buffalo, New York
Charlotte, North Carolina
Cincinnati, Ohio
Delran, New Jersey
Denver, Colorado
Garland, Texas
Hoboken, New Jersey
Houston, Texas
Indianapolis, Indiana
Jackson, Mississippi
Jacksonville, Florida
Kansas City, Kansas
Kent, Washington
Lakeland, Florida
Lexington, Kentucky
Louisville, Kentucky
Mansfield, Massachusetts
Medley, Florida
Memphis, Tennessee
Minneapolis, Minnesota
Mira Loma, California
Omaha, Nebraska
Phoenix, Arizona 
Pittsburgh, Pennsylvania
Plain City, Ohio
Richmond, Virginia
Salt Lake City, Utah
San Antonio, Texas
San Lorenzo, California
St. Louis, Missouri
Wayland, Michigan
Wayne, Michigan

A WORLD OF 
FIBER

Ariva – Canada
Halifax, Nova Scotia
Montreal, Quebec
Mount Pearl, Newfoundland 

and Labrador
Ottawa, Ontario
Quebec City, Quebec
Toronto, Ontario

Enterprise Group – Canada
Calgary, Alberta
Longueuil, Quebec
Mississauga, Ontario
Richmond, Quebec

Regional Replenishment 
Centers (RRC) – United States
Addison, Illinois
Charlotte, North Carolina
Delran, New Jersey
Garland, Texas
Indianapolis, Indiana
Jacksonville, Florida
Kent, Washington
Mira Loma, California
San Antonio, Texas
Walton, Kentucky

Regional Replenishment 
Centers (RRC) – Canada
Mississauga, Ontario
Richmond, Quebec
Winnipeg, Manitoba

Representative 
Office – International
Hong Kong, China

PERSONAL CARE 
DIVISION HEADQUARTERS
Raleigh, North Carolina

NORTH AMERICA

Attends – Manufacturing  
and Distribution
Greenville, North Carolina

AHP – Manufacturing  
and Distribution
Delaware, Ohio
Waco, Texas

EAM Corporation –  
Manufacturing and Distribution 
Jesup, Georgia 

EUROPE

Attends – Manufacturing  
and Distribution
Aneby, Sweden

Direct Sales Organizations
Emmeloord, The Netherlands
Espoo, Finland
Keerbergen, Belgium
Oslo, Norway
Pasching, Austria
Rheinfelden, Switzerland
Schwalbach am Taunus, Germany 
Wakefield, United Kingdom

Indas – Manufacturing 
and Distribution
Sant Vicenç de Castellet, Spain
Toledo, Spain

Direct Sales Organizations
Casablanca, Morocco

LIST OF LOCATIONS  
AND CAPACITIES

Pulp and Paper Mills

Ashdown, Arkansas 
629,000 ST of paper per year

Espanola, Ontario 
72,000 ST of paper per year

Hawesville, Kentucky 
572,000 ST of paper per year

Johnsonburg, Pennsylvania 
356,000 ST of paper per year

Kingsport, Tennessee 
417,000 ST of paper per year

Marlboro, South Carolina 
264,000 ST of paper per year

Nekoosa, Wisconsin 
156,000 ST of paper per year

Port Huron, Michigan 
112,000 ST of paper per year

Rothschild, Wisconsin 
136,000 ST of paper per year

Windsor, Quebec 
641,000 ST of paper per year

Market Pulp Mills

Dryden, Ontario 
327,000 ADMT of pulp per year

Kamloops, British Columbia 
353,000 ADMT of pulp per year

Plymouth, North Carolina 
466,000 ADMT of pulp per year

* Enterprise Group is involved in the sale 
and distribution of Domtar papers, notably 
continuous forms, cut size business papers 
as well as digital papers, converting rolls 
and specialty products.

  All paper tonnage is expressed in short 
tons (ST) and by mill production capacity.

  All pulp tonnage is expressed in air dry 
metric tons (ADMT) and by mill market 
pulp production capacity.

DOMTAR  •  2014 ANNUAL REPORT  21CORPORATE  
GOVERNANCE AND MANAGEMENT

Domtar’s Board of Directors and Management Committee are committed to the sustainability of the business and to upholding the highest 

standards of ethical and socially responsible behavior. They are responsible for the overall stewardship of the Company and ensuring 

that decisions are taken in the best interests of Domtar and its shareholders. They work closely together in developing and approving 

business strategies and material corporate actions while always taking into account the economic, social and environmental impacts of their 

decisions. They continually assess the various risks and opportunities facing the Company while ensuring strict compliance with laws  

and ethical guidelines.

Domtar’s commitment to sustainability and to high standards of conduct governs the Company’s relationships with customers, suppliers, 

shareholders, competitors, host communities and employees at every level of the organization. This standard is outlined in Domtar’s Code 

of Business Conduct and Ethics applicable to all employees, including directors and officers. The Board also adheres to the Corporate 

Governance Guidelines required by the New York and Toronto stock exchanges.

For complete information on Domtar’s policies, procedures and governance documents, please visit domtar.com.

MANAGEMENT COMMITTEE

JOHN D. WILLIAMS PRESIDENT AND CHIEF EXECUTIVE OFFICER

John D. Williams has been President and Chief Executive Officer 
of Domtar since January 2009. He is also a member of the Board 
of Directors.

Mr. Williams has over 30 years of experience in both consumer 
products and packaging. He began his career in consumer 
product sales in 1976, gaining insight into key market dynamics 
in the United Kingdom and the United States. Prior to joining 
Domtar, he was President of SCA Packaging Europe.

Mr. Williams is a member of the Board of Directors of Owens 
Corning (NYSE: OC) and Chairman of the Board of the Montreal 
Chamber Orchestra. He is also Board Chairman of the American 
Forest & Paper Association. In 2010, he was named North 
American CEO of the Year by RISI as well as Global CEO of the 
Year by Pulp & Paper International (PPI). Mr. Williams was named 
Executive Papermaker of the Year for 2012 by PaperAge magazine.

DANIEL BURON SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER 

Daniel Buron has been Senior Vice President and Chief Financial 
Officer since May 2004.

Prior to May 2004, he was Vice President, Finance, Pulp and 
Paper Sales Division and, prior to September 2002, Vice President 
and Controller.

He has management oversight and responsibility for all financial 
functions, including financial reporting, financial risks and debt 
management, treasury operations, taxation, investor relations and 
information technology.

MICHAEL FAGAN PRESIDENT, PERSONAL CARE DIVISION*

Michael Fagan has been Senior Vice President, Personal Care 
since 2012 and was appointed President of the Division in 
Febuary 2015.

Prior to joining Domtar, Mr. Fagan held the positions of President 
and CEO of Attends Healthcare, Inc. since 2006 and Senior  
Vice President, Sales and Marketing since 1999. Prior to joining 
Attends, he held a variety of sales development roles with Procter 

& Gamble, the previous owners of the Attends line of products 
and the creators of the category.

Mr. Fagan has management oversight and responsibility for 
Domtar’s Personal Care segment that involves the manufacturing, 
sale and distribution of infant care and adult incontinence 
care products.

*  These titles are effective at the date of publication  

of this annual report. 

22  DOMTAR  •  2014 ANNUAL REPORTBOARD OF 
DIRECTORS

Robert E. Apple 
Chief Operating Officer 
MasTec, Inc. 
Miami, Florida,  
USA

Brian M. Levitt 
Chairman of the Board 
TD Bank Group 
and Vice-Chair Osler, 
Hoskin & Harcourt LLP 
Montreal, Quebec,  
Canada

Pamela B. Strobel 
Corporate Director 
Chicago, Illinois,  
USA

Robert J. Steacy 
Chairman of the Board 
Domtar Corporation 
Toronto, Ontario,
Canada

Louis P. Gignac 
President 
G Mining Services Inc. 
Montreal, Quebec,  
Canada

David G. Maffucci 
Corporate Director  
Charlotte, North Carolina, 
USA

Denis Turcotte 
President and CEO 
North Channel Management  
Sault Ste. Marie, Ontario, 
Canada

Giannella Alvarez 
Corporate Director 
Atlanta, Georgia,  
USA

David J. Illingworth 
Corporate Director  
Orchid, Florida, 
USA

Domenic Pilla 
Corporate Director  
Toronto, Ontario,
Canada

John D. Williams 
President and Chief 
Executive Officer 
Domtar Corporation 
Charlotte, North Carolina,  
USA

MICHAEL D. GARCIA PRESIDENT, PULP AND PAPER DIVISION

Michael D. Garcia has been President of Domtar’s Pulp and Paper 
division since May 2014.

Mr. Garcia has over 20 years of international management experience 
in paper, steel, and aluminum manufacturing and marketing on three 
continents. Prior to joining Domtar, Mr. Garcia was CEO of Evraz  
(EHS: SJ) Highveld Steel & Vanadium, in eMalahleni, South Africa.

Mr. Garcia has management oversight and responsibility for 
Domtar’s manufacturing and marketing of pulp and paper. The 
division operates a network of 13 mills in the United States and 
Canada and sells pulp and paper in more than 50 countries.

ZYGMUNT JABLONSKI SENIOR VICE PRESIDENT AND CHIEF LEGAL AND ADMINISTRATIVE OFFICER*

Zygmunt Jablonski has been Senior Vice President, Law 
and Corporate Affairs since 2009 and was appointed Senior 
Vice President and Chief Legal and Administrative Officer 
in February 2015.

Prior to joining Domtar in 2008, he served in various in-house 
counsel positions for major manufacturing and distribution 

companies in the paper industry for over 13 years. From 1985 
to 1994, he practiced law in Washington, D.C.

Mr. Jablonski is responsible for legal affairs, secretariat, 
sustainability and environmental affairs, corporate 
communications, government relations, corporate human 
resources and internal audit.

PATRICK LOULOU SENIOR VICE PRESIDENT, CORPORATE DEVELOPMENT

Patrick Loulou has been Senior Vice President, Corporate 
Development since March 2007.

Mr. Loulou is responsible for managing new business development, 
corporate strategy, and mergers and acquisitions.

Previously, he held a number of positions in the 
telecommunications sector as well as in management consulting. 
He has several years of experience in corporate strategy and 
business development.

RICHARD L. THOMAS SENIOR VICE PRESIDENT, SALES AND MARKETING, PULP AND PAPER DIVISION

Richard L. Thomas has been Senior Vice President, Sales and 
Marketing since 2007, when Domtar acquired Weyerhaeuser’s Fine 
Paper division.

positions in operations after joining the company in 1992. 
Previously, he was with Champion International Corporation 
for 12 years.

Prior to joining Domtar, he was Vice President, Fine Papers, 
at Weyerhaeuser Company. Mr. Thomas joined Weyerhaeuser 
in 2002 when Willamette Industries, Inc. was acquired by 
Weyerhaeuser. At Willamette, he held various management 

As Senior Vice President, Sales and Marketing, he is responsible 
for pulp and paper sales, customer service and product 
development.

DOMTAR  •  2014 ANNUAL REPORT  23[THIS PAGE INTENTIONALLY LEFT BLANK]

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K
È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE

ACT OF 1934

For the fiscal year ended December 31, 2014

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
(State or Other Jurisdiction of
Incorporation or Organization)

20-5901152
(I.R.S. Employer
Identification No.)

395 de Maisonneuve Blvd. West
Montreal, Quebec, H3A 1L6, Canada
(Address of Principal Executive Offices)(Zip Code)
Registrant’s telephone number, including area code: (514) 848-5555
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

Act. Yes È No ‘

is a well-known seasoned issuer, as defined in Rule 405 of the Securities

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 È

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 È 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 È 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 È

Smaller reporting company ‘

Accelerated Filer ‘

Non-Accelerated Filer ‘
(Do not check if a smaller reporting company)

Indicate by check mark whether

Act). Yes ‘ No È

the registrant

is a shell company (as defined in Rule 12b-2 of

the Exchange

As of June 30, 2014, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was

$2,785,297,306.

Number of shares of common stock outstanding as of February 19, 2015: 63,755,722

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 2014 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, 2014

TABLE OF CONTENTS

PART I
ITEM 1 BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General
Our Corporate Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Our Business Segments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pulp and Paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Personal Care . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Our Strategic Initiatives and Financial Priorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Our Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Our Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Our Approach to Sustainability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Our Environmental Challenges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Our Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Internet Availability of Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Our Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forward-looking Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ITEM 1A RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ITEM 1B UNRESOLVED STAFF COMMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ITEM 2

PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ITEM 3 LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ITEM 4 MINE SAFETY DISCLOSURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART II

ITEM 5 MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES . . . . . . . . . . . . . .
Market Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends and Stock Repurchase Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Performance Graph . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ITEM 6

SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ITEM 7 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Results of Operations and Segment Review . . . . . . . . . . . . . . . . . . . . . . .
Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
New Accounting Pronouncements and Critical Accounting Estimates and Policies . . .

ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK . . . .

PAGE

4
4
4
5
5
10
11
12
13
14
14
14
15
15
16

17

26

26

28

28

29
29
29
29
32

33

34
34
34
36
41
44
48

57

2

ITEM 8

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . . . . . . . . . . . . . . .
Management’s Reports to Shareholders of Domtar Corporation . . . . . . . . . . . . . . . . . .
Report of PricewaterhouseCoopers LLP, Independent Registered Public Accounting

Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Earnings and Comprehensive Income . . . . . . . . . . . . . . . .
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statement of Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON

ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ITEM 9A CONTROLS AND PROCEDURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ITEM 9B OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART III

ITEM 10 DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE . . . . . .

ITEM 11 EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PAGE

60
60

61
62
63
64
65
66

147

147

148

149

149

ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND

MANAGEMENT AND RELATED STOCKHOLDER MATTERS . . . . . . . . . . . . . . . .

149

ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR

INDEPENDENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ITEM 14 PRINCIPAL ACCOUNTANT FEES AND SERVICES . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART IV

ITEM 15 EXHIBITS AND FINANCIAL STATEMENT SCHEDULES . . . . . . . . . . . . . . . . . . . . . . .
Schedule II – Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

149

150

151
156

157

3

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 world class wood fiber converting assets that produce paper grade, fluff and specialty
pulp. The majority of our pulp production is consumed internally to manufacture paper and consumer products.
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, marketed primarily under the
Attends®,
infant diapers. To learn more, visit
www.Domtar.com.

IncoPack® and Indasec® brand names, as well as

We operate the following business segments: Pulp and Paper and Personal Care. We had revenues of
$5.6 billion in 2014, of which approximately 83% was from the Pulp and Paper segment and approximately 17%
was from the Personal Care segment. Our Personal Care segment was formed on September 1, 2011, upon
completion of the acquisition of Attends Healthcare Inc. (“Attends US”), a manufacturer and supplier of adult
incontinence care products in the United States and Canada. On March 1, 2012, we completed the acquisition of
Attends Healthcare Ltd. (“Attends Europe”), a manufacturer and supplier of adult incontinence care products in
Northern Europe. In addition, on May 10, 2012, we completed the acquisition of EAM Corporation (“EAM”), a
manufacturer of high quality airlaid and ultrathin laminated cores used in feminine hygiene, adult incontinence,
infant diapers and other medical healthcare and performance packaging solutions. On July 1, 2013, we completed
the acquisition of Associated Hygienic Products (“AHP”), a manufacturer and supplier of store brand infant
diapers in the United States. 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. The acquired
businesses are presented under our Personal Care reportable segment. Information regarding the most recent
business acquisitions are included in Part II, Item 8, Financial Statements and Supplementary Data of this Annual
Report on Form 10-K, 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.

OUR CORPORATE STRUCTURE

At December 31, 2014, Domtar Corporation had a total of 64,010,087 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 and the exchangeable shares is included in Part II, Item 8,
this Annual Report on Form 10-K, under Note 21

Financial Statements and Supplementary Data of
“Shareholders’ Equity.”

4

OUR BUSINESS SEGMENTS

The following summary briefly describes the operations included in each of our reportable segments:

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

• Personal Care—Our Personal Care segment consists of the manufacturing, marketing and distribution of

absorbent hygiene products.

Information regarding our reportable segments is included in Part II, 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”, of this Annual Report on Form 10-K. Geographic
information is also included under Note 24 of the Financial Statements and Supplementary Data.

FINANCIAL HIGHLIGHTS PER SEGMENT

(In millions of dollars, unless otherwise noted)
Sales: (1)

Pulp and Paper
Personal Care
Consolidated sales

Operating income (loss): (1)
Pulp and Paper
Personal Care
Corporate
Total
Segment assets:

Pulp and Paper
Personal Care
Corporate
Total

Year ended
December 31, 2014

Year ended
December 31, 2013

Year ended
December 31, 2012

$4,635
928
$5,563

$ 323
54
(13)
$ 364

$4,102
1,967
116
$6,185

$4,825
566
$5,391

$ 171
43
(53)
$ 161

$4,363
1,272
643
$6,278

$5,083
399
$5,482

$ 330
45
(8)
$ 367

$4,637
841
645
$6,123

(1) Factors that affected the year-over-year comparison of financial results are discussed in the year-over-year
and segment analysis included in Part II, Item 7, Management’s Discussion and Analysis of Financial
Condition and Results of Operation of this Annual Report on Form 10-K.

PULP AND PAPER

Our Manufacturing Operations

We produce 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). The majority of our pulp is consumed internally to manufacture paper and
consumer products, with the balance being sold as market pulp. We also purchase papergrade pulp from third
parties allowing us to optimize the logistics of our pulp capacity while reducing transportation costs.

We are the largest integrated marketer and manufacturer 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 3.4 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 of our paper making operations). Approximately 79% of our paper
production capacity is in the United States and the remaining 21% is located in Canada.

5

We produce market pulp in excess of our internal requirements at our three non-integrated pulp mills in
Kamloops, Dryden, and Plymouth as well as at our pulp and paper mills in Ashdown, Espanola, Hawesville,
Windsor, Marlboro and Nekoosa. We sell approximately 1.7 million metric tons of pulp per year depending on
market conditions. Approximately 53% of our trade pulp production capacity is in the U.S., and the remaining
47% is located in Canada.

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

Production Facility

Fiberline Pulp Capacity

Saleable
Paper (1)

# lines

(‘000 ADMT) (2)

# machines

Category (3)

(‘000 ST) (2)

Uncoated freesheet
Ashdown, Arkansas (5)
Windsor, Quebec
Hawesville, Kentucky
Kingsport, Tennessee
Johnsonburg, Pennsylvania
Marlboro, South Carolina
Nekoosa, Wisconsin
Rothschild, Wisconsin
Port Huron, Michigan
Espanola, Ontario
Total Uncoated freesheet
Pulp
Kamloops, British Columbia
Dryden, Ontario
Plymouth, North Carolina
Total Pulp
Total
Total Trade Pulp (4)
Pulp purchases
Net pulp

3
1
1
1
1
1
1
1

—

2
12

1
1
2
4
16

707
440
426
284
230
317
151
65

—
332
2,952

353
327
466
1,146
4,098
1,709
102
1,607

3
2
2
1
2
1
3
1
4
2
21

—
—
—
—
21

Communication
Communication
Communication
Communication
Communication
Specialty & Packaging
Specialty & Packaging
Communication
Specialty & Packaging
Specialty & Packaging

629
641
572
417
356
264
156
136
112
72
3,355

—
—
—
—
3,355

(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) Estimated third-party shipments dependent upon market conditions. This also includes shipments to

Personal Care.

(5) On December 10, 2014, Domtar Corporation announced a $160 million capital project to convert a paper
machine at the Ashdown, Arkansas mill to a high quality fluff pulp line used in absorbent applications such
as baby diapers, feminine hygiene and adult incontinence products. The planned conversion is expected to
come online by the third quarter 2016 and will allow for the production of up to 516,000 metric tons of fluff
pulp per year once the machine is in full operation. The project will also result in the permanent reduction of
364,000 short tons annual uncoated freesheet production capacity in the second quarter of 2016.

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 being
readily available in the market from multiple third-party sources. The mills obtain fiber from a variety of sources,

6

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 sawmilling 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 0.7 million cubic meters of hardwood, for a total of 1.9 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 2014,

the

cost of wood fiber

relating to our Pulp and Paper

segment

comprised

approximately 20% 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 2014, 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, coal, electricity, and a small amount of purchased steam. 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
electricity, steam and 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 fluctuates 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 power generating assets, including steam turbines, at all of our integrated pulp and paper mills, as
well as hydro assets at three locations: Espanola, Nekoosa and Rothschild. Electricity is primarily used to drive
motors, pumps and other equipment, as well as provide lighting. Approximately 74% of our electricity
requirements are produced internally. We purchase the balance of our electricity requirements from local utilities.

During 2014, energy costs relating to our Pulp and Paper segment comprised approximately 6% 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. The length of our carrier contracts are
generally from one to three years. We pay diesel fuel surcharges which vary depending on market conditions, and
the cost of diesel fuel.

During 2014, 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

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
applications.

Our business papers include copy and electronic imaging papers, which are used with ink jet and laser
printers, photocopiers and plain-paper fax machines, as well as computer papers, preprinted forms and digital
papers. These products
accounted for
approximately 49% of our shipments of paper products in 2014.

and home use. Business papers

are primarily for office

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. Design papers, a sub-group of commercial
printing and publishing papers, have distinct features of color, brightness and texture and are targeted towards
graphic artists, design and advertising agencies, primarily for special brochures and annual reports. 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 35% of our shipments of paper products in 2014.

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 2014. These grades of papers require a certain amount of innovation and
agility in the manufacturing system.

8

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

Communication Papers

Specialty and Packaging Papers

Category

Type

Business Papers

Commercial Printing and
Publishing Papers

Uncoated Freesheet

Uncoated Freesheet

Grade

Copy

Premium imaging
Technology papers

Application Photocopies

Office

documents
Presentations

Presentations
Reports

Offset
Colors
Index
Tag
Bristol

Opaques
Premium opaques
Lightweight
Tradebook

Commercial
printing
Direct mail
Pamphlets
Brochures
Cards
Posters

Stationery
Brochures
Annual reports
Books
Catalogs
Forms &

Envelopes

Thermal papers
Food packaging
Bag stock
Security papers
Imaging papers
Label papers
Medical disposables

Food & candy packaging
Fast food takeout bag stock
Check and security papers
Surgical gowns

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 new product
development personnel and undertake joint marketing initiatives with customers in order to better understand
their businesses and 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

Business Papers

Commercial Printing and Publishing
Papers

Specialty and
Packaging Papers

Category

Domtar sells

to:

Retailers
↓

Merchants
↓

Customer
sells to:

Printers /
End-users

Printers /
Retailers /
End-users

Office
Equipment
Manufacturers /
Stationers
↓
Retailers /
Stationers /
End-users

Merchants
↓

Converters
↓

End-Users

Converters
↓

Printers /
Converters /
End-users

Merchants /
Retailers

End-users

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
In 2014,
approximately 36% of our external sales of pulp were domestic, 7% were in Canada and 57% were in other
countries.

to respond to orders on short notice.

9

Our ten largest customers represented approximately 40% of our Pulp and Paper segment sales or 33% of
our total sales in 2014. In 2014, Staples, one of our customers of our Pulp and Paper segment represented
approximately 9% of our total sales. The majority of our customers purchase products through individual
purchase orders. In 2014, approximately 76% of our Pulp and Paper segment sales were domestic, 12% were in
Canada, and 12% were in other countries.

PERSONAL CARE

Our Operations

Our Personal Care business consists of the manufacturing, marketing and distribution of absorbent hygiene
products, marketed primarily under the Attends®, IncoPack® and Indasec® brand names. We are one of the
leading suppliers of adult incontinence products sold into North America and Europe, serving institutional and
consumer channels. In 2014, we increased our footprint and product range with the completion of the acquisition
of Laboratorios Indas S.A.U (“Indas”) on January 2, 2014.

We operate seven manufacturing facilities, with each having the ability to produce multiple product
categories. At our Jesup facility, we have a 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 division head office in Raleigh, North Carolina.

We operate in the United States and in Europe:

• Greenville, North Carolina

• Waco, Texas

• Delaware, Ohio

• Aneby, Sweden

•

Jesup, Georgia

• Toledo, Spain

•

Sant Vicenç de Castellet, Spain

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. As an example,
the National Association for Continence (“NAFC”) estimates that 10,000 Americans are turning 65 years old
every day, or 3.65 million people per year. By the year 2030, approximately 71 million Americans are estimated
to be 65 years old or older, representing over 20% of the United States population. It is estimated that
approximately 5% of the world population, or 340 million individuals, is incontinent. After age 65, nearly one in
three people are estimated to suffer from incontinence.

10

Increased healthcare spending

We are expected to benefit from the overall increase in national healthcare spending, which is due to an
aging population and is aided by federal legislative expansion of health insurance coverage in the United States.
Spending will likely increase as health insurance coverage is expanded and the number of insured patients with
the improved ability to access healthcare products and services increases. The healthcare spending increase is
expected to positively impact each of the channels that we serve.

Infant Products

We compete within the competitive and volatile store brand segment of infant diapers and training pants.
Future demand is forecasted to be roughly flat to low single digit growth in North America and Europe; however,
infant diaper is the most important segment within the retail absorbent hygiene category due to the shopper
profile of its customers. Today, our business is focused around a small number of large retailers that control the
majority of the volume in North America, which is driven by multi-year contracts, and leads to the intense
competition and volatility in the industry. 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 nonwovens, fluff pulp (significant portion
is supplied internally from our pulp and paper business), super absorbent polymers, polypropylene film, elastics,
adhesives and packaging materials that are purchased on a central basis with contracts varying between one and
five years. Most contracts have prices that fluctuate based on prevailing market conditions.

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 and infant training pants, are available in a variety of sizes, as well as with
differing performance levels and product attributes. Our broad product portfolio covers most price points across
each product category.

We serve four channels: acute care, long-term care, homecare, and retail. Through the utilization of our
flexible production platform, manufacturing expertise and efficient supply chain management, 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 eleven
European countries.

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, while providing
industry leading skin-dryness and superior containment, creating significant value for our customers and
consumers.

OUR STRATEGIC INITIATIVES AND FINANCIAL PRIORITIES

Domtar is a leading fiber-based technology company with a unique expertise in transforming raw materials
into products that customers want. Our focus on driving innovation, enhancing our operating platforms, and
delivering high quality products has made Domtar the supplier of choice for our customers. To further bolster our

11

position and drive enhanced value for our shareholders, Domtar is focused on four key business objectives:
(1) driving value in our Pulp and Paper business; (2) building on our existing 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 growth investments and capital returns to our
shareholders; and (4) operating with a focus on environmental responsibility and sustainability. We are confident
that the continued focus on these objectives will drive value for our shareholders, provide opportunities for our
employees, best serve our customers and bolster the competitive position of our business.

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 the right strategies and operating priorities to maximize the value of the
business, including 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.

Leveraging our fiber expertise to expand into areas of growth. Domtar is well positioned to capitalize on
our fiber expertise to diversify our business and expand into new markets. Domtar has a history of proactively
adapting to changing market conditions, and today, we are systematically and thoughtfully pivoting to orient the
Company towards areas of growth. This is a natural evolution for Domtar and we are uniquely positioned to
capitalize on new opportunities in the fiber space. Domtar already has the financial resources, infrastructure, raw
materials, technologies and expertise necessary to deliver new products. We also have built a strong foundation
for diversification and continue to make important—but disciplined—progress. In 2015, we will continue to
focus 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 growth investments
and capital returns to our shareholders. Domtar is committed to enhancing shareholder value, and the Company
has a solid track record. 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 shareholders.
Domtar’s free cash flow position allows us to invest in growth and maintain a strong and flexible financial
position for operating and strategic initiatives, while still returning capital to our shareholders. 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
balancing of production and inventory control.

Operating in a responsible way. We try to make a positive difference every day by pursuing sustainable
growth, valuing relationships, and responsibly managing our resources. We 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. We are committed to
the responsible use of forest resources across our operations and we are enrolled in programs and initiatives to
encourage landowners engaged towards certification to improve their market access and increase their revenue
opportunities.

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 seek product

12

differentiation through an extensive offering of high quality 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 or shifts from one type of paper to another. All of our pulp and paper manufacturing facilities are
located in the United States or in Canada where we sell 88% of our products. The five largest manufacturers of
uncoated freesheet papers in North America represent approximately 81% of the total production capacity. On a
global basis, there are hundreds of manufacturers that produce and sell uncoated freesheet papers. 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 either 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 57% of
our pulp to other countries.

In the adult incontinence business in North America, the top 5 manufacturers supply approximately 90% of
the demand and have done so for at least the last 10 years. Competition is along the lines of four major product
categories—protective underwear, pads, briefs and underpads with customers split between retail and
institutional channels. The retail channel has the majority of sales concentrated in mass marketers and drug
stores. The institutional channel includes extended care (long term care and homecare) and acute care facilities.

In the adult incontinence business in Europe, the top 5 manufacturers supply approximately 80% of the
healthcare channel and nearly all of the retail channel demand. Competition is along the lines of four major
product categories: pads, pull-ons, briefs and underpads, with customers mostly split between mass retail,
prescription and closed contract. The mass retail channel is more fragmented than in North America, with a mix
of larger chains and smaller players. Approximately 70% of institutional and homecare expenditures are funded
by governments in Western Europe.

In the infant diaper business in North America, the top 2 manufacturers supply approximately 80% of the
demand with branded labels. Approximately, another 20% is represented by private label, is split among the
competition. Competition is along the lines of three major product categories—diapers, training pants and youth
pants. Products are marketed in multiples channels—mass retailers, dollar stores, grocery, club, internet and
home health care. In the adult incontinence business as well as in the infant diapers business, 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 over 9,800 employees, of which approximately 60% are employed in the United States, 29% in
Canada and 11% in Europe. Approximately 47% of our employees are covered by collective bargaining
approximately
agreements,
1,701 employees will expire in 2015 and others will expire between 2016 and 2017.

facility-by-facility

basis. Certain

agreements

generally

covering

on

a

13

OUR APPROACH TO SUSTAINABILITY

Domtar delivers a higher, lasting 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 the 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 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 pay
attention to being agile to respond to new opportunities, and we are focused in order to turn 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. Further, we believe
that our business and the people and communities who depend upon us are better served as we weave this focus
on sustainability into the things we do.

Domtar effects 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 focus the company places on sustainable performance. At the same time, recognizing that the promise
of sustainability is only achieved if it is woven into the fiber of an organization, Domtar is committed to
establishing EarthChoice Ambassadors—sustainability leaders and advocates—in every one of the company’s
locations. We believe that weaving sustainability into our business positions Domtar for the future.

OUR ENVIRONMENTAL CHALLENGES

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 harvesting, air emissions, climate change, waste water discharges, the 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 Part II, Item 8, Note 22
“Commitments and Contingencies” of this Annual Report on Form 10-K and 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®, Domtar EarthChoice®, Attends®,
NovaThin®, NovaZorb®, IncoPack®, Indasec® and Ariva®. These brand names and trademarks are important to
the 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.

14

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.

INTERNET 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 our website, www.domtar.com, is not, 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 EXECUTIVE OFFICERS (“MANAGEMENT COMMITTEE”)

John D. Williams, age 60, has been president, chief executive officer and a director of the Company since
January 1, 2009. 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.

Daniel Buron, age 51, is the senior vice-president and chief financial officer of the Company. Mr. Buron
was 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, age 50, is the president, pulp & paper 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. He has nearly 25 years of wide-ranging continuous
manufacturing expertise that spans consumer products, engineered materials and commodities.

Michael Fagan, age 53, is the senior vice-president, personal care 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, age 61, is the senior vice-president,

law and corporate affairs of the Company.
in 2008, after serving in various in-house counsel positions for major
Mr. Jablonski
manufacturing and distribution companies in the paper industry for 13 years. From 1985 to 1994, he practiced
law in Washington, DC.

joined Domtar

Patrick Loulou, age 46, is the 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. He has over 15 years of experience in corporate strategy and business development.

Richard L. Thomas, age 61, is the senior vice-president, sales and marketing of the pulp & paper division of
the Company. Mr. Thomas was vice-president of fine papers of Weyerhaeuser since 2005. Prior to 2005, he was

15

vice-president, business papers of Weyerhaeuser. Mr. Thomas joined Weyerhaeuser in 2002 when Willamette
Industries, Inc. was acquired by Weyerhaeuser. At Willamette, he held various management positions in
operations since joining in 1992. Previously, he was with Champion International Corporation for 12 years.

FORWARD-LOOKING STATEMENTS

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

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

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

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

product selling prices;

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

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

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

the level of competition from domestic and foreign producers;

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

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

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

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

the other factors described under “Risk Factors,” in Part I, Item 1A of this Annual Report on Form 10-K.

16

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 assumes no 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.

RISKS RELATING TO THE INDUSTRIES AND BUSINESSES OF THE COMPANY

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 further decline. Declines in demand for our paper
products may adversely affect the Company’s business, results of operations and financial position.

Failure to successfully implement the Company’s business diversification initiatives could have a material
adverse effect on its business, financial results or condition.

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 three years and the decision to convert 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
core North American paper business. These initiatives may involve organic growth, select joint ventures and
strategic acquisitions. The success of these initiatives will depend, among other things, on 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 of
our control.

Strategic acquisitions may expose us to additional risks. We may have to compete for acquisition targets and
any acquisitions we make 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 take significant time
and attention from senior management. Accordingly, we cannot predict whether we will succeed in implementing
these strategic initiatives. If we fail to successfully diversify our business, it may have a material adverse effect
on our competitive position, financial condition and operating results.

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. Even the Company’s non-commodity products, such as value-added papers, are susceptible to
commodity dynamics. 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.

17

The overall levels of demand for the pulp and paper products 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 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 short-term 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 Part II, Item 8, 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, as described below. If the prices of 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.

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.

A significant or prolonged downturn in general economic environment may affect the Company’s sales and
profitability. The Company has exposure to counterparties with which it routinely executes transactions. Such
counterparties include commercial banks, insurance companies and other financial institutions, some of which
may be exposed to bankruptcy or liquidity risks. While the Company has not realized any significant losses to
date, a bankruptcy or illiquidity event by one of its significant counterparties may materially and adversely affect
the Company’s access to capital, future business and results of operations.

In 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 crises in individual countries or regions,

including sovereign risk related to a default by or deterioration in the credit worthiness of local governments.

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 our profitability in the future.

18

The Company faces intense competition in its markets, and the failure to compete effectively would 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,
some 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 in large part on its ability to control its costs. 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 will have a material adverse effect on its business and results of operations.

The Company’s pulp and paper businesses 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 businesses, comprising
approximately 20% of the consolidated cost of sales during 2014. 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, our 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 and sodium hydroxide, 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.

19

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 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 have a material adverse
effect on its financial condition and operating results.

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
9,800 employees, are represented by unions through collective bargaining agreements generally on a
facility-by-facility basis. Certain of these agreements will expire in 2015 and others will expire between 2016
and 2017. As of December 31, 2014, eight collective bargaining agreements in Canada, representing 713
employees, are up for renegotiation. All unionized employees in the U.S. and Europe were covered by a ratified
agreement as of December 31, 2014. 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 financial condition.

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.

The Company relies heavily on a small number of significant customers, including one customer that represented
approximately 9% of the Company’s sales in 2014. 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 9% of the Company’s sales in 2014. 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 our customers could also
create significant cost margin pressure and lead to more complexity across broader geographic boundaries for
both us and our key retailers.

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 net income.

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;

20

•

•

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 financial results and
financial position.

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 that it regularly incur capital expenditures in
order to maintain its equipment, increase its operating efficiency and comply with environmental laws. In 2014,
the Company’s total capital expenditures were $236 million (2013 – $242 million; 2012 – $236 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
to a number of qualifications and exceptions, and additional
indebtedness,
indebtedness incurred in compliance with these restrictions could be substantial. Refer to Part II, Item 8, Note 19
“Long-term debt”, of this Annual Report on Form 10-K for more details.

these restrictions are subject

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.

For 2014, the Company had approximately $92 million in debt service. The Company’s ability to make
payments on and refinance its debt, including the Company’s unsecured long-term notes and amounts borrowed

21

under its revolving credit facility, 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 seeking additional equity capital. Any of these remedies may not be
effected 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 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 its 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 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 financial results.

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, 2014, the Company’s defined benefit plans had a surplus of
$121 million on certain plans and a deficit of $123 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 operating results 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, 2014, the Company’s defined benefit pension plans
held assets with a fair value of $1,721 million, including a fair value of $180 million (CDN $209 million) of
restructured asset backed notes (“ABN”).

Most of the ABN investments were subject to restructuring (under the court order governing the Montreal
Accord that was completed in January 2009) while the remainder is in conduits restructured outside the Montreal

22

Accord or subject to litigation between the sponsor and the credit counterparty. At December 31, 2014, the
Company determined that the fair value of these ABN investments was $180 million (CDN $209 million)
(2013 – $203 million (CDN $216 million)). Possible changes that could have an adverse material effect on the
future value of the ABN include: (1) changes in the value of the underlying assets and the related derivative
transactions, (2) developments related to the liquidity of the ABN market and (3) a severe and prolonged
economic slowdown in North America and the bankruptcy of referenced corporate credits.

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, the 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.”

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 $68 million of operating expenses and $14 million of capital expenditures in connection
with environmental compliance and remediation in 2014. As of December 31, 2014, the Company had a
provision of $60 million for environmental expenditures, including certain asset retirement obligations (such as
for landfill capping) ($67 million as of December 31, 2013).

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 will lead to future environmental investigations. Those efforts will likely 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. 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, or
interpretation thereof, might require significant expenditures. For example, changes in climate change regulation
– For additional information, refer to Part II, Item 8, Note 22 “Commitments and Contingencies” under the

23

caption “Industrial Boiler Maximum Achievable Control Technology Standard (“MACT”).” 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 affect on our business,
financial results or condition.

In addition to environmental laws, our 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 we operate, including antitrust
and competition laws, occupational health and safety laws 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, or claims for damages by third parties which may have a material
adverse effect on the Company’s financial position, results of operations or cash flows.

Spanish Competition Investigation

In September 2014, following preliminary inquiries commenced in January 2014, Spain’s National
Commission of Markets and Competition initiated a formal investigation of several companies and their parent
companies, including Indas (a subsidiary of the Company, acquired on January 2, 2014), and two of its affiliates,
as well as an industry association, Federacion Espanola de Empresas de Tecnologia Sanitaria (FENIN), with
respect to possible unlawful conduct, consisting of fixing prices, commercial terms and dispensation of heavy
adult incontinence products in the Spanish market. The activities under investigation predate the acquisition of
Indas by the Company. The sellers of Indas made representations and warranties to the Company in the purchase
agreement regarding, among other things, Indas’ and its subsidiary’s compliance with competition laws. The
liability retained by the sellers is backed by bank guarantees, and limited insurance coverage has been purchased
with regard to excess liability. As a result, while the final outcome with respect to the investigation cannot be
predicted with certainty, it is management’s opinion that its resolution will not have a material adverse effect on
the Company’s financial position, results of operations or cash flows.

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.

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

24

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 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. 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, 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
terrorist attacks, power and/or
Company’s control,
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,
but these measures may not be adequate or implemented properly to ensure that the Company’s operations are
not disrupted. Potential consequences of a material cyber incident include damage to our reputation, litigation,
inefficiencies or production down-times and increased cyber security protection and remediation costs. Such
consequences could have a negative impact on our ability to meet customers’ orders, resulting in a delay or
decrease to our revenue and a reduction to our operating margins.

limited to, natural disasters,

including, but not

The Company’s balance sheet includes a significant amount of goodwill and intangible assets. We may be
required to record a material charge to earnings due to impairment of goodwill and/or intangible assets carried
on our 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, 2014, the Company’s balance sheet included goodwill of $567 million, all of
which is attributable to our Personal Care segment, and intangible assets of $661 million, of which $381 million
related to intangible assets subject to amortization and $280 million related to indefinite-lived intangible assets.
In accordance with U.S. GAAP, 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 recently completed 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 2014, the first step of such testing
indicated that the fair values of our reporting units and indefinite-lived intangible assets exceeded their respective
carrying amounts. The estimated fair value of the Personal Care reporting unit, excluding EAM, exceeded its
carrying value by 15%. 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,
2014, the goodwill balance attributable to the Personal Care reporting unit, excluding EAM, was $536 million

25

and the carrying value of related intangible assets for Personal Care was $646 million. If we are required to
write-down all or a significant amount of the goodwill attributable to the Personal Care reporting unit, excluding
EAM, and/or the carrying value of related intangible assets, and consequently record a non-cash impairment
charge, our results of operations and financial condition would 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 over 16 million acres of forestland directly and indirectly licensed or owned in Canada and the
United States through efficient management and the application of certified sustainable forest management
practices such that a continuous supply of wood is available for future needs.

26

Listing of facilities and locations

Head Office
Montreal, Quebec

Pulp and Paper
Divisional Head Office:
Fort Mill, South Carolina

Uncoated Freesheet:
Ashdown, Arkansas
Espanola, Ontario
Hawesville, Kentucky
Johnsonburg, Pennsylvania
Kingsport, Tennessee
Marlboro, 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, 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

Enterprise Group*—United
States:
Birmingham, Alabama
Phoenix, Arizona
San Lorenzo, California

Mira Loma, California
Denver, Colorado
Jacksonville, Florida
Lakeland, Florida
Medley, Florida
Atlanta, Georgia
Addison, Illinois
Indianapolis, Indiana
Altoona, Iowa
Kansas City, Kansas
Lexington, Kentucky
Louisville, Kentucky
Mansfield, Massachusetts
Wayland, Michigan
Wayne, Michigan
Minneapolis, Minnesota
Jackson, Mississippi
St-Louis, Missouri
Omaha, Nebraska
Delran, New Jersey
Hoboken, New Jersey
Albuquerque, New Mexico
Buffalo, New York
Charlotte, North Carolina
Brookpark, Ohio
Cincinnati, Ohio
Plain City, Ohio
Pittsburgh, Pennsylvania
Memphis, Tennessee
Antioch, Tennessee
Garland, Texas
Houston, Texas
San Antonio, Texas
Salt Lake City, Utah
Richmond, Virginia
Kent, Washington

Enterprise Group*—Canada:
Calgary, Alberta
Longueuil, Quebec
Richmond, Quebec
Mississauga, Ontario

Regional Replenishment Centers
(RRC)—United States:
Mira Loma, California
Indianapolis, Indiana
Addison, Illinois
Walton, Kentucky
Delran, New Jersey
Charlotte, North Carolina
Garland, Texas
San Antonia, Texas
Jacksonville, Florida
Kent, Washington

Regional Replenishment Centers
(RRC)—Canada:
Richmond, Quebec
Mississauga, Ontario
Winnipeg, Manitoba

Ariva—Canada:
Ottawa, Ontario
Toronto, Ontario
Montreal, Quebec
Quebec City, Quebec
Halifax, Nova Scotia
Mount Pearl, Newfoundland

Representative office—
International
Hong Kong, China

Personal Care
Divisional Head Office:
Raleigh, North Carolina

North America
Attends—North America
Manufacturing and Distribution:
Greenville, North Carolina

AHP
Manufacturing and Distribution
Waco, Texas
Delaware, Ohio

EAM Corporation
Manufacturing and Distribution:
Jesup, Georgia

Europe
Attends—Europe
Manufacturing and Distribution:
Aneby, Sweden

Direct Sales Organizations:
Emmerloord, The Netherlands
Espoo, Finland
Keebergen, Belgium
Oslo, Norway
Pasching, Austria
Rheinfelden, Switzerland
Schwalbach am Taunus,
Germany

Indas
Manufacturing and Distribution
Sant Vicenç de Castellet, Spain
Toledo, Spain

Direct Sales Organizations
Casablanca, Morocco

* Enterprise Group is involved in the sale and distribution of Domtar papers, notably continuous forms, cut size

business papers as well as digital papers, converting rolls and specialty products.

27

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 following 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 Part II, Item 8,

Note 22 “Commitments and Contingencies,” of this Annual Report on Form 10-K, for more details.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

28

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
2014 and 2013.

New York Stock
Exchange ($)
Low

High

Close

Toronto Stock Exchange
(CDN$)
Low

Close

High

2014 Quarter
First
Second
Third
Fourth

Year

2013 Quarter
First
Second
Third
Fourth

Year

57.57
56.22
43.41
42.58

57.57

43.54
39.39
40.49
48.15

48.15

45.58
42.85
35.13
33.06

33.06

36.62
32.53
32.53
39.72

32.53

56.11
42.85
35.13
40.22

40.22

38.81
33.25
39.71
47.17

47.17

63.74
62.05
46.31
48.55

63.74

42.84
39.84
41.76
51.61

51.61

48.47
45.86
38.50
37.66

37.66

37.50
33.88
33.84
41.00

33.84

62.06
45.86
39.32
46.68

46.68

39.49
34.98
40.93
50.11

50.11

Refer to Part II, Item 8, Note 21 “Shareholders’ Equity” for more information on the 2-for-1 split on

April 30, 2014.

HOLDERS

At December 31, 2014, the number of shareholders of record (registered and non-registered) of Domtar

Corporation common stock was approximately 7,470.

DIVIDENDS AND STOCK REPURCHASE PROGRAM

On February 23, 2015, the Board of Directors approved a quarterly dividend of $0.40 per share to be paid to
holders of the Company’s common stock. This dividend is to be paid on April 15, 2015 to shareholders of record
on April 2, 2015.

During 2014, the Company declared one quarterly dividend of $0.275 per share to holders of the Company’s
common stock, as well as holders of exchangeable shares of Domtar (Canada) Paper Inc and three quarterly
dividends of $0.375 per share, to holders of the Company’s common stock. The total dividends of approximately
$18 million, $24 million, $24 million and $24 million were paid on April 15, 2014, July 15, 2014, October 15,
2014 and January 15, 2015, respectively, to shareholders of record as of March 14, 2014, July 2, 2014, October 2,
2014 and January 2, 2015, respectively.

During 2013, the Company declared one quarterly dividend of $0.225 per share, on a post-split basis, and
three quarterly dividends of $0.275 per share, on a post-split basis, to holders of the Company’s common stock,
as well as holders of exchangeable shares of Domtar (Canada) Paper Inc. The total dividends of approximately

29

$15 million, $19 million, $18 million and $17 million were paid on April 15, 2013, July 15, 2013,
October 15, 2013 and January 15, 2014, respectively, to shareholders of record as of March 15, 2013, June 14,
2013, September 13, 2013 and December 13, 2013, respectively.

The Board of Directors authorized a stock repurchase program (“the Program”) of up to $1 billion of the
Company’s common stock. On February 23, 2015, the Company’s Board of Directors approved an increase to
the Program from $1 billion to $1.3 billion. Under the Program, the Company is authorized to repurchase from
time to time shares of its outstanding common stock on the open market or in privately negotiated transactions in
the United States. 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 enters 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 require the
Company to make up-front payments to the counterparty financial institutions which results 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 2014, the Company repurchased 996,967 shares at an average price of $38.59 for a total cost of $38

million (2013 – 5,019,606; $36.55 and $183 million, respectively).

All shares repurchased are recorded as Treasury stock on the Consolidated Balance Sheets under the par

value method at $0.01 per share.

Domtar (Canada) Paper Inc. Exchangeable Shares

Upon the consummation of a series of transactions whereby the Fine Paper Business of Weyerhaeuser
Company was transferred to the Company and it acquired Domtar Inc. on March 7, 2007, Domtar Inc.
shareholders had the option to receive either common stock of the Company or shares of Domtar (Canada) Paper
Inc., a subsidiary of Domtar Corporation, that were exchangeable for common stock of the Company. The
exchangeable shares of Domtar (Canada) Paper Inc. were intended to be substantially the economic equivalent to
shares of the Company’s common stock. These shareholders could exchange the exchangeable shares for shares
of Domtar Corporation common stock on a one-for-one basis at any time.

On June 2, 2014 (the “Redemption Date”), Domtar (Canada) Paper Inc. redeemed all of its outstanding
exchangeable shares from the holders thereof. On the Redemption Date, holders of exchangeable shares received,
in exchange for each exchangeable share, one share of common stock of Domtar Corporation (plus cash in the
amount of all declared and unpaid dividends, if any, provided that the record date for the payment of such
dividends was prior to the Redemption Date).

As a result of the redemption of exchangeable shares,

the Company reclassified $32 million from

Exchangeable shares to Additional paid-in capital.

30

Share repurchase activity under our share repurchase program was as follows during the year ended
December 31, 2014:

Period

January 1 through March 31, 2014
April 1 through June 30, 2014
July 1 through September 30, 2014
October 1 through October 31, 2014
November 1 through November 30, 2014
December 1 through December 31, 2014

(a) Total Number of
Shares Purchased

(b) Average Price Paid
per Share

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

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

—
—
530,780
—

336,189
129,998

996,967

$ —
$ —
$36.62
$ —
$41.19
$39.94

$38.59

—
—
530,780

—

336,189
129,998

996,967

$121,000
$121,000
$101,563
$101,563
$ 87,716
$ 82,525

31

PERFORMANCE GRAPH

This graph compares the return on a $100 investment in the Company’s common stock on December 31,
2009 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.

In May 2011, Domtar Corporation was added to the Standard and Poor’s MidCap 400 Index and since then

we are using this Index.

(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 return compared to a peer group. The 2014 peer group includes:
Verso Corporation, Sonoco Products Company, Glatfelter Corporation,
International Paper Co.,
MeadWestvaco Corporation, Kimberly-Clark Corporation, Packaging Corp. of America, Resolute Forest
Products Inc., Neenah Paper, Inc., UPM-Kymmene Corp., SCA and Stora Enso Oyj.

32

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 Part II, Item 7, Management’s Discussion and
Analysis of Financial Condition and Results of Operations and Part II, Item 8, Financial Statements and
Supplementary Data of this Annual Report on Form 10-K.

FIVE YEAR FINANCIAL SUMMARY

(In millions of dollars, except per share figures)
Statement of Income Data:

Sales
Closure and restructuring costs and,

impairment and write-down of property,
plant and equipment and intangible assets

Depreciation and amortization
Operating income
Net earnings
Net earnings per common share—basic 1
Net earnings per common share—diluted 1
Cash dividends paid per common and

December 31,
2014

December 31,
2013

December 31,
2012

December 31,
2011

December 31,
2010

Year ended

$5,563

$5,391

$5,482

$5,612

$5,850

32
384
364
431
$ 6.65
$ 6.64

40
376
161
91
$ 1.37
$ 1.36

44
385
367
172
$ 2.39
$ 2.39

137
376
592
365
$ 4.58
$ 4.54

77
395
603
605
$ 7.07
$ 7.00

exchangeable share

$ 1.30

$ 1.00

$ 0.80

$ 0.60

$ 0.25

Balance Sheet Data:

Cash and cash equivalents
Net property, plant and equipment
Total assets
Working capital
Long-term debt due within one year
Long-term debt
Total shareholders’ equity

$ 174
3,131
6,185
674
169
1,181
2,890

$ 655
3,289
6,278
680
4
1,510
2,782

$ 661
3,401
6,123
648
79
1,128
2,877

$ 444
3,459
5,869
660
4
837
2,972

$ 530
3,767
6,026
655
2
825
3,202

1

Earnings per common share has been adjusted on a post-split basis

33

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 Part II, Item 8, Financial Statements and Supplementary Data of this Annual Report on
Form 10-K. Throughout this MD&A, unless otherwise specified, “Domtar Corporation,” “the Company,”
“Domtar,” “we,” “us” and “our” refers to Domtar Corporation and its subsidiaries, as well as its investments.
Domtar Corporation’s common stock is listed on the New York Stock Exchange and the Toronto Stock
Exchange. Except where otherwise indicated, all financial information reflected herein is determined on the basis
of accounting principles generally accepted in the United States (“GAAP”).

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 volume are based on the twelve-month periods ended December 31, 2014, 2013
and 2012. The twelve-month periods are also referred to as 2014, 2013 and 2012. Reference to notes refers to
footnotes to the consolidated financial statements and notes thereto included in Part II, Item 8, Financial
Statements and Supplementary Data of this Annual Report on Form 10-K.

The MD&A is organized in the following sections:

• Overview

•

2014 Highlights

• Consolidated Results of Operations and Segment Review

• Outlook

• Liquidity and Capital Resources

• New Accounting Pronouncements and Critical Accounting Estimates and Policies

OVERVIEW

We have two reportable segments as described below. Each reportable segment offers different products and

services and requires different manufacturing processes, technology and/or marketing strategies.

The following summary briefly describes the operations included in each of our reportable segments.

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

Personal Care: Our Personal Care segment consists of the manufacturing, marketing and distribution of

absorbent hygiene products.

2014 HIGHLIGHTS

• Operating income and net earnings increased by 126% and 374%, respectively

• Continued execution of our growth strategy through the acquisition of Laboratorios Indas S.A.U.

(“Indas”) on January 2, 2014 (refer to Note 3 “Acquisition of Business”)

34

•

Sales increased by 3% from 2013. Net average selling prices for pulp and paper were up from 2013
while volume in both pulp and paper were down from 2013

• Recognition of previously unrecognized tax benefits of $207 million, most of which is related to the
non-taxability of Alternative Fuel Tax Credits (“AFTC”) and $18 million of income related to AFTC
deferred revenue, both following the conclusion of Internal Revenue Service (“IRS”) audits

• We repurchased $38 million of our common stock and paid $84 million in dividends

•

2-for-1 split of our common stock increasing our common stock outstanding from 32.5 million shares
to 65 million shares in Q2 2014

• Decision to convert a paper machine at our Ashdown mill to a high quality fluff pulp line

FINANCIAL HIGHLIGHTS Dec 31, 2014 Dec 31, 2013 Dec 31, 2012

$

%

$

%

Twelve months ended

Variance 2014 vs. 2013

Variance 2013 vs. 2012

(In millions of dollars, unless
otherwise noted)
Sales
Operating income
Net earnings
Net earnings per common
share (in dollars)1:

$5,563
364
431

$5,391
161
91

$5,482
367
172

$ 172
203
340

3%
126%
374%

Basic
Diluted

$ 6.65
$ 6.64

$ 1.37
$ 1.36

$ 2.39
$ 2.39

$5.28
$5.28

Total assets
Total long-term debt,
including current
portion

-2%
-56%
-47%

$ (91)
(206)
(81)

$ (1.02)
$ (1.03)

At December 31,
2014

At December 31,
2013

$6,185

$6,278

$1,350

$1,514

1

See Note 6 “Earning per common share” for more information on the calculation of net earnings per
common share.

35

CONSOLIDATED RESULTS OF OPERATIONS AND SEGMENT REVIEW

Analysis of Net Sales

By Business Segment

Twelve months ended

Variance 2014 vs. 2013

Variance 2013 vs. 2012

Pulp and Paper
Personal Care

Total for reportable segments
Intersegment sales—Pulp and

Paper

Consolidated

Shipments

Paper—manufactured
(in thousands of ST)

Communication Papers
Specialty and Packaging
Paper—sourced from third

parties

(in thousands of ST)

Paper (in thousands of ST)—total
Pulp (in thousands of ADMT)

Analysis of Changes in Sales

Dec 31, 2014 Dec 31, 2013 Dec 31, 2012

$

$4,674
928

5,602

$4,843
566

5,409

$5,088
399

5,487

(39)

(18)

(5)

5,563

5,391

5,482

3,145
2,635
510

173
3,318
1,391

3,260
2,777
483

282
3,542
1,445

3,320
2,854
466

361
3,681
1,557

(169)
362

193

(21)

172

(115)
(142)
27

(109)
(224)
(54)

%

-3%
64%

4%

3%

-4%
-5%
6%

$

(245)
167

(78)

(13)

(91)

(60)
(77)
17

%

-5%
42%

-1%

-2%

-2%
-3%
4%

-39%
-6%
-4%

(79)
(139)
(112)

-22%
-4%
-7%

2014 vs. 2013
% Change in Net Sales due to

2013 vs. 2012
% Change in Net Sales due to

Net Price

Volume /
Mix

Acquisition/
Divestiture Total Net Price

Volume /
Mix

Acquisition/
Divestiture Total

3%
-1%
2%

-3%
0%
-3%

-3% (a)
65% (b)
4%

-3%
64%
3%

-1%
0%
-1%

-1%
12%
0%

-3% (a)
30% (c)
-1%

-5%
42%
-2%

Pulp and Paper
Personal Care
Consolidated sales

Commentary:

(a) Sale of Ariva U.S. business (“Ariva U.S.”) on July 31, 2013.

(b) Acquisition of Indas on January 2, 2014 and Associated Hygienic Products LLC (“AHP”) on July 1, 2013.

(c) Acquisition of AHP on July 1, 2013, Attends Healthcare Limited (“Attends Europe”) on March 1, 2012 and

EAM Corporation (“EAM”) on May 10, 2012.

Commentary—Year ended December 31, 2014 compared to Year ended December 31, 2013

Consolidated Sales

Sales for 2014 amounted to $5,563 million, an increase of $172 million, or approximately 3%, from sales in
2013. Net prices were up mostly due to an increase in our net average selling price for pulp by approximately 7%
and paper by approximately 2%. Sales were also impacted by the inclusion of sales from our acquired Indas and
AHP businesses. These increases to sales were partially offset by the impact of the disposition of our Ariva U.S.
business in the third quarter of 2013 ($150 million) and a decrease in our paper sales volume of approximately
6% and pulp sales volume of approximately 4%.

36

Commentary—Year ended December 31, 2013 compared to Year ended December 31, 2012

Consolidated Sales

Sales for 2013 amounted to $5,391 million, a decrease of $91 million, or approximately 2% from sales in
2012. This decrease in sales is mainly attributable to the sale of Ariva U.S. in the third quarter of 2013
($158 million), a decrease in our net average selling price for paper by approximately 2%, a decrease in our pulp
sales volume by approximately 7% and a decrease in our paper sales volume by approximately 4%. These
decreases were partially offset by the increase in sales due to the acquisition of AHP at the beginning of the third
quarter of 2013 as well as inclusion of a full year of sales from Attends Europe and EAM. In addition, our net
average selling price for pulp increased by approximately 5%.

Analysis of Operating Income

By Business Segment

Twelve months ended

2014 vs. 2013 Variance

2013 vs. 2012 Variance

Dec 31, 2014 Dec 31, 2013 Dec 31, 2012

$

%

$

%

Operating income (loss)
Pulp and Paper
Personal Care
Corporate

Consolidated operating

income

2014 vs. 2013

323
54
(13)

364

171
43
(53)

330
45
(8)

161

367

152
11
40

203

89%
26%

(159)
(2)
(45)

-48%
-4%

126%

(206)

-56%

$ Change in Segmented Operating income due to

Volume/
Mix

Net
Price

Input
Costs (a)

Operating (b)

expenses Currency

Acquisition/
Divestiture (c)

Depreciation/
impairment (d) Restructuring (e)

(65) 142
(5)
—
— — —

(55)
(7)

(8)
(1)
(8)

51
—
—

24
27
—

41
(5)

—

(17)
2
6

Other
Income/
expense (f) Total

39
—

42

152
11
40

(65) 137

(62)

(17)

51

51

36

(9)

81

203

Pulp and Paper
Personal Care
Corporate

Consolidated
operating
income

(a)

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

(b)

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

(c) Sale of Ariva U.S. business on July 31, 2013 and acquisition of AHP on July 1, 2013 and Indas on

January 2, 2014.

(d)

In 2014, we recorded $4 million of accelerated depreciation related to the conversion of a paper machine to
a pulp line at Ashdown in Q4 2014. In 2013, we recorded impairment charges related to our Kamloops mill
in Q1 2013 ($10 million), impairment charges to property, plant and equipment related to our sold Ariva
U.S. business in Q2 2013 ($5 million) and at a paper converting site in Q4 2013 ($5 million) as well as a
write-down of property plant and equipment in Personal Care in Q4 2013 ($2 million). Depreciation charges
were lower by $18 million in 2014.

37

(e)

2014 restructuring charges relate to:
—Ottawa pension settlement in Q4 2014 ($19 million)
—Fluff conversion related charges at Ashdown in Q4

2014 ($3 million)

—Indianapolis Forms/ Converting center in Q4 2014

($3 million)

—Previous closures in Q3 2014 ($2 million)

(f)

2014 operating expenses / income includes:
—Deferred revenues on AFTC following the conclusion

of IRS audits in Q3 2014 ($18 million)

—Insurance claim received for the Johnsonburg turbine

in Q4 2014 ($7 million)

—Insurance claim received for the Windsor digestor in

Q4 2014 ($4 million)

expenses

2013 restructuring charges relate to:
—Pension settlement
related to our
previously closed Big River sawmill ($6 million) and
our Dryden paper mill ($7 million)
—Pension withdrawals at Indianapolis in Q2 2013
($3 million)
—Our Personal Care
($2 million)

segment

in Q2

2013

litigation with George Weston

2013 operating expenses / income includes:
—Settlement of
Limited in Q2 2013 ($49 million)
—Charges related to the conversion of AFTC to
Cellulosic Biofuel Producer Credit (“CBPC”) in Q1
2013 ($26 million)
—Gain on sale of Port Edwards assets in Q1 2013
($10 million)
—Gain on sale of Cornwall
($6 million)
—Gain on derivative foreign exchange contract
related to the acquisition of
Indas in Q4 2013
($5 million)
—Reversal of environmental provision at a closed
facility in Q4 2013 ($5 million)

land in Q4 2013

2013 vs. 2012

Pulp and Paper
Personal Care
Corporate

Consolidated

$ Change in Segmented Operating income due to

Volume/
Mix

Net
Price

Input
Costs (a)

Operating
expenses (b) Currency

Acquisition/
Divestiture (c)

Depreciation/
impairment (d) Restructuring (e)

(30)

(66)
17 —
— — —

(40)
(3)

(70)
(14)
5

29
—
—

(10)
4
—

13
(5)

—

Other
Income/
expense (f) Total

(2)

—
(44)

(159)
(2)
(45)

(46)

(206)

17
(1)
(6)

10

operating income

(49)

(30)

(43)

(79)

29

(6)

8

(a)

(b)

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

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

(c) Sale of Ariva U.S. business on July 31, 2013 and acquisition of AHP on July 1, 2013, Attends Europe on

March 1, 2012 and EAM on May 10, 2012.

(d)

In 2013, we recorded impairment charges related to the permanent shutdown of a pulp line at our Kamloops
mill in Q1 2013 ($10 million), impairment charges to property, plant and equipment related to our sold
Ariva U.S. business in Q2 2013 ($5 million) and impairment charges related to a paper converting site in
Q4 2013 ($5 million). In addition, we recorded a write-down of property, plant and equipment due to the
replacement of certain equipment related to Personal Care in Q4 2013 ($2 million). In 2012, we recorded
impairment on property, plant and equipment related to our Kamloops mill in Q4 2012 ($7 million),
impairment charges related to customer relationships at our sold Ariva U.S. business in Q4 2012
($5 million) and write-down of property, plant and equipment at our Mira Loma location in Q1 2012
($2 million). Depreciation charges were lower by $16 million in 2013.

38

(e)

2013 restructuring charges relate to:
—Pension settlement expenses related to our previously
closed Big River sawmill ($6 million) and our Dryden
paper mill ($7 million)

2012 restructuring charges relate to:
—Withdrawal

from a multiemployer

at
Ashdown in Q4 2012 ($14 million) and other
multiemployer plans ($2 million)

plan

—Pension withdrawals at Indianapolis in Q2 2013

—Closure of a pulp line at our Kamloops pulp mill in

($3 million)

Q4 2012 ($9 million)

—Our Personal Care segment in Q2 2013 ($2 million)

(f)

2013 operating expenses / income includes:
—Settlement of litigation with George Weston Limited

in Q2 2013 ($49 million)

—Charges related to the conversion of AFTC to CBPC

in Q1 2013 ($26 million)

—Gain on sale of Port Edwards assets in Q1 2013

($10 million)

—Gain on sale of Cornwall land in Q4 2013

($6 million)

—Gain on derivative foreign exchange contract related

to Indas in Q4 2013 ($5 million)

—Reversal of environmental provision at a closed

facility in Q4 2013 ($5 million)

Commentary—Year ended December 31, 2014 compared to Year ended December 31, 2013

Consolidated

Operating Income—Refer to segment analysis

Interest Expense, net

We incurred $103 million of net interest expense in 2014, an increase of $14 million compared to net
interest expense of $89 million in 2013. Higher interest expense in 2014 was due to the issuance of $250 million
6.75% Notes due 2044 in November 2013 to partially fund the Indas acquisition. The increase was also due to
$3 million of interest related to long-term payables on multiemployer plans. In 2013, we had $2 million of
premiums expensed related to the repayment of our 5.375% Notes due 2013 and $1 million of additional charges.

Income Taxes

For 2014, our income tax benefit amounted to $170 million compared to a tax benefit of $20 million in

2013, which approximated an effective tax rate of -65% and -28% for 2014 and 2013, respectively.

In 2014, the 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 impacted by the recognition of $18 million of AFTC with no related
tax expense. 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 significantly impacted by an
enacted tax rate decrease in Spain.

39

During 2013, we recorded $54 million of various tax credits pertaining to current and prior years. These
credits included the conversion of $26 million of AFTC into $55 million of CBPC resulting in an after-tax
benefit of $33 million for the new credit, as well as research and experimentation credits and other federal and
state credits. Also, our effective tax rate was reduced in 2013 by the impact of the U.S. manufacturing deduction
and enacted law changes in certain states and provinces. The effective tax rate was increased by the impact of
certain non-deductible payments, mainly the Weston litigation settlement and the AFTC repayment, and an
increase in the valuation allowance on certain losses. Additionally, the effective tax rate was impacted by an
$8 million reduction in unrecognized tax benefits pertaining to the AFTC which was converted to CBPC,
partially offset by $5 million of accrued interest on uncertain tax positions.

Valuation Allowances

In 2014, we recorded a net valuation allowance of $7 million related to certain foreign loss carryforwards,
which impacted the effective tax rate for 2014. In 2013, we recorded a valuation allowance of $5 million, mostly
related to certain loss carryforwards, which impacted the effective tax rate for 2013.

Alternative Fuel Tax Credit

As of December 31, 2014, we have no remaining gross unrecognized tax benefits and interest or related
deferred tax assets associated with the AFTC claimed on our 2009 tax return. These benefits were recognized,
$178 million net of deferred taxes, during 2014, thus impacting the effective tax rate. Additional information
regarding unrecognized tax benefits is included in Part II, Item 8, Financial Statements and Supplementary Data
of this Annual Report on Form 10-K, under Note 10 “Income taxes”.

Commentary—Year ended December 31, 2013 compared to Year ended December 31, 2012

Consolidated

Operating Income—Refer to segment analysis

Interest Expense, net

We incurred $89 million of net interest expense in 2013, a decrease of $42 million compared to net interest
expense of $131 million in the 2012. This decrease in net interest expense is primarily due to the premium paid
on the repurchase in 2012 of our 10.75% Notes due 2017, 9.5% Notes due 2016, 7.125% Notes due 2015 and
5.375% Notes due 2013, on which we incurred $47 million of tender premiums and $3 million of additional
charges, whereas in 2013, we recorded a charge of $2 million due to premiums paid on the repayment of our
5.375% Notes due 2013 and $1 million of additional charges. As a result of the repurchase in 2012, interest
expense on those Notes decreased ($5 million). These decreases were partially offset by the increase in interest
expense as a result of the issuance of the $300 million of 4.4% Notes due 2022, the issuance of $250 million of
6.25% Notes due 2042, and the issuance of the $250 million of 6.75% Notes due 2044 in the first quarter and
third quarter of 2012, and in the fourth quarter of 2013, respectively.

Income Taxes

For 2013, our income tax benefit amounted to $20 million compared to a tax expense of $58 million in

2012, which approximated an effective tax rate of -28% and 25% for 2013 and 2012, respectively.

During 2013, we recorded $54 million of various tax credits pertaining to current and prior years. These
credits included the conversion of $26 million of AFTC into $55 million of CBPC resulting in an after-tax
benefit of $33 million for the new credit, as well as research and experimentation credits and other federal and
state credits. Also, our effective tax rate was reduced in 2013 by the impact of the U.S. manufacturing deduction

40

and enacted law changes in certain states and provinces. The effective tax rate was increased by the impact of
certain non-deductible payments, mainly the Weston litigation settlement and the AFTC repayment, and an
increase in the valuation allowance on certain losses. Additionally, the effective tax rate was impacted by an
$8 million reduction in unrecognized tax benefits pertaining to the AFTC which was converted to CBPC,
partially offset by $5 million of accrued interest on uncertain tax positions.

A number of items impacted the 2012 effective tax rate. We recognized a tax benefit of $10 million for the
U.S. manufacturing deduction and recorded an $8 million tax benefit related to federal, state, and provincial
credits and special deductions. The effective tax rate for 2012 was also impacted by an increase in our
unrecognized tax benefits of $6 million, mainly accrued interest, and a $3 million benefit related to enacted tax
law changes, mainly a tax rate reduction in Sweden, which was partially offset by U.S. tax law changes in several
states.

Valuation Allowances

In 2013, we recorded a valuation allowance of $5 million, mostly related to certain loss carryforwards,
which impacted the effective tax rate for 2013. In 2012, we recorded a valuation allowance of $10 million related
to certain foreign loss carryforwards, of this amount $9 million has been accounted for as part of a business
combination and $1 million which impacted the overall consolidated effective tax rate for 2012.

OUTLOOK

We expect North American demand for uncoated freesheet to decline in 2015 with long-term secular trends.
We anticipate some short-term volatility in pulp markets due to the recent strengthening of the U.S. dollar. Our
new manufacturing platform is expected to generate revenue and earnings growth in our Personal Care business.
A weak Canadian dollar is expected to benefit our pulp and paper mills in Canada while a weak Euro will
negatively impact the translation of our Personal Care Euro results. We anticipate that oil-based input costs will
be down year-over-year.

PULP AND PAPER

Operating Income

Operating income in our Pulp and Paper segment amounted to $323 million in 2014, an increase of
$152 million, when compared to operating income of $171 million in 2013. Overall, our operating results
improved when compared to 2013, primarily due to:

• Higher average selling prices for pulp and paper ($142 million)

•

Positive impact of a weaker Canadian dollar on our Canadian denominated expenses, net of our
hedging program ($51 million)

• The conversion of AFTC into CBPC in Q1 2013 which negatively impacted operating income in 2013

($26 million) (refer to Note 10 “Income Taxes”)

• Lower depreciation charges ($25 million) due to certain assets reaching the end of their useful lives

• Loss on sale of Ariva U.S. business in Q3 2013 ($20 million)

• Lower chemical costs mostly due to higher prices of starch in 2013 ($19 million)

• Recognition of income related to AFTC deferred revenue following the conclusion of IRS audits in

2014 ($18 million)

• Lower impairment charges in 2014 ($16 million) mostly related to closure of a pulp line at Kamloops
and write-off of property, plant and equipment at our sold Ariva U.S. business and at a paper
converting site, all of which occurred in 2013

41

This increase was partially offset by:

• Lower volume of paper and pulp ($65 million)

• Higher costs of wood fiber mostly due to extreme cold weather driving up wood prices as well as

increased use of softwood ($58 million)

• Restructuring charges in 2014 mostly related to the Ottawa pension settlement ($17 million)

• Higher costs of energy due to extreme cold weather driving up the price of natural gas ($16 million)

• Higher freight costs due in part to a strike at the port of Vancouver and disruptions in the Canadian rail

service ($12 million)

• The gain on sale of Port Edwards assets ($10 million) and on disposal of Cornwall land ($6 million),

both in 2013

Operating income in our Pulp and Paper segment amounted to $171 million in 2013, a decrease of
$159 million, when compared to operating income of $330 million in 2012. Overall, our operating results
decreased when compared to 2012, primarily due to:

• Lower average selling prices for paper ($73 million)

• Lower volume of paper and pulp ($66 million)

• The conversion of AFTC ($26 million) into CBPC in Q1 2013 which negatively impacted operating

income in 2013 (refer to Note 10 “Income Taxes”)

• Loss on sale of Ariva U.S. business in Q3 2013 ($20 million)

• Higher costs of fiber ($20 million, mostly due to increased demand and mix changes)

• Higher selling, general and administrative charges mostly due to a gain of $12 million related to the

curtailment of a post-retirement benefit plan in 2012

• Higher impairment of property, plant and equipment charges in 2013 ($6 million). In 2013, impairment
charges related to our Kamloops mill in Q1 2013 ($10 million), our sold Ariva U.S. business in
Q2 2013 ($5 million) and a paper converting site in Q4 2013 ($5 million)

• Higher costs of energy ($17 million) due primarily to increased pricing

• Higher maintenance costs ($15 million) due to timing of major maintenance outages, additional repairs

and expanded scope of outages

• Higher freight costs ($13 million), due mostly to changes in our distribution network and the

acquisition of Xerox’s paper and print media products’ assets in Q2 2013

• Higher salaries and wages mostly due to wage increases ($11 million)

This decrease was partially offset by:

• Higher average selling prices for pulp ($43 million)

•

Positive impact of a weaker Canadian dollar on our Canadian dollar expenses, net of our hedging
program ($29 million)

• Lower restructuring charges mostly due to the withdrawal from a multiemployer plan at Ashdown ($14

million) and shut down of a pulp line at our Kamloops pulp mill ($9 million), both in 2012

• Lower depreciation charges primarily due to reduced assets following the permanent shut down of a
pulp line at our Kamloops pulp mill in Q1 2013 and several assets reaching their useful lives
($19 million)

42

• The gain on sale of Port Edwards assets ($10 million) and on disposal of Cornwall land ($6 million),

both in 2013

PERSONAL CARE

Operating Income

Operating income increased by 26% or $11 million in 2014 compared to 2013, primarily due to:

•

Impact of acquisitions

• Write-down of property, plant and equipment in 2013 ($2 million)

• Closure and restructuring costs of $2 million in 2013 (refer to Note 16 “Closure and restructuring costs

and liability”)

These increases were partially offset by the following:

• Higher raw materials costs mostly due to an increase in price of non-wovens and fluff pulp ($7 million)

•

Increased depreciation charges mainly due to increased capital expenditures ($7 million)

• Unfavorable average net selling prices ($5 million)

• Higher selling, general and administrative expenses due mostly to an increase in salaries and wages

($4 million)

• Negative impact of the sale of finished goods inventory that had been marked to fair value at the time

of the acquisition of Indas in 2014 ($3 million)

• Write down of inventory ($2 million)

Operating income decreased by 4% or $2 million in 2013 compared to 2012, primarily due to:

• Higher selling, general and administrative expenses due mostly to the creation of the division

($14 million)

•

•

•

Increase in raw materials costs mostly due to an increase in price of non-wovens ($3 million)

Increased depreciation charges mainly due to increased capital expenditures ($3 million)

Increase in salaries and wages due mostly to annual compensation increases ($2 million)

• Write-down of property, plant and equipment in 2013 ($2 million)

• Closure and restructuring costs of $2 million in Q2 2013 related to the streamlining of our U.S. and
European operations compared to closure and restructuring costs of $1 million in Q3 2012 (refer to
Note 16 “Closure and restructuring costs and liability”)

These decreases were partially offset by the following:

• Higher volume and favorable mix ($17 million)

•

Impact of the acquisition of AHP in 2013 ($4 million)

STOCK-BASED COMPENSATION EXPENSE

Under the Omnibus Incentive Plan (the “Omnibus 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

43

stock options, incentive stock options, stock appreciation rights, restricted stock units, performance-conditioned
restricted stock units, performance share units, deferred share units and other stock-based awards. 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, 2014, stock-based compensation expense recognized in our results of
operations was $9 million (2013 – $13 million; 2012 – $20 million). Stock-based compensation expense not yet
recognized amounted to $14 million (2013 – $11 million; 2012 – $12 million) and will be recognized over the
remaining service period of approximately 28 months. The aggregate value of liability awards settled in 2014
was $12 million. The total fair value of equity awards settled in 2014 was $10 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. 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 credit facility, of which $600 million is currently undrawn and
available, or through our receivables securitization facility, of which $80 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 and to refinance our indebtedness, including debt we could incur under the
credit and receivable securitization facilities and outstanding Domtar Corporation notes, and for ongoing
operating costs including pension contributions, working capital and capital expenditures will depend on our
ability to generate cash in the future, which is subject to general economic, financial, competitive, legislative,
regulatory and other factors that are beyond our control. Our credit and receivable securitization facilities and
debt indentures, as well as terms of any future indebtedness, impose, or may 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. We do not intend on repatriating those

funds.

Operating Activities

Our operating cash flow requirements are primarily for salaries and benefits, the purchase of fiber, energy

and raw materials and other expenses such as property taxes.

Cash flows provided from operating activities totaled $634 million in 2014, a $223 million increase
compared to cash flows provided from operating activities of $411 million in 2013. This increase in cash flows
provided from operating activities is primarily due to increased profitability in 2014 when compared to 2013. We
experienced a decrease in working capital requirements in 2014, in part due to cash received of $34 million due
to the impact of the Spanish government supplier payment plan on past due receivables.

In 2013, we settled the litigation with George Weston Limited for $49 million ($46 million after tax) and
had a net benefit related to the conversion of AFTC to CBPC ($15 million net income benefit). We also paid a
premium on the redemption of the 5.375% Notes due 2013 ($2 million), consumed cash from higher working
capital requirements and consumed less cash for pension contributions.

Cash flows provided from operating activities totaled $411 million in 2013, a $140 million decrease
compared to cash flows provided from operating activities of $551 million in 2012. This decrease in cash flows

44

provided from operating activities is primarily due to decreased profitability in 2013 when compared to 2012
($81 million).

In 2012, we paid tender premiums on the partial repurchase of our 5.375% Notes due 2013, 7.125% Notes

due 2015, 9.5% Notes due 2016 and 10.75% Notes due 2017 ($47 million).

Investing Activities

Cash flows used for investing activities in 2014 amounted to $786 million, a $317 million increase

compared to cash flows used for investing activities of $469 million in 2013.

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 the Ottawa
pension plan ($10 million). These items were partially offset by the sale of Asset-backed notes of $5 million in
Q3 2014.

The use of cash in 2013 was mainly due to the acquisition of AHP in the third quarter of 2013
($276 million) and additions to property, plant and equipment ($242 million). This was partially offset by the
proceeds from sale of our Ariva U.S. business ($45 million), on the disposal of Port Edwards assets ($10 million)
and by the proceeds from the sale on the disposal of land in Cornwall, Ontario ($6 million) in 2013.

Our annual capital expenditures are expected to be approximately between $310 million and $330 million or

between 81% and 86% of our expected depreciation expense for 2015.

Cash flows used for investing activities in 2013 amounted to $469 million, a $17 million decrease compared

to cash flows used for investing activities of $486 million in 2012.

The use of cash in 2012 was mainly due to the acquisition of Attends Europe in the first quarter of 2012 for
$232 million (€173 million) and EAM for $61 million in the second quarter of 2012 and additions to property,
plant and equipment ($236 million). In addition, we invested $6 million in our joint venture in 2012. This was
partially offset by proceeds of $49 million in 2012, mostly related to the sale of hydro assets in Ottawa, Ontario
and Gatineau, Quebec in 2012 ($46 million).

Financing Activities

Cash flows used for financing activities totaled $326 million in 2014 compared to cash flows provided from

financing activities of $54 million in 2013.

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) and the repurchase of our common stock
($38 million). In addition, we repaid $5 million of capital leases relating to land and buildings in 2014.

The source of cash in 2013 was primarily the result of the issuance of $250 million of 6.75% Notes due
2044 in the fourth quarter of 2013 for net proceeds of $249 million and borrowing of $160 million under our
existing Credit Agreement (“the Credit Agreement”). These items were partially offset by the redemption of the
outstanding 5.375% Notes due 2013 in the first quarter of 2013 ($71 million), repayment of capital leases related
to land and buildings ($30 million), dividend payments ($67 million) and the repurchase of our common stock
($183 million).

Cash flows provided from financing activities totaled $54 million in 2013 compared to cash flows provided

from financing activities of $152 million in 2012.

45

The source of cash in 2012 was mostly driven by the issuance of $300 million of 4.4% Notes due 2022 and
issuance of $250 million of 6.25% Notes due 2042 for net proceeds of $548 million. These amounts were
partially offset by the repurchase of $1 million of 5.375% Notes due 2013, $47 million of 7.125% Notes due
2015, $31 million of 9.5% Notes due 2016 and $107 million of 10.75% Notes due 2017 for total cash
consideration of $186 million pursuant to a tender offer. We also made dividend payments ($58 million),
repurchased our common stock ($157 million) and repaid capital
leases relating to land and buildings
($6 million).

Capital Resources

Net indebtedness, consisting of bank indebtedness and long-term debt, net of cash and cash equivalents, was
$1,186 million as of December 31, 2014 compared to $874 million as of December 31, 2013. The increase in net
indebtedness is primarily due to a reduction of cash and cash equivalents as a result of the acquisition of Indas
($546 million). We reclassified $166 million of the 7.125% Notes from long-term debt to current debt as it is due
within one year.

Bank Facility

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

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

The Credit Agreement contains customary covenants, including two financial covenants: (i) an interest
coverage ratio, as defined in the Credit Agreement, that must be maintained at a level of not less than 3 to 1 and
(ii) a leverage ratio, as defined in the Credit Agreement that must be maintained at a level of not greater than 3.75
to 1. At December 31, 2014, we were in compliance with our covenants, and no amounts were borrowed
(December 31, 2013 – $160 million). At December 31, 2014, we had no outstanding letters of credit under this
credit facility (December 31, 2013 – $1 million). We had $600 million available under our contractually
committed credit facility at December 31, 2014.

Receivables Securitization

We have a $150 million receivables securitization facility that matures in March 2016, with a current

utilization limit for borrowings or letters of credit of $125 million at December 31, 2014.

At December 31, 2014, we had no borrowings and $45 million of letters of credit under the program
(December 31, 2013 – nil and $46 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, 2014, we had $80 million
available under the accounts receivable securitization facility.

Domtar Canada Paper Inc. Exchangeable Shares

Upon the consummation of a series of transactions whereby the Fine Paper Business of Weyerhaeuser
Company was transferred to us and we acquired Domtar Inc. on March 7, 2007, Domtar Inc. shareholders had the

46

option to receive either common stock of our Company or shares of Domtar (Canada) Paper Inc., a subsidiary of
Domtar Corporation, that were exchangeable for our common stock. The exchangeable shares of Domtar
(Canada) Paper Inc. were intended to be substantially the economic equivalent to shares of our common stock
and the shareholders were able to exchange the exchangeable shares for shares of Domtar Corporation common
stock on a one-for-one basis at any time.

On June 2, 2014, (the “Redemption Date”) Domtar (Canada) Paper Inc. redeemed all of its outstanding
exchangeable shares from the holders thereof. On the Redemption Date, holders of exchangeable shares received,
in exchange for each exchangeable share, one share of common stock of Domtar Corporation.

As a result of the redemption of exchangeable shares, we reclassified $32 million from Exchangeable shares

to Additional paid-in capital.

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.

In addition, our Board of Directors approved an increase in the quarterly dividend on our common stock on

a post-split basis, from $0.275 to $0.375 per share. This is equivalent to an increase of 36% per quarter.

During 2014, we declared one quarterly dividend of $0.275 per share to holders of our common stock, as
well as holders of exchangeable shares of Domtar (Canada) Paper Inc and three quarterly dividends of $0.375 per
to holders of our common stock. The total dividends of approximately $18 million, $24 million,
share,
$24 million and $24 million were paid on April 15, 2014, July 15, 2014, October 15, 2014 and January 15, 2015,
respectively, to shareholders of record as of March 14, 2014, July 2, 2014, October 2, 2014 and January 2, 2015,
respectively.

During 2013, we declared one quarterly dividend of $0.225 per share, on a post-split basis, and three
quarterly dividends of $0.275 per share, on a post-split basis, to holders of our common stock, as well as holders
of exchangeable shares of Domtar (Canada) Paper Inc. The total dividends of approximately $15 million,
$19 million, $18 million and $17 million were paid on April 15, 2013, July 15, 2013, October 15, 2013 and
January 15, 2014, respectively, to shareholders of record as of March 15, 2013, June 14, 2013, September 13,
2013 and December 13, 2013, respectively.

On February 23, 2015, our Board of Directors approved a quarterly dividend of $0.40 per share to be paid to
holders of our common stock. This dividend is to be paid on April 15, 2015 to shareholders of record on April 2,
2015.

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

47

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, 2014, we were
unable to estimate the potential maximum liabilities for these types of indemnification guarantees as the amounts
are contingent upon the outcome of future events, the nature and likelihood of which cannot be reasonably
estimated at this time. Accordingly, no provision has been recorded. These indemnifications have not yielded
significant expenses in the past.

Pension Plans

We have indemnified and held harmless the trustees of our pension funds, and the respective officers,
directors, employees and agents of such trustees, from any and all costs and expenses arising out of the
performance of their obligations under the relevant trust agreements, including in respect of their reliance on
in the absence of authorized instructions. These
authorized instructions from us or for failing to act
indemnifications survive the termination of such agreements. At December 31, 2014, 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, 2014:

CONTRACT TYPE

(in million of dollars)
Notes (excluding interest)
Capital leases (including interest)

Long-term debt
Operating leases

Total obligations

COMMERCIAL OBLIGATIONS

COMMITMENT TYPE

(in million of dollars)
Other commercial commitments (1)

2015

2016

2017

2018

2019

THEREAFTER TOTAL

$167
4

$ 94
3

$278 —
1

2

171
25

97
19

280
14

1
13

—
1

1
10

$196

$116

$294

$ 14

$ 11

$800
10

810
53

$863

$1,339
21

1,360
134

1,494

2015

2016

2017

2018

2019

THEREAFTER TOTAL

$ 89

$

5

$

4

$

1 —

—

$

99

(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 $14 million to the pension plans in 2015.

For 2015 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

Revenue From Contracts with Customers

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

48

found in topic 605. We will adopt the standard on January 1, 2017. We are currently evaluating the impact of
adoption of the amendments. The adoption of the amendments is not expected to have a material effect on our
consolidated financial statements.

No other new accounting pronouncement issued or effective during the fiscal year had or is expected to have
information regarding Recent

a material
impact on the Consolidated Financial Statements. Additional
Accounting Pronouncements is available in Note 2 “Recent Accounting Pronouncements”.

CRITICAL ACCOUNTING ESTIMATES AND POLICIES

Our principal accounting policies are described in Part II, Item 8 Financial statements and Supplementary
Data, under Note 1 “Summary of Significant Accounting Policies” of this annual report on form 10-K. Notes
referenced in this section are included in Part II, Item 8 Financial statements and Supplementary Data of this
annual report on form 10-K.

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
impairment of property, plant and equipment and definite-lived
matters and asset retirement obligations,
intangible assets, useful lives, closure and restructuring costs, impairment of goodwill, impairment of indefinite-
lived assets, pension and other post-retirement benefit plans, income taxes, and business combinations. 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 and
financial condition. Actual results could differ from those estimates.

Environmental Matters and Other 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, asbestos containment and
removal, 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, 2014 the
provision for Seaspan did not change from December 31, 2013. The provision estimates are based on a
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 effluent treatment, landfill operation 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,

49

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, 2014, we had an asset retirement obligation provision of $20 million for 14 locations ($21 million
in 2013 for 14 locations).

At December 31, 2014, we had a provision of $60 million for environmental matters and other asset
retirement obligations (2013 – $67 million, 2012 – $83 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 using the estimated discounted future cash flows (“DCF”)
expected from their use and eventual disposition, and by using the liquidation or salvage value in the case of
idled assets. The DCF 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 U.S. dollar exchange rates (when applicable) and the 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.

In the fourth quarter of 2014, we announced the conversion of a paper machine at our Ashdown, Arkansas
pulp and paper mill to a high quality fluff pulp line. As a result, we recognized $4 million of accelerated
depreciation and performed a Step 1 impairment test and concluded that no additional impairment charge was
required. An additional $108 million of accelerated depreciation relating to Ashdown is expected to be
recognized during 2015 and 2016, which will reduce our financial results for those periods. For further details on
the impairment results, refer to Note 4 “Impairment and Write-Down of Property, Plant and Equipment and
Intangible Assets”.

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

50

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 2014, we recorded depreciation
and amortization expense of $384 million compared to $376 million and $385 million in 2013 and 2012,
respectively. At December 31, 2014, we had property, plant and equipment with a net book value of
$3,131 million ($3,289 million in 2013) and definite-lived intangible assets, net of amortization of $381 million
($285 million in 2013).

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
write-downs, 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, 2014. Closure
and restructuring cost estimates are dependent on future events. 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.

Following the announcement to convert a paper machine at our Ashdown, Arkansas pulp and paper, we
recognized $3 million of inventory obsolescence (paper machine related spare parts) under closure and
restructuring costs. An additional $4 million related to cash severance and employee benefits is expected to be
incurred during 2015 and 2016. 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, 2014, we had
$567 million of goodwill, of which $536 million related to the Personal Care reporting unit, excluding EAM, and
$31 million related to the EAM reporting unit. 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 and the acquisition of Indas in 2014, 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, with the exception of
EAM, share similar economic characteristics and should be aggregated. Thus goodwill impairment testing was
done at these two reporting unit levels in 2014, one combining Attends US, Attends Europe, AHP and Indas and
one for EAM.

51

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. The Step I goodwill
impairment test determines whether the fair value of a reporting unit exceeds its net carrying amount, including
goodwill. If the fair value is greater than the net carrying amount, including goodwill, no goodwill impairment is
necessary.

The fair value of our reporting units in Step 1 is derived using an income approach. 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 by recently
completed significant capital investments made in new production lines. The discount rate assumption used was
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 capitalization reconciliation to corroborate the fair value from the
income approach to Domtar’s overall market capitalization.

In the event that the net carrying amount, including goodwill, exceeds the fair value, the Step II goodwill
impairment test must be performed in order to determine the impairment charge. The implied fair value of
goodwill in this test is estimated in the same manner 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 reporting unit represents the implied value of goodwill. 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 December 31, 2014, the fair values of the reporting units exceeded their carrying amounts, therefore
no impairment was recognized. The fair value of the Personal Care reporting unit excluding EAM exceeded its
carrying value by approximately 15%. The fair value of EAM significantly exceeded its carrying value. 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 Personal Care reporting unit,
excluding EAM, 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.

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 ($233 million) and catalog rights ($41 million)
following the business acquisitions in the Personal Care segment and license rights following the acquisition of
Xerox’s paper and print media products ($6 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 asset is less than its carrying
amount.

52

In performing the qualitative assessment, we identify the relevant drivers, events or circumstances that may
have an impact on the fair value of an indefinite-lived intangible asset. This process involves significant
judgment and assumptions including the assessment of the results of the most recent fair value calculations, the
identification of macroeconomic conditions, industry and market considerations, cost factors, overall financial
performance and specific events affecting our business. Each of these factors must be assessed to determine the
positive or negative effect and the magnitude of any such impact on the impairment test. If, after assessing the
totality of events or circumstances, we determine it is more likely than not that the fair value of an indefinite-
lived intangible asset is less than its carrying amount, then we perform a quantitative assessment of fair value
compared to the carrying amount.

In performing the quantitative assessment, fair value of the indefinite-lived intangible assets is derived using
the income approach. Under the income 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, 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 by recently completed significant capital investments made in new
production lines. The discount rate assumption used was based on the weighted-average cost of capital adjusted
for business-specific and other relevant risks. In the event that the net carrying amount exceeds the fair value, the
excess of the carrying value over the fair value is taken as an impairment charge in the period.

In the fourth quarter 2014 we performed a quantitative assessment for each of the indefinite-lived intangible
assets. 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 $28 million for the year ended
December 31, 2014 (2013 – $29 million and 2012 – $24 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 (“FASB ASC”)
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

53

• 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

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 8 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 6.4% was considered appropriate by our management for the
determination of pension expense for 2014. Effective January 1, 2015, we will use 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.

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, 2014, for pension plans were estimated at 3.9% for the accrued benefit obligation and 4.7% for the
net periodic benefit cost for 2014 and for post-retirement benefit plans were estimated at 3.9% for the accrued
benefit obligation and 4.8% for the net periodic benefit cost for 2014.

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 2.7% for the net periodic benefit cost) and for post-retirement
benefits (set at 2.8% for the accrued benefit obligation and 2.7% 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 factors

reflect our historical experience and management’s best judgement regarding future expectations.

For measurement purposes, a 5.2% weighted-average annual rate of increase in the per capita cost of
covered health care benefits was assumed for 2014. The rate was assumed to decrease gradually to 4.1% by 2033
and remain at that level thereafter.

54

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 2014. 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.

Sensitivity Analysis

PENSION AND OTHER POST-RETIREMENT
BENEFIT PLANS

(In millions of dollars)
Expected rate of return on assets

Impact of:

1% increase

1% decrease

Discount rate
Impact of:

1% increase
1% decrease

Assumed overall health care cost trend

Impact of:

1% increase

1% decrease

PENSION

OTHER POST-RETIREMENT BENEFIT

ACCRUED
BENEFIT
OBLIGATION

NET PERIODIC
BENEFIT COST

ACCRUED
BENEFIT
OBLIGATION

$

$

N/A

N/A

(142)
174

N/A

N/A

(16)

16

(7)
16

N/
A
N/
A

$

N/
A
N/
A

(14)
18

9

(8)

NET PERIODIC
BENEFIT COST

$

N/A

N/A

(1)
1

1

(1)

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 $14 million in 2015 compared to $29 million in 2014 (2013 – $35 million) to the pension plans.
We expect to contribute a minimum total amount of $5 million in 2015 compared to $5 million in 2014 to the
other post-retirement benefit plans (2013 – $10 million; 2012 – $7 million).

Benefit obligations and fair values of plan assets as of December 31, 2014 for our pension and post-

retirement plans were are follows:

Accrued benefit obligation at end of year
Fair value of assets at end of year

Funded status

December 31, 2014

December 31, 2013

Pension
plans

$
(1,723)
1,721

(2)

Other
post-retirement
benefit plans

$
(105)
—

(105)

Pension
plans

$
(1,715)
1,709

(6)

Other
post-retirement
benefit plans

$
(103)
—

(103)

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

55

liabilities are expected to be recovered or settled. 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.

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, 2014, and certain foreign loss carryforwards for which a valuation allowance of $21 million
exists at December 31, 2014. Of this amount, $7 million impacted tax expense and the effective tax rate for 2014
($5 million – 2013; $1 million – 2012).

Our short-term deferred tax assets are mainly composed of temporary differences related to various
accruals, accounting provisions, as well as a portion of our net operating loss carryforwards and available tax
credits. The majority of these items are expected to be utilized or paid out over the next year. Our long-term
deferred tax assets and liabilities are mainly composed of temporary differences pertaining to plant, equipment,
pension and post-retirement
the remaining portion of net operating loss
carryforwards and other tax attributes, 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.

intangible assets,

liabilities,

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, 2014, we had gross unrecognized tax benefits of $48 million ($259 million in
2013). 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.

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”.

56

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 rate

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

cost of capital, risk-adjusted 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 assets and liabilities, mainly between property
plant and equipment, intangibles assets, goodwill and deferred income tax liabilities and subsequent assessment
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.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Our 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 products 1:
Papers

Business Papers
Commercial Print & Publishing Papers
Specialty & Packaging Papers

Pulp—net position
Softwood
Fluff
Hardwood

Foreign exchange, excluding depreciation and amortization

(US $0.01 change in relative value to the Canadian dollar before hedging)
(US $0.01 change in relative value to the EURO before hedging)

Energy 2
Natural gas: 10% change

57

$13
13
5

$11
5
1

9
2

11

1

2

Based on estimated 2015 capacity (ST or ADMT).

Based on estimated 2015 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, interest rate 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.

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 conducts regular reviews of existing customers’
credit performance. As of December 31, 2014, one of our Pulp and Paper segment customers located in the
United States represented 10% ($64 million) ((2013 – 12% ($73 million)) of our total receivables.

We are exposed to credit risk in the event of non-performance by counterparties to our financial
instruments. We 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, bank credit facility 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. On December 18, 2014,
we entered into a $100 million notional 2.5 year fixed to floating interest rate swap to receive fixed (1.0225%)
and pay the 3 month LIBOR. This swap was designated as a fair value hedge for a portion of our 10.75% notes
due June 2017. The changes in fair value of both the hedging and the hedged item are immediately recognized in
interest expense. No amount has been recorded in 2014 related to the interest rate swap entered into in December
2014.

COST RISK

We purchase 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, 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 three years.

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.

58

Accordingly, our earnings are affected by increases or decreases in the value of the Canadian dollar and the
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. 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 its exposure to fluctuations in foreign currency exchange rates.

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

The foreign exchange derivative contracts were fully effective as of December 31, 2014. There were no
amounts reflected in the Consolidated Statements of Earnings and Comprehensive Income for the year ended
December 31, 2014 resulting from hedge ineffectiveness (2013 and 2012 – nil).

59

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 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
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.

limitations,

Based on the assessment, management has concluded that the Company maintained effective internal control
over financial reporting as of December 31, 2014, 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, 2014 has been
audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their
report, which is included herein.

60

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, 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, 2014 and
December 31, 2013, and the results of their operations and their cash flows for each of the three years in the
period ended December 31, 2014 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, 2014, 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
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.

limitations,

/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Charlotte, North Carolina
February 27, 2015

61

DOMTAR CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

Sales
Operating expenses

Cost of sales, excluding depreciation and amortization
Depreciation and amortization
Selling, general and administrative
Impairment and write-down of property, plant and

equipment and intangible assets (NOTE 4)

Closure and restructuring costs (NOTE 16)
Other operating (income) loss, net (NOTE 8)

Operating income
Interest expense, net (NOTE 9)

Earnings before income taxes and equity loss
Income tax (benefit) expense (NOTE 10)
Equity loss, net of taxes

Net earnings

Per common share (in dollars) (NOTE 6)

Net earnings

Basic
Diluted

Weighted average number of common and exchangeable shares

outstanding (millions)
Basic
Diluted

Cash dividends per common share
Net earnings
Other comprehensive (loss) income:
Net derivative losses on cash flow hedges:

Net losses arising during the period, net of tax of

$(15) (2013 – $(6); 2012 – $1)

Less: Reclassification adjustment for losses included in net
earnings, net of tax of $(4) (2013 – $(3); 2012 – $(5))

Foreign currency translation adjustments
Change in unrecognized gains (losses) and prior service cost related to

pension and post-retirement benefit plans, net of tax of
$(2) (2013 – $(53); 2012 – $30)

Other comprehensive (loss) income

Comprehensive income

Year ended
December 31,
2014

Year ended
December 31,
2013

Year ended
December 31,
2012

$
5,563

4,396
384
416

4
28
(29)

$
5,391

4,361
376
381

22
18
72

$
5,482

4,321
385
358

14
30
7

5,199

5,230

5,115

364
103

261
(170)
—

431

6.65
6.64

64.8
64.9
1.30
431

(23)

8
(200)

12

(203)

228

161
89

72
(20)
1

91

1.37
1.36

66.6
66.7
1.00
91

(10)

5
(56)

124

63

154

367
131

236
58
6

172

2.39
2.39

72.0
72.1
0.80
172

—

8
23

(85)

(54)

118

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

62

DOMTAR CORPORATION
CONSOLIDATED BALANCE SHEETS

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

Assets
Current assets

Cash and cash equivalents
Receivables, less allowances of $6 and $4
Inventories (NOTE 11)
Prepaid expenses
Income and other taxes receivable
Deferred income taxes (NOTE 10)

Total current assets

Property, plant and equipment, at cost
Accumulated depreciation

Net property, plant and equipment (NOTE 13)

Goodwill (NOTE 12)
Intangible assets, net of amortization (NOTE 14)
Other assets (NOTE 15)

Total assets

Liabilities and shareholders’ equity
Current liabilities

Bank indebtedness
Trade and other payables (NOTE 17)
Income and other taxes payable
Long-term debt due within one year (NOTE 19)

Total current liabilities

Long-term debt (NOTE 19)
Deferred income taxes and other (NOTE 10)
Other liabilities and deferred credits (NOTE 20)

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 85,148,956 shares

Treasury stock $0.01 par value; 991,017 and 21,434,054 shares
Exchangeable shares No par value; unlimited shares authorized; issued and held

by nonaffiliates: nil and 1,123,020 shares

Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss

Total shareholders’ equity

Total liabilities and shareholders’ equity

At

December 31,
2014

December 31,
2013

$

$

174
628
714
25
54
75

1,670
8,909
(5,778)

3,131
567
661
156

6,185

10
721
26
169

926
1,181
810
378

1

—

—
2,012
1,145
(268)

2,890

6,185

655
601
685
23
61
52

2,077
8,883
(5,594)

3,289
369
407
136

6,278

15
673
17
4

709
1,510
923
354

—
—

44
1,999
804
(65)

2,782

6,278

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

63

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, at par

Exchangeable
shares

Additional
paid-in
capital

Retained
earnings

Accumulated
other
comprehensive
loss

Total
shareholders’
equity

Balance at December 31, 2011
Conversion of exchangeable shares
Stock-based compensation, net of tax
Net earnings
Net derivative losses on cash flow hedges:

Net losses arising during the period,

net of tax of $1

Less: Reclassification adjustments for
losses included in net earnings, net
of tax of $(5)

Foreign currency translation adjustments
Change in unrecognized losses and prior
service cost related to pension and
post-retirement benefit plans, net of tax
of $30

Stock repurchase
Cash dividends declared

Balance at December 31, 2012
Conversion of exchangeable shares
Stock-based compensation, net of tax
Net earnings
Net derivative losses on cash flow hedges:

Net losses arising during the period,

net of tax of $(6)

Less: Reclassification adjustments for
losses included in net earnings, net
of tax of $(3)

Foreign currency translation adjustments
Change in unrecognized gains and prior
service cost related to pension and
post-retirement benefit plans, net of tax
of $(53)

Stock repurchase
Cash dividends declared

Balance at December 31, 2013
Conversion of exchangeable shares
Stock split
Redemption of exchangeable shares
Stock-based compensation, net of tax
Net earnings
Net derivative losses on cash flow hedges:

Net losses arising during the period,

net of tax of $(15)

Less: Reclassification adjustments for

losses included in net earnings, net of tax
of $(4)

Foreign currency translation adjustments
Change in unrecognized gains and prior
service cost related to pension and
post-retirement benefit plans, net of tax
of $(2)

Stock repurchase
Cash dividends declared

Balance at December 31, 2014

36.8
—
—
—

—

—
—

—
(2.0)
—

34.8
—
0.1
—

—

—
—

—
(2.5)
—

32.4
—
32.5
—
0.1
—

—

—
—

—
(1.0)
—

64.0

$
—
—
—
—

—

—
—

—
—
—

—
—
—
—

—

—
—

—
—
—

—
—
1
—
—
—

—

—
—

—
—
—

1

$
49
(1)

—
—

—

—
—

—
—
—

48
(4)

—
—

—

—
—

—
—
—

44
(12)
—
(32)
—
—

—

—
—

—
—
—

—

$
2,326
1
5

—

—

—
—

—
(157)
—

2,175
4
3

—

—

—
—

—
(183)
—

1,999
12

—

32
7

—

—

—
—

$
671
—
—
172

—

—
—

—
—
(61)

782
—
—
91

—

—
—

—
—
(69)

804
—
—
—
—
431

—

—
—

—
(38)
—

—
—
(90)

$
(74)
—
—
—

—

8
23

(85)
—
—

(128)
—
—
—

(10)

5
(56)

124
—
—

(65)
—
—
—
—
—

(23)

8
(200)

12

—
—

$
2,972
—

5
172

—

8
23

(85)
(157)
(61)

2,877
—

3
91

(10)

5
(56)

124
(183)
(69)

2,782
—
1
—
7
431

(23)

8
(200)

12
(38)
(90)

2,012

1,145

(268)

2,890

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

64

DOMTAR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS OF DOLLARS)

Year ended
December 31,
2014

Year ended
December 31,
2013

Year ended
December 31,
2012

Operating activities
Net earnings
Adjustments to reconcile net earnings to cash flows from operating activities

Depreciation and amortization
Deferred income taxes and tax uncertainties (NOTE 10)
Impairment and write-down of property, plant and equipment and

intangible assets (NOTE 4)

Net losses on disposals of property, plant and equipment and sale of

business

Stock-based compensation expense
Equity loss, net
Other

Changes in assets and liabilities, excluding the effects of acquisition and sale of

businesses

Receivables
Inventories
Prepaid expenses
Trade and other payables
Income and other taxes
Difference between employer pension and other post-retirement
contributions and pension and other post-retirement expense

Other assets and other liabilities

Cash flows provided from operating activities

Investing activities
Additions to property, plant and equipment
Proceeds from disposals of property, plant and equipment and sale of businesses
Acquisition of businesses, net of cash acquired (NOTE 3)
Other

Cash flows used for investing activities

Financing activities
Dividend payments
Net change in bank indebtedness
Change of revolving bank credit facility
Proceeds from receivables securitization facilities
Payments on receivables securitization facilities
Issuance of long-term debt
Repayment of long-term debt
Stock repurchase
Other

Cash flows (used for) provided from financing activities

Net (decrease) increase in cash and cash equivalents
Impact of foreign exchange on cash
Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

Supplemental cash flow information

Net cash payments for:

$

431

384
(201)

4

—
4

—
3

39
(29)
1
(33)
12

16
3

634

(236)
1
(546)
(5)

(786)

(84)
(6)
(160)
90
(129)
—

(4)
(38)
5

(326)

(478)
(3)
655

174

$

91

376
(8)

22

4
5
1
(2)

(70)
(8)
1
(11)
(26)

31
5

411

(242)
61
(287)
(1)

(469)

(67)
(3)
160
—
—
249
(102)
(183)
—

54

(4)
(2)
661

655

$

172

385
(1)

14

2
5
6
(13)

99
5
(3)
(118)
(4)

(13)
15

551

(236)
49
(293)
(6)

(486)

(58)
11
—
—
—
548
(192)
(157)
—

152

217
—
444

661

Interest (including $2 million of redemption premiums and $47 million of

tender offer premiums in 2013 and 2012, respectively)

Income taxes paid, net

92
18

81
5

116
76

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

65

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

INDEX FOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 2

RECENT ACCOUNTING PRONOUNCEMENTS

NOTE 3

ACQUISITION OF BUSINESSES

NOTE 4

IMPAIRMENT AND WRITE-DOWN OF PROPERTY, PLANT AND EQUIPMENT AND
INTANGIBLE ASSETS

NOTE 5

STOCK-BASED COMPENSATION

NOTE 6

EARNINGS PER COMMON SHARE

NOTE 7

PENSION PLANS AND OTHER POST-RETIREMENT BENEFIT PLANS

NOTE 8

OTHER OPERATING (INCOME) LOSS, NET

NOTE 9

INTEREST EXPENSE, NET

NOTE 10

INCOME TAXES

NOTE 11

INVENTORIES

NOTE 12 GOODWILL

NOTE 13 PROPERTY, PLANT AND EQUIPMENT

NOTE 14

INTANGIBLE ASSETS

NOTE 15 OTHER ASSETS

NOTE 16 CLOSURE AND RESTRUCTURING COSTS AND LIABILITY

NOTE 17 TRADE AND OTHER PAYABLES

NOTE 18 CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) BY

COMPONENT

NOTE 19 LONG-TERM DEBT

NOTE 20 OTHER LIABILITIES AND DEFERRED CREDITS

NOTE 21 SHAREHOLDERS’ EQUITY

NOTE 22 COMMITMENTS AND CONTINGENCIES

NOTE 23 DERIVATIVES AND HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENT

NOTE 24 SEGMENT DISCLOSURES

NOTE 25 SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION

67

74

77

81

83

88

89

101

102

102

107

107

108

109

110

110

114

115

117

119

120

123

128

133

136

66

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(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 the efficient operation of pulp mills, converting fiber into paper grade, fluff and specialty pulps. The
majority of this pulp production is consumed internally to make communication papers, specialty and packaging
papers and personal care products with the balance sold as a market pulp. Domtar is the largest integrated
marketer and manufacturer of uncoated freesheet paper in North America, serving a variety of customers,
including merchants, retail outlets, stationers, printers, publishers, converters and end-users. In addition, Domtar
is also a leading marketer and producer of a broad line of incontinence care products, marketed primarily under
the Attends®, IncoPack® and Indasec® brand names, as well as baby diapers. The Company also owns and
operates Ariva®, a network of strategically located paper distribution facilities in Canada.

ACCOUNTING PRINCIPLES

The Company’s consolidated financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America (“GAAP”). The consolidated financial statements
include the accounts of Domtar Corporation 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 by the equity method.

USE OF ESTIMATES

The consolidated financial statements have been prepared in conformity with GAAP, 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 closure and restructuring costs, income
taxes, useful
impairment assessment,
environmental matters and other asset retirement obligations, pension and other post-retirement benefit plans
and, commitments and contingencies, based on currently available information. Actual results could differ from
those estimates.

impairment charges, goodwill and intangible asset

lives, asset

TRANSLATION OF FOREIGN CURRENCIES

respective operating activities occur. The Company translates assets and liabilities of

The Company determines its international subsidiaries’ functional currency by reviewing the currencies in
which their
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.

67

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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 and is partially offset by our hedging program (refer to Note 23 “Derivatives and
hedging activities and fair value measurement”).

At December 31, 2014, the accumulated translation adjustment accounts amounted to $(48) million (2013 –

$152 million).

REVENUE RECOGNITION

Domtar Corporation 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.

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
write-downs, 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, 2014. Closure
and restructuring cost estimates are dependent on future events. 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 Corporation 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

68

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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 (benefit) expense or in Other comprehensive (loss) income in the Consolidated
Statements of Earnings and Comprehensive Income. 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.

The Company recognizes interest and penalties related to income tax matters as a component of Income tax

(benefit) expense in the Consolidated Statements of Earnings and Comprehensive Income.

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.

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 cost certain U.S. raw materials, in process and finished goods
inventories. LIFO inventories were $229 million and $215 million at December 31, 2014 and 2013, respectively.
The balance of U.S. raw material inventories, all materials and supplies inventories and all foreign inventories
are costed 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 $66 million and $72 million greater at December 31, 2014 and 2013, respectively.

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment are stated at cost less accumulated depreciation including asset impairment
write-downs. Interest costs are capitalized for significant capital projects. For timberlands, the amortization is
calculated using the unit of production method. For all other assets, amortization is calculated using the straight-
line method over the estimated useful lives of the assets. Buildings and improvements are amortized 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.

69

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

IMPAIRMENT OF LONG-LIVED ASSETS

Long-lived assets 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. Impaired assets are recorded at
estimated fair value, determined principally by using discounted future cash flows expected from their use and
eventual disposition (refer to Note 4 “Impairment and write-down of property, plant and equipment and
intangible assets”).

GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill is not amortized and is evaluated 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. This process involves significant judgement and
assumptions including the assessment of the results of the most recent fair value calculations, the identification of
macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, specific
events affecting the Company and the business, and making the assessment on whether each relevant factor will impact
the impairment test positively or negatively and the magnitude of any such impact. If, 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 judgement is required to estimate the fair value of a reporting unit.

The Company typically uses an income method 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. The assumptions used in the model requires estimating future sales volumes, selling
prices and costs, changes in working capital, investments in property, plant and equipment and the selection of
the appropriate discount rate. Sensitivities of these fair value estimates to change in assumptions are also
performed. Assumptions used in our impairment evaluations are consistent with internal projections and
operating plans. Unanticipated market and macroeconomic events and circumstances may occur and could affect
the exactitude and validity of management assumptions and estimates.

In the event that the net carrying amount exceeds the fair value of the business, 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.

70

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

All goodwill as of December 31, 2014 resides in the Personal Care reporting segment, and originates from
the acquisitions of Attends Healthcare Inc. on September 1, 2011, Attends Healthcare Limited on March 1, 2012,
EAM Corporation on May 10, 2012, AHP on July 1, 2013 and Laboratorios Indas on January 2, 2014. Please
refer to Note 3 “Acquisition of businesses” for additional information regarding the most recent acquisition.

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. 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, 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®, catalog rights related to Laboratorios Indas S.A.U., and license rights related to Xerox. 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
technology, non-compete
agreements as well as licensing 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 that disclosed under impairment of long-lived assets.

rights, customer

relationships,

Amortization is based mainly on the following useful lives:

Water rights
Customer relationships
Technology
Non-Compete agreements
Licence rights

OTHER ASSETS

Useful life

40 years
10 to 40 years
7 to 20 years
9 years
12 years

Other assets are recorded at cost. Direct financing costs related to the issuance of long-term debt are

deferred and amortized using the effective interest rate method.

ENVIRONMENTAL COSTS AND ASSET RETIREMENT OBLIGATIONS

Environmental expenditures for effluent treatment, air emission, landfill operation and closure, asbestos
containment and removal, bark pile management, silvicultural activities and site remediation (together referred to

71

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

as environmental matters) are expensed or capitalized depending on their future economic benefit. In the normal
course of business, Domtar Corporation 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 recognized, at fair value, in the period in which Domtar Corporation 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 Corporation recognizes the cost 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 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 shares upon the issuance of shares of
common stock.

Unless otherwise determined at

the time of the grant, awards subject

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 each reporting period, until settlement, using the quoted market value.

to service conditions vest

Under the 2007 Omnibus Incentive Plan (“Omnibus Plan”), a maximum of 2,394,415 shares are reserved for

issuance in connection with awards granted or to be granted.

72

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

DERIVATIVE INSTRUMENTS

Derivative instruments are utilized by Domtar Corporation 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. 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 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 (loss) income. These amounts are
reclassified in the Consolidated Statements of Earnings and Comprehensive Income 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 when incurred.

PENSION PLANS

Domtar Corporation’s plans include funded and unfunded defined benefit and defined contribution pension
plans. Domtar Corporation 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 8 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 8 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

than
The Company recognizes the unfunded status of other post-retirement benefit plans (other
multiemployer plans) as a liability in the Consolidated Balance Sheets. These benefits, which are funded by

73

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Domtar Corporation 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. In general, 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 in the
line item 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 amortization periods for 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 statement of income.

GUARANTEES

A guarantee is a contract or an indemnification agreement that contingently requires Domtar Corporation 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.

NOTE 2.

RECENT ACCOUNTING PRONOUNCEMENTS

ACCOUNTING CHANGES IMPLEMENTED

FOREIGN CURRENCY MATTERS

In March 2013, the FASB issued ASU 2013-05, an update to Foreign Currency Matters, which indicates that
a cumulative translation adjustment is attached to the parent’s investment in a foreign entity and should be
released in a manner consistent with the derecognition guidance on investments in entities. Thus, the entire
amount of the cumulative translation adjustment associated with the foreign entity would be released when there
has been (1) a sale of a subsidiary or group of net assets within a foreign entity and the sale represents the
substantially complete liquidation of the investment in the foreign entity; (2) a loss of a controlling financial
interest in an investment in a foreign entity; or (3) a step acquisition for a foreign entity. The update does not
change the requirement to release a pro rata portion of the cumulative translation adjustment of the foreign entity
into earnings for a partial sale of an equity method investment in a foreign entity.

74

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 2. RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)

The Company adopted the new requirement on January 1, 2014 with no impact on the Company’s

consolidated financial statements, as no triggering event occurred throughout the period.

INCOME TAXES

In July 2013,

the FASB issued ASU 2013-11, which provides guidance on the financial statement
presentation of an unrecognized tax benefit when a net operating loss (“NOL”) carryforward, a similar tax loss,
or a tax credit carryforward exists. ASU 2013-11 requires entities to present an unrecognized tax benefit as a
reduction of a deferred tax asset for a NOL or tax credit carryforward whenever the NOL or tax credit
carryforward would be available to reduce the additional taxable income or tax due if the tax position is
disallowed. This accounting standard update requires entities to assess whether or not to net the unrecognized tax
benefit with a deferred tax asset as of the reporting date.

The Company adopted the new requirement on January 1, 2014 with no material impact on the Company’s

consolidated financial statements except for the change in presentation.

PUSH DOWN ACCOUNTING

In November 2014, the FASB issued ASU 2014-17, an update to business combinations and push down
accounting. The amendments in this update provide an acquired entity with an option to apply pushdown in its
separate financial statements upon occurrence of an event in which an acquirer obtains control of the acquired
entity. An acquired entity may elect the option to apply push down accounting in the reporting period in which
the change in control event occurs.

The Company adopted the new requirement on the effective date with no impact on the Company’s

consolidated financial statements.

FUTURE ACCOUNTING CHANGES

DISCONTINUED OPERATIONS

In April 2014, the FASB issued ASU 2014-08, an update on Reporting Discontinued Operations and
Disclosures of Disposals of Components of an Entity. The amendments in this update change the requirements
for reporting discontinued operations and require additional disclosures for both disposal transactions that meet
the criteria for a discontinued operation and disposals that do not meet these criteria. The objective of this update
is to reach a greater convergence between the FASB’s and IASB’s reporting requirements for discontinued
operations.

The amendments are effective for interim and annual periods beginning after December 15, 2014 and will
not have an impact on the Company’s consolidated financial statements unless a disposal transaction occurs after
the effective date. Early adoption is permitted.

REVENUE FROM CONTRACTS WITH CUSTOMERS

In May 2014, the FASB issued ASU 2014-09, an update on revenue from contracts with customers. The
core principal of this guideline is that an entity should recognize revenue, to depict the transfer of promised

75

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 2. RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)

goods or services to customers, in an amount that reflects the consideration for which the entity is entitled to, in
exchange for those goods and services. Guidance in this section supersedes the revenue recognition requirements
found in topic 605.

The amendment will be effective for annual reporting periods beginning after December 15, 2016, including
interim periods within that reporting period. Early adoption is not permitted. The Company is currently
evaluating these changes to determine whether they have an impact on the presentation of the consolidated
financial statements.

STOCK COMPENSATION

In June 2014, the FASB issued ASU 2014-12, an update on stock compensation. The guideline requires
performance targets, which affect vesting and can be achieved after the requisite service period, to be treated as a
performance condition. Accordingly, the performance target should not be reflected in estimating the grant-date
fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that
the performance target will be achieved and should represent the compensation cost attributable to the period(s)
for which the requisite service has already been rendered. If achievement of the performance target becomes
probable before the end of the requisite service period, the remaining unrecognized compensation cost should be
recognized prospectively over the remaining requisite service period.

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

GOING CONCERN

In August 2014,

the FASB issued ASU 2014-15, an update on going concern financial statements
disclosure. The amendment requires the entity’s management to evaluate whether there are conditions or events,
considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern
within one year after the date that the financial statements are issued. Management’s evaluation should be based
on relevant conditions and events that are known and reasonably knowable at the date that the financial
statements are issued.

The amendments in this update are effective for the annual period ending after December 15, 2016, and for
annual periods and interim periods thereafter. Early adoption is permitted. This amendment is not expected to
have an impact on the Company’s consolidated financial statements.

76

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 3.

ACQUISITION OF BUSINESSES

Acquisition of Laboratorios Indas

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

The total purchase price was allocated to tangible and intangible assets acquired and liabilities assumed

based on the Company’s estimates of their fair value, 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
Inventory
Income and other taxes receivable
Property, plant and equipment
Intangible assets

Customer relationships (1)
Trade names (2)
Catalog rights (2)

Goodwill
Deferred income tax assets

Total assets

Less: Liabilities

Trade and other payables
Income and other taxes payable
Long-term debt (including short-term portion)
Deferred income tax liabilities
Other liabilities and deferred credits

Total liabilities

Fair value of net assets acquired at the date of acquisition

(1)

(2)

The useful life of Customer relationships acquired is between 10-20 years.

Indefinite useful life.

77

142
140
46

$101
28
3
72

328
234
16

782

71
3
42
119
1

236

546

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 3. ACQUISITION OF BUSINESSES (CONTINUED)

Finalization of purchase price allocation

During the quarter ended December 31, 2014, the Company finalized the purchase price allocation of Indas,
acquired on January 2, 2014. In the fourth quarter of 2014, management identified an adjustment to its previously
reported fair value allocation of the original purchase price between indefinite-lived intangible assets and
goodwill. As a result, the Company recorded an increase in intangible assets and deferred tax liabilities and a
decrease of goodwill of $76 million, $23 million and $53 million, respectively.

Acquisition of Associated Hygienic Products LLC

On July 1, 2013, Domtar Corporation completed the acquisition of 100% of the outstanding shares of
Associated Hygienic Products LLC (“AHP”). AHP manufactures and markets infant diapers in the United States.
AHP has approximately 410 employees and operates two manufacturing facilities, a 376,500 square foot
manufacturing facility in Delaware, Ohio and a 312,500 square foot manufacturing facility in Waco, Texas. AHP
also operates a distribution center in Duluth, Georgia. The results of AHP’s operations are included in the
Personal Care reportable segment as of July 1, 2013. The purchase price was $276 million in cash, including
working capital, net of cash acquired of $2 million. The acquisition was accounted for as a business combination
under the acquisition method of accounting, in accordance with the Business Combinations Topic of FASB ASC.

The total purchase price was allocated to tangible and intangible assets acquired and liabilities assumed
based on the Company’s estimates of their fair value, which are based on information currently available. During
the fourth quarter of 2013, the Company completed the evaluation of all assets and liabilities.

The table below illustrates the purchase price allocation:

Fair value of net assets acquired at the date of acquisition

Receivables
Inventory
Property, plant and equipment
Intangible assets

Customer relationships (1)
Licence rights (2)

Goodwill

Total assets

Less: Liabilities

Trade and other payables
Intangible lease liability
Deferred income tax liabilities

Total liabilities

Fair value of net assets acquired at the date of acquisition

(1)

(2)

The useful life of the Customer relationships acquired is 20 years.

The useful life of the License rights acquired is 12 years.

78

67
29

$ 26
29
99

96
103

353

37
13
27

77

276

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 3. ACQUISITION OF BUSINESSES (CONTINUED)

Xerox

On June 1, 2013, Domtar Corporation completed the acquisition of Xerox’s paper and print media product’s
assets in the United States and Canada. The transaction includes a broad range of coated and uncoated papers and
specialty print media including business forms, carbonless as well as wide-format paper formerly distributed by
Xerox. The results of this business are presented in the Pulp and Paper reportable segment. The purchase price
was $7 million in cash plus inventory on a dollar for dollar basis. The acquisition was accounted for as a business
combination under the acquisition method of accounting, in accordance with the Business Combinations Topic of
FASB ASC.

The total purchase price was allocated to tangible and intangible assets acquired based on the Company’s
estimates of their fair value, which was based on information currently available. During the third quarter of
2013, the Company completed the evaluation of all assets and liabilities.

The table below illustrates the purchase price allocation:

Inventory
Intangible assets

Customer relationships (1)
License rights (2)

Total assets

Fair value of assets acquired at the date of acquisition

(1)

(2)

The useful life of the Customer relationships acquired is 20 years.

Indefinite useful life.

1
6

$ 4

7

11

11

EAM Corporation

On May 10, 2012, the Company completed the acquisition of 100% of the outstanding shares of EAM
Corporation (“EAM”). EAM manufactures high quality airlaid and ultrathin laminated absorbent cores used in
feminine hygiene, adult incontinence, baby diapers, and other medical healthcare and performance packaging
solutions. EAM operates a manufacturing, research and development and distribution facility in Jesup, Georgia.
EAM has approximately 54 employees. The results of EAM’s operations have been included in the consolidated
financial statements since May 1, 2012, the effective time of the transaction, and are presented in the Personal
Care reportable segment. The purchase price was $61 million in cash, including working capital, net of cash
acquired of $1 million. The acquisition was accounted for as a business combination under the acquisition
method of accounting, in accordance with the Business Combinations Topic of FASB ASC.

The total purchase price was allocated to tangible and intangible assets acquired and liabilities assumed
based on the Company’s estimates of their fair value, which are based on information currently available. During
the fourth quarter of 2012, the Company completed the evaluation of all assets and liabilities.

79

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 3. ACQUISITION OF BUSINESSES (CONTINUED)

The table below illustrates the purchase price allocation:

Fair value of net assets acquired at the date of acquisition

Receivables
Inventory
Property, plant and equipment
Intangible assets

Customer relationships (1)
Technology (2)
Non-compete (3)

Goodwill

Total assets

Less: Liabilities

Trade and other payables
Deferred income tax liabilities and unrecognized tax benefits

Total liabilities

Fair value of net assets acquired at the date of acquisition

(1)

(2)

(3)

The useful life of the Customer relationships acquired is 30 years.

The useful lives of the Technology acquired are between 7 and 20 years.

The useful life of the Non-compete acquired is 9 years.

19
8
1

$ 6
2
13

28
31

80

4
15

19

61

Attends Healthcare Limited

On March 1, 2012, the Company completed the acquisition of 100% of the outstanding shares of Attends
Healthcare Limited (“Attends Europe”). Attends Europe manufactures and supplies adult incontinence care
products in Northern Europe. Attends Europe operates a manufacturing, research and development and
distribution facility in Aneby, Sweden and also operates a distribution center in Germany. Attends Europe has
approximately 458 employees. The results of Attends Europe’s operations have been included in the consolidated
financial statements since March 1, 2012, and are presented in the Personal Care reportable segment. The
purchase price was $232 million (€173 million) in cash, including working capital, net of acquired cash of
$4 million (€3 million). The acquisition was accounted for as a business combination under the acquisition
method of accounting, in accordance with the Business Combinations Topic of FASB ASC.

The total purchase price was allocated to tangible and intangible assets acquired and liabilities assumed
based on the Company’s estimates of their fair value, which are based on information currently available. During
the fourth quarter of 2012, the Company completed the evaluation of all assets and liabilities.

80

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 3. ACQUISITION OF BUSINESSES (CONTINUED)

The table below illustrates the purchase price allocation:

Fair value of net assets acquired at the date of acquisition

Receivables
Inventory
Property, plant and equipment
Intangible assets

Trade names (1)
Customer relationships (2)

Goodwill

Total assets

Less: Liabilities

Trade and other payables
Capital lease obligation
Deferred income tax liabilities and unrecognized tax benefits
Pension

Total liabilities

Fair value of net assets acquired at the date of acquisition

(1)

(2)

Indefinite useful life.

The useful life of the Customer relationships acquired is 30 years.

54
71

$ 21
22
67

125
71

306

27
6
38
3

74

232

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

NOTE 4.

IMPAIRMENT AND WRITE-DOWN OF PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE
ASSETS

The Company reviews intangible assets and 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 intangible and long-lived assets may not be recoverable.

Estimates of undiscounted future cash flows used to test the recoverability of the fixed assets included key
assumptions related to selling prices, inflation-adjusted cost projections, forecasted exchange rate for the U.S.
dollar when applicable and the estimated useful life of the fixed assets.

81

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 4. IMPAIRMENT AND WRITE-DOWN OF PROPERTY, PLANT AND EQUIPMENT AND
INTANGIBLE ASSETS (CONTINUED)

IMPAIRMENT OF PROPERTY, PLANT AND EQUIPMENT

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, the Company recognized $4 million of
accelerated depreciation in the fourth quarter of 2014. An additional $108 million of accelerated depreciation is
expected to be incurred during 2015 and 2016.

Given the closure of the paper machine, the Company conducted a Step I impairment test on the Ashdown
mill’s fixed assets and concluded that the undiscounted estimated future cash flows associated with the remaining
long-lived assets exceeded their carrying amount.

Changes in the assumptions and estimates may affect the Company’s forecasts and may lead to an outcome
where impairment charges would be required. In addition, actual results may vary from the Company’s forecasts,
and such variations may be material and unfavorable, thereby triggering the need for future impairment tests
where the Company’s conclusions may differ in reflection of prevailing market conditions.

Attends Europe

During the fourth quarter of 2013, the Company recorded a $2 million write-down of property, plant and
equipment, due to the replacement of certain equipment at its Attends Europe location, in Impairment and write-
down of property, plant and equipment and intangible assets on the Consolidated Statement of Earnings and
Comprehensive Income.

Pulp and paper converting site

During the fourth quarter of 2013, the Company recorded a $5 million write-down of property, plant and
equipment in one of its converting sites in the pulp and paper segment, in Impairment and write-down of
property, plant and equipment and intangible assets on the Consolidated Statement of Earnings and
Comprehensive Income.

Ariva U.S.

On July 31, 2013, the Company completed the sale of its Ariva business in the United States (“Ariva U.S.”).
Ariva U.S. had approximately 400 employees in the United States. As a result of this agreement, during the
second quarter of 2013, the Company recorded a $5 million impairment of property, plant and equipment at its
Ariva U.S. location, in Impairment and write-down of property, plant and equipment and intangible assets on the
Consolidated Statement of Earnings and Comprehensive Income.

Kamloops, British Columbia—Closure of a pulp machine

On December 13, 2012, the Company announced the permanent shut down of one pulp machine at its
Kamloops, British Columbia mill. This decision resulted in a permanent curtailment of Domtar’s annual pulp

82

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 4. IMPAIRMENT AND WRITE-DOWN OF PROPERTY, PLANT AND EQUIPMENT AND
INTANGIBLE ASSETS (CONTINUED)

production by approximately 120,000 air dried metric tons of sawdust softwood pulp and affected approximately
125 employees. As a result, the Company recognized in 2012, $7 million of accelerated depreciation under
Impairment and write-down of property, plant and equipment and intangible assets. The pulp machine ceased
production in March 2013. Furthermore, during the first quarter of 2013, the Company recognized $10 million of
accelerated depreciation under Impairment and write-down of property, plant and equipment and intangible
assets. Given the decision to close the pulp machine, the Company assessed in the fourth quarter of 2012 its
ability to recover the carrying value of the Kamloops mill from the undiscounted estimated future cash flows.
The Company concluded that the undiscounted estimated future cash flows associated with the long-lived assets
exceeded their carrying amount and, as such, no additional impairment charge was required.

Mira Loma, California converting plant

During the first quarter of 2012, the Company recorded a $2 million write-down of property, plant and
equipment at its Mira Loma location, in Impairment and write-down of property, plant and equipment and
intangible assets.

IMPAIRMENT OF INTANGIBLE ASSETS

Deterioration in sales and operating results of Ariva U.S., a subsidiary included in the Pulp and Paper
segment, has led the Company to test the customer relationships of this asset group for recoverability. As of
December 31, 2012, the Company recognized an impairment charge of $5 million included in Impairment and
write-down of property, plant and equipment and intangible assets related to customer relationships based on the
revised long-term forecast. The Company concluded that no further impairment or impairment indicators exist as
of December 31, 2012.

Changes in the assumptions and estimates may affect the Company’s forecasts and may lead to an outcome
where impairment charges would be required. In addition, actual results may vary from the Company’s forecasts,
and such variations may be material and unfavorable, thereby triggering the need for future impairment tests
where the Company’s conclusions may differ in reflection of prevailing market conditions.

NOTE 5.

STOCK-BASED COMPENSATION

2007 OMNIBUS INCENTIVE 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 and other stock-based awards. The Company generally grants awards
annually and uses, when available, treasury stock to fulfill awards settled in common stock and option exercises.

83

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 5. STOCK-BASED COMPENSATION (CONTINUED)

PERFORMANCE SHARE UNITS (“PSU’s”)

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 equivalent to the share price 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, 2016.

PSU

Vested and non-vested at December 31, 20131
Granted/issued
Forfeited
Cancelled
Vested and settled

Vested and non-vested at December 31, 2014

Number of units

Weighted average
grant date fair value

350,076
175,815
(33,076)
(89,622)
(92,890)

310,303

$
42.60
53.97
45.29
49.79
46.49

45.52

1

Amounts have been adjusted on a post-split basis (see Note 6 “Earnings per common share” for further
information).

As a result of PSUs granted in 2014, 2013 and 2012 that have performed under their target, the Company
cancelled 89,622 units in 2014 with a weighted average grant date fair value of $49.79 (2013 – $45.85;
2012 – $49.34).

The fair value of PSUs granted in 2014, 2013 and 2012 was estimated at the grant date using a 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:

2014

2013

2012

Dividend yield
Expected volatility 1 year
Expected volatility 3 years
Risk-free interest rate December 31, 2012
Risk-free interest rate December 31, 2013
Risk-free interest rate December 31, 2014
Risk-free interest rate December 31, 2015
Risk-free interest rate December 31, 2016

23%
35%
—

31%
31%
—
—

1.980% 2.230% 1.383%
38%
66%
0.993%
0.679% 0.662%
0.499% 0.469% 0.711%
0.447% 0.549% —
0.755% —
—

At December 31, 2014, of the total vested and non-vested PSUs, 129,805 are expected to be settled in shares

and 180,498 will be settled in cash.

84

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 5. STOCK-BASED COMPENSATION (CONTINUED)

RESTRICTED STOCK UNITS (“RSU’s”)

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 equivalent to the share price for non-
Management Committee members, upon completing service conditions. The awards cliff vest after
approximately a three year service period. 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.

RSU

Non-vested at December 31, 20131
Granted/issued
Forfeited
Vested and settled
Non-vested at December 31, 2014

Number of units

Weighted average
grant date fair value

374,414
130,045
(29,230)
(161,009)
314,220

$

41.46
49.95
44.37
41.27
44.80

1

Amounts have been adjusted on a post-split basis (see Note 6 “Earnings per common share” for further
information).

At December 31, 2014, of the total non-vested RSUs, 143,941 are expected to be settled in shares and

170,279 will be settled in cash.

DEFERRED SHARE UNITS (“DSU’s”)

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. The grant date fair
value of DSUs 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
2014, 6,799 vested awards were deferred to DSUs (2013 – 7,680), and those DSUs can be settled in shares of
common stock beginning February 2017.

DSU

Vested at December 31, 20131
Granted/issued
Settled
Vested at December 31, 2014

Number of units

Weighted average
grant date fair value

271,742
39,165
(48,186)
262,721

$
25.54
44.25
32.17
27.11

1

Amounts have been adjusted on a post-split basis (see Note 6 “Earnings per common share” for further
information).

85

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 5. STOCK-BASED COMPENSATION (CONTINUED)

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 May 1, 2017 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 2014 (except for the stock options granted on May 1, 2014)
and 2013 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:

Dividend yield
Expected volatility
Risk-free interest rate
Expected life
Strike price

2014

2013

2.62%
32%
1.34%
4.5 years
53.12

$

2.67%
35%
0.76%
4.5 years
38.35

$

The grant date fair value of the non-qualified options granted in 2014, was $11.60 (2013 – $8.86).

On May 1, 2014, the Company granted 29,002 options to Michael Garcia, President Pulp and Paper, as part
of his employment conditions, and the following assumptions were used in calculating the fair value of the
options granted:

Dividend yield
Expected volatility
Risk-free interest rate
Expected life
Strike price

2014

2.80%
33%
1.485%
4.5 years
47.08

$

86

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 5. STOCK-BASED COMPENSATION (CONTINUED)

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

OPTIONS (including Performance options) 1

Outstanding at December 31, 2011
Exercised
Forfeited/expired
Outstanding at December 31, 2012

Options exercisable at December 31, 2012

Outstanding at December 31, 2012
Granted
Exercised
Forfeited/expired
Outstanding at December 31, 2013

Options exercisable at December 31, 2013

Outstanding at December 31, 2013
Granted
Exercised
Forfeited/expired
Outstanding at December 31, 2014

Options exercisable at December 31, 2014

Weighted
average
exercise
price

Weighted
average
remaining life
(in years)

Aggregate
intrinsic
value
(in millions)

Number
of options

707,322
(132,832)
(103,308)
471,182

$
34.45
15.30
30.15
40.78

272,056

30.68

471,182
135,174
(101,852)
(38,830)
465,674

40.78
38.35
19.40
50.62
43.93

200,274

36.83

465,674
270,028
(131,312)
(186,267)
418,123

43.93
52.48
37.02
55.67
46.39

93,027

37.40

3.1
—
—
2.2

2.4

2.2
6.1
—
—
2.6

1.7

2.6
6.2
—
—
4.6

2.0

$
7.0
—
—
4.2

2.8

4.2
1.2
—
—
3.3

2.1

3.3
—
—
—
—

—

1

Amounts have been adjusted on a post-split basis (see Note 6 “Earnings per common share” for further
information).

In addition to the above noted outstanding options, the Company has 2,352 (2013 – 5,922) outstanding and
exercisable stock appreciation rights at December 31, 2014 with a weighted average exercise price of $38.80
(2013 – $39.96).

The total intrinsic value of options exercised in 2014 was $2 million (2013 – $2 million). Based on the
Company’s closing year-end stock price of $40.22, the aggregate intrinsic value of options outstanding and
options exercisable is nil.

For the year ended December 31, 2014, stock-based compensation expense recognized in the Company’s
results of operations was $9 million (2013 – $13 million; 2012 – $20 million) for all of the outstanding awards.
Compensation costs not yet recognized amounted to $14 million (2013 – $11 million; 2012 – $12 million) and
will be recognized over the remaining service period of approximately 28 months. The aggregate value of

87

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 5. STOCK-BASED COMPENSATION (CONTINUED)

liability awards settled in 2014 was $12 million. The total fair value of equity awards settled in 2014 was
$10 million, representing the fair value at the time of settlement. 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 or stock appreciation rights 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
Corporation policy implemented as required by applicable law, regulation or stock exchange rule as may from
time to time be in effect.

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 to be
effected through a stock dividend. Shareholders of record on June 10, 2014 were entitled to receive one
additional share for every share they owned on that date.

The calculation of basic earnings per common share for the year ended December 31, 2014 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:

Net earnings
Weighted average number of common and exchangeable shares

outstanding (millions)

Effect of dilutive securities (millions)

Weighted average number of diluted common and exchangeable shares

outstanding (millions)

Basic net earnings per common share (in dollars)
Diluted net earnings per common share (in dollars)

88

Year ended
December 31,
2014

Year ended
December 31,
2013

Year ended
December 31,
2012

$ 431

$ 91

$ 172

64.8
0.1

64.9

$6.65
$6.64

66.6
0.1

66.7

$1.37
$1.36

72.0
0.1

72.1

$2.39
$2.39

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 6. EARNINGS PER COMMON SHARE (CONTINUED)

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:

Options

December 31,
2014

December 31,
2013

December 31,
2012

247,152

194,836

210,410

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, 2014, the related pension
expense was $28 million (2013 – $29 million; 2012 – $24 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. Most unionized employees in the U.S. and all U.S. non-hourly employees
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 benefits payments.

The Company expects to contribute a minimum total amount of $14 million in 2015 compared to
$29 million in 2014 (2013 – $35 million; 2012 – $86 million) to the pension plans. The Company expects to
contribute a minimum total amount of $5 million in 2015 compared to $5 million in 2014 to the other post-
retirement benefit plans (2013 – $10 million; 2012 – $7 million).

89

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(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, 2014 and

December 31, 2013, the measurement date for each year:

Accrued benefit obligation at beginning of year

Service cost for the year
Interest expense
Plan participants’ contributions
Actuarial loss (gain)
Plan amendments
Benefits paid
Direct benefit payments
Settlement
Effect of foreign currency exchange rate change

Accrued benefit obligation at end of year

CHANGE IN FAIR VALUE OF ASSETS

December 31, 2014

December 31, 2013

Pension
plans

$
1,715
35
77
6
158
1
(87)
(5)
(60)
(117)

1,723

Other
post-retirement
benefit plans

$
103
2
5

—
9

—
—

(5)

—

(9)

105

Pension
plans

$
1,914
42
75
7
(78)
—
(91)
(4)
(52)
(98)

1,715

Other
post-retirement
benefit plans

$
124
3
4

—
(11)
—

(1)
(5)
(4)
(7)

103

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, 2014 December 31, 2013

Pension plans

Fair value of assets at beginning of year
Actual return on plan assets
Employer contributions
Plan participants’ contributions
Benefits paid
Settlement
Effect of foreign currency exchange rate change

Fair value of assets at end of year

$
1,709
253
29
6
(92)
(60)
(124)

1,721

Pension plans

$
1,767
144
35
7
(95)
(52)
(97)

1,709

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

90

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

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

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 issuer 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 2014:

Fixed income
Cash and cash equivalents
Bonds

Equity
Canadian Equity
US Equity
International Equity

Total (1)

Percentage of
plan assets at
December 31,
2014

Percentage of
plan assets at
December 31,
2013

Target
allocation

0% - 9%
52% - 62%

3% - 11%
9% - 19%
16% - 26%

3%
57%

6%
15%
19%

100%

3%
55%

7%
14%
21%

100%

(1) Approximately 82% of the pension plans’ assets relate to Canadian plans and 18% relate to U.S. plans.

91

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

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

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.

Accrued benefit obligation at end of year
Fair value of assets at end of year

Funded status

December 31, 2014

December 31, 2013

Pension
plans

$
(1,723)
1,721

(2)

Other
post-retirement
benefit plans

$
(105)
—

(105)

Pension
plans

$
(1,715)
1,709

(6)

Other
post-retirement
benefit plans

$
(103)
—

(103)

The funded status includes $53 million of accrued benefit obligation ($53 million at December 31, 2013)

related to supplemental unfunded defined benefit and defined contribution plans.

Trade and other payables (Note 17)
Other liabilities and deferred credits (Note 20)
Other assets (Note 15)

Net amount recognized in the Consolidated Balance Sheets

December 31, 2014

December 31, 2013

Pension
plans

Other
post-retirement
benefit plans

$
—
(123)
121

(2)

$
(5)
(100)
—

(105)

Pension
plans

$
—
(102)
96

(6)

Other
post-retirement
benefit plans

$
(5)
(98)
—

(103)

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

Prior service credit
Amortization of prior year service cost

(credit)
Net (loss) gain
Amortization of net actuarial loss

Net amount recognized in other

comprehensive income (loss) (pre-tax)

Year ended
December 31, 2014

Year ended
December 31, 2013

Year ended
December 31, 2012

Pension
plans

Other
post-retirement
benefit plans

Pension
plans

Other
post-retirement
benefit plans

$
—

3
126
38

167

$
—

(1)
10
1

10

$
(1)

3
(8)
28

22

$
—

—

(8)

—

(8)

92

Pension
plans

$

3

4
(122)
19

(96)

Other
post-retirement
benefit plans

$
—

(9)
(11)
1

(19)

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

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

An estimated amount of $10 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 2015.

At December 31, 2014, 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 $412 million and $290 million,
respectively (2013 – $1,075 million and $973 million, respectively).

Components of net periodic benefit cost for pension plans

Service cost for the year
Interest expense
Expected return on plan assets
Amortization of net actuarial loss
Curtailment loss (a)
Settlement loss (b)
Amortization of prior year service costs

Net periodic benefit cost

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

Service cost for the year
Interest expense
Amortization of net actuarial loss
Curtailment gain (c)
Amortization of prior year service costs

Net periodic benefit cost

Year ended
December 31,
2014

Year ended
December 31,
2013

Year ended
December 31,
2012

$
35
77
(101)
9

—
19
3

42

$
42
75
(96)
25
1
13
3

63

$
40
85
(97)
18
1
1
3

51

Year ended
December 31,
2014

Year ended
December 31,
2013

Year ended
December 31,
2012

$

3
5

—
—
—

8

$

3
5

—
—
—

8

$
3
6
1
(12)
(1)

(3)

(a) The curtailment loss for the year ended December 31, 2013 of $1 million is related to a U.S. hourly plan.
loss for the year ended December 31, 2012 of $1 million is related to certain

The curtailment
U.S. employees who elected to convert from defined benefit to defined contribution plans.

(b) 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. The settlement loss of $13 million in the pension plans for
the year ended December 31, 2013 is related to the previously closed Big River and Dryden mills for
$6 million and $7 million, respectively (see Note 16 “Closure and restructuring costs and liability”). The
settlement loss for the year ended December 31, 2012 of $1 million is related to the sale of hydro assets in
Ottawa, Ontario and Gatineau, Quebec.

(c) The curtailment gain of $12 million for the year ended December 31, 2012 is a result of the curtailment of

benefits related to the majority of employees covered by the plan.

93

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

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

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.

Pension plans

Accrued benefit obligation

Discount rate
Rate of compensation increase

Net periodic benefit cost
Discount rate
Rate of compensation increase
Expected long-term rate of return on plan assets

December 31,
2014

December 31,
2013

December 31,
2012

3.9%
2.7%

4.7%
2.7%
6.4%

4.1%
2.7%

4.2%
2.8%
5.8%

4.1%
2.7%

4.8%
2.8%
6.0%

Discount rate for Canadian plans: 3.9% based on a model whereby cash flows are projected for hypothetical
plans and are discounted using a spot rate yield curve developed from bond yield data for AA corporate bonds.
Specifically, 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. The spread is based on the observed spreads between AA rated corporate bonds and AA
rated provincial bonds in three sections of the yield curve.

Discount rate for U.S. plans: 3.85% obtained by incorporating the Company’s qualified plans’ expected cash
flows in the Mercer Yield Curve which is based on bonds rated AA or better by Moody’s or Standard & Poor’s,
excluding callable bonds, bonds of less than a minimum issue size, and certain other bonds. Effective December
2012, the universe of bonds also includes private placement (traded in reliance on Rule 144A and with at least
two years to maturity), make whole, and foreign corporation (denominated in US dollars) bonds.

Effective January 1, 2015, the Company will use 5.6% (2014 – 6.4%; 2013 – 5.8%) 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.

94

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

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

Other post-retirement benefit plans

Accrued benefit obligation

Discount rate
Rate of compensation increase

Net periodic benefit cost
Discount rate
Rate of compensation increase

December 31,
2014

December 31,
2013

December 31,
2012

3.9%
2.8%

4.8%
2.7%

4.8%
2.8%

4.2%
2.8%

4.2%
2.8%

2.9%
2.8%

For measurement purposes, a 5.2% weighted average annual rate of increase in the per capita cost of
covered health care benefits was assumed for 2014. The rate was assumed to decrease gradually to 4.1% by 2033
and remain at that level thereafter. An increase or decrease of 1% of this rate would have the following impact:

Impact on net periodic benefit cost for other post-retirement benefit plans
Impact on accrued benefit obligation

Increase of 1% Decrease of 1%

$
1
9

$
(1)
(8)

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.

95

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(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, 2014, by asset category:

Asset Category

Cash and short-term investments
Asset backed notes (1)
Canadian government bonds
Canadian corporate debt securities
Bond index funds (2 & 3)
Canadian equities (4)
U.S. equities (5)
International equities (6)
U.S. stock index funds (3 & 7)
Insurance contracts (8)
Derivative contracts (9)

Total

Fair Value Measurements at
December 31, 2014

Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)

Significant
Observable Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

$
72
—
93
—
—
116
42
255
—
—
—

578

$
—
165
—

4
691
—
—
—
256
—

4

1,120

$
—
15
—
—
—
—
—
—
—

8

—

23

Total

$
72
180
93
4
691
116
42
255
256
8
4

1,721

(1)

(2)

(3)

(4)

(5)

(6)

(7)

(8)

(9)

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

This category represents two Canadian bond index fund not actively managed that tracks 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.

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.

This category represents an active segregated, large capitalization Canadian equity portfolios with the ability
to purchase small and medium capitalized companies and $6 million of Canadian equities held within an
active segregated global equity portfolio.

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

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.

This category represents equity index funds, not actively managed, that track the Standard & Poor’s 500
(“S&P 500”).

This category represents insurance contracts with a minimum guarantee rate.

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.

96

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(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, 2013, by asset category:

Asset Category

Cash and short-term investments
Asset backed notes (1)
Canadian government bonds
Canadian corporate debt securities
Bond index funds (2 & 3)
Canadian equities (4)
U.S. equities (5)
International equities (6)
U.S. stock index funds (3 & 7)
Insurance contracts (8)
Derivative contracts (9)

Total

Fair Value Measurements at
December 31, 2013

Quoted Prices in
Active Markets for
Identical Assets
(Level 1)

Significant
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

$
74

—
273
—
—
126
37
295
—
—
—

805

$
—
186
—

4
445
—
—
—
243
—

1

879

$
—
17
—
—
—
—
—
—
—

8

—

25

Total

$
74
203
273
4
445
126
37
295
243
8
1

1,709

(1)

(2)

(3)

(4)

(5)

(6)

(7)

(8)

(9)

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

This category represents a Canadian bond index fund not actively managed that tracks the DEX Long-term
bond index and a U.S. actively managed bond fund that is benchmarked to the Barclays Capital Long-term
Government/Credit index.

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.

This category represents active segregated, large capitalization Canadian equity portfolios with the ability to
purchase small and medium capitalized companies and $5 million of Canadian equities held within an active
segregated global equity portfolio.

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

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.

This category represents equity index funds, not actively managed, that track the Standard & Poor’s 500
(“S&P 500”).

This category represents insurance contracts with a minimum guarantee rate.

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.

97

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

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

ASSET BACKED NOTES

(“ABN”)

At December 31, 2014, Domtar Corporation’s Canadian defined benefit pension funds held restructured
asset backed notes
(formerly asset backed commercial paper) valued at $180 million
(CDN $209 million). At December 31, 2013, the plans held ABN valued at $203 million (CDN $216 million).
During 2014, the total value of the ABN benefited from an increase in value of $18 million (CDN $20 million).
For the same period, the total value of ABN was reduced by repayments and sales totalling $24 million
(CDN $27 million), and by a $17 million impact of a decrease in the value of the Canadian dollar.

Most of these ABN, with a current value of $171 million (2012 and 2013, respectively – $193 million), were
subject to restructuring under the court order governing the Montreal Accord that was completed in January
2009. About $165 million of these notes are expected to mature in two years. These notes are valued based upon
current market quotes and auction results. The market values are supported by the value of the underlying
investments held by the issuing conduit. The values for the $6 million of remaining ABN, that also were subject
to the Montreal Accord, were sourced either from the asset manager of the ABN, or from trading values for
similar securities of similar credit quality.

An additional $9 million of ABN were restructured separately from the Montreal Accord. They are valued
based upon the value of the collateral investments held in the conduit issuer, reduced by the negative value of
credit default derivatives, with an additional discount (equivalent 1.75% per annum) applied for illiquidity. They
are expected to mature in two years.

Possible changes that could impact the future value of ABN include: (1) changes in the value of the
underlying assets and the related derivative transactions, (2) developments related to the liquidity of the ABN
market, (3) a severe and prolonged economic slowdown in North America and the bankruptcy of referenced
corporate credits, and (4) the passage of time, as most of the notes will mature in approximately two years.

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

Balance at December 31, 2012

Purchases/(Settlements)
Return on plan assets
Effect of foreign currency exchange rate change

Balance at December 31, 2013

Purchases/(Settlements)
Return on plan assets
Effect of foreign currency exchange rate change

Balance at December 31, 2014

1

Includes $6 million of Montreal Accord in 2014 (2013 – $7 million)

98

Fair Value Measurements Using
Significant Unobservable Inputs
(Level 3)

ABN 1

Insurance
contracts

TOTAL

$
36
(19)
2
(2)

17
(14)
13
(1)

15

$

7

1

—

—

8
1
1
(2)

8

$
43
(19)
3
(2)

25
(13)
14
(3)

23

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

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

ESTIMATED FUTURE BENEFIT PAYMENTS FROM THE PLANS

Estimated future benefit payments from the plans for the next 10 years at December 31, 2014 are as follows:

2015
2016
2017
2018
2019
2020 – 2024

Pension
plans

Other
post-retirement
benefit plans

$
90
93
97
100
104
548

$
5
5
5
5
5
26

MULTIEMPLOYER PLANS

Domtar contributed to seven multiemployer defined benefit pension plans under the terms of collective
agreements that cover certain Canadian and U.S. unionized employees. As of December 31, 2014, the Company
had withdrawn from all five U.S. multiemployer plans, and continued to participate in the two Canadian plans.
The risks of participating in these multiemployer plans are different from single-employer plans in the following
aspects:

(a)

(b)

(c)

assets contributed to the multiemployer plan by one employer may be used to provide benefits to
employees of other participating employers;

for the U.S. multiemployer plans, if a participating employer stops contributing to the plan, the
unfunded obligations of the plan are borne by the remaining participating employers; and

for the U.S. multiemployer plans, if Domtar chooses to stop participating in some of its multiemployer
plans, Domtar may be required to pay those plans an amount based on the underfunded status of the
plan, referred to as a withdrawal liability.

99

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

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

Domtar’s participation in these plans for the annual periods ended December 31 is outlined in the table
below. The plan’s 2014, 2013 and 2012 actuarial status certification was completed as of January 1,
2014, January 1, 2013 and January 1, 2012, respectively, and is based on the plan’s actuarial valuation as of
December 31, 2013, December 31, 2012 and December 31, 2011, respectively. This represents the most recent
Pension Protection Act zone status available. The zone status is based on information received from the plan and
is certified by the plan’s actuary.

Pension Fund

EIN / Pension
Plan Number

Pension
Protection
Act Zone
Status

2014 2013

FIP / RP
Status Pending /
Implemented

Contributions
from Domtar
to Multiemployer
(c)

2014 2013 2012

Expiration date
of collective
bargaining
agreement

Surcharge
imposed

U.S. Multiemployer Plans
PACE Industry Union-
Management Pension Fund (a) 11-6166763-001 Red Red Yes—Implemented — —
Canadian Multiemployer

$

$

Plans

Pulp and Paper Industry
Pension Plan (b)

N/A N/A N/A

N/A

Total
Total contributions made to all plans that are not

2

2

individually significant (d) —

Total contributions made to all plans

2

2

2

1

3

Yes

January 27, 2015

N/A

April 30, 2017

$

3

2

5

1

6

(a) Domtar withdrew from PACE Industry Union-Management Pension Fund effective December 31, 2012.

(b)

In the event that the Canadian multiemployer plan is underfunded, the monthly benefit amount can be
reduced by the trustees of the plan. Moreover, Domtar is not responsible for the underfunded status of the
plan because the Canadian multiemployer plans do not require participating employers to pay a withdrawal
liability or penalty upon withdrawal.

(c) For each of the three years presented, Domtar’s contributions to each multiemployer plan do not represent
more than 5% of total contributions to each plan as indicated in the plan’s most recently available annual
report.

(d) On July 31, 2013, Domtar withdrew from all remaining U.S. multiemployer plans.

In relation to the withdrawal from one of the Company’s multiemployer pension plans in 2011, the
Company recorded an additional charge to earnings of $1 million due to a change in the estimated withdrawal
liability during the first quarter of 2013. During the second and third quarter of 2013, the Company withdrew
from its remaining U.S. multiemployer pension plans and recorded a withdrawal liability and a charge to
earnings of $14 million, of which $3 million is recorded in Closure and restructuring costs and $11 million
related to the sale of its Ariva U.S. business included in Other operating (income) loss, net on the Consolidated
Statement of Earnings and Comprehensive Income. At December 31, 2014, the total provision for the withdrawal
liabilities is $60 million. While this is the Company’s best estimate of the ultimate cost of the withdrawal from
these plans at December 31, 2014, additional withdrawal liabilities may be incurred based on the final fund
assessment and in the event of a mass withdrawal, as defined by statute, occurring anytime within the next two
years (See Note 16 “Closure and Restructuring Costs and Liability”).

100

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 8.

OTHER OPERATING (INCOME) LOSS, NET

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

Alternative fuel tax credits (Note 10)
Loss on sale of business (1)
Net (gain) loss on sale of property, plant and equipment (2)
Environmental provision
Foreign exchange (gain) loss
Weston litigation (3)
Proceeds from insurance claims on machinery and equipment
Other

Other operating (income) loss, net

Year ended
December 31,
2014

Year ended
December 31,
2013

Year ended
December 31,
2012

$
(18)
—
—

1
(1)

—
(11)
—

(29)

$
26
20
(16)
(1)
(9)
49
—

3

72

$
—
—

—
—
—

2
2
3

7

(1) On July 31, 2013, the Company completed the sale of its Ariva U.S. business. The Company recorded a loss

on sale of business of $20 million in 2013.

(2) On March 22, 2013, the Company sold the building, remaining equipment and related land of the closed
pulp and paper mill in Port Edwards, Wisconsin and recorded a gain on the sale of approximately
$10 million. The transaction included specific machinery, equipment, furniture, parts, supplies, tools, real
estate, land improvements, and other fixed or tangible assets. The assets were sold “as is” for proceeds of
approximately $9 million and the environmental provision of $3 million related to these assets was
contractually passed on to the buyer and released from the Company’s liabilities. The net book value of the
assets sold was approximately $2 million. In November 2013, the Company sold its land in Cornwall,
Ontario and recorded a gain on the sale of approximately $6 million.

On November 20, 2012, the Company sold its hydro assets in Ottawa, Ontario and Gatineau, Quebec for
approximately $46 million (CDN $46 million) and included three power stations (21M megawatts of
installed capacity), water rights in the area, as well as Domtar Inc.’s equity stake in the Chaudie`re Water
Power Inc., a ring dam consortium. As a result, the Company incurred a loss relating to the curtailment of
the pension plan of $2 million and legal fees of $1 million.

(3) On June 24, 2013, the parties agreed to settle the Weston litigation for a payment by Domtar to Weston of

$49 million (CDN $50 million).

101

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 9.

INTEREST EXPENSE, NET

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

Interest on long-term debt (1)
Loss on repurchase of long-term debt
Reversal of fair value decrement (increment) on debentures
Receivables securitization
Interest on withdrawal from multiemployer plans
Amortization of debt issue costs and other

Year ended
December 31,
2014

Year ended
December 31,
2013

Year ended
December 31,
2012

$
95
—
—

1
3
4

103

$
81
2
1
1

—

4

89

$
76
47
(2)
1

—

9

131

(1) The Company capitalized $3 million of interest expense in 2014 ($3 million in 2013 and 2012,

respectively).

NOTE 10.

INCOME TAXES

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

U.S. earnings
Foreign earnings

Earnings before income taxes

Provisions for income taxes include the following:

U.S. Federal and State:

Current
Deferred

Foreign:

Current
Deferred

Income tax (benefit) expense

102

Year ended
December 31,
2014

Year ended
December 31,
2013

Year ended
December 31,
2012

$
86
175

261

$
37
35

72

$
116
120

236

Year ended
December 31,
2014

Year ended
December 31,
2013

Year ended
December 31,
2012

$

20
(213)

11
12

(170)

$

(13)
(22)

1
14

(20)

$

68
(34)

1
23

58

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(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:

U.S. federal statutory income tax
Reconciling Items:
State and local income taxes, net of federal income tax benefit
Foreign income tax rate differential
Tax credits and special deductions
Alternative fuel tax credit (income) expense
Non-deductible litigation payments
Tax rate changes
Uncertain tax positions
U.S. manufacturing deduction
Functional currency differences
Valuation allowance on deferred tax assets
Other

Income tax (benefit) expense

Year ended
December 31,
2014

Year ended
December 31,
2013

Year ended
December 31,
2012

$
91

3
(18)
(18)
(6)

—
(16)
(194)
(9)
(5)
7
(5)

(170)

$
25

1
(6)
(54)
9
13
(3)
(3)
(5)

—

5
(2)

(20)

$
83

1
(8)
(8)

—
—

(3)
6
(10)
—

1
(4)

58

In 2014, the IRS completed 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 significantly impacted by an enacted tax rate decrease in Spain and tax losses related to
functional currency differences.

During 2013, the Company recorded $54 million of various tax credits pertaining to current and prior years.
These credits included the conversion of $26 million of AFTC into $55 million of Cellulosic Biofuel Producer
Credits (“CBPC”) resulting in an after-tax benefit of $33 million for the new credit, as well as research and
experimentation credits and other federal and state credits. Also, the Company’s effective tax rate is being
reduced in 2013 by the impact of the U.S. manufacturing deduction and enacted law changes in certain states and
provinces. The effective tax rate is being increased by the impact of certain non-deductible payments, mainly the
Weston litigation settlement and the AFTC repayment, and an increase in the valuation allowance on certain
losses. Additionally, the effective tax rate is being impacted by an $8 million reduction in unrecognized tax
benefits pertaining to the AFTC which was converted to CBPC, partially offset by $5 million of accrued interest
on uncertain tax positions.

103

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 10. INCOME TAXES (CONTINUED)

The Company recognized a tax benefit of $10 million for the manufacturing deduction in the U.S. in 2012
which impacted the effective tax rate for 2012. Additionally, the Company recorded an $8 million tax benefit
related to federal, state, and provincial credits and special deductions which reduced the effective rate. The
effective tax rate for 2012 was also impacted by an increase in the Company’s unrecognized tax benefits of
$6 million, mainly accrued interest, and a $3 million benefit related to enacted tax law changes, mainly a tax rate
reduction in Sweden, which was partially offset by U.S. tax law changes in several states.

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.

ALTERNATIVE FUEL TAX CREDITS

As of December 31, 2014, the Company has no remaining gross unrecognized tax benefits and interest or
related deferred tax assets associated with the AFTC claimed on its 2009 tax return. These benefits amounting to
$198 million were recognized, reduced by the reversal of related deferred tax assets of $20 million, or
$178 million net of deferred taxes, during 2014, thus impacting the effective tax rate.

DEFERRED TAX ASSETS AND LIABILITIES

The tax effects of significant temporary differences representing deferred tax assets and liabilities at

December 31, 2014 and December 31, 2013 are comprised of the following:

Accounting provisions
Net operating loss carryforwards and other deductions
Pension and other employee future benefit plans
Inventory
Tax credits
Other

Gross deferred tax assets
Valuation allowance

Net deferred tax assets

Property, plant and equipment
Deferred income
Impact of foreign exchange on long-term debt and investments
Intangible assets

Total deferred tax liabilities

Net deferred tax liabilities

Included in:

Deferred income tax assets
Other assets (Note 15)
Deferred income taxes and other

Total

104

December 31,
2014

December 31,
2013

$
56
78
61
15
34
10

254
(25)

229

(734)
—
(10)
(170)

(914)

(685)

75
4
(764)

(685)

$
62
107
58
6
62
23

318
(19)

299

(735)
(41)
(11)
(109)

(896)

(597)

52
15
(664)

(597)

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 10. INCOME TAXES (CONTINUED)

With the acquisition of AHP on July 1, 2013, and Attends US on September 1, 2011, the Company acquired
additional federal net operating loss carryforwards of $48 million and $2 million, respectively. 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. At December 31, 2014, the Company had
$6 million of federal net operating loss carryforward remaining which expires in 2032. Canadian scientific
research and experimental development expenditures not previously deducted represent an amount of
$99 million. The Canadian federal losses have been fully utilized as of December 31, 2014, and there is no
expiration date on the scientific research and experimental development expenditures. The Company also has
other foreign net operating loss carryforwards of $23 million, of which $5 million will begin to expire in 2017,
$76 million, which may be carried forward indefinitely, and $11 million of finance expenditures not previously
deducted.

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, we 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 in the U.S., with the exception of certain state credits
for which a valuation allowance of $4 million exists at December 31, 2014, and certain foreign loss
carryforwards for which a valuation allowance of $21 million exists at December 31, 2014. Of this amount,
$7 million impacted tax expense and the effective tax rate for 2014 ($5 million – 2013; $1 million – 2012).

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, 2014, the Company had gross unrecognized tax benefits of approximately $48 million
($259 million and $254 million for 2013 and 2012 respectively). If recognized in 2015, 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.

105

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 10. INCOME TAXES (CONTINUED)

Balance at beginning of year
Additions based on tax positions related to current year
Additions for tax positions of prior years
Reductions for tax positions of prior years
Reductions related to settlements with taxing authorities
Expirations of statutes of limitations
Interest
Foreign exchange impact

Balance at end of year

December 31,
2014

December 31,
2013

December 31,
2012

$
259
3
10
—
(223)
(4)
4
(1)

48

$
254
3
9
(10)
(2)

—

5

—

259

$
253
1
1

—
(10)
—

9

—

254

As a result of the acquisition of Indas on January 2, 2014 and AHP on July 1, 2013, the Company recorded

unrecognized tax benefits which are shown as additions for tax positions of prior years in the table above.

The Company recorded $4 million of accrued interest associated with unrecognized tax benefits for the
period ending December 31, 2014 ($5 million and $9 million for 2013 and 2012, respectively). The Company
recognizes accrued interest and penalties, if any, related to unrecognized tax benefits as a component of tax
expense.

The major jurisdictions where the Company and its subsidiaries will file tax returns for 2014, 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 states and
provinces. At December 31, 2014, the Company’s subsidiaries are subject to foreign federal income tax
examinations for the tax years 2007 through 2012, with federal years prior to 2009 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, except as mentioned below.

During the third quarter of 2014, the IRS completed an audit of the Company’s 2009, 2010, and 2011 U.S.
income tax returns. As a result of the audit closure, 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. The recognition of these benefits, $200 million net of deferred taxes, impacted the effective tax
rate for 2014. Included in the above amounts are previously unrecognized tax benefits and interest of $198
million and the reversal of related deferred assets (expense) of $20 million, a $178 million benefit net of deferred
taxes, related to AFTC. As of December 31, 2014, the Company has no remaining gross unrecognized tax
benefits and interest or related deferred tax assets associated with the AFTC claimed on its 2009 tax return.

106

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 11.

INVENTORIES

The following table presents the components of inventories:

Work in process and finished goods
Raw materials
Operating and maintenance supplies

December 31,
2014

December 31,
2013

$
395
123
196

714

$
386
102
197

685

NOTE 12.

GOODWILL

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

Balance at beginning of year

Acquisition of Laboratorios Indas
Acquisition of AHP
Effect of foreign currency exchange rate change

Balance at end of year

December 31,
2014

December 31,
2013

$
369
234
—
(36)

567

$
263
—
103
3

369

The goodwill at December 31, 2014 is entirely related to the Personal Care reporting segment. (See Note 3

“Acquisition of Businesses” for further information on the increase in 2014).

The Company performed its annual goodwill

testing at October 1, 2014 and 2013 and
determined that the estimated fair value of the reporting units exceeded their carrying values. On October 1,
2012, the Company assessed qualitative factors to determine whether it was more likely than not that the fair
value of the reporting unit was less than its carrying amount. After assessing the totality of events and
circumstances, the Company determined that it was more likely than not that the fair value of the reporting unit
was greater than its carrying amount. As a result, no impairment charges were recorded during 2014, 2013 or
2012.

impairment

107

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 13.

PROPERTY, PLANT AND EQUIPMENT

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

Machinery and equipment
Buildings and improvements
Timberlands
Assets under construction

Less: Allowance for depreciation and amortization

Range of
useful lives

December 31,
2014

December 31,
2013

3 – 20
10 – 40

$
7,537
1,005
243
124

8,909
(5,778)

3,131

$
7,506
982
255
140

8,883
(5,594)

3,289

Depreciation expense related to property, plant and equipment for the year ended December 31, 2014 was

$363 million (2013 – $366 million; 2012 – $377 million).

108

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 14.

INTANGIBLE ASSETS

The following table presents the components of intangible assets:

Estimated useful lives
(in years)

December 31, 2014

December 31, 2013

40

10 –40
7 – 20
9
12

Intangible assets
subject to
amortization

Water rights
Customer

relationships (1)

Technology
Non-Compete
License rights

Intangible assets not

subject to
amortization
Trade names (1)
License rights
Catalog rights (1)

Total

Gross carrying
amount

Accumulated
amortization

$

$

8

374
8
1
29

420

233
6
41

700

(1)

(32)
(2)

—

(4)

(39)

—
—
—

(39)

Net

$

7

342
6
1
25

381

233
6
41

661

Gross carrying
amount

Accumulated
amortization

$

$

8

256
8
1
29

302

116
6

—

424

(1)

(14)
(1)

—

(1)

(17)

—
—
—

(17)

Net

$

7

242
7
1
28

285

116
6

—

407

Amortization expense related to intangible assets for the year ended December 31, 2014 was $21 million

(2013 – $10 million; 2012 – $8 million).

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

Amortization expense related to intangible assets

(1)

Increase relates to the acquisition of Indas on January 2, 2014.

2015

2016

2017

2018

2019

$
20

$
20

$
20

$
19

$
19

109

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 14. INTANGIBLE ASSETS (CONTINUED)

The Company performed its annual impairment test on its indefinite-lived intangible assets at October 1, 2014,
using a quantitative approach, and determined that the estimated fair values of its indefinite-lived intangible
assets significantly exceeded their carrying amounts. On October 1, 2013 and 2012, the Company performed the
qualitative assessment of
indefinite-lived intangible assets. After assessing the totality of events and
circumstances, the Company determined that it was more likely than not that the fair values of the indefinite-
lived intangible assets was greater than their respecting carrying amounts. Thus, performing the Step I
impairment test was unnecessary. No impairment charge was recorded for indefinite-lived intangible assets
during 2014, 2013 or 2012.

NOTE 15.

OTHER ASSETS

The following table presents the components of other assets:

Pension asset—defined benefit pension plans (Note 7)
Unamortized debt issue costs
Deferred income tax assets (Note 10)
Asset-backed notes
Other

NOTE 16.

December 31,
2014

December 31,
2013

$
121
14
4
10
7

156

$
96
15
15
6
4

136

CLOSURE AND RESTRUCTURING COSTS AND LIABILITY

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

In relation to the withdrawal from one of the Company’s multiemployer pension plans in 2011, the
Company recorded a charge to earnings of $14 million in 2012, as a result of a revision in the estimated
withdrawal liability. Also in 2012, the Company withdrew from a second multiemployer pension plan and
recorded a withdrawal liability and a charge to earnings of $1 million. In the first quarter of 2013, as a result of
another revision in the estimated withdrawal liability, the Company recorded a further charge to earnings of
$1 million. During the second and third quarter of 2013, the Company withdrew from its remaining U.S.
multiemployer pension plans and recorded a withdrawal liability and a charge to earnings of $14 million, of

110

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

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

which $3 million is recorded in Closure and restructuring costs and $11 million related to the sale of its Ariva
U.S. business in Other operating (income)
loss, net on the Consolidated Statement of Earnings and
Comprehensive Income. At December 31, 2014, the total provision for the withdrawal liabilities is $60 million.
At December 31, 2014, this is the Company’s best estimate of the ultimate cost of the withdrawal from these
plans. Further, the Company remains liable for potential additional withdrawal liabilities to the fund in the event
of a mass withdrawal, as defined by statute, occurring anytime up to the next two years.

During the fourth quarter of 2014, the Company incurred pension settlement costs in the amount of

$19 million related to the previously closed Ottawa paper mill.

During the second quarter of 2013, the Company incurred pension settlement costs in the amount of
$13 million related to the previously closed Big River sawmill and Dryden paper mill for $6 million and
$7 million, respectively.

Ashdown, Arkansas mill

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

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

The aggregate pre-tax earnings charge in connection with this conversion is estimated to be $120 million
which includes an estimated $117 million in non-cash charges relating to accelerated depreciation of the carrying
amounts of the manufacturing equipment as well as the write-off of related spare parts. Of the estimated pre-tax
charge of $120 million, $3 million relates to estimated cash severance, employee benefits and training. Of the
estimated total pre-tax charge of $120 million, $113 million is expected to be incurred during 2015 and 2016. As
a result of the fourth quarter decision to convert a paper machine to a fluff pulp line at its Ashdown, Arkansas
mill,
the Company recorded in the fourth quarter of 2014 $4 million of accelerated depreciation under
Impairment and write-down of property, plant and equipment on the Consolidated Statement of Earnings and
Comprehensive Income 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 closure and termination costs and $1 million of inventory obsolescence.

111

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

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

Attends Europe

During the fourth quarter of 2013, the Company recorded a $2 million write-down of property, plant and
equipment due to the replacement of certain equipment at its Attends Europe location, in Impairment and write-
down of property, plant and equipment and intangible assets on the Consolidated Statement of Earnings and
Comprehensive Income.

Pulp and paper converting site

During the fourth quarter of 2013, the Company recorded a $5 million write-down of property, plant and
equipment at one of its converting sites in the pulp and paper segment, in Impairment and write-down of
property, plant and equipment and intangible assets on the Consolidated Statement of Earnings and
Comprehensive Income.

Ariva U.S.

On July 31, 2013, the Company completed the sale of its Ariva U.S. business which had approximately 400
employees in the United States. As a result of this agreement, during the second quarter of 2013, the Company
recorded a $5 million impairment of property, plant and equipment at its Ariva U.S. location, in Impairment and
write-down of property, plant and equipment on the Consolidated Statement of Earnings and Comprehensive
Income.

Kamloops, British Columbia pulp facility

On December 13, 2012, the Company announced the permanent shut down of one pulp machine at its Kamloops,
British Columbia mill. This decision resulted in a permanent curtailment of Domtar’s annual pulp production by
approximately 120,000 air dried metric tons of sawdust softwood pulp and affected approximately 125
employees.

As a result, the Company recognized in 2012, $7 million of accelerated depreciation under Impairment and write-
down of property, plant and equipment and intangibles assets, $5 million of severance and termination costs and
a $4 million write-down of inventory. The pulp machine ceased production in March 2013. Furthermore, during
the first quarter of 2013, the Company recognized $10 million of accelerated depreciation under Impairment and
write-down of property, plant and equipment, and reversed $1 million of severance and termination costs. During
the second quarter of 2013, the Company reversed an additional $1 million of severance and termination costs,
reversed $1 million of inventory obsolescence, and incurred $2 million of other costs.

Mira Loma, California converting plant

During the first quarter of 2012, the Company recorded a $2 million write-down of property, plant and equipment
at its Mira Loma location in California, in Impairment and write-down of property, plant and equipment and
intangible assets on the Consolidated Statement of Earnings and Comprehensive Income.

Lebel-sur-Quévillon pulp mill and sawmill

Operations at the pulp were indefinitely idled in November 2005 due to unfavorable economic conditions and the
sawmill was indefinitely idled since 2006 and then permanently closed in 2008. At the time, the pulp mill and

112

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

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

sawmill employed approximately 425 and 140 employees, respectively. The Lebel-sur-Quévillon pulp mill had
an annual production capacity of 300,000 metric tons. During the second quarter of 2012, the Company
concluded the sale of its pulp and sawmill assets to Fortress Paper Ltd., and its land related to those assets to a
subsidiary of the Government of Quebec for net proceeds of $1.

Other costs

During 2014, other costs related to previous and ongoing closures include $3 million of severance and

termination costs.

During 2013, other costs related to previous and ongoing closures include $2 million of severance and

termination costs.

During 2012, other costs related to previous and ongoing closures include $1 million in severance and

termination costs, a $1 million write-down of inventory, $1 million in pension and $3 million in other costs.

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

Severance and termination costs
Inventory write-down
Pension settlement and withdrawal liability

Closure and restructuring costs

Severance and termination costs
Inventory obsolescence reversal
Pension settlement and withdrawal liability
Other

Closure and restructuring costs

Year ended
December 31, 2014

Pulp and Paper

Personal Care Total

$
4
4
19

27

$

1

—
—

1

$
5
4
19

28

Year ended
December 31, 2013

Pulp and Paper

Personal Care Corporate

Total

$
(2)
(1)
11
2

10

$

2

—
—
—

2

$
—
—

—

6

6

$
—

(1)
17
2

18

Severance and termination costs
Inventory write-down
Loss on curtailment of pension benefits and pension withdrawal liability
Other

Closure and restructuring costs

113

Year ended
December 31, 2012

Pulp and Paper

Personal Care

Total

$
6
5
16
2

29

$
—
—
—
1

1

$
6
5
16
3

30

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

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

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

Balance at beginning of year
Additions
Payments
Pension provision (reflected in Accrued benefit obligation)
Reversal
Acquisition of business

Balance at end of year

December 31,
2014

December 31,
2013

$

3
4
(5)

—

(1)
1

2

$
10
1
(5)
(3)

—
—

3

The $2 million provision comprised of severance and termination costs is in the Pulp and Paper segment.

Closure and restructuring costs are based on management’s best estimates at December 31, 2014. Actual
costs may differ from these estimates due to subsequent developments such as the results of environmental
to be dismantled and demolished and other business
studies,
developments. As such, additional costs and further write-downs may be required in future periods.

the ability to find a buyer for assets set

NOTE 17.

TRADE AND OTHER PAYABLES

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

Trade payables
Payroll-related accruals
Accrued interest
Payables on capital projects
Rebate accruals
Liability—pension and other post-retirement benefit plans (Note 7)
Provision for environment and other asset retirement obligations (Note 22)
Closure and restructuring costs liability (Note 16)
Derivative financial instruments (Note 23)
Dividends payable (Note 21)
Stock-based compensation—liability awards
Other

114

December 31,
2014

December 31,
2013

$
374
149
26
21
68
5
16
2
27
24
3
6

721

$
370
148
21
6
62
5
19
3
10
17
8
4

673

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 18.

CHANGES IN ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) BY COMPONENT

The following table presents the changes in Accumulated other comprehensive income (loss) by

component (1) for the period ended December 31 2014 and 2013.

Net derivative gains
(losses) on cash flow
hedges

Balance at December 31, 2012

Natural gas swap contracts
Currency options
Net investment hedge
Prior service cost
Net loss
Foreign currency items

Other comprehensive (loss) income before

reclassifications

Amounts reclassified from Accumulated other

comprehensive loss

Net current period other comprehensive (loss) income

Balance at December 31, 2013

Balance at December 31, 2013

Natural gas swap contracts
Currency options
Forward contracts
Net gain
Foreign currency items

Other comprehensive loss before reclassifications

Amounts reclassified from Accumulated other

comprehensive loss

Net current period other comprehensive (loss) income

Balance at December 31, 2014

5

—

(8)
(2)
N/A

N/A

N/A

(10)

5

(5)

—

—

(10)
(15)
2
N/A

N/A

(23)

8

(15)

(15)

Post-
retirement
benefit
items (2)

Foreign
currency
items

(15)

208

Pension
items (2)

(326)

Total

(128)

N/A

N/A

N/A
—
86
N/A

86

30

116

(210)

(210)

N/A

N/A

N/A
(4)
N/A

(4)

22

18

(192)

N/A

N/A

N/A
—

7
N/A

7

1

8

(7)

(7)

N/A

N/A

N/A
(6)
N/A

(6)

—

(6)

(13)

(8)
(2)

N/A —
N/A

N/A
N/A —
93
N/A
(56)
(56)

(56)

—

(56)

152

152

N/A

N/A

N/A

N/A
(200)

(200)

—

(200)

(48)

27

36

63

(65)

(65)

(10)
(15)
2
(10)
(200)

(233)

30

(203)

(268)

(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.

115

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

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

The following table presents reclassifications out of Accumulated other comprehensive income (1) :

Details about Accumulated other comprehensive income components

Net derivative gains (losses) on cash flow hedge

Natural gas swap contracts
Currency options and forwards

Total before tax
Tax benefit

Net of tax

Amortization of defined benefit pension items

Amortization of prior year service cost (credit)
Amortization of net actuarial loss

Total before tax
Tax benefit

Net of tax

Amortization of other post-retirement benefit plans’ items
Amortization of prior year service cost (credit)
Amortization of net actuarial loss

Total before tax
Tax benefit

Net of tax

Amount reclassified from
Accumulated other
comprehensive income

Year ended December 31

2014

2013

(4)
16

12
(4)

8

22
9

31
(9)

22

—
—

—
—

—

4 (2)
4 (2)

8
(3)

5

17 (3)
25 (3)

42
(12)

30

—

1 (3)

—

1

1

(1) Amounts in parentheses indicate losses.

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

Income.

(3) These amounts are included in the computation of net periodic pension cost. (see Note 7 “Pension Plans and

Other Post-retirement benefit plans” for more details)

116

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 19.

LONG-TERM DEBT

Unsecured notes

7.125% Notes
9.5% Notes
10.75% Notes
4.4% Notes
6.25% Notes
6.75% Notes

Revolving Credit Facility
Capital lease obligations and other

Less: Due within one year

Maturity

Amount Currency

Par

December 31,
2014

December 31,
2013

$

167
2015
94
2016
278
2017
300
2022
250
2042
2044
250
2019 —

US
US
US
US
US
US
US

2015 – 2028

$

166
96
275
300
249
249
—
15
1,350
169
1,181

$

166
97
273
300
249
249
160
20
1,514
4
1,510

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

amount to:

2015
2016
2017
2018
2019
Thereafter

Less: Amounts representing interest

Total payments

UNSECURED NOTES

Long-term debt

Capital leases
and other

$
167
94
278
—
—
800

1,339
—

1,339

$
4
3
2
1
1
10

21
6

15

During the first quarter of 2013, the Company redeemed its outstanding 5.375% Notes due 2013, for par value of
$71 million. The Company incurred $2 million of premiums paid and additional charges of $1 million, included
in Interest expense, net on the Consolidated Statement of Earnings and Comprehensive Income. The Company
also repaid $23 million of capital lease obligations to purchase the land and buildings, related to the Greenville,
North Carolina site, in the Personal Care segment.

As a result of a cash tender offer during the first quarter of 2012, the Company repurchased $1 million of the
5.375% Notes due 2013, $47 million of the 7.125% Notes due 2015, $31 million of the 9.5% Notes due 2016 and
$107 million of the 10.75% Notes due 2017. The Company incurred tender premiums of $47 million and
additional charges of $3 million as a result of this extinguishment, both of which were included in Interest
expense, net on the Consolidated Statements of Earnings and Comprehensive Income.

117

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 19. LONG-TERM DEBT (CONTINUED)

SENIOR NOTES OFFERING

On November 30, 2013,
the Company issued $250 million 6.75% Notes due 2044 for net proceeds of
$249 million. The net proceeds from the offering were used to fund a portion of the purchase price of the
acquisition of Indas.

On August 20, 2012, the Company issued $250 million 6.25% Notes due 2042 for net proceeds of $247 million.
The net proceeds from the offering of the Notes were used for general corporate purposes.

On March 7, 2012, the Company issued $300 million 4.4% Notes due 2022 for net proceeds of $297 million. The
net proceeds from the offering of the Notes were used to fund the portion of the purchase of the 5.375% Notes
due 2013, 7.125% Notes due 2015, 9.5% Notes due 2016 and 10.75% Notes due 2017 tendered and accepted by
the Company pursuant to a tender offer, including the payment of accrued interest and applicable early tender
premiums, not funded with cash on hand, as well as for general corporate purposes.

The Notes are redeemable, in whole or in part, at the Company’s option at any time. In the event of a change in
control, each holder will have the right to require the Company to repurchase all or any part of such holder’s
Notes at a purchase price in cash equal to 101% of the principal amount of the Notes, plus any accrued and
unpaid interest. The Notes are unsecured obligations and rank equally with existing and future unsecured and
unsubordinated indebtedness. The Notes are fully and unconditionally guaranteed on an unsecured basis by
certain U.S. 100% owned subsidiaries, which currently guarantee indebtedness under the Credit Agreement.

BANK FACILITY

On October 3, 2014, the Company entered into a $600 million amended and restated Credit Agreement that
matures on October 3, 2019. This amended credit facility was scheduled to mature June 15, 2017. The Credit
Agreement provides for a revolving credit facility (including a letter of credit sub-facility and a swingline
sub-facility), which may be borrowed in U.S. Dollars, Canadian Dollars (in an amount up to the Canadian Dollar
equivalent of $150 million) and Euros (in an amount up to the Euro equivalent of $200 million). The Company
may increase the maximum aggregate amount of availability under the Credit Agreement by up to $400 million,
borrow this increased amount as a term loan, and extend the final maturity of the Credit Agreement by one year,
subject to the agreement of applicable lenders.

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

The Credit Agreement contains customary covenants, including two financial covenants: (i) an interest
coverage ratio, as defined in the Credit Agreement, that must be maintained at a level of not less than 3 to 1 and
(ii) a leverage ratio, as defined in the Credit Agreement that must be maintained at a level of not greater than 3.75
to 1. At December 31, 2014, the Company was in compliance with the covenants, and no amounts were borrowed
(December 31, 2013 – $160 million). At December 31, 2014, the Company had no outstanding letters of credit
under this credit facility (December 31, 2013 – $1 million).

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

118

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 19. LONG-TERM DEBT (CONTINUED)

certain subsidiaries of the Company that are not organized in the United States unconditionally guarantee any
obligations of Domtar Inc., the Canadian subsidiary borrower, or of additional borrowers that are not organized
in the United States, under the Credit Agreement, in each case, subject to the provisions of the Credit Agreement.

RECEIVABLES SECURITIZATION

The Company uses securitization of certain receivables to provide additional liquidity to fund its operations.
The costs under the program may vary based on changes in interest rates. 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 credit facility, or the failure by Domtar to satisfy
material obligations.

At December 31, 2014, the Company had no borrowings and $45 million of letters of credit outstanding
under the program (2013 – nil and $46 million, respectively). Sales of receivables under this program are
accounted for as secured borrowings.

In 2014, a net charge of $1 million (2013 – $1 million; 2012 – $1 million) resulted from the program
described above and was included in Interest expense in the Consolidated Statements of Earnings and
Comprehensive Income.

NOTE 20.

OTHER LIABILITIES AND DEFERRED CREDITS

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

Liability—other post-retirement benefit plans (Note 7)
Pension liability—defined benefit pension plans (Note 7)
Pension liability—multiemployer plan withdrawal (Note 7)
Provision for environmental and asset retirement obligations (Note 22)
Stock-based compensation—liability awards
Derivative Financial Instruments
Other

119

December 31,
2014

December 31,
2013

$
100
123
58
44
14
15
24

378

$
98
102
63
48
17
1
25

354

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 20. OTHER LIABILITIES AND DEFERRED CREDITS (CONTINUED)

ASSET RETIREMENT OBLIGATIONS

The asset retirement obligations are principally linked to landfill capping obligations, asbestos removal
obligations and demolition of certain abandoned buildings. At December 31, 2014, Domtar estimated the net
present value of its asset retirement obligations to be $20 million (2013 – $21 million); the present value is based
on probability weighted undiscounted cash outflows of $64 million (2013 – $66 million). The majority of the
asset retirement obligations are estimated to be settled prior to December 31, 2033. However, some settlement
scenarios call for obligations to be settled as late as December 31, 2053. 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,
2014

December 31,
2013

$
21

—
—
—

(2)
2
(1)

20

$
33
(2)
(3)
(5)
(3)
1

—

21

Asset retirement obligations, beginning of year
Revisions to estimated cash flows
Sale of closed facility (1)
Reversal of provision
ARO Spending
Accretion expense
Effect of foreign currency exchange rate change

Asset retirement obligations, end of year

(1) The sale of facility in 2013, relates to the sale of Port Edward.

NOTE 21.

SHAREHOLDERS’ EQUITY

On April 30, 2014, the Company’s Board of Directors approved a 2-for-1 split of its 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 the Company’s common stock
outstanding increased from approximately 32.5 million to 65 million.

In addition, the Company’s Board of Directors approved an increase in the quarterly dividend on its
common stock on a post-split basis, from $0.275 to $0.375 per share. This is equivalent to, on a pre-split basis, an
increase of $0.20 per share (36%) per quarter.

During 2014, the Company declared one quarterly dividend of $0.275 per share to holders of the Company’s
common stock, as well as holders of exchangeable shares of Domtar (Canada) Paper Inc and three quarterly

120

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 21. SHAREHOLDERS’ EQUITY (CONTINUED)

dividends of $0.375 per share, to holders of the Company’s common stock. The total dividends of approximately
$18 million, $24 million, $24 million and $24 million were paid on April 15, 2014, July 15, 2014, October 15,
2014 and January 15, 2015, respectively, to shareholders of record as of March 14, 2014, July 2, 2014, October 2,
2014 and January 2, 2015, respectively.

During 2013, the Company declared one quarterly dividend of $0.225 per share, on a post-split basis, and
three quarterly dividends of $0.275 per share, on a post-split basis, to holders of the Company’s common stock,
as well as holders of exchangeable shares of Domtar (Canada) Paper Inc. The total dividends of approximately
$15 million, $19 million, $18 million and $17 million were paid on April 15, 2013, July 15, 2013, October 15,
2013 and January 15, 2014, respectively, to shareholders of record as of March 15, 2013, June 14, 2013,
September 13, 2013 and December 13, 2013, respectively.

On February 23, 2015, the Company’s Board of Directors approved a quarterly dividend of $0.40 per share
to be paid to holders of the Company’s common stock. This dividend is to be paid on April 15, 2015 to
shareholders of record on April 2, 2015.

STOCK REPURCHASE PROGRAM

In 2010, the Company’s Board of Directors authorized a stock repurchase program (“the Program”) of up to
$1 billion of Domtar Corporation’s common stock. On February 23, 2015, the Company’s Board of Directors
approved an increase to the Program from $1 billion to $1.3 billion. Under the Program, the Company is
authorized to repurchase from time to time shares of its outstanding common stock on the open market or in
privately negotiated transactions in the United States. 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,
awards, and to improve shareholders’ returns.

The Company makes open market purchases of its common stock using general corporate funds.
Additionally, the Company enters 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 require the
Company to make up-front payments to the counterparty financial institutions which results 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 2014, the Company repurchased 996,967 shares (2013 – 5,019,606; 2012 – 4,001,850 shares) at an
average price of $38.59 (2013 – $36.55; 2012 – $39.16) for a total cost of $38 million (2013 – $183 million;
2012 – $157 million).

Since the inception of the Program, the Company repurchased 23,337,980 shares at an average price of
$39.21 for a total cost of $915 million. All shares repurchased are recorded as Treasury stock on the
Consolidated Balance Sheets under the par value method at $0.01 per share.

121

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(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, 2014 or
December 31, 2013.

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, 2014 and December 31, 2013, were as follows:

Common stock

Balance at beginning of year
Shares issued

Stock options
Conversion of exchangeable shares
Stock split (2:1) (1)
Treasury stock (1)

December 31,
2014

December 31,
2013

Number
of shares

$

Number
of shares

$

31,857,451 — 34,238,604 —

— —
561,510 —

4,278 —
46,304 —
— —
(909,426) — (2,431,735) —

1

32,500,552

Balance at end of year

64,010,087

1 31,857,451 —

(1) The Company issued 10,635,436 shares out of Treasury stock in order to complete the transaction. During
2014, the Company repurchased 996,967 shares (2013 – 5,019,606) and issued 87,541 shares (2013 –
156,136) out of Treasury stock in conjunction with the exercise of stock-based compensation awards.

Domtar (Canada) Paper Inc. Exchangeable Shares

Upon the consummation of a series of transactions whereby the Fine Paper Business of Weyerhaeuser
Company was transferred to the Company and it acquired Domtar Inc. on March 7, 2007 (Domtar Inc.
shareholders had the option to receive either common stock of the Company or shares of Domtar (Canada) Paper
Inc., a subsidiary of Domtar Corporation, that were exchangeable for common stock of the Company. The
exchangeable shares of Domtar (Canada) Paper Inc. were intended to be substantially the economic equivalent to
shares of the Company’s common stock. These shareholders could exchange the exchangeable shares for shares
of Domtar Corporation common stock on a one-for-one basis at any time.

122

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 21. SHAREHOLDERS’ EQUITY (CONTINUED)

On June 2, 2014 (the “Redemption Date”), Domtar (Canada) Paper Inc. redeemed all of its outstanding
exchangeable shares from the holders thereof. On the Redemption Date, holders of exchangeable shares received,
in exchange for each exchangeable share, one share of common stock of Domtar Corporation (plus cash in the
amount of all declared and unpaid dividends, if any, provided that the record date for the payment of such
dividends was prior to the Redemption Date).

As a result of the redemption of exchangeable shares,

the Company reclassified $32 million from

Exchangeable shares to Additional paid-in capital.

NOTE 22.

COMMITMENTS AND CONTINGENCIES

ENVIRONMENT

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

local authorities.

In 2014, the Company’s operating expenses for environmental matters, as described in Note 1, amounted to

$68 million (2013 – $69 million; 2012 – $64 million).

The Company made capital expenditures for environmental matters of $14 million in 2014 (2013 –
$4 million; 2012 – $4 million). No amounts were spent under the Pulp and Paper Green Transformation Program
in 2014 as all projects were completed in 2013, and reimbursed by the Government of Canada (2013 – nil; 2012
– $6 million), for the improvement of air emissions and energy efficiency, effluent treatment and remedial
actions to address environmental compliance.

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. Beyond the filing of preliminary
pleadings, no steps have been taken by the parties in this action. On February 16, 2010, the government of British
Columbia issued a Remediation Order to Seaspan and the Company (“responsible persons”) in order to define
and implement an action plan to address soil, sediment and groundwater issues. This Order was appealed to the
Environmental Appeal Board (“Board”) on March 17, 2010 but there is no suspension in the execution of this
Order unless the Board orders otherwise. The relevant government authorities selected a remediation approach on
July 15, 2011, and on January 8, 2013,
the same authorities decided that each responsible persons’
implementation plan is satisfactory and that the responsible persons should decide which plan is to be used. Most
of the remaining appeals that were to be heard before the Board were abandoned by the parties during the course
of the Board proceedings which were held in the fall of 2013. Seaspan and Domtar have selected a remedial plan
and have applied to the Vancouver Fraser Port Authority for permitting approval. The Company has recorded an
environmental reserve to address its estimated exposure. The possible loss in excess of the reserve is not
considered to be material for this matter.

123

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 22. COMMITMENTS AND CONTINGENCIES (CONTINUED)

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

obligations:

Balance at beginning of year
Additions
Sale of business and closed facility
Reversal of provision
Environmental spending
Accretion
Effect of foreign currency exchange rate change

Balance at end of year

December 31,
2014

December 31,
2013

$
67
2

—
—

(8)
2
(3)

60

$
83
3
(3)
(7)
(8)
2
(3)

67

At December 31, 2014, anticipated undiscounted payments in each of the next five years are as follows:

Environmental provision and other asset retirement

obligations

2015

2016

2017

2018

2019 Thereafter Total

$

$

16

14

$

1

$

1

$

2

$

70

$

104

The Company is also a party to various proceedings relating to the cleanup of hazardous waste sites under
the Comprehensive Environmental Response Compensation and Liability Act, commonly known as “Superfund,”
and similar state laws. The U.S. Environmental Protection Agency (“EPA”) and/or various state agencies have
notified the Company that it may be a potentially responsible party 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. The investigation and remediation process is
lengthy and subject to the uncertainties of changes in legal requirements, technological developments and, if and
when applicable, the allocation of liability among potentially responsible parties.

Climate change regulation

In response to the Kyoto Protocol, which calls for reductions of certain emissions that may contribute to
increases in atmospheric greenhouse gas (“GHG”) concentrations, various international, national and local laws
have been proposed or implemented focusing on reducing GHG emissions. These actual or proposed laws do or
may apply in the jurisdictions where the Company currently has, or may have in the future, manufacturing
facilities or investments.

In the United States, Congress has considered legislation to reduce emissions of GHGs. Although the
legislation has not passed, the U.S. government is promulgating resolutions under the existing Clean Air Act to
reduce GHG emissions from public utilities and certain other emitters. The EPA has adopted and implemented

124

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 22. COMMITMENTS AND CONTINGENCIES (CONTINUED)

GHG permitting requirements for certain new sources and modifications of existing industrial facilities and has
proposed GHG performance standards for newly constructed, reconstructed and modified electric utilities. The
EPA has also relied on the existing Clean Air Act to propose a “Clean Power Plan” that will set emission
guidelines for existing electric utilities and require states to develop plans for reducing GHG emissions by
making significant changes to the energy resources utilized within the state. The EPA has developed a biogenic
carbon accounting framework to account for carbon dioxide emissions from biomass fuels for Clean Air Act
permitting purposes. The EPA references this framework in the proposals addressing GHG performance
standards for the electric utilities. Furthermore, several states are already regulating GHG emissions from public
utilities and certain other significant emitters, primarily through regional GHG cap-and-trade programs or
renewable energy requirements.

The U.S. Supreme Court held on June 23, 2014 that the EPA had exceeded its statutory authority in
establishing its GHG permitting program. Specifically, the Court determined that the EPA could not impose
GHG permitting requirements on a source unless that source had already triggered permitting requirements for
other non-GHG pollutants. However, for sources already subject to permitting, the Court held that the Clean Air
Act did not preclude the EPA from requiring those sources to install “best available control technology” for
GHGs.

Passage of GHG legislation by Congress or individual states, or the adoption of regulations by the EPA or
analogous state agencies, that restrict emissions of GHGs in areas in which the Company conducts business could
have a variety of impacts upon the Company, including requiring it to implement GHG reduction programs or to
pay taxes or other fees with respect to its GHG emissions. This, in turn, could increase the Company’s operating
costs and capital spending. The Company does not expect to be disproportionately affected by these measures
compared with other pulp and paper producers in the United States.

The Government of Canada has committed to reducing Canada’s greenhouse gases by 17 percent from
2005 levels by 2020. A sector-by-sector approach is being used to set performance standards to reduce
greenhouse gases. The Government of Canada has implemented regulations intended to regulate emissions from
motor vehicles and has enacted regulations to reduce GHG emissions from coal-fired electrical generators which
are scheduled to become effective July 1, 2015. Proposed regulations relating to GHG emissions from the oil and
gas sector are currently in consultation and are expected to come into force in 2016. Performance standards for
industrial sectors will also be developed. The pulp and paper sector is currently undergoing review. The
Company does not expect the performance standards to be disproportionately affected by these future measures
compared with other pulp and paper producers in Canada.

The province of Quebec initiated a GHG cap-and-trade system on January 1, 2012. Reduction targets for
Quebec became effective January 1, 2013. The Company does not expect the cost of compliance will have a
material impact on the Company’s financial position, results of operations or cash flows. British Columbia
imposed a carbon tax in 2008, which applies to the purchase of fossil fuels within the province. There are
currently no other federal or provincial statutory or regulatory obligations that affect the emission of GHGs for
the Company’s pulp and paper operations elsewhere in Canada. The Province of Ontario is expected to initiate
development of a regulatory program for GHG emission reductions in early 2015.

125

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 22. COMMITMENTS AND CONTINGENCIES (CONTINUED)

While it is likely that there will be increased regulation relating to GHG emissions in the future, at this time
it is not possible to estimate either a timetable for the promulgation or implementation of any new regulations or
the Company’s cost of compliance to said regulations. The impact could, however, be material.

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

The EPA published in the Federal Register on January 31, 2013, for major sources, a new set of standards
related to emissions from boilers and process heaters included in some of the Company’s manufacturing
processes. These standards are generally referred to as Boiler MACT and seek to require reductions in the
emission of certain hazardous air pollutants or surrogates of hazardous air pollutants. The EPA announced the
final rule on December 20, 2012 and it was subsequently published in the Federal Register on January 31, 2013
for major sources. The Company is developing plans to bring facilities affected by the Boiler MACT rule into
compliance by the January 2016 regulatory deadline for major sources. The Company expects that the capital
cost required to comply with the Boiler MACT rules is between $18 million and $25 million. Of this amount, in
2014, the Company has spent $10 million for costs related to Boiler MACT compliance. The Company is
currently assessing the associated increase in operating costs as well as alternate compliance strategies.

The EPA has agreed to reconsider a limited number of issues in the most recent Boiler MACT rule, and
elements of the EPA’s rule have been legally challenged. Since the consequences of these activities cannot be
predicted, adjustments to compliance plans may be needed to accommodate any changes to the final rule.

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, 2014, cannot be predicted with
certainty, it is management’s opinion that, except as noted below, their resolution will not have a material
adverse effect on the Company’s financial position, results of operations or cash flows.

Spanish Competition Investigation

In September 2014, following preliminary inquiries commenced in January 2014, Spain’s National
Commission of Markets and Competition initiated a formal investigation of several companies and their parent
companies, including Indas (a subsidiary of the Company, acquired on January 2, 2014), and two of its affiliates,
as well as an industry association, Federacion Espanola de Empresas de Tecnologia Sanitaria (“FENIN”), with
respect to possible unlawful conduct, consisting of fixing prices, commercial terms and dispensation of heavy
adult incontinence products in the Spanish market. The activities under investigation predate the acquisition of
Indas by the Company. The sellers of Indas made representations and warranties to the Company in the purchase
agreement regarding, among other things, Indas’ and its subsidiary’s compliance with competition laws. The
liability retained by the sellers is backed by bank guarantees, and limited insurance coverage has been purchased
with regards to excess liability. As a result, while the final outcome with respect to the investigation cannot be
predicted with certainty, it is management’s opinion that its resolution will not have a material adverse effect on
the Company’s financial position, results of operations or cash flows.

126

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 22. COMMITMENTS AND CONTINGENCIES (CONTINUED)

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, 2014, were as follows:

Operating leases
Other commercial commitments

2015

2016

2017

2018

2019 Thereafter Total

$
25
89

$
19
5

$
14
4

$
10

$
13
1 —

$
53

—

$
134
99

Total operating lease expense amounted to $32 million in 2014 ($32 million in 2013 and $34 million in

2012).

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,
2014, 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
time. Accordingly, no provision has been recorded. These
indemnifications have not yielded a significant expense in the past.

this

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, 2014 the Company has not
recorded a liability associated with these indemnifications, as it does not expect to make any payments pertaining
to these indemnifications.

127

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(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 we decide 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, 2014, one of Domtar’s Pulp and Paper segment
customers located in the United States represented 10% ($64 million) (2013 – 12% ($73 million)) of the
Company’s receivables.

The Company is exposed to credit risk in the event of non-performance by counterparties to its financial
instruments. The Company minimizes 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, bank credit facility and long-term debt. The Company’s objective in managing
exposure to interest rate changes is to minimize the impact of interest rate changes on earnings and cash flows
and to lower our 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.
On December 18, 2014, the Company entered into a $100 million notional 2.5 year fixed to floating interest rate
swap to receive fixed (1.0225%) and pay the 3 month LIBOR. This swap was designated as a fair value hedge for
a portion of our 10.75% notes due June 2017. The changes in fair value of both the hedging and the hedged item
are immediately recognized in interest expense. No amount has been recorded in 2014 related to the interest rate
swap entered into in December 2014.

128

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(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 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 three years.

The following table presents the volumes under derivative financial instruments for natural gas contracts

outstanding as of December 31, 2014 to hedge forecasted purchases:

Commodity

Natural gas

2015
2016
2017

Notional contractual
quantity under derivative
contracts

Notional contractual value
under derivative contracts
(in millions of dollars)

Percentage of forecasted
purchases under
derivative contracts for

11,415,000 MMBTU (1)
7,995,000 MMBTU (1)
2,340,000 MMBTU (1)

$47
$33
$10

58%
41%
12%

(1) MMBTU: Millions of British thermal units

The natural gas derivative contracts were fully effective as of December 31, 2014. There were no amounts
the year ended

reflected in the Consolidated Statements of Earnings and Comprehensive Income for
December 31, 2014 resulting from hedge ineffectiveness (2013 and 2012 – nil).

FOREIGN CURRENCY RISK

Cash flow hedges:

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

Derivatives are used to hedge forecasted purchases in Canadian dollars by its Canadian subsidiary over the
next 24 months. Derivatives are also used to hedge forecasted sales in British pounds and Norwegian krone and
forecasted purchases in U.S. dollars and Swedish krona by its European subsidiaries over the next 12 months.

129

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

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

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 contracts pursuant to currency options outstanding as

of December 31, 2014 to hedge forecasted purchases and sales:

Currency exposure hedged

CDN/USD
USD/Euro
GBP/Euro
SEK/Euro
NOK/Euro

CDN/USD

Notional
contractual
value

Percentage of
forecasted net
exposures under
contracts

Protection
rate

Obligation
rate

390 CDN
58 USD
13 GBP
155 SEK
35 NOK

195 CDN

50%
74%
77%
50%
48%

25%

1 USD = 1.0997 1 USD = 1.1345
1 Euro = 1.3271 1 Euro = 1.3328
1 Euro = 0.8253 1 Euro = 0.7993
1 Euro = 9.1692 1 Euro = 9.1692
1 Euro = 8.4203 1 Euro = 8.4203

1 USD = 1.1083 1 USD = 1.1491

Year

2015

2016

The foreign exchange derivative contracts were fully effective as of December 31, 2014. There were no
amounts reflected in the Consolidated Statements of Earnings and Comprehensive Income for the year ended
December 31, 2014 resulting from hedge ineffectiveness (2013 and 2012 - 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, 2014 and
December 31, 2013, 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.

130

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

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

Fair Value of financial instruments at:

Derivatives designated under the
Derivatives and Hedging Topic of
FASB ASC:

Asset derivatives
Currency derivatives
Currency derivatives

Total Assets

Liabilities derivatives
Currency derivatives

Currency derivatives

Natural gas swap contracts

Natural gas swap contracts

Total Liabilities

Other Instruments:

Asset backed notes
Long-term debt

December 31,
2014

$

7
3

10

14

9

13

6

42

11
1,475

Quoted prices in
active markets for
identical assets
(Level 1)

Significant
observable
inputs
(Level 2)

Significant
unobservable
inputs
(Level 3)

Balance sheet classification

$

—
—

—

—

—

—

—

—

—
—

$

$

7
3

10

14

9

13

6

—
—

—

—

—

—

—

(a) Prepaid expenses
Intangible assets
(a)
and deferred
charges

(a) Trade and other
payables
(a) Other liabilities
and deferred
credits

(a) Trade and other
payables
(a) Other liabilities
and deferred
credits

42

—

10
1,475

1

—

(b) Other assets
(c) Long-term debt

The cumulative loss recorded in Other comprehensive (loss) income relating to natural gas contracts of
$19 million at December 31, 2014, will be recognized in Cost of sales upon maturity of the derivatives over the
next 36 months at the then prevailing values, which may be different from those at December 31, 2014.

The cumulative loss recorded in Other comprehensive (loss) income relating to currency options and forwards
hedging forecasted purchases of $13 million at December 31, 2014, will be recognized in Cost of sales or Sales
upon maturity of the derivatives over the next 21 months at the then prevailing values, which may be different
from those at December 31, 2014.

131

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

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

Fair Value of financial instruments at:

Derivatives designated under the
Derivatives and Hedging Topic of
FASB ASC:

Asset derivatives
Currency derivatives
Natural gas swap contracts
Natural gas swap contracts

Total Assets

Liabilities derivatives
Currency derivatives

Natural gas swap contracts

Total Liabilities

Other Instruments

Asset backed notes
Long-term debt

December 31,
2013

Quoted prices in
active markets for
identical assets
(Level 1)

Significant
observable
inputs
(Level 2)

Significant
unobservable
inputs
(Level 3)

$

$

$

$

Balance sheet classification

3
2

1

6

10

1

11

—
—

—

—

—

—

—

3
2

1

6

10

1

11

—
—

—

—

—

—

—

(a) Prepaid expenses
(a) Prepaid expenses
Intangible assets
(a)
and deferred
charges

(a) Trade and other
payables
(a) Other liabilities
and deferred
credits

6
1,620

—
1,620

5
—

1
—

(b) Other assets
(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 2 or Level 3 inputs. Fair value of ABN reported under Level 2
is based on current market quotes. 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
transferred from Level 1 to Level 2 was due to lower trading activities. In accordance with

debt

132

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

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

US GAAP, the Company’s long-term debt is not carried at fair value on the Consolidated Balance Sheets at
December 31, 2014 and December 31, 2013. However, fair value disclosure is required. The carrying value
of the Company’s long-term debt
is $1,350 million and $1,514 million at December 31, 2014 and
December 31, 2013, 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.

NOTE 24.

SEGMENT DISCLOSURES

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

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

• Personal Care Segment–consists of the 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 performance based on operating income, which represents sales, reflecting transfer prices between
segments at fair value, less allocable expenses before interest expense and income taxes. 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.

133

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(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:

SEGMENT DATA

Sales

Pulp and Paper
Personal Care

Total for reportable segments

Intersegment sales—Pulp and Paper

Consolidated sales (1)

Depreciation and amortization and impairment and write-down of

property, plant and equipment and intangible assets

Pulp and Paper
Personal Care

Total for reportable segments

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

intangible assets—Pulp and Paper

Impairment and write-down of property, plant and equipment—

Personal Care

Consolidated depreciation and amortization and impairment and write-

down of property, plant and equipment and intangible assets

Operating income (loss)
Pulp and Paper
Personal Care
Corporate

Consolidated operating income
Interest expense, net

Earnings before income taxes and equity loss
Income tax (benefit) expense
Equity loss, net of taxes

Net earnings

Year ended
December 31,
2014

Year ended
December 31,
2013

Year ended
December 31,
2012

$

$

$

4,674
928

5,602
(39)

5,563

319
65

384

4

—

388

323
54
(13)

364
103

261
(170)
—

431

4,843
566

5,409
(18)

5,391

5,088
399

5,487
(5)

5,482

345
31

376

20

2

398

171
43
(53)

161
89

72
(20)
1

91

365
20

385

14

—

399

330
45
(8)

367
131

236
58
6

172

(1)

In 2014 and 2013, Staples, one of the Company’s largest customers in the Pulp and Paper segment,
represented approximately 9% (2013 – 10%) of the total sales.

134

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 24. SEGMENT DISCLOSURES (CONTINUED)

SEGMENT DATA (CONTINUED)

Segment assets

Pulp and Paper
Personal Care

Total for reportable segments

Corporate

Consolidated assets

Additions to property, plant and equipment

Pulp and Paper
Personal Care

Total for reportable segments

Corporate

Consolidated additions to property, plant and equipment
Add: Change in payables on capital projects

Consolidated additions to property, plant and equipment per

Consolidated Statements of Cash Flows

Geographic information
Sales

United States
Canada
Europe
Asia
Other foreign countries

December 31,
2014

December 31,
2013

$

$

4,102
1,967

6,069
116

6,185

4,363
1,272

5,635
643

6,278

Year ended
December 31,
2014

Year ended
December 31,
2013

Year ended
December 31,
2012

$

161
86

247
5

252
(16)

236

$

147
91

238
6

244
(2)

242

$

183
44

227
12

239
(3)

236

Year ended
December 31,
2014

Year ended
December 31,
2013

Year ended
December 31,
2012

$

$

$

3,910
591
659
257
146

5,563

3,992
638
375
281
105

5,391

4,086
716
250
209
221

5,482

135

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 24. SEGMENT DISCLOSURES (CONTINUED)

Long-lived assets
United States
Canada
Europe

December 31,
2014

December 31,
2013

$

$

2,691
823
845

4,359

2,800
943
322

4,065

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

The following supplemental condensed consolidating financial information sets forth, on an unconsolidated
basis, the Balance Sheets at December 31, 2014 and December 31, 2013 and the Statements of Earnings and
Comprehensive Income and Cash Flows for the years ended December 31, 2014, December 31, 2013 and
December 31, 2012 for Domtar Corporation (the “Parent”), and on a combined basis for the Guarantor
the Non-Guarantor Subsidiaries. The supplemental condensed
Subsidiaries and, on a combined basis,
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.

136

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 25. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)

Year ended December 31, 2014

CONDENSED CONSOLIDATING STATEMENT OF
EARNINGS AND COMPREHENSIVE INCOME

Parent

Guarantor
Subsidiaries

Non-
Guarantor
Subsidiaries

$
2,250

1,761
120
178

—
21
(5)

Consolidating
Adjustments

Consolidated

$
(1,127)

(1,127)
—
—

—
—
—

$
5,563

4,396
384
416

4
28
(29)

$
4,440

3,762
264
209

4
7
(26)

4,220

2,075

(1,127)

5,199

220
26

194
(151)
167

512
(194)

318

175
(24)

199
32
—

167
(168)

(1)

—
—

—
—
(679)

(679)
362

(317)

364
103

261
(170)
—

431
(203)

228

Sales
Operating expenses

Cost of sales, excluding depreciation and

amortization

Depreciation and amortization
Selling, general and administrative
Impairment and write-down of property, plant

and equipment

Closure and restructuring costs
Other operating loss (income), net

Operating (loss) income
Interest expense (income), net

(Loss) earnings before income taxes
Income tax (benefit) expense
Share in earnings of equity accounted investees

Net earnings
Other comprehensive loss

Comprehensive income

$
—

—
—
29

—
—

2

31

(31)
101

(132)
(51)
512

431
(203)

228

137

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 25. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)

Year ended December 31, 2013

CONDENSED CONSOLIDATING STATEMENT OF
EARNINGS AND COMPREHENSIVE INCOME

Parent

Guarantor
Subsidiaries

Non-
Guarantor
Subsidiaries

$
1,986

$
—

$
4,461

Sales
Operating expenses

Cost of sales, excluding depreciation and

amortization

Depreciation and amortization
Selling, general and administrative
Impairment and write-down of property, plant

and equipment

Closure and restructuring costs
Other operating (income) loss, net

Operating (loss) income
Interest expense (income), net

(Loss) earnings before income taxes and equity

loss

Income tax (benefit) expense
Equity loss, net of taxes
Share in earnings of equity accounted investees

Net earnings
Other comprehensive income

Comprehensive income

Consolidating
Adjustments

Consolidated

$
(1,056)

(1,056)
—
—

—
—
—

$
5,391

4,361
376
381

22
18
72

3,752
266
245

10
6
40

1,665
110
110

12
12
35

4,319

1,944

(1,056)

5,230

142
20

122
7

—

41

156
26

182

42
(27)

69
27
1
—

41
33

74

—
—

—
—
—
(197)

(197)
—

(197)

161
89

72
(20)
1
—

91
63

154

—
—
26

—
—

(3)

23

(23)
96

(119)
(54)
—
156

91
4

95

138

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 25. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)

Year ended December 31, 2012

CONDENSED CONSOLIDATING STATEMENT OF
EARNINGS AND COMPREHENSIVE INCOME

Parent

Guarantor
Subsidiaries

Consolidating
Adjustments

Consolidated

Non-
Guarantor
Subsidiaries

$
1,918

$
—

$
4,550

Sales
Operating expenses

Cost of sales, excluding depreciation and

amortization

Depreciation and amortization
Selling, general and administrative
Impairment and write-down of property, plant

and equipment and intangible assets

Closure and restructuring costs
Other operating loss (income), net

Operating (loss) income
Interest expense (income), net

(Loss) earnings before income taxes and equity

loss

Income tax (benefit) expense
Equity loss, net of taxes
Share in earnings of equity accounted investees

Net earnings
Other comprehensive income (loss)

Comprehensive income

$
(986)

(986)
—
—

—
—
—

3,682
298
285

7
19
(16)

1,625
87
44

7
11
23

4,275

1,797

(986)

275
19

256
90
—
107

273
(2)

271

121
(25)

146
33
6
—

107
(54)

53

—
—

—
—
—
(380)

(380)
—

(380)

$
5,482

4,321
385
358

14
30
7

5,115

367
131

236
58
6
—

172
(54)

118

—
—
29

—
—
—

29

(29)
137

(166)
(65)
—
273

172
2

174

139

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 25. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)

CONDENSED CONSOLIDATING BALANCE SHEET

December 31, 2014

Guarantor
Subsidiaries

Non-
Guarantor
Subsidiaries

Consolidating
Adjustments Consolidated

$

$

$

$

18
370
495
7

—
4,613
40

77
258
219
7
17
13
35

5,543
6,119
(3,985)

626
2,790
(1,793)

2,134
296
263
2,153
80
11

997
271
398
—
434
135

10,480

2,861

10
409
925
9
2

1,355
2
260
675
173
8,015

10,480

—
243
96
15
1

355
11
—
156
186
2,153

2,861

—
—
—
—
—
(5,603)
—

(5,603)
—
—

—
—
—
(10,168)
(520)
(21)

(16,312)

—
—
(5,603)
—
—

(5,603)
—
(520)
(21)
—
(10,168)

(16,312)

174
628
714
25
54
—
75

1,670
8,909
(5,778)

3,131
567
661
—
—
156

6,185

10
721
—
26
169

926
1,181
—
810
378
2,890

6,185

Parent

$

79
—
—
11
37
977
—

1,104
—
—

—
—
—
8,015
6
31

9,156

—
69
4,582
2
166

4,819
1,168
260
—
19
2,890

9,156

Assets
Current assets

Cash and cash equivalents
Receivables
Inventories
Prepaid expenses
Income and other taxes receivable
Intercompany accounts
Deferred income taxes

Total current assets

Property, plant and equipment, at cost
Accumulated depreciation

Net property, plant and equipment

Goodwill
Intangible assets, net of amortization
Investments in affiliates
Intercompany long-term advances
Other assets

Total assets

Liabilities and shareholders’ equity
Current liabilities

Bank indebtedness
Trade and other payables
Intercompany accounts
Income and other taxes payable
Long-term debt due within one year

Total current liabilities

Long-term debt
Intercompany long-term loans
Deferred income taxes and other
Other liabilities and deferred credits
Shareholders’ equity

Total liabilities and shareholders’ equity

140

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 25. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)

December 31, 2013

Guarantor
Subsidiaries

Non-
Guarantor
Subsidiaries

Consolidating
Adjustments Consolidated

$

$

$

$

Parent

$

439
—
—
7
47
590
—

22
402
480
7
1
3,951
31

194
199
205
9
13
28
21

4,894
1,083
—
5,968
— (3,734)

669
2,915
(1,860)

—
—
—
7,650
6
28

8,767

1
49
3,941
—
—

3,991
1,494
527
—

17
2,738

8,767

2,234
297
272
2,097
79
12

9,885

13
422
537
12
3

987
4
212
891
141
7,650

9,885

1,055
72
135
—
654
112

2,697

1
202
91
5
1

300
12
—
44
200
2,141

2,697

—
—
—
—
—
(4,569)
—

(4,569)
—
—

—
—
—
(9,747)
(739)
(16)

(15,071)

—
—
(4,569)
—
—

(4,569)
—
(739)
(12)
(4)
(9,747)

(15,071)

655
601
685
23
61

—
52

2,077
8,883
(5,594)

3,289
369
407
—
—
136

6,278

15
673
—
17
4

709
1,510
—
923
354
2,782

6,278

CONDENSED CONSOLIDATING BALANCE SHEET

Assets
Current assets

Cash and cash equivalents
Receivables
Inventories
Prepaid expenses
Income and other taxes receivable
Intercompany accounts
Deferred income taxes

Total current assets

Property, plant and equipment, at cost
Accumulated depreciation

Net property, plant and equipment

Goodwill
Intangible assets, net of amortization
Investments in affiliates
Intercompany long-term advances
Other assets

Total assets

Liabilities and shareholders’ equity
Current liabilities

Bank indebtedness
Trade and other payables
Intercompany accounts
Income and other taxes payable
Long-term debt due within one year

Total current liabilities

Long-term debt
Intercompany long-term loans
Deferred income taxes and other
Other liabilities and deferred credits
Shareholders’ equity

Total liabilities and shareholders’ equity

141

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 25. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)

December 31, 2014

Guarantor
Subsidiaries

Non-
Guarantor
Subsidiaries

Consolidating
Adjustments Consolidated

$

167

124

291

(97)
1
(546)
(5)

(647)

—

(1)

—
90
(129)
(1)

—
—
282
1

242

(114)
(3)
194

77

$

(679)

679

—

—
—
—
—

—

—
—
—
—
—
—
—
292
(292)
—

—

—
—
—

—

$

431

203

634

(236)
1
(546)
(5)

(786)

(84)
(6)
(160)
90
(129)
(4)
(38)
—
—

5

(326)

(478)
(3)
655

174

CONDENSED CONSOLIDATING STATEMENT OF
CASH FLOWS

Parent

$

$

Operating activities
Net earnings
Changes in operating and intercompany assets and

431

512

liabilities and non-cash items, included in net earnings

(220)

(380)

Cash flows provided from operating activities

211

132

Investing activities
—
Additions to property, plant and equipment
Proceeds from disposals of property, plant and equipment —
—
Acquisition of business, net of cash acquired
—
Other

Cash flows used for investing activities

—

(139)
—
—
—

(139)

Financing activities
Dividend payments
Net change in bank indebtedness
Change of revolving bank credit facility
Proceeds from receivables securitization facilities
Payments on receivables securitization facilities
Repayment of long-term debt
Stock repurchase
Increase in long-term advances to related parties
Decrease in long-term advances to related parties
Other

Cash flows (used for) provided from financing

activities

Net decrease in cash and cash equivalents
Impact of foreign exchange on cash
Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

(84) —
(1)

(4)

(160) —
—
—
—
—
—
(38) —
(292) —
10
—
—

4

(3)

(571)

(360)
—
439

79

3

(4)

—
22

18

142

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 25. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)

Year ended December 31, 2013

Guarantor
Subsidiaries

Non-
Guarantor
Subsidiaries

Consolidating
Adjustments Consolidated

$

41

41

82

(89)

6
(4)
(1)

(88)

—
1

—
—

(3)

—
(110)
—

(112)

(118)
(2)
314

194

$

(197)

197

—

—

—
—
—

—

—
—
—
—
—
—
260
(260)

—

—
—
—

—

$

91

320

411

(242)

61
(287)
(1)

(469)

(67)
(3)
160
249
(102)
(183)
—
—

54

(4)
(2)
661

655

CONDENSED CONSOLIDATING STATEMENT OF
CASH FLOWS

Parent

$

$

Operating activities
Net earnings
Changes in operating and intercompany assets and

liabilities and non-cash items, included in net earnings

Cash flows provided from operating activities

Investing activities
Additions to property, plant and equipment
Proceeds from disposals of property, plant and equipment

and sale of business

Acquisition of businesses, net of cash acquired
Other

Cash flows used for investing activities

Financing activities
Dividend payments
Net change in bank indebtedness
Change of revolving bank credit facility
Issuance of long-term debt
Repayment of long-term debt
Stock repurchase
Increase in long-term advances to related parties
Decrease in long-term advances to related parties

Cash flows (used for) provided from financing

activities

Net increase (decrease) in cash and cash equivalents
Impact of foreign exchange on cash
Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

91

156

134

225

—

—
—
—

—

(52)

104

(153)

55
(283)
—

(381)

(67) —

1
160
249
(71)

(5)

—
—
(28)

(183) —
(150) —
—

260

(61)

164
—
275

439

227

(50)
—

72

22

143

DOMTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014
(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

NOTE 25. SUPPLEMENTAL GUARANTOR FINANCIAL INFORMATION (CONTINUED)

CONDENSED CONSOLIDATING STATEMENT OF
CASH FLOWS

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

Cash flows provided from operating activities

Investing activities
Additions to property, plant and equipment
Proceeds from disposals of property, plant and

equipment

Acquisition of businesses, net of cash acquired
Other

Cash flows used for investing activities

Financing activities
Dividend payments
Net change in bank indebtedness
Issuance of long-term debt
Repayment of long-term debt
Stock repurchase
Increase in long-term advances to related parties
Decrease in long-term advances to related parties
Other

Cash flows provided from (used for) financing

activities

Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

Year ended December 31, 2012

Guarantor
Subsidiaries

Non-
Guarantor
Subsidiaries

Consolidating
Adjustments Consolidated

(182)

(54)

$

107

153

260

48
(232)
(6)

(244)

—
—
—

(1)

—
(52)
—
—

(53)

(37)
351

314

$

(380)

380

—

—

—
—
—

—

—
—
—
—
—
99
(99)
—

—

—
—

—

$

172

379

551

(236)

49
(293)
(6)

(486)

(58)
11
548
(192)
(157)
—
—
—

152

217
444

661

Parent

$

$

172

273

(87)

85

(67)

206

—

—
—
—

—

1
(61)
—

(242)

—

(58) —
—
11
548
(186)
(157) —
(47) —
—

(5)

99
1

106

70
2

72

(1)

99

184
91

275

144

Domtar Corporation
Interim Financial Results (Unaudited)
(in millions of dollars, unless otherwise noted)

2014

1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

Year

Sales
Operating income
Earnings before income taxes and equity earnings
Net earnings
Basic net earnings per common share
Diluted net earnings per common share

$1,394

79 (a)
54
39
0.60
0.60

$1,385
79
53
40
0.62
0.61

$1,405

$1,379

120 (b)
95
281 (d)
4.34
4.33

86 (c)
59
71
1.10
1.10

$5,563
364
261
431
6.65
6.64

2013

1st Quarter

2nd Quarter

3rd Quarter

4th Quarter

Year

Sales
Operating income (loss)
Earnings (loss) before income taxes and equity

earnings

Net earnings (loss)
Basic net earnings (loss) per common share
Diluted net earnings (loss) per common share

$1,345

$1,312

$1,375

$1,359

49 (e)

(30) (f)

49 (g)

93 (h)

$5,391
161

24
45
0.65
0.65

(51)
(46)
(0.69)
(0.69)

28
27
0.41
0.41

71
65
1.00
1.00

72
91
1.37
1.36

(a) The operating income for the first Quarter of 2014 includes closure and restructuring costs of $1 million

related to our Personal Care segment.

(b)

In the third Quarter of 2014, the Company incurred an additional $2 million of closure and restructuring
costs related to our Pulp & Paper segment.

In addition, the Company recognized $18 million of Alternative Fuel Tax Credits in income, with no related
tax expense.

(c)

In the fourth Quarter of 2014, the Company incurred pension settlement costs in the amount of $19 million
related to the previously closed Ottawa paper mill.

In addition, the Company recorded $2 million of closure and termination costs and $1 million of inventory
obsolescence at its Indianapolis, Indiana converting site.

The company also recorded $3 million inventory obsolescence and $4 million of accelerated depreciation at
its Ashdown, Arkansas mill, due to a conversion of a paper machine to a fluff pulp line.

(d) The net earnings for the third Quarter of 2014 includes the recognition of previously unrecognized tax
benefits of approximately $204 million as a result of the closure of U.S. federal tax audits for tax years 2009
through 2011, as well as the impact of recognizing $18 million of AFTC income with no related tax
expense.

(e) The operating income for the first Quarter of 2013 includes a write-down of property, plant and equipment

relating to its Kamloops location of $10 million.

On March 22, 2013, the Company sold the building, remaining equipment and related land of the closed
pulp and paper mill in Port Edwards, Wisconsin and recorded a gain on the sale of approximately
$10 million. Also, the income for the first quarter of 2013 includes an additional withdrawal liability and
charge to earnings of $1 million.

(f) The operating loss for the second Quarter of 2013 includes a settlement of the Weston litigation for a

payment by Domtar of $49 million (CDN $50 million).

(g)

In the third Quarter of 2013, the Company completed the sale of its Ariva U.S business. The transaction
closed at the end of July 2013.

145

The Company recorded a loss on sale of business of its Ariva U.S. business of $19 million in the third
quarter of 2013.

(h) The operating income for the fourth Quarter of 2013 includes a write-down of property, plant and equipment
relating to one of its Pulp and Paper converting locations of $5 million and $2 million relating to its Attends
Europe location. The Company recorded an additional loss on sale of business of Ariva U.S. of $1 million in
the fourth quarter of 2013.

Also, the Company recorded a gain on sale of land relating to its previously closed Cornwall, Ontario
location of $6 million.

146

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, 2014, 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, 2014, 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 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.

Based on its assessment, management has concluded that the Company maintained effective internal control
over financial reporting as of December 31, 2014, 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, 2014 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.

147

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, 2014.

ITEM 9B. OTHER INFORMATION

The Company has nothing to report under this item.

148

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 2015 Annual
Meeting of Stockholders 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 2015 Annual Meeting of
Stockholders 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 2015 Annual Meeting of Stockholders 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, 2014:

Plan Category

Equity compensation plans approved

Number of securities
to be issued upon
exercise of outstanding
options, warrants and
rights (#)

Weighted average exercise
price of outstanding
options, warrants and
rights ($)

Number of securities remaining
available for future issuance
under equity compensation
plans (excluding securities
reflected in column (a)(#)

(a)

(b)

(c)

by security holders

1,191,601(1)

$47.44(2)

2,394,415(3)

Equity compensation plans not
approved by security holders

N/A

1,191,601

N/A

$47.44

N/A

2,394,415

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, 2014 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.

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

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

Total

(1)

(2)

(3)

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 2015 Annual Meeting of Stockholders is incorporated
herein by reference.

149

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 2015 Annual Meeting of Stockholders is incorporated herein by reference.

150

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:

Exhibit
Number

Exhibit Description

3.1

3.2

3.3

4.1

4.2

4.3

4.4

4.5

9.1

10.1

Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the
Company’s Quarterly Report on Form 10-Q filed with the SEC on August 8, 2008)

Certificate of Amendment of the Amended and Restated Certificate of Incorporation (incorporated
by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the SEC on
June 8, 2009)

Amended and Restated By-Laws (incorporated by reference to Exhibit 3.2 to the Company’s Annual
Report on Form 10-K filed with the SEC on February 27, 2009)

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 (incorporated by reference to Exhibit 4.1 to the Company’s
Form 8-K filed with the SEC on February 21, 2008)

Second 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 (incorporated by reference to Exhibit 4.2 to the
Company’s Form 8-K filed with the SEC on February 21, 2008)

Third 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 (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on
Form 8-K filed with the SEC on June 9, 2009)

Fourth Supplemental Indenture, dated June 23, 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 (incorporated by reference to Exhibit 4.1 to the Company’s
Form 10-Q filed with the SEC on August 4, 2011)

Fifth 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 (incorporated by reference to Exhibit 4.1 to the
Company’s Form 10-Q filed with the SEC on November 4, 2011)

Form of Voting and Exchange Trust Agreement (incorporated by reference to Exhibit 9.1 to the
Company’s Registration Statement on Form 10, Amendment No. 2 filed with the SEC on January 26,
2007)

Form of Tax Sharing Agreement (incorporated by reference to Exhibit 10.1 to the Company’s
Registration Statement on Form 10, Amendment No. 2 filed with the SEC on January 26, 2007)

151

Exhibit
Number

Exhibit Description

10.2

10.3

10.4

10.5

10.7

10.8

10.9

10.10

10.11

10.12

10.13

10.14

10.15

10.16

10.17

Form of Transition Services Agreement (incorporated by reference to Exhibit 10.2 to the Company’s
Registration Statement on Form 10, Amendment No. 2 filed with the SEC on January 26, 2007)

Form of Site Services Agreement (Plymouth, North Carolina) (incorporated by reference to
Exhibit 10.7 to the Company’s Registration Statement on Form 10, Amendment No. 2 filed with the
SEC on January 26, 2007)

Form of Fiber Supply Agreement (Princeton, British Columbia) (incorporated by reference to
Exhibit 10.10 to the Company’s Registration Statement on Form 10, Amendment No. 2 filed with the
SEC on January 26, 2007)

Form of Site Services Agreement (Utilities) (Plymouth, North Carolina) (incorporated by reference
to Exhibit 10.17 to the Company’s Registration Statement on Form 10, Amendment No. 2 filed with
the SEC on January 26, 2007)

Hog Fuel Supply Agreement (Kenora, Ontario) (incorporated by reference to Exhibit 10.25 to the
Company’s Registration Statement on Form S-1 filed with the SEC on May 9, 2007)

Fiber Supply Agreement (Trout Lake and Wabigoon, Ontario) (incorporated by reference to
Exhibit 10.26 to the Company’s Registration Statement on Form S-1 filed with the SEC on May 9,
2007)

Form of Intellectual Property License Agreement (incorporated by reference to Exhibit 10.18 to the
Company’s Registration Statement on Form 10, Amendment No. 2 filed with the SEC on January 26,
2007)

Form of Indemnification Agreement (incorporated by reference to Exhibit 10.28 to the Company’s
Registration Statement on Form S-1 filed with the SEC on May 9, 2007)

Domtar Corporation 2004 Replacement Long-Term Incentive Plan for Former Employees of
Weyerhaeuser Company (incorporated by reference to Exhibit 10.30 to the Company’s Registration
Statement on Form S-1 filed with the SEC on May 9, 2007)*

Domtar Corporation 1998 Replacement Long-Term Incentive Compensation Plan for Former
Employees of Weyerhaeuser Company (incorporated by reference to Exhibit 10.31 to the Company’s
Registration Statement on Form S-1 filed with the SEC on May 9, 2007)*

Domtar Corporation Replacement Long-Term Incentive Compensation Plan for Former Employees
of Weyerhaeuser Company (incorporated by reference to Exhibit 10.32 to the Company’s
Registration Statement on Form S-1 filed with the SEC on May 9, 2007)*

Domtar Corporation Executive Stock Option and Share Purchase Plan (applicable to eligible
employees of Domtar Inc. for grants prior to March 7, 2007) (incorporated by reference to
Exhibit 10.33 to the Company’s Registration Statement on Form S-1 filed with the SEC on May 9,
2007)*

Domtar Corporation Executive Deferred Share Unit Plan (applicable to members of the Management
Committee of Domtar Inc. prior to March 7, 2007) (incorporated by reference to Exhibit 10.29 to the
Company’s Annual Report on Form 10-K filed with the SEC on February 27, 2009)*

Domtar Corporation Deferred Share Unit Plan for Outside Directors (for former directors of
Domtar Inc.) (incorporated by reference to Exhibit 10.30 to the Company’s Annual Report on
Form 10-K filed with the SEC on February 27, 2009)*

Supplementary Pension Plan for Senior Executives of Domtar Corporation (for certain designated
senior executives) (incorporated by reference to Exhibit 10.36 to the Company’s Registration
Statement on Form S-1 filed with the SEC on May 9, 2007)*

152

Exhibit
Number

10.18

10.19

10.20

10.21

10.22

10.23

10.24

10.25

10.26

10.27

10.28

10.29

10.30

10.31

10.32

Exhibit Description

Supplementary Pension Plan for Designated Managers of Domtar Corporation (for certain designated
management employees) (incorporated by reference to Exhibit 10.32 to the Company’s Annual
Report on Form 10-K filed with the SEC on February 27, 2009)*

Domtar Retention Plan (incorporated by reference to Exhibit 10.38 to the Company’s Registration
Statement on Form S-1 filed with the SEC on May 9, 2007)*

Domtar Corporation Restricted Stock Plan (applicable to eligible employees of Domtar Inc. for
grants prior to March 7, 2007) (incorporated by reference to Exhibit 10.39 to the Company’s
Registration Statement on Form S-1 filed with the SEC on May 9, 2007)*

Director Deferred Stock Unit Agreement (incorporated by reference to Exhibit 10.1 to the
Company’s Current Report on Form 8-K filed with the SEC on May 24, 2007)*

Non-Qualified Stock Option Agreement (incorporated by reference to Exhibit 10.2 to the Company’s
Current Report on Form 8-K filed with the SEC on May 24, 2007)*

Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.3 to the Company’s
Current Report on Form 8-K filed with the SEC on May 24, 2007)*

Senior Executive Restricted Stock Unit Agreement (incorporated by reference to Exhibit 10.4 to the
Company’s Current Report on Form 8-K filed with the SEC on May 24, 2007)*

Indenture between Domtar Inc. and the Bank of New York dated as of July 31, 1996 relating to
Domtar’s $125,000,000 9.5% debentures due 2016 (incorporated by reference to Exhibit 10.20 to the
Company’s registration statement on Form 10, Amendment No. 2 filed with the SEC on January 26,
2007)

Severance Program for Management Committee Members (incorporated by reference to
Exhibit 10.43 to the Company’s Annual Report on Form 10-K filed with the SEC on February 25,
2011)*

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

Amended and Restated DC SERP for Designated Executives of Domtar*

Supplementary Pension Plan for Steven Barker (incorporated by reference to Exhibit 10.48 to the
Company’s Annual Report on Form 10-K filed with the SEC on February 27, 2009)*

Form of Indemnification Agreement for members of Pension Administration Committee of Domtar
Corporation (incorporated by reference to Exhibit 10.50 to the Company’s Annual Report on
Form 10-K filed with the SEC on February 27, 2009)*

Stock Purchase Agreement by and among Attends Healthcare Holdings, LLC, Attends Healthcare,
Inc. and Domtar Corporation dated as of August 12, 2011 (incorporated by reference to Exhibit 2.1 to
the Company’s Form 10-Q filed with the SEC on November 4, 2011)

Sixth 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
(incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K filed with the SEC on
March 16, 2012)

153

Exhibit
Number

10.33

10.34

10.35

10.36

10.37

10.38

10.39

10.40

10.41

10.42

10.43

10.44

10.45

Exhibit Description

Seventh 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 (incorporated by reference to Exhibit 4.8 to the
Company’s Form S-3 filed with the SEC on August 20, 2012)

Eighth 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 (incorporated by
reference to Exhibit 4.1 to the Company’s Form 8-K filed with the SEC on August 23, 2012)

Amended and Restated Credit Agreement, dated as of October 3, 2014, among the Company, Domtar
Paper Company, LLC, Domtar Inc., Canadian Imperial Bank of Commerce, Goldman Sachs Bank
USA and Royal Bank of Canada, as co-documentation agents, The Bank of Nova Scotia and Bank of
America, N.A., as syndication agents and JPMorgan Chase Bank, N.A., as administrative agent
(incorporated by reference to Exhibit 10.1 to the Company Form 10-Q files with the SEC on
October 31, 2014)

Amended and Restated Domtar Corporation 2007 Omnibus Incentive Plan (incorporated by reference
to Annex A to the Corporation’s definitive proxy statement filed on Schedule 14A filed with the SEC
on March 30, 2012)

Domtar Corporation Annual Incentive Plan (incorporated by reference to Annex B to the
Corporation’s definitive proxy statement filed on Schedule 14A filed with the SEC on March 30,
2012)

Employment agreement of Mr. Michael Fagan* (incorporated by reference to Exhibit 10.48 to the
Company’s form 10-K filed with the SEC on February 28, 2013)

Amended and Restated Supplementary Pension Plan for Designated Managers of Domtar
Corporation (for certain designated management employees)*

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

Amended and Restated DC SERP for Designated Executives of Domtar*

Amended and Restated Employment Agreement of Mr. John D. Williams* (incorporated by
reference to Exhibit 10.1 to the Company’s form 10-Q filed with the SEC on August 2, 2013)

Retirement Agreement of Mr. Michael Edwards*

First amendment, dated as of September 13, 2013, to the Amended and Restated Credit Agreement
among the Company, Domtar Paper Company, LLC, Domtar Inc., Canadian Imperial Bank of
Commerce, Goldman Sachs Lending Partners LLC and Royal Bank of Canada, as co-documentation
agents, The Bank of Nova Scotia and Bank of America, N.A., as syndication agents and JPMorgan
Chase Bank, N.A., as administrative agent (incorporated by reference to Exhibit 10.1 to the Company
Form 10-Q filed with the SEC on November 1, 2013)

Ninth 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 Domtar Personal Care Absorbent Hygiene Inc. and Associated
Hygienic Products LLC of the obligations under the Indenture (incorporated by reference to
Exhibit 4.10 to the Company’s Form S-3ASR filed with the SEC on October 1, 2013)

154

Exhibit
Number

10.46

10.47

10.48

12.1

21.1

23

24.1

31.1

31.2

32.1

32.2

Exhibit Description

Tenth 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 (incorporated
by reference to Exhibit 4.1 to the Company’s Form 8-K filed with the SEC on November 26, 2013)

DC SERP for Designated Executives of Domtar Personal Care*

Employment agreement of Mr. Michael D. Garcia* (incorporated by reference to Exhibit 10.1 to
the Company’s Form 10-Q filed with the SEC on August 1, 2014)

Computation of Ratio of Earnings to Fixed Charges

Subsidiaries of Domtar Corporation

Consent of Independent Registered Public Accounting Firm

Powers of Attorney (included in signature page)

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

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

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

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

155

FINANCIAL STATEMENT SCHEDULE

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS

For the three years ended:

Allowances deducted from related asset accounts:
Doubtful accounts—Accounts receivable

2014
2013
2012

Valuation Allowance on Deferred Tax Assets

2014
2013
2012

Balance at
beginning
of year

Charged to
income

Deductions from
reserve

Balance at end
of year

$

4
4
5

$

2
2
1

$

—

(2)
(2)

$

6
4
4

Balance at
beginning
of year

Charged to
income

Deductions from
reserve

Balance at end
of year

$

19
14
4

$

7
5
1

$

(1)

—

9

$

25
19
14

156

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
Montreal, Quebec, Canada, on February 27, 2015.

DOMTAR CORPORATION

/s/ John D. Williams

by
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

John D. Williams

/s/ Daniel Buron

Daniel Buron

/s/ Giannella Alvarez

Giannella Alvarez

/s/ Robert E. Apple

Robert E. Apple

/s/ Louis P. Gignac

Louis P. Gignac

President and Chief Executive Officer
(Principal Executive Officer) and
Director

February 27, 2015

Senior Vice-President and Chief Financial
Officer (Principal Financial Officer
and Principal Accounting Officer)

February 27, 2015

Director

Director

Director

February 27, 2015

February 27, 2015

February 27, 2015

/s/ David J. Illingworth

Director

February 27, 2015

David J. Illingworth

/s/ Brian M. Levitt

Brian M. Levitt

/s/ David G. Maffucci

David G. Maffucci

/s/ Domenic Pilla
Domenic Pilla

Director

Director

Director

157

February 27, 2015

February 27, 2015

February 27, 2015

Signature

Title

Date

/s/ Robert J. Steacy

Robert J. Steacy

/s/ Pamela B. Strobel

Pamela B. Strobel

/s/ Denis Turcotte

Denis Turcotte

Director

Director

Director

February 27, 2015

February 27, 2015

February 27, 2015

158

Exhibit 12.1

Domtar Corporation
Computation of ratio of earnings to fixed charges
(In millions of dollars, unless otherwise noted)

Year ended
December 31,
2010

Year ended
December 31,
2011

Year ended
December 31,
2012

Year ended
December 31,
2013

Year ended
December 31,
2014

Available earnings:

Earnings before income taxes and

equity earnings
Add fixed charges:

Interest expense incurred
Amortization of debt expense

and discount

Interest portion of rental

expense (1)

Total earnings as defined

Fixed charges:

Interest expense incurred
Amortization of debt expense and

discount

Interest portion of rental expense (1)

Total fixed charges
Ratio of earnings to fixed charges

$

448

144

11

11

614

144

11
11

166
3.7

$

505

76

7

11

599

76

7
11

94
6.4

$

236

75

8

11

330

75

8
11

94
3.5

$

72

83

4

11

170

83

4
11

98
1.7

$

261

99

4

11

375

99

4
11

114
3.3

(1)

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

Exhibit 31.1

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

I, John D. Williams, certify that:

1.

I have reviewed this 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 27, 2015

/S/ JOHN D. WILLIAMS
John D. Williams
President and Chief Executive Officer

Exhibit 31.2

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

I, Daniel Buron, certify that:

1.

I have reviewed this 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 27, 2015

/S/ DANIEL BURON
Daniel Buron
Senior Vice-President and Chief Financial Officer

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

Exhibit 32.1

The undersigned hereby certifies that to his knowledge, the Company’s Annual Report on Form 10-K for
the period ended December 31, 2014 (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

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

Exhibit 32.2

The undersigned hereby certifies that to his knowledge, the Company’s Annual Report on Form 10-K for
the period ended December 31, 2014 (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

[THIS PAGE INTENTIONALLY LEFT BLANK]

[THIS PAGE INTENTIONALLY LEFT BLANK]

[THIS PAGE INTENTIONALLY LEFT BLANK]

[THIS PAGE INTENTIONALLY LEFT BLANK]

[THIS PAGE INTENTIONALLY LEFT BLANK]

[THIS PAGE INTENTIONALLY LEFT BLANK]

DOMTAR CORPORATION RECONCILIATION  
OF NON–GAAP FINANCIAL MEASURES

(In millions of dollars, unless otherwise noted)

The following table sets forth certain non-U.S. generally accepted accounting principles (“GAAP”) financial metrics identified in bold as “Earnings 
before items”, “Earnings before items per diluted share”, “EBITDA”, “EBITDA margin”, “EBITDA before items”, “EBITDA margin before items”, “Free 
cash flow”, “Net debt” and “Net debt-to-total capitalization.” Management believes that the financial metrics presented are frequently used by 
investors and are useful to evaluate our ability to service debt and our overall credit profile. Management believes these metrics are also useful 
to measure the operating performance and benchmark with peers within the industry. These metrics are presented as a complement to enhance 
the understanding of operating results but not in substitution for GAAP results.

The Company calculates “Earnings before items” and “EBITDA before items” by excluding the after-tax (pre-tax) effect of items considered by 
management as not reflecting our current operations. Management uses these measures, as well as EBITDA and Free cash flow, to focus on 
ongoing operations and believes that it is useful to investors because it enables them to perform meaningful comparisons between periods. 
Domtar believes that using this information along with Net earnings provides for a more complete analysis of the results of operations. Net 
earnings and Cash flow provided from operating activities are the most directly comparable GAAP measures.

2012

2013

2014

Reconciliation of “Earnings before items” to Net earnings

Net earnings

(–) Cellulose biofuel producer credits

(+) Impairment and write-down of PP&E 1 and intangible assets

(+) Closure and restructuring costs

(–) Net losses on disposals of PP&E 1 and sale of business

(+) Impact of purchase accounting

(+) Alternative fuel tax credits

(+) Loss on repurchase of long-term debt

(+) Weston litigation settlement

(–) Internal Revenue Service audit settlement items

(=) Earnings before items

($)

($)

($)

($)

($)

($)

($)

($)

($)

($)

($)

(/) Weighted avg. number of common and exchangeable shares outstanding (diluted)

(millions)

(=) Earnings before items per diluted share

Reconciliation of “EBITDA” and “EBITDA before items” to Net earnings

Net earnings

(+) Equity loss, net of taxes

(+) Income tax expense (benefit)

(+) Interest expense, net

(=) Operating income 

(+) Depreciation and amortization

(+) Impairment and write-down of PP&E 1 and intangible assets 

(-) Net losses on disposals of PP&E 1 and sale of business

(=) EBITDA

(/) Sales

(=) EBITDA margin

EBITDA

(+) Alternative fuel tax credits

(+) Closure and restructuring costs

(+) Impact of purchase accounting 

(+) Weston litigation settlement

(=) EBITDA before items

(/) Sales

(=) EBITDA margin before items

Reconciliation of “Free cash flow” to Cash flow provided from operating activities

Cash flow provided from operating activities

(–) Additions to PP&E 1

(=) Free cash flow

1  PP&E: Property, plant and equipment.

($)

($)

($)

($)

($)

($)

($)

($)

($)

($)

($)

(%)

($)

($)

($)

($)

($)

($)

($)

(%)

($)

($)

($)

172

–

9

20

1

1

–

30

–

–

233

72.1

3.23

172

6

58

131

367

385

14

2

768

5,482

14%

768

–

30

1

–

799

5,482

15%

91

(33)

17

13

2

2

18

2

46

–

158

66.7

2.37

91

1

(20)

89

161

376

22

4

563

5,391

10%

563

26

18

2

49

658

5,391

12%

551

(236)

315

411

(242)

169

431

–

2

21

–

2

(18)

–

–

(204)

234

64.9

3.61

431

–

(170)

103

364

384

4

–

752

5,563

14%

752

(18)

28

3

–

765

5,563

14%

634

(236)

398

(continued)

“Net debt-to-total capitalization” computation

Bank indebtedness

(+) Long-term debt due within one year

(+) Long-term debt

(=) Debt

(-) Cash and cash equivalents

(=) Net debt

(+) Shareholders’ equity

(=) Total capitalization

Net debt

(/) Total capitalization

(=) Net debt-to-total capitalization

2012

2013

2014

($)

($)

($)

($)

($)

($)

($)

($)

($)

($)

(%)

 18 

 79 

 1,128 

 1,225 

 (661)

 564 

 2,877 

 3,441 

 564 

 15 

 4 

 1,510 

 1,529 

 (655)

 874 

 2,782 

 3,656 

 874 

 3,441 

 3,656 

16%

24%

 10 

 169 

 1,181 

 1,360 

 (174)

 1,186 

 2,890 

 4,076 

 1,186 

 4,076 

29%

“Earnings before items”, “Earnings before items per diluted share”, “EBITDA”, “EBITDA margin”, “EBITDA before items”, “EBITDA margin before items”, “Free cash flow”, “Net debt” and “Net debt-
to-total capitalization” have no standardized meaning prescribed by GAAP and are not necessarily comparable to similar measures presented by other companies and therefore should not be 
considered in isolation or as a substitute for Net earnings, Operating income or any other earnings statement, cash flow statement or balance sheet financial information prepared in accordance 
with GAAP. It is important for readers to understand that certain items may be presented in different lines by different companies on their financial statements thereby leading to different measures 
for different companies.

RECONCILIATION OF NON–GAAP FINANCIAL  
MEASURES BY SEGMENT

(In millions of dollars, unless otherwise noted)

The following table sets forth certain non-U.S. generally accepted accounting principles (“GAAP”), financial metrics identified in bold as “Operating 
income (loss) before items”, “EBITDA before items” and “EBITDA margin before items” by reportable segment. Management believes that the 
financial metrics presented are frequently used by investors and are useful to measure the operating performance and benchmark with peers 
within the industry. These metrics are presented as a complement to enhance the understanding of operating results but not in substitution for 
GAAP results.

The Company calculates the segmented “Operating income (loss) before items” by excluding the pre-tax effect of items considered by management 
as not reflecting our ongoing operations. Management uses these measures to focus on ongoing operations and believes that it is useful to 
investors because it enables them to perform meaningful comparisons between periods. Domtar believes that using this information along with 
Operating income (loss) provides for a more complete analysis of the results of operations. Operating income (loss) by segment is the most 
directly comparable GAAP measure.

Pulp and Paper 1  

Personal Care 2  

Corporate

2012

2013

2014

2012

2013

2014

2012

2013

2014

45

43

54

(8)

(53)

(13)

Reconciliation of Operating income (loss) to “Operating income 

(loss) before items”

Operating income (loss)

(-) Alternative fuel tax credits

(+) Impairment and write-down of PP&E 3 and intangible assets

(+) Closure and restructuring costs

(-) Net losses (gains) on disposals of PP&E 3 and sale of business

(+) Reversal of alternative fuel tax credits

(+) Impact of purchase accounting 

(+) Weston litigation settlement

($) 330

171

($)

($)

($)

($)

($)

($)

($)

–

14

29

2

–

–

–

–

20

10

10

26

–

–

323

(18)

4

27

–

–

–

–

–

–

1

–

–

1

–

–

2

2

–

–

2

–

–

–

1

–

–

3

–

–

–

–

–

–

–

–

(=) Operating income (loss) before items

($) 375

237

336

47

49

58

(8)

Reconciliation of “Operating income (loss) before items” to 

“EBITDA before items”

Operating income (loss) before items

(+) Depreciation and amortization

(=) EBITDA before items

(/) Sales

(=) EBITDA margin before items

($) 375

($) 365

($) 740

237

345

582

336

319

655

($) 5,088 4,843 4,674

(%) 15%

12%

14%

47

20

67

399

17%

49

31

80

566

14%

58

65

123

928

13%

(8)

–

(8)

–

–

–

–

6

(6)

–

–

49

(4)

(4)

–

(4)

–

–

–

–

–

–

–

–

–

(13)

(13)

–

(13)

–

–

“Operating income (loss) before items”, “EBITDA before items” and “EBITDA margin before items” have no standardized meaning prescribed by GAAP and are not necessarily comparable to similar 
measures presented by other companies and therefore should not be considered in isolation or as a substitute for Operating income (loss) or any other earnings statement, cash flow statement or 
balance sheet financial information prepared in accordance with GAAP. It is important for readers to understand that certain items may be presented in different lines by different companies on 
their financial statements thereby leading to different measures for different companies.
1  On May 31, 2013, the Company acquired Xerox’s paper print and media product’s assets in the United States and Canada.
2  On January 2, 2014, the Company acquired 100% of the shares of Labotarios Indas, S.A.U. in Spain.
On July 1, 2013, the Company acquired 100% of the shares of Associated Hygiene Products LLC.
On May 1, 2012, the Company acquired 100% of the shares of EAM Corporation.
On March 1, 2012, the Company acquired 100% of the shares of Attends Healthcare Limited.

3  PP&E: Property, plant and equipment.

 
 
 
 
SHAREHOLDER 
INFORMATION

DIVIDEND POLICY

DIVIDEND HISTORY

Subject to approval by its Board of 

Year ended 2014

Directors, Domtar pays a quarterly 

dividend on its common stock. 

(NYSE: UFS) (TSX: UFS) 

Declared

Record Date

Payable Date

Amount

October 29, 2014

January 2, 2015

January 15, 2015

US$0.375

July 30, 2014

October 2, 2014

October 15, 2014

US$0.375

April 30, 2014

July 2, 2014

July 15, 2014

February 18, 2014

March 14, 2014

April 15, 2014

US$0.375

US$0.275

SHAREHOLDER   
SERVICES

REQUESTS 
FOR INFORMATION

2015 TENTATIVE 
EARNINGS CALENDAR

For shareholder-related services, 

For additional copies of the 

First Quarter 2015: 

including estate settlement, lost 

Annual Report or other financial 

Thursday, April 30, 2015

stock certificates, change of name 

information, please contact:

Second Quarter 2015: 

or address, stock transfers and 

duplicate mailings, please contact 

the transfer agent at:

Domtar Corporation

395 de Maisonneuve Blvd. West

Investor Relations Department

Thursday, July 30, 2015

Computershare Investor Services

Montreal, QC

Computershare

P.O. BOX 30170

Canada H3A 1L6

Tel.: 514-848-5555

College Station, TX 77845-3170

Voice Recognition: 

North American Toll Free Number:  

“Investor Relations”

1-877-282-1168

Tel.: 1-781-575-2879

computershare.com/investor

Exchange Listings 

New York Stock Exchange 

Toronto Stock Exchange  

Stock symbol: UFS

Email: ir@domtar.com

Electronic versions of this Annual 

Report, SEC filings, and other 

Domtar

Company publications are available 

234 Kingsley Park Drive

through the corporate website:

Fort Mill, SC 29715

domtar.com.

Third Quarter 2015: 

Thursday, October 29, 2015

Fourth Quarter 2015: 

Thursday, February 4, 2016

ANNUAL MEETING

Domtar Annual Meeting 

of Stockholders

Wednesday, May 6, 2015 

10%

Domtar is pleased to make 
an annual contribution 
of $425,000 to WWF from 
the sale of FSC® Certified 
EarthChoice® products.

® WWF Registered Trademark. Panda Symbol © 1986 WWF.
© 1986 Panda symbol WWF-World Wide Fund for Nature  
(also known as World Wildlife Fund).  
® “WWF” is a WWF Registered Trademark.

PRODUCTION 
 NOTES

PAPER

Cover printed on 80 lb. Cougar® Cover,  

Smooth Finish.

Insert printed on 60 lb. Cougar® Text,  

Smooth Finish.

Form 10-K printed on 40 lb. Lynx® Text, 

Smooth Finish.

PRINTING

Cover and insert printed with UV inks on a Heidelberg 

Speedmaster CD 102 press 6-color units with in-line coater 

and full inter-deck and end-of-press extended delivery 

UV drying systems.

Learn the environmental, social and 

economic impacts of Domtar products at 

domtarpapertrail.com.

www.domtar.com

D

O

M

T

A

R

C

O

R

P

O

R

A

T

I

O

N

2

0

1

4

A

n

n

u

a

l

R

e

p

o

r

t

o

n

F

o

r

m

1

0

-

K