Supplemental Guarantor Financial Information | DOMTAR CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2015 (IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED (UNAUDITED) NOTE 17. _________________ 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 June 30, 2015 and December 31, 2014, the Statements of Earnings and Comprehensive Income (Loss) for the three and six months ended June 30, 2015 and 2014 and the Statements of Cash Flows for the six months ended June 30, 2015 and 2014 for Domtar Corporation (the “Parent”), and on a combined basis for the Guarantor Subsidiaries and, on a combined basis, the Non-Guarantor Subsidiaries. The supplemental condensed consolidating financial information reflects the investments of the Parent in the Guarantor Subsidiaries, as well as the investments of the Guarantor Subsidiaries in the Non-Guarantor Subsidiaries, using the equity method. For the three months ended June 30, 2015 Non- CONDENSED CONSOLIDATING STATEMENT OF EARNINGS AND Guarantor Guarantor Consolidating COMPREHENSIVE INCOME Parent Subsidiaries Subsidiaries Adjustments Consolidated $ $ $ $ $ Sales — 1,079 522 (291 ) 1,310 Operating expenses Cost of sales, excluding depreciation and amortization — 916 427 (291 ) 1,052 Depreciation and amortization — 65 26 — 91 Selling, general and administrative 3 39 57 — 99 Impairment and write-down of property, plant and equipment — 18 — — 18 Closure and restructuring costs — 1 — — 1 Other operating income, net (1 ) (6 ) (6 ) — (13 ) 2 1,033 504 (291 ) 1,248 Operating (loss) income (2 ) 46 18 — 62 Interest expense (income), net 25 7 (7 ) — 25 (Loss) earnings before income taxes (27 ) 39 25 — 37 Income tax (benefit) expense (7 ) 3 3 — (1 ) Share in earnings of equity accounted investees 58 22 — (80 ) — Net earnings 38 58 22 (80 ) 38 Other comprehensive income 53 53 44 (97 ) 53 Comprehensive income 91 111 66 (177 ) 91 For the six months ended June 30, 2015 Non- CONDENSED CONSOLIDATING STATEMENT OF EARNINGS AND Guarantor Guarantor Consolidating COMPREHENSIVE LOSS Parent Subsidiaries Subsidiaries Adjustments Consolidated $ $ $ $ $ Sales — 2,195 1,055 (592 ) 2,658 Operating expenses Cost of sales, excluding depreciation and amortization — 1,892 814 (592 ) 2,114 Depreciation and amortization — 129 52 — 181 Selling, general and administrative 8 72 119 — 199 Impairment and write-down of property, plant and equipment — 37 — — 37 Closure and restructuring costs — 1 1 — 2 Other operating loss (income), net 1 (1 ) (8 ) — (8 ) 9 2,130 978 (592 ) 2,525 Operating (loss) income (9 ) 65 77 — 133 Interest expense (income), net 51 14 (14 ) — 51 (Loss) earnings before income taxes (60 ) 51 91 — 82 Income tax (benefit) expense (16 ) 4 20 — 8 Share in earnings of equity accounted investees 118 71 — (189 ) — Net earnings 74 118 71 (189 ) 74 Other comprehensive loss (125 ) (127 ) (122 ) 249 (125 ) Comprehensive loss (51 ) (9 ) (51 ) 60 (51 ) For the three months ended June 30, 2014 Non- CONDENSED CONSOLIDATING STATEMENT OF EARNINGS AND Guarantor Guarantor Consolidating COMPREHENSIVE INCOME Parent Subsidiaries Subsidiaries Adjustments Consolidated $ $ $ $ $ Sales — 1,091 570 (276 ) 1,385 Operating expenses Cost of sales, excluding depreciation and amortization — 916 468 (276 ) 1,108 Depreciation and amortization — 65 31 — 96 Selling, general and administrative 5 42 53 — 100 Other operating loss, net — 2 — — 2 5 1,025 552 (276 ) 1,306 Operating (loss) income (5 ) 66 18 — 79 Interest expense (income), net 25 7 (6 ) — 26 (Loss) earnings before income taxes (30 ) 59 24 — 53 Income tax (benefit) expense (7 ) 15 5 — 13 Share in earnings of equity accounted investees 63 19 — (82 ) — Net earnings 40 63 19 (82 ) 40 Other comprehensive income — 9 27 — 36 Comprehensive income 40 72 46 (82 ) 76 For the six months ended June 30, 2014 Non- CONDENSED CONSOLIDATING STATEMENT OF EARNINGS AND Guarantor Guarantor Consolidating COMPREHENSIVE INCOME Parent Subsidiaries Subsidiaries Adjustments Consolidated $ $ $ $ $ Sales — 2,200 1,124 (545 ) 2,779 Operating expenses Cost of sales, excluding depreciation and amortization — 1,849 907 (545 ) 2,211 Depreciation and amortization — 133 62 — 195 Selling, general and administrative 18 115 81 — 214 Closure and restructuring costs — 1 — — 1 Other operating loss (income), net — 1 (1 ) — — 18 2,099 1,049 (545 ) 2,621 Operating (loss) income (18 ) 101 75 — 158 Interest expense (income), net 50 12 (11 ) — 51 (Loss) earnings before income taxes (68 ) 89 86 — 107 Income tax (benefit) expense (17 ) 23 22 — 28 Share in earnings of equity accounted investees 130 64 — (194 ) — Net earnings 79 130 64 (194 ) 79 Other comprehensive income (loss) 1 8 (8 ) — 1 Comprehensive income 80 138 56 (194 ) 80 June 30, 2015 Non- Guarantor Guarantor Consolidating CONDENSED CONSOLIDATING BALANCE SHEET Parent Subsidiaries Subsidiaries Adjustments Consolidated $ $ $ $ $ Assets Current assets Cash and cash equivalents 19 52 136 — 207 Receivables — 374 266 — 640 Inventories — 506 215 — 721 Prepaid expenses 15 9 12 — 36 Income and other taxes receivable 60 2 14 (63 ) 13 Intercompany accounts 1,076 4,738 20 (5,834 ) — Deferred income taxes — 49 29 — 78 Total current assets 1,170 5,730 692 (5,897 ) 1,695 Property, plant and equipment, at cost — 6,201 2,616 — 8,817 Accumulated depreciation — (4,140 ) (1,718 ) — (5,858 ) Net property, plant and equipment — 2,061 898 — 2,959 Goodwill — 296 250 — 546 Intangible assets, net of amortization — 259 362 — 621 Investments in affiliates 8,007 2,095 — (10,102 ) — Intercompany long-term advances 6 80 435 (521 ) — Other assets 31 9 132 (30 ) 142 Total assets 9,214 10,530 2,769 (16,550 ) 5,963 Liabilities and shareholders' equity Current liabilities Bank indebtedness — 1 — — 1 Trade and other payables 70 398 219 — 687 Intercompany accounts 4,743 1,011 80 (5,834 ) — Income and other taxes payable 7 74 18 (63 ) 36 Long-term debt due within one year 166 2 1 — 169 Total current liabilities 4,986 1,486 318 (5,897 ) 893 Long-term debt 1,168 — 10 — 1,178 Intercompany long-term loans 273 248 — (521 ) — Deferred income taxes and other 8 614 173 (30 ) 765 Other liabilities and deferred credits 18 175 173 — 366 Shareholders' equity 2,761 8,007 2,095 (10,102 ) 2,761 Total liabilities and shareholders' equity 9,214 10,530 2,769 (16,550 ) 5,963 December 31, 2014 Non- Guarantor Guarantor Consolidating CONDENSED CONSOLIDATING BALANCE SHEET Parent Subsidiaries Subsidiaries Adjustments Consolidated $ $ $ $ $ Assets Current assets Cash and cash equivalents 79 18 77 — 174 Receivables — 370 258 — 628 Inventories — 495 219 — 714 Prepaid expenses 11 7 7 — 25 Income and other taxes receivable 37 — 17 — 54 Intercompany accounts 977 4,613 13 (5,603 ) — Deferred income taxes — 40 35 — 75 Total current assets 1,104 5,543 626 (5,603 ) 1,670 Property, plant and equipment, at cost — 6,119 2,790 — 8,909 Accumulated depreciation — (3,985 ) (1,793 ) — (5,778 ) Net property, plant and equipment — 2,134 997 — 3,131 Goodwill — 296 271 — 567 Intangible assets, net of amortization — 263 398 — 661 Investments in affiliates 8,015 2,153 — (10,168 ) — Intercompany long-term advances 6 80 434 (520 ) — Other assets 31 11 135 (21 ) 156 Total assets 9,156 10,480 2,861 (16,312 ) 6,185 Liabilities and shareholders' equity Current liabilities Bank indebtedness — 10 — — 10 Trade and other payables 69 409 243 — 721 Intercompany accounts 4,582 925 96 (5,603 ) — Income and other taxes payable 2 9 15 — 26 Long-term debt due within one year 166 2 1 — 169 Total current liabilities 4,819 1,355 355 (5,603 ) 926 Long-term debt 1,168 2 11 — 1,181 Intercompany long-term loans 260 260 — (520 ) — Deferred income taxes and other — 675 156 (21 ) 810 Other liabilities and deferred credits 19 173 186 — 378 Shareholders' equity 2,890 8,015 2,153 (10,168 ) 2,890 Total liabilities and shareholders' equity 9,156 10,480 2,861 (16,312 ) 6,185 For the six months ended June 30, 2015 Non- Guarantor Guarantor Consolidating CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS Parent Subsidiaries Subsidiaries Adjustments Consolidated $ $ $ $ $ Operating activities Net earnings 74 118 71 (189 ) 74 Changes in operating and intercompany assets and liabilities and non-cash items, included in net earnings (63 ) 36 13 189 175 Cash flows provided from operating activities 11 154 84 — 249 Investing activities Additions to property, plant and equipment — (93 ) (43 ) — (136 ) Proceeds from disposals of property, plant and equipment — 6 1 — 7 Other — — 9 — 9 Cash flows used for investing activities — (87 ) (33 ) — (120 ) Financing activities Dividend payments (50 ) — — — (50 ) Stock repurchase (30 ) — — — (30 ) Net change in bank indebtedness — (9 ) — — (9 ) Repayment of long-term debt — (1 ) (1 ) — (2 ) Increase in long-term advances to related parties — (23 ) — 23 — Decrease in long-term advances to related parties 8 — 15 (23 ) — Other 1 — — — 1 Cash flows (used for) provided from financing activities (71 ) (33 ) 14 — (90 ) Net (decrease) increase in cash and cash equivalents (60 ) 34 65 — 39 Impact of foreign exchange on cash — — (6 ) — (6 ) Cash and cash equivalents at beginning of period 79 18 77 — 174 Cash and cash equivalents at end of period 19 52 136 — 207 For the six months ended June 30, 2014 Non- Guarantor Guarantor Consolidating CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS Parent Subsidiaries Subsidiaries Adjustments Consolidated $ $ $ $ $ Operating activities Net earnings 79 130 64 (194 ) 79 Changes in operating and intercompany assets and liabilities and non-cash items, included in net earnings 19 (113 ) 66 194 166 Cash flows provided from operating activities 98 17 130 — 245 Investing activities Additions to property, plant and equipment — (71 ) (30 ) — (101 ) Proceeds from disposals of property, plant and equipment — — 1 — 1 Acquisition of business, net of cash acquired — — (546 ) — (546 ) Cash flows used for investing activities — (71 ) (575 ) — (646 ) Financing activities Dividend payments (36 ) — — — (36 ) Net change in bank indebtedness (1 ) (7 ) 8 — — Change in revolving bank credit facility (140 ) — — — (140 ) Proceeds from receivable securitization facilities — — 90 — 90 Payments on receivable securitization facilities — — (84 ) — (84 ) Repayment of long-term debt — (2 ) (1 ) — (3 ) Increase in long-term advances to related parties — 47 310 (357 ) — Decrease in long-term advances to related parties (357 ) — — 357 — Other 3 — 1 — 4 Cash flows (used for) provided from financing activities (531 ) 38 324 — (169 ) Net decrease in cash and cash equivalents (433 ) (16 ) (121 ) — (570 ) Cash and cash equivalents at beginning of period 439 22 194 — 655 Cash and cash equivalents at end of period 6 6 73 — 85 |