10-Q

Large accelerated filer

Accelerated filer

Non-accelerated filer

Small reporting company

Emerging growth company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


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

For the quarterly period ended March 31, 2025


☐	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, Canada H3A 1L6
(514) 848-5555

     234 Kingsley Park Drive
Fort Mill, SC  29715
 (803) 802-7500

(Address of principal executive offices, zip code, telephone number)

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

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation ST (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ NO ☐ *

*The Registrant is a voluntary filer and not subject to the filing requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934. Although not subject to these filing requirements, the Registrant has filed all reports that would have been required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months had the Registrant been subject to such requirements.

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

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

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

There are no longer publicly traded common shares of Domtar Corporation.

DOMTAR CORPORATION

FORM 10-Q

For the Quarterly Period Ended March 31, 2025

INDEX


PART I	FINANCIAL INFORMATION	3

ITEM 1.	FINANCIAL STATEMENTS (UNAUDITED)	3

	CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) AND COMPREHENSIVE INCOME (LOSS)	3

	CONSOLIDATED BALANCE SHEETS	4

	CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY	5

	CONSOLIDATED STATEMENTS OF CASH FLOWS	6

	INDEX FOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	7

	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	8

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	36

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK	49

ITEM 4.	CONTROLS AND PROCEDURES	49

PART II	OTHER INFORMATION	50

ITEM 1.	LEGAL PROCEEDINGS	50

ITEM 1A.	RISK FACTORS	50

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

ITEM 3.	DEFAULT UPON SENIOR SECURITIES	51

ITEM 4.	MINE SAFETY DISCLOSURES	51

ITEM 5.	OTHER INFORMATION	51

ITEM 6.	EXHIBITS	52

PART I: FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS (UNAUDITED)

DOMTAR CORPORATION

CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) AND COMPREHENSIVE INCOME (LOSS)

(UNAUDITED, IN MILLIONS OF DOLLARS)



	For the three months ended
	March 31,			March 31,
	2025			2024

	$			$
Sales		1,860			1,786
Operating expenses
Cost of sales, excluding depreciation and amortization		1,608			1,557
Depreciation and amortization		88			84
Selling, general and administrative		97			91
Impairment of long-lived assets (NOTE 10)		12			—
Closure and restructuring costs (NOTE 10)		—			11
Other operating income, net		(11	)		(16	)
		1,794			1,727
Operating income		66			59
Interest expense, net		61			59
Non-service components of net periodic benefit cost (NOTE 5)		(4	)		(5	)
Earnings before income taxes		9			5
Income tax expense (NOTE 6)		3			5
Net earnings		6			—
Other comprehensive income (loss) (NOTE 12):
Net derivative gains (losses) on cash flow hedges:
Net gains (losses) arising during the period, net of tax of $(2) (2024 – $4)		5			(14	)
Less: Reclassification adjustment for losses included in net earnings, net of tax of $(2) (2024 – $(1))		8			3
Foreign currency translation adjustments		1			(26	)
Change in unrecognized losses and prior service cost related to pension and other post-retirement benefit plans, net of tax of nil (2024 – nil)		(1	)		—
Other comprehensive income (loss)		13			(37	)
Comprehensive income (loss)		19			(37	)

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

DOMTAR CORPORATION

CONSOLIDATED BALANCE SHEETS

(UNAUDITED, IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)



	At
	March 31,			December 31,
	2025			2024

	$			$
Assets
Current assets
Cash and cash equivalents, including restricted cash of $13 and $14		74			97
Receivables, less allowances of $5 and $5		836			767
Receivables from related party (NOTE 16)		34			35
Inventories (NOTE 7)		1,399			1,394
Prepaid expenses		58			53
Income and other taxes receivable		39			45
Other current assets		12			16
Assets held for sale (NOTE 3)		8			—
Total current assets		2,460			2,407
Property, plant and equipment, net		3,475			3,535
Operating lease right-of-use assets		108			113
Goodwill and other intangible assets, net (NOTE 8)		157			161
Deferred income tax assets		475			482
Other assets (NOTE 9)		632			618
Total assets		7,307			7,316
Liabilities and shareholders' equity
Current liabilities
Bank indebtedness		9			8
Trade and other payables		918			937
Income and other taxes payable		25			11
Operating lease liabilities due within one year		28			28
Due to related party (NOTE 16)		14			7
Long-term debt due within one year (NOTE 11)		74			66
Total current liabilities		1,068			1,057
Long-term debt (NOTE 11)		2,537			2,557
Operating lease liabilities		80			86
Deferred income taxes and other		29			29
Pension and other post-retirement benefit obligations (NOTE 5)		667			684
Other liabilities and deferred credits (NOTE 13)		319			315
Commitments and contingencies (NOTE 14)
Shareholders' equity
Common stock $0.01 par value; 100 shares issued and outstanding		—			—
Additional paid-in capital		2,827			2,827
Deficit		(119	)		(125	)
Accumulated other comprehensive loss		(101	)		(114	)
Total shareholders' equity		2,607			2,588
Total liabilities and shareholders' equity		7,307			7,316

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

DOMTAR CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(UNAUDITED, IN MILLIONS OF DOLLARS)


	For the three months ended
	March 31, 2025
	Additional paid-in capital		Deficit			Accumulated other comprehensive loss			Total shareholders' equity

	$		$			$			$
Balance at December 31, 2024		2,827		(125	)		(114	)		2,588
Net earnings		—		6			—			6
Net derivative gains on cash flow hedges:
Net gains arising during the period, net of tax of $(2)		—		—			5			5
Less: Reclassification adjustment for losses included in net earnings, net of tax of $(2)		—		—			8			8
Foreign currency translation adjustments		—		—			1			1
Change in unrecognized losses and prior service cost related to pension and other post-retirement benefit plans, net of tax of nil		—		—			(1	)		(1	)
Balance at March 31, 2025		2,827		(119	)		(101	)		2,607


	For the three months ended
	March 31, 2024
	Additional paid-in capital		Deficit			Accumulated other comprehensive loss			Total shareholders' equity

	$		$			$			$
Balance at December 31, 2023		2,727		(108	)		(44	)		2,575
Net earnings		—		—			—			—
Net derivative losses on cash flow hedges:
Net losses arising during the period, net of tax of $4		—		—			(14	)		(14	)
Less: Reclassification adjustment for losses included in net earnings, net of tax of $(1)		—		—			3			3
Foreign currency translation adjustments		—		—			(26	)		(26	)
Balance at March 31, 2024		2,727		(108	)		(81	)		2,538

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

DOMTAR CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED, IN MILLIONS OF DOLLARS)


	For the three months ended
	March 31,			March 31,
	2025			2024
	$			$
Operating activities
Net earnings		6			—
Adjustments to reconcile net earnings to cash flows provided from (used for) operating activities
Depreciation and amortization		88			84
Deferred income taxes and tax uncertainties (NOTE 6)		2			3
Impairment of long-lived assets (NOTE 10)		12			—
Net (gains) losses on disposals of assets		(2	)		1
Other		(1	)		(3	)
Changes in assets and liabilities
Receivables, including related party		(100	)		(44	)
Inventories		(6	)		(26	)
Prepaid expenses		3			7
Trade and other payables, including related party		29			(37	)
Income and other taxes		19			11
Difference between employer pension and other post-retirement contributions and pension and other post-retirement expense		(21	)		(29	)
Other assets and other liabilities		3			(1	)
Cash flows provided from (used for) operating activities		32			(34	)
Investing activities
Additions to property, plant and equipment		(44	)		(53	)
Proceeds from disposals of property, plant and equipment		4			—
Cash flows used for investing activities		(40	)		(53	)
Financing activities
Net change in bank indebtedness		1			(12	)
Change in revolving credit facility		(145	)		20
Issuance of long-term debt, net of debt issue costs		148			—
Repayments of long-term debt		(17	)		(16	)
Other		(3	)		—
Cash flows used for financing activities		(16	)		(8	)
Net decrease in cash and cash equivalents		(24	)		(95	)
Impact of foreign exchange on cash		—			(5	)
Cash, cash equivalents and restricted cash at beginning of period		156			203
Cash, cash equivalents and restricted cash at end of period		132			103
Supplemental cash flow information
Net cash payments (refunds) for:
Interest		45			42
Income taxes		(1	)		(8	)

The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the Consolidated Balance Sheets that sum to the total of the same such amounts shown in the Consolidated Statements of Cash Flows.

Cash and cash equivalents		61			88
Restricted cash included in Cash and cash equivalents		13			15
Restricted cash included in Other assets		58			—
Total cash, cash equivalents, and restricted cash shown in the Consolidated Statements of Cash Flows		132			103

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

INDEX FOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1	BASIS OF PRESENTATION	8

NOTE 2	RECENT ACCOUNTING PRONOUNCEMENTS	9

NOTE 3	ACQUISITION AND SALE OF BUSINESSES	10

NOTE 4	DERIVATIVES AND HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENT	12

NOTE 5	PENSION PLANS AND OTHER POST-RETIREMENT BENEFIT PLANS	16

NOTE 6	INCOME TAXES	17

NOTE 7	INVENTORIES	18

NOTE 8	GOODWILL AND OTHER INTANGIBLE ASSETS	19

NOTE 9	OTHER ASSETS	20

NOTE 10	CLOSURE AND RESTRUCTURING AND IMPAIRMENT OF LONG-LIVED ASSETS	21

NOTE 11	LONG-TERM DEBT	22

NOTE 12	CHANGES IN ACCUMULATED OTHER COMPREHENSIVE LOSS BY COMPONENT	23

NOTE 13	OTHER LIABILITIES AND DEFERRED CREDITS	25

NOTE 14	COMMITMENTS AND CONTINGENCIES	26

NOTE 15	SEGMENT DISCLOSURES	33

NOTE 16	RELATED PARTY TRANSACTIONS	35

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2025

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 1.

_________________

BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, in the opinion of Management, include all adjustments that are necessary for the fair statement of Domtar Corporation’s (“the Company”) financial position, results of operations, and cash flows for the interim periods presented. It is suggested that these consolidated financial statements be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Domtar Corporation Annual Report on Form 10-K for the fiscal year ended December 31, 2024, as filed with the Securities and Exchange Commission. The Consolidated Balance Sheet at December 31, 2024, presented for comparative purposes in this interim report, was derived from audited consolidated financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.

The preparation of the Consolidated Financial Statements requires management to make estimates and assumptions with respect to the reported amounts of assets, liabilities, revenue, and expenses and the disclosure of contingent assets and liabilities. Results for the first three months of the year may not necessarily be indicative of full-year results.

Certain reclassifications have been made to the prior year’s presentation to conform to the current year presentation.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2025

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 2.

_________________

RECENT ACCOUNTING PRONOUNCEMENTS

FUTURE ACCOUNTING CHANGES

INCOME TAXES DISCLOSURE

On December 14, 2023, the FASB issued ASU 2023-09, “Improvements to Income Tax Disclosures” which requires significant additional annual disclosures about income taxes, primarily focused on the disclosure of income taxes paid and the rate reconciliation table. The new guidance will be applied prospectively (with retrospective application permitted) and is effective for calendar year-end public business entities in the 2025 annual period, with early adoption permitted.

The Company is currently assessing the impact of the new disclosures on its annual financial statements.

EXPENSE DISAGGREGATION DISCLOSURE

On November 4, 2024, the FASB issued ASU 2024-03, “Disaggregation of Income Statement Expenses” which requires disclosures about specific types of expenses included in the expense captions presented on the face of the income statement as well as disclosures about selling expenses. The new guidance is effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. The new guidance may be applied either prospectively or retrospectively. Early adoption is permitted.

The Company is currently evaluating the impact the new guidance will have on its disclosures.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2025

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 3.

_________________

ACQUISITION AND SALE OF BUSINESSES

Sale of Espanola, Ontario mill

Sale of Forest Products Mauricie, Quebec sawmill

On April 2, 2025, Domtar reached an agreement for the sale of the Forest Products Mauricie ("FPM") sawmill, subject to the fulfillment of closing conditions. The related assets are classified as held for sale.

Acquisition of New Receiptco Opco LLC (“Iconex Paper”)

On November 1, 2024, Domtar completed the acquisition of all the outstanding common shares of Iconex Paper from a portfolio company owned by an investment fund managed by Atlas Holdings for a purchase price of $208 million in cash. Of the purchase price, $100 million was funded through a contribution to equity by Domtar’s parent company.

Iconex Paper converts thermal paper parent rolls into point-of-sale ("POS") receipt rolls, serving customers in industries such as food service, retail, pharmacy, and financial services from its five North American locations in Arizona, Kansas, Tennessee, Virginia, and Mexico.

Domtar was determined to be the accounting acquirer in the Acquisition which was accounted for using the acquisition method of accounting. Under the acquisition method of accounting, the purchase consideration allocated to Iconex Paper’s assets and liabilities is based upon their estimated preliminary fair values at the acquisition date.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the acquisition date. The Company is in the process of finalizing the purchase price allocation for tax purposes; thus, the provisional measurements of deferred income tax and goodwill are subject to change. Purchase adjustments were made related to events or circumstances existing at the acquisition date. The final purchase price allocation may be materially different from the preliminary purchase price allocation. The goodwill is expected to be deductible for income tax purposes.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2025

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 3 – ACQUISITION OF BUSINESSES (CONTINUED)


Fair value of net assets acquired at the date of acquisition - Preliminary value
Receivables	$	42
Inventories		34
Prepaid expenses and other current assets		7
Property, plant and equipment		16
Operating lease right-of-use assets		16
Intangible assets - customer relationships		110
Goodwill		33
Total assets		258

Less: Assumed Liabilities
Trade and other payables		23
Other current liabilities		13
Operating lease liabilities (including short-term portion)		13
Deferred income tax liabilities		1
Total liabilities		50

Fair value of net assets acquired at the date of acquisition		208

The preliminary estimated fair value of the customer relationship intangible assets was estimated using the multi-period excess earnings method. Management applied significant judgment related to this fair value method, which included the determination of an expected EBITDA margin assumption for the forecast period, contributory asset charges, customer attrition rate, sales volume and market-participant discount rate assumptions. These significant assumptions are based on company specific information and projections, which are not observable in the market (except for the discount rate assumption) and, therefore, are considered Level 2 and Level 3 measurements. These significant assumptions are forward-looking and could be affected by future changes in economic and market conditions.

The following represents the unaudited pro forma sales and net earnings of the Company if Iconex Paper had been included in the Company's consolidated results for the three months ended March 31, 2024:


	For the three months ended
	March 31,
	2024
	(Unaudited)
	$

Sales		1,835
Net earnings		8

These amounts have been calculated after applying the Company’s accounting policies and adjusting the results of Iconex Paper to reflect the reduction in interest expense and the additional depreciation and operating costs that would have been charged assuming the fair value adjustments to inventory, property, plant and equipment, customer relationships and favorable facility leasing contracts had been applied on January 1, 2023, together with the related tax effects. In addition, these amounts include the additional interest expense incurred by the Company in relation to the financing of the acquisition. The Company did not have any material, nonrecurring pro forma adjustments directly attributable to the acquisition included in the unaudited pro forma sales and net earnings.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2025

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 4.

________________

DERIVATIVES AND HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENT

HEDGING PROGRAMS

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

Upon inception, the Company formally documents the relationship between hedging instruments and hedged items. At inception and quarterly thereafter, the Company formally assesses whether the financial instruments used in hedging transactions are effective at offsetting changes in either the cash flow or the fair value of the underlying exposures. The Company does not hold derivative financial instruments for trading purposes.

CREDIT RISK

The Company is exposed to credit risk on 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 March 31, 2025 and December 31, 2024, no single customer represented more than 10% of the Company's receivables.

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

INTEREST RATE RISK

The Company is exposed to interest rate risk arising from fluctuations in interest rates on its cash and cash equivalents, bank indebtedness, revolving credit facility, term loan and long-term debt. The Company’s objective in managing exposure to interest rate changes is to minimize the impact of interest rate changes on earnings and cash flows and to lower its overall borrowing costs. The Company may manage this interest rate exposure through the use of derivative instruments such as interest rate swap contracts, whereby it agrees to exchange the difference between fixed and variable interest amounts calculated by reference to an agreed upon notional principal amount.

COST RISK

Cash flow hedges:

The Company is exposed to price volatility for raw materials and energy used in its manufacturing process. The Company manages its exposure to cost risk primarily through the use of supplier contracts. The Company purchases natural gas at the prevailing market price at the time of delivery. To reduce the impact on cash flow and earnings due to pricing volatility, the Company may utilize derivatives to fix the price of forecasted natural gas purchases. The changes in the fair value on qualifying instruments are included in Accumulated other comprehensive loss to the extent effective, and reclassified into Cost of sales in the period during which the hedged transaction affects earnings. Current contracts are used to hedge a portion of forecasted purchases of natural gas over the next 10 months.

The natural gas derivative contracts were effective as of March 31, 2025.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2025

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 4 – DERIVATIVES AND HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENT (CONTINUED)

FOREIGN CURRENCY RISK

Cash flow hedges:

The Company has manufacturing operations in the United States and Canada. As a result, it is exposed to movements in foreign currency exchange rates in Canada. Moreover, certain assets and liabilities are denominated in Canadian dollars 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. 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.

Current contracts are used to hedge forecasted purchases in Canadian dollars by the Company’s Canadian 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 effective as of March 31, 2025.

FAIR VALUE MEASUREMENT

The accounting standards for fair value measurements and disclosures establish a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three levels. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is available and significant to the fair value measurement.

Level 1 Quoted prices in active markets for identical assets or liabilities.

Level 2 Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 Inputs that are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2025

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 4 – DERIVATIVES AND HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENT (CONTINUED)

The following tables present information about the Company’s financial assets and financial liabilities measured at fair value on a recurring basis (except Long-term debt, see (b) and (c) below) at March 31, 2025 and December 31, 2024, in accordance with the accounting standards for fair value measurements and disclosures and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value.


Fair Value of financial instruments at:	March 31, 2025		Quoted prices in active markets for identical assets (Level 1)		Significant observable inputs (Level 2)		Significant unobservable inputs (Level 3)			Balance sheet classification
	$		$		$		$
Derivatives designated as hedging instruments:
Asset derivatives
Currency derivatives		2		—		2		—	(a)	Prepaid expenses
Natural gas swap contracts		7		—		7		—	(a)	Prepaid expenses
Total Assets		9		—		9		—

Liabilities derivatives
Currency derivatives		28		—		28		—	(a)	Trade and other payables
Total Liabilities		28		—		28		—

Other Instruments:
Long-term debt due within one year		74		—		74		—	(b)	Long-term debt due within one year
Long-term debt		2,347		—		2,347		—	(c)	Long-term debt
Contingent consideration for contingent value right		160		—		—		160	(d)	Other liabilities and deferred credits

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2025

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 4 – DERIVATIVES AND HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENT (CONTINUED)


Fair Value of financial instruments at:	December 31, 2024		Quoted prices in active markets for identical assets (Level 1)		Significant observable inputs (Level 2)		Significant unobservable inputs (Level 3)			Balance sheet classification
	$		$		$		$
Derivatives designated as hedging instruments:
Asset derivatives
Natural gas swap contracts		3		—		3		—	(a)	Prepaid expenses
Total Assets		3		—		3		—

Liabilities derivatives
Currency derivatives		39		—		39		—	(a)	Trade and other payables
Total Liabilities		39		—		39		—

Other Instruments:
Long-term debt due within one year		66		—		66		—	(b)	Long-term debt due within one year
Long-term debt		2,422		—		2,422		—	(c)	Long-term debt
Contingent consideration for contingent value right		154		—		—		154	(d)	Other liabilities and deferred credits

(a)

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

- For currency derivatives: Foreign currency forward and option contracts are valued using standard valuation models. Interest rates, forward market rates and volatility are used as inputs for such valuation techniques.

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

(b)

Fair value of the Company’s long-term debt is measured by comparison to market prices of its debt. The Company’s long-term debt is not carried at fair value on the Consolidated Balance Sheets at March 31, 2025 and December 31, 2024. The carrying value of the Company’s long-term debt due within one year is $74 million and $66 million at March 31, 2025 and December 31, 2024, respectively.

(c)

The carrying value of the Company’s long-term debt is $2,537 million and $2,557 million at March 31, 2025 and December 31, 2024, respectively.

(d)

The Company estimates the fair value of the contingent consideration by using a model based on the assumptions that a settlement would be reached and that a certain percentage of the deposits would be recovered after a certain period, which requires management’s estimates.

Due to their short-term maturity, the carrying amounts of cash and cash equivalents, including restricted cash, receivables, receivables from related party, bank indebtedness, trade and other payables and payables to related party approximate their fair values.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2025

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 5.

_________________

PENSION PLANS AND OTHER POST-RETIREMENT BENEFIT PLANS

DEFINED CONTRIBUTION PLANS

The Company has several defined contribution plans and multi-employer plans. The pension expense under these plans is equal to the Company’s contribution. For the three months ended March 31, 2025, the pension expense was $18 million (2024 – $16 million).

The Company expects to contribute approximately $47 million under these plans during the remainder of the year.

DEFINED BENEFIT PLANS AND OTHER POST-RETIREMENT BENEFIT PLANS

The Company's employees participate in various employee benefit plans.

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



	For the three months ended
	March 31, 2025
	Pension plans			Other post-retirement benefit plans
	$			$
Service cost		6			—
Interest expense		42			1
Expected return on plan assets		(49	)		—
Amortization of net actuarial loss		—			1
Settlement loss		1			—
Net periodic benefit cost		—			2



	For the three months ended
	March 31, 2024
	Pension plans			Other post-retirement benefit plans
	$			$
Service cost		5			—
Interest expense		51			1
Expected return on plan assets		(57	)		—
Net periodic benefit cost		(1	)		1

The components of net periodic benefit cost for pension plans and other post-retirement benefits plans, other than service cost, are presented in Non-service components of net periodic benefit cost on the Consolidated Statement of Earnings (Loss) and Comprehensive Income (Loss).

For the three months ended March 31, 2025, the Company contributed $20 million (2024 – $25 million) to the pension plans and $2 million (2024 – $3 million) to the other post-retirement benefit plans.

The Company expects to make cash contributions of approximately $65 million to the pension plans and $10 million to the other post-retirement benefit plans during the remainder of the year.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2025

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 6.

_________________

INCOME TAXES

For the first quarter of 2025, the Company had income tax expense of $3 million, consisting of $1 million of current income tax expense and a deferred income tax expense of $2 million. This compares to an income tax expense of $5 million in the first quarter of 2024, consisting of $2 million of current income tax expense and a deferred income tax expense of $3 million. The Company received refunds, net of tax payments, of $1 million during the first quarter of 2025. The effective tax rate for the first quarter of 2025 was 33% compared to 100% for the first quarter of 2024. The effective tax rate for 2025 is unfavorably impacted by a valuation allowance on tax assets arising from deferred interest expenses and additional U.S. tax expense on foreign operations. This is partially offset by research and experimentation tax credits. The effective tax rate for 2024 was unfavorably impacted by a valuation allowance on tax assets arising from deferred interest expenses, foreign exchange items and additional U.S. tax expense on foreign operations.

In October 2021, the Organization for Economic Co-operation and Development ("OECD") announced the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting which agreed to a two-pillar framework to address tax challenges arising from digitalization of the economy and profit shifting. In December 2021, the OECD published the Pillar Two - Global Anti-Base Erosion Model Rules ("GloBE Rules") designed to ensure that multinational enterprises are subject to tax at an effective minimum tax rate of 15% in each jurisdiction where they operate. Although the U.S. has not enacted legislation to adopt GloBE Rules, the foreign countries where the Company has significant operations have already adopted or are in the process of adopting such legislation. For the first three months of 2025, the GloBE Rules did not impact the Company’s financial results. The Company continues to evaluate their impact on future periods.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2025

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 7.

_________________

INVENTORIES

The following table presents the components of inventories:


	March 31,		December 31,
	2025		2024
	$		$
Work in process and finished goods		680		682
Raw materials		338		344
Operating and maintenance supplies		381		368
		1,399		1,394

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2025

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 8.

_________________

GOODWILL AND OTHER INTANGIBLE ASSETS

The carrying value of the Company's goodwill is $33 million at March 31, 2025 and December 31, 2024, respectively, and is entirely related to the Paper and packaging reporting segment.

The following table presents the components of intangible assets:


			March 31, 2025							December 31, 2024
	Estimated useful lives (in years)		Gross carrying amount		Accumulated amortization			Net		Gross carrying amount		Accumulated amortization			Net
			$		$			$		$		$			$
Definite-lived intangible assets subject to amortization
Water rights		30		9		(1	)		8		9		(1	)		8
Trade names	15			15		(3	)		12		15		(3	)		12
Customer relationships	8			110		(6	)		104		110		(2	)		108
Total				134		(10	)		124		134		(6	)		128

Amortization expense related to intangible assets for the three months ended March 31, 2025 was $4 million (2024 – nil).

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


	2026		2027		2028		2029		2030
	$		$		$		$		$
Amortization expense related to intangible assets		15		15		15		15		15

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2025

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 9.

_________________

OTHER ASSETS

The following table presents the components of other assets:


	March 31,		December 31,
	2025		2024
	$		$
Pension asset - defined benefit pension plans		255		250
Countervailing duty and anti-dumping duty cash deposits on softwood lumber		205		195
Off-market contracts		71		71
Restricted cash		58		59
Other		43		43
		632		618

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2025

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 10.

_________________

CLOSURE AND RESTRUCTURING AND IMPAIRMENT OF LONG-LIVED ASSETS

Idling and sale of Espanola, Ontario mill

On September 6, 2023, the Company announced the indefinite idling of the Espanola Mill’s pulp and paper operations for an expected period greater than one year. The mill has been idled after years of ongoing operating losses and high costs associated with maintaining and operating the facility. The pulp mill was shut down in early October 2023 and the paper machines were shut down in early 2024.

On April 9, 2025, the Company signed a purchase agreement for the sale of its Espanola facility, with the transaction expected to close in the coming months pending regulatory approvals. As a result, during the first quarter of 2025, the Company recorded $12 million of write-off of property, plant and equipment, under Impairment of long-lived assets on the Consolidated Statements of Earnings (Loss) and Comprehensive Income (Loss).

For the three months ended March 31, 2024, the Company recorded $1 million of other costs, under Closure and restructuring costs on the Consolidated Statement of Earnings (Loss) and Comprehensive Income (Loss).

Crofton restructuring and impairment costs, British Columbia mill

On January 25, 2024, the Company announced the indefinite curtailment of the Crofton mill paper operations. During the first quarter of 2025, the Company recorded $2 million of accelerated depreciation, under Depreciation and amortization on the Consolidated Statement of Earnings (Loss) and Comprehensive Income (Loss) (2024 – $4 million).

Additionally, for the three months ended March 31, 2024, the Company recorded $3 million of severance and termination costs and $2 million of write-off of inventory, under Closure and restructuring costs on the Consolidated Statement of Earnings (Loss) and Comprehensive Income (Loss).

Ashdown curtailment, Arkansas mill

On February 21, 2024, the Company announced that it will indefinitely curtail paper operations at its Ashdown, Arkansas, facility. The Ashdown Mill’s paper machine and associated sheeter were indefinitely idled in July 2024. The curtailment did not result in a workforce reduction.

During the first quarter of 2024, the Company recorded $6 million of accelerated depreciation, under Depreciation and amortization on the Consolidated Statement of Earnings (Loss) and Comprehensive Income (Loss).

Other Costs

For the three months ended March 31, 2024, other costs related to previous and ongoing closures and restructuring included $1 million of severance and termination costs and $4 million of other costs.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2025

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 11.

LONG-TERM DEBT

ABL REVOLVING CREDIT FACILITY

On February 26, 2025, the Company entered into an amendment (the “Third ABL Amendment”) to its ABL Revolving Credit Facility that matures on March 1, 2028. Pursuant to the Third ABL Amendment, the maximum availability under the ABL Revolving Credit Facility was increased from $1.0 billion to $1.14 billion, which includes a First In, Last Out (“FILO”) tranche of $120 million (the “ABL FILO Loan”). Availability is subject to the borrowing base as calculated monthly. On March 31, 2025, the Company had borrowings of $335 million and $157 million of letters of credit outstanding under this facility, leaving unused commitments of $648 million available. Borrowing under the ABL FILO Loan bears interest at a floating rate per annum of, at the Company's option, SOFR (adjusted by 0.10%) plus an applicable margin of 2.75% or a base rate plus 1.75%.

BANK TERM LOAN

On January 28, 2025 the Company entered into a Term Loan Credit Agreement (the “Bank Term Loan”) for $150 million which was used to repay borrowings under the ABL Revolving Credit Facility. The Bank Term Loan will mature on November 30, 2028. The Bank Term Loan bears interest at a floating rate per annum, of SOFR plus 5.00%. Borrowings under the Company's Bank Term Loan will be amortized in equal quarterly installments in an amount equivalent to 5.00% per annum of the principal amount. The Bank Term Loan ranks pari passu with the Farm Credit Term Loan, the First Lien Term Loan Credit Agreement, the Senior Secured Notes and the Industrial Revenue Bond. The Bank Term Loan contains customary negative covenants, including, but not limited to, restrictions on the Company's ability and that of its restricted subsidiaries to merge and consolidate with other companies, incur indebtedness, grant liens or security interests on assets, make investments, pay dividends or make other restricted payments, sell or otherwise transfer assets or enter into transactions with affiliates.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2025

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 12.

_________________

CHANGES IN ACCUMULATED OTHER COMPREHENSIVE LOSS BY COMPONENT

The following table presents the changes in Accumulated other comprehensive loss by component(1) for the three months ended March 31, 2025 and the year ended December 31, 2024:


	Net derivative (losses) gains on cash flow hedges			Pension items(2)			Post-retirement benefit items(2)			Foreign currency items			Total
	$			$			$			$			$
Balance at December 31, 2023		5			(72	)		30			(7	)		(44	)
Natural gas swap contracts		(2	)	N/A			N/A			N/A				(2	)
Currency options		(7	)	N/A			N/A			N/A				(7	)
Foreign exchange forward contracts		(39	)	N/A			N/A			N/A				(39	)
Net gain	N/A				54			9		N/A				63
Foreign currency items	N/A			N/A			N/A				(99	)		(99	)
Other comprehensive (loss) income before reclassifications		(48	)		54			9			(99	)		(84	)
Amounts reclassified from Accumulated other comprehensive loss		15			1			(2	)		—			14
Net current period other comprehensive (loss) income		(33	)		55			7			(99	)		(70	)
Balance at December 31, 2024		(28	)		(17	)		37			(106	)		(114	)
Natural gas swap contracts		4		N/A			N/A			N/A				4
Foreign exchange forward contracts		1		N/A			N/A			N/A				1
Foreign currency items	N/A			N/A			N/A				1			1
Other comprehensive income before reclassifications		5			—			—			1			6
Amounts reclassified from Accumulated other comprehensive loss		8			—			(1	)		—			7
Net current period other comprehensive income (loss)		13			—			(1	)		1			13
Balance at March 31, 2025		(15	)		(17	)		36			(105	)		(101	)

(1)

All amounts are after tax. Amounts in parentheses indicate losses.

(2)

The projected benefit obligation is actuarially determined on an annual basis as of December 31.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2025

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

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

The following tables present reclassifications out of Accumulated other comprehensive loss:


	Amounts reclassified from Accumulated other comprehensive loss
	For the three months ended
	March 31,			March 31,
	2025			2024
	$			$
Net derivative gains (losses) on cash flow hedge
Natural gas swap contracts (1)		2			(3	)
Currency options and forwards (1)		(12	)		(1	)
Total before tax		(10	)		(4	)
Tax benefit		2			1
Net of tax		(8	)		(3	)

Amortization of defined benefit pension items
Amortization of net actuarial loss (2)		(1	)		—
Total before tax		(1	)		—
Tax benefit		1			—
Net of tax		—			—

Amortization of other post-retirement benefit items
Amortization of net actuarial gain (2)		1			—
Total before tax		1			—
Tax expense		—			—
Net of tax		1			—

(1)

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

(2)

These amounts are included in the computation of net periodic benefit cost (see Note 5 “Pension plans and other post-retirement benefit plans” for more details).

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2025

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 13.

_________________

OTHER LIABILITIES AND DEFERRED CREDITS

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


	March 31,		December 31,
	2025		2024
	$		$
Provision for environmental and asset retirement obligations		106		107
Contingent consideration for contingent value right		160		154
Other		53		54
		319		315

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2025

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 14.

_________________

COMMITMENTS AND CONTINGENCIES

ENVIRONMENTAL MATTERS

The Company is subject to environmental laws and regulations enacted by federal, provincial, state and local authorities. The Company may also incur substantial costs in relation to enforcement actions (including orders requiring corrective measures, installation of pollution control equipment or other remedial actions) as a result of violations of, or liabilities under, environmental laws and regulations applicable to its past and present properties. The Company’s ongoing efforts to identify potential environmental concerns that may be associated with such properties may result in additional environmental costs and liabilities which cannot be reasonably estimated at this time.

The Company has environmental liabilities of $56 million and $57 million recorded as of March 31, 2025 and December 31, 2024, respectively, primarily related to environmental remediation related to closed sites. The amount of these liabilities represents management’s estimate of the ultimate settlement based on an assessment of relevant factors and assumptions and could be affected by changes in facts or assumptions not currently known to management for which the outcome cannot be reasonably estimated at this time.

The Company also has asset retirement obligations of $57 million and $56 million recorded as of March 31, 2025 and December 31, 2024, respectively, primarily consisting of liabilities associated with landfills, sludge basins and the dismantling of retired assets.

These liabilities are included in Trade and other payables and Other liabilities and deferred credits in the Consolidated Balance Sheets.

Additionally, the Company has asset retirement obligations with indeterminate settlement dates. The fair value of these liabilities cannot be estimated due to the lack of sufficient information to estimate the settlement dates of the obligation. The Company will recognize liability in the period in which sufficient information becomes available. These asset retirement obligations relate mainly to disposal of potentially hazardous materials that may be required if the Company undergoes major maintenance, renovation or demolition, and to closure of retention ponds that may be required if it ceases its operations.

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

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 March 31, 2025, cannot be predicted with certainty, it is management’s opinion that their resolution will not have a material adverse effect on the Company’s financial position, results of operations or cash flows.

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, compliance with laws, 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 March 31, 2025, the Company is unable to estimate the potential maximum liabilities for these types of indemnification guarantees as the amounts are contingent upon the outcome of future events, the nature and likelihood of which cannot be reasonably estimated at this time. Accordingly, no provision has been recorded. These indemnifications have not yielded a significant expense in the past.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2025

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 14 – COMMITMENTS AND CONTINGENCIES (CONTINUED)

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 March 31, 2025, the Company has not recorded a liability associated with these indemnifications, as it does not expect to make any payments pertaining to these indemnifications.

CLIMATE CHANGE AND AIR QUALITY REGULATIONS

Various national and local laws and regulations relating to climate change have been established or are emerging in jurisdictions where the Company currently has, or may have in the future, manufacturing facilities or investments.

In 2019, the EPA repealed the Clean Power Plan and replaced it with the “Affordable Clean Energy” (“ACE”) rule. The ACE rule was legally challenged in the U.S. Court of Appeals for the D.C. Circuit. The Court vacated the ACE rule and, the repeal of the Clean Power Plan, but the court stayed its mandate as to the Clean Power Plan repeal to avoid reinstating that rule. However, on June 30, 2022, the Supreme Court reversed the D.C. Circuit’s decision, holding that the Clean Power Plan was an “extraordinary” case of an agency claiming transformative power over a “major question” of policy without a clear statement from Congress. The decision does not completely bar the EPA from regulating greenhouse gas emissions from the power sector but prohibits the EPA from imposing standards based on “generation shifting” away from coal-fired power plants to natural gas plants and renewable resources.

On May 23, 2023, the EPA proposed a new climate change rule for existing power plants and repealed the ACE rule. The new rule requires, by 2030, all existing coal-fired power plants operating beyond 2039 to choose between carbon capture and sequestration by 2032, natural gas-co-firing by 2030, or retirement before 2032. The new rule also applies to all new gas combustion turbines which are categorized by operating level. Units that operate greater than 40% of their operating capacity in a year require carbon capture and sequestration. Units that operate less have an emission limit or the requirement to use lower emitting fuels. These new climate rules have been challenged in the D.C. Circuit and oral argument was held on December 6, 2024. However, the new Trump administration has indicated an intent to reconsider the rule and filed a motion with the court to hold the litigation in abeyance during the reconsideration, which the court granted on February 19, 2025. The Company does not expect to be disproportionately affected compared with other pulp and paper producers located in the states where the Company operates.

The EPA finalized amendments revising certain aspects of its Industrial Boiler Maximum Achievable Control Technology Standard (“MACT”), or Boiler MACT in 2022. The revised rule responded to two court decisions that remanded certain issues for further review by the EPA, and it includes revisions to 34 different emission limitations that could apply to some of the Company’s facilities. Although the EPA has indicated that a small number of facilities may need to reduce emissions further compared to the current limits, the EPA does not expect additional costs to be significant. On September 3, 2024, EPA’s rule amendments were partially set aside by the D.C. Circuit because they failed to properly distinguish between “new” and “existing” sources. As a result, EPA is expected to revise its Boiler MACT rules again in the near future. The Company does not expect its facilities to be disproportionately affected compared to other U.S. pulp and paper producers.

The province of Quebec has a greenhouse gas (“GHG”) cap-and-trade system with reduction targets. Ontario has its GHG Emission Performance Standards regulation and the province of British Columbia has the B.C. Output-Based Pricing System. The Company does not expect its facilities to be disproportionately affected by these measures compared to the other pulp and paper producers located in these provinces.

The Government of Canada has established a federal carbon pricing system that took effect in 2019. The Federal program is a backstop and takes effect if a province does not have a carbon pricing program or if a provincial program is not rigorous enough to meet federal requirements.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2025

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 14 – COMMITMENTS AND CONTINGENCIES (CONTINUED)

LEGAL MATTERS

The Company becomes involved in various legal proceedings, claims and governmental inquiries, investigations, and other disputes in the normal course of business, including matters related to contracts, torts, commercial and trade disputes, taxes, environmental issues, activist damages, employment and workers’ compensation claims, grievances, human rights complaints, pension and benefit plans and obligations, health and safety, product safety and liability, asbestos exposure, financial reporting and disclosure obligations, corporate governance, Indigenous peoples’ claims, antitrust, governmental regulations, and other matters. Although the final outcome is subject to many variables and cannot be predicted with any degree of certainty, the Company regularly assesses the status of the matters and establishes provisions (including legal costs expected to be incurred) when it believes an adverse outcome is probable, and the amount can be reasonably estimated. Any recovery from litigation or settlement of claims that is a gain contingency is recognized if, and when, realized or realizable. Except as described below and for claims that cannot be assessed due to their preliminary nature, the Company believes that the ultimate disposition of these matters outstanding or pending as of March 31, 2025, will not have a material adverse effect on the Company's Consolidated Financial Statements.

ASBESTOS-RELATED LAWSUITS

The Company is involved in a number of asbestos-related lawsuits filed primarily in U.S. state courts, including certain cases involving multiple defendants. These lawsuits principally allege direct or indirect personal injury or death resulting from exposure to asbestos-containing premises. While the Company disputes the plaintiffs’ allegations and intends to vigorously defend these claims, the ultimate resolution of these matters cannot be determined at this time. These lawsuits frequently involve claims for unspecified compensatory and punitive damages, and the Company is unable to reasonably estimate a range of possible losses, which may not be covered in whole or in part by its insurance coverage. However, unfavorable rulings, judgments or settlement terms could materially impact the Consolidated Financial Statements. Hearings for certain of these matters are scheduled to occur in the next twelve months.

COUNTERVAILING DUTY AND ANTI-DUMPING INVESTIGATIONS ON SOFTWOOD LUMBER

On November 25, 2016, countervailing duty and anti-dumping petitions were filed with the U.S. Department of Commerce (“Commerce”) and the U.S. International Trade Commission (“ITC”) by certain U.S. softwood lumber products producers and forest landowners, requesting that the U.S. government impose countervailing and anti-dumping duties on Canadian-origin softwood lumber products exported to the U.S. One of the Company’s subsidiaries was identified in the petitions as being a Canadian exporting producer of softwood lumber products to the U.S. and was selected as a mandatory respondent to be investigated by Commerce in the countervailing and anti-dumping duty investigations, in the first administrative review of the countervailing and anti-dumping duty orders, and in the second and third administrative reviews of the countervailing duty order. With respect to other administrative reviews of the countervailing and anti-dumping duty orders for which the Company was not selected as a respondent by Commerce, the Company’s subject imports were assigned the rate applicable to non-selected importers.

The cash deposit rates on account of countervailing and anti-dumping duties paid for the Company’s subject imports of Canadian-origin softwood lumber products into the United States are as follows:


Effective dates for deposits on account of countervailing duties	Cash deposit rates
Initial Investigation
April 28 2017 – November 7, 2017 (Preliminary Determination)		12.82	%
November 8, 2017 – November 30, 2020 (Final Determination)		14.70	%
First Administrative Review
December 1, 2020 – December 1, 2021		19.10	%
Second Administrative Review
December 2, 2021 – August 8, 2022		18.07	%
Third Administrative Review
August 9, 2022 – July 31, 2023		10.10	%
Fourth Administrative Review
August 1, 2023 – August 18, 2024		1.79	%
Fifth Administrative Review
August 19, 2024 – Present		6.74	%

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2025

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 14 – COMMITMENTS AND CONTINGENCIES (CONTINUED)

Commerce is expected to issue its final determination in the sixth administrative review of the countervailing investigation in the third quarter of 2025, at which time a new rate will take effect for the Company; this new rate was estimated at 14.38% for the Company in a non-binding, preliminary determination issued on April 3, 2025, which is subject to modification in the upcoming final determination.


Effective dates for deposits on account of anti-dumping duties	Cash deposit rates
Initial Investigation
June 30, 2017 – November 7, 2017 (Preliminary Determination)		4.59	%
November 8, 2017 – November 29, 2020 (Final Determination)		3.20	%
First Administrative Review
November 30, 2020 – December 1, 2021		1.15	%
Second Administrative Review
December 2, 2021 – August 8, 2022		11.59	%
Third Administrative Review
August 9, 2022 – July 31, 2023		4.76	%
Fourth Administrative Review
August 1, 2023 – September 6, 2023		6.20	%
September 7, 2023 – August 18, 2024		6.26	%
Fifth Administrative Review
August 19, 2024 – Present		7.66	%

Commerce is expected to issue its final determination in the sixth administrative review of the anti-dumping investigation in the third quarter of 2025, at which time a new rate will take effect for the Company; this new rate was estimated at 20.07% for the Company in a non-binding, preliminary determination issued on March 3, 2025, which is subject to modification in the upcoming final determination.

Ongoing Administrative Reviews

Following Commerce’s completion of the Canadian softwood lumber investigation and the first, second, third, fourth and fifth administrative reviews, the sixth administrative review remains pending. In decisions published on April 9, and 19, 2024, the Company was not selected as a mandatory respondent in the sixth administrative review of the countervailing and anti-dumping investigation, respectively. On February 21, 2025, Commerce published a notice initiating the seventh administrative review of the countervailing duty and anti-dumping orders on softwood lumber from Canada. In decisions issued April 9 and 21, 2025, the Company was selected as a respondent in the seventh administrative review of the anti-dumping and countervailing investigation, respectively.

Ongoing Appellate Reviews

On December 14, 2017 and January 4, 2018, the Company filed complaints supporting appellate reviews of the final results of Commerce’s countervailing and anti-dumping investigations on softwood lumber from Canada, respectively, before a binational panel formed pursuant to the North American Free Trade Agreement or United States-Mexico-Canada Agreement, as the case may be (“Panel”). The Panel issued its decision in the anti-dumping appellate review on October 5, 2023, finding that Commerce's methodology was inconsistent with applicable legal principles and ordering a remand to Commerce. Commerce's decision was issued on April 30, 2024. These proceedings have been stayed until the issuance of a mandate in a related appeal pending in the U.S. Court of Appeals for the Federal Circuit. The hearing for the countervailing appellate review took place from September 27 to 29, 2023. On May 6, 2024, the Panel issued its decision on the countervailing appellate review and remanded to Commerce on certain issues. Commerce’s decision was issued on December 17, 2024. On January 6, 2021 and January 19, 2021, the Company filed its complaints supporting appellate Panel reviews of the final results in the countervailing and anti-dumping first administrative reviews. The Company filed similar complaints with respect to the second administrative reviews on January 12, 2022, and with respect to the third administrative reviews on September 16, 2022. On May 8, 2023, the Company filed with the U.S. Court of International Trade ("CIT") a complaint supporting an appellate review of Commerce's final results in the sunset review of the anti-dumping order. On October 12, 2023, the Company joined the complaint filed by Canadian parties supporting an appellate Panel review of the final results in the countervailing fourth administration review, and also filed a summons before the CIT to initiate an appellate review of the final results in the anti-dumping fourth administrative review. On October 18, 2024, the Company joined the complaint filed by Canadian parties supporting appellate Panel reviews of the final results in the countervailing and anti-dumping fifth administrative reviews. All appellate reviews described above remain pending.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2025

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 14 – COMMITMENTS AND CONTINGENCIES (CONTINUED)

Sunset Reviews

In parallel, on December 1, 2022, Commerce and the ITC published notices that automatically initiated five-year “sunset” reviews to determine whether revocation, for the future, of the anti-dumping and countervailing duty orders on softwood lumber products from Canada would likely lead to continuation or recurrence of dumping or subsidies (“Commerce”) and of material injury (“ITC”). Commerce released final results in the sunset reviews of the countervailing and anti-dumping orders on March 27 and April 3, 2023, respectively, finding that revocation of the orders would be likely to lead to continuation or recurrence of countervailable subsidies and of dumping. On November 30, 2023, the ITC voted that revocation of the orders would be likely to lead to a continuation or recurrence of material injury to the U.S. industry within a reasonably foreseeable time.

World Trade Organization Appeal

In addition, on August 24, 2020, the World Trade Organization’s (the “WTO”) dispute panel issued a report (the “Panel Report”) in the case brought by the government of Canada in “United States — Countervailing Measures on Softwood Lumber from Canada” (“DS533”), concluding, among other things, that Commerce acted inconsistently with the Agreement on Subsidies and Countervailing Measures on most of the matters. On September 28, 2020, the U.S. notified the WTO’s Dispute Settlement Body of its decision to appeal the Panel Report. The appeal remains pending.

Financial assurance

The Company is required by U.S. Customs to provide surety bonds to secure the payment of its cash deposits. As of March 31, 2025, the Company had $119 million of surety bonds outstanding in favor of U.S. Customs, of which $62 million were secured by letters of credit.

As of March 31, 2025, a total of $664 million of cash deposits ($488 million of countervailing and $176 million of anti-dumping duties) on estimated softwood lumber duties were paid. These deposits are measured using a model based on the assumptions that a settlement would be reached and that a certain percentage of the deposits would be recovered after a certain period of time. Deposits are remeasured with that model every reporting date and the variation is recorded under Other operating income, net on the Consolidated Statement of Earnings (Loss) and Comprehensive Income (Loss).

The following tables reconcile the Company’s cash deposits paid during the period to the amount recorded on the Consolidated Statement of Earnings (Loss) and Comprehensive Income (Loss):


	For the three months ended
	March 31, 2025
	Countervailing duty			Anti-dumping duty			Total
	$			$			$
Cash deposits paid (1)		8			8			16
Cash deposits paid recognized as receivable		(2	)		(2	)		(4	)
		6			6			12


	For the three months ended
	March 31, 2024
	Countervailing duty		Anti-dumping duty			Total
	$		$			$
Cash deposits paid (1)		2		6			8
Cash deposits paid recognized as receivable		—		(2	)		(2	)
		2		4			6

(1)

Deposits paid are recorded as contingent assets with a portion recoverable, using a recovery model and undiscounted figures based on management estimates.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2025

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 14 – COMMITMENTS AND CONTINGENCIES (CONTINUED)

The following tables outline the change in duties receivable:


	March 31, 2025
	Countervailing duty		Anti-dumping duty		Total
	$		$		$
Beginning of year		146		49		195
Cash deposits paid recognized as recoverable		2		2		4
Accretion		5		1		6
Balance at end of period (1)		153		52		205


	December 31, 2024
	Countervailing duty		Anti-dumping duty		Total
	$		$		$

Beginning of year		123		36		159
Cash deposits paid recognized as recoverable		4		8		12
Accretion		19		5		24
Balance at end of year		146		49		195

(1)

The balance of $205 million is shown in Other assets in the Consolidated Balance Sheets.

PARTIAL WIND-UPS OF PENSION PLANS

On June 12, 2012, the Company filed a motion for directives with the Quebec Superior Court, the court with jurisdiction in the creditor protection proceedings under the Companies’ Creditors Arrangement Act (Canada) (the “CCAA Creditor Protection Proceedings”), seeking an order to prevent pension regulators in each of Quebec, New Brunswick, and Newfoundland and Labrador from declaring partial wind-ups of pension plans relating to employees of former operations in New Brunswick, and Newfoundland and Labrador, or a declaration that any claim for accelerated reimbursements of deficits arising from a partial wind-up is a barred claim under the CCAA Creditor Protection Proceedings. The Company's position is that any such declaration, if issued, would be inconsistent with the Quebec Superior Court’s sanction order confirming the CCAA debtors’ CCAA Plan of Reorganization and Compromise, as amended, and the terms of the Company's emergence from the CCAA Creditor Protection Proceedings. A partial wind-up would likely shorten the period in which any deficit within those plans, which could reach up to $104 million (C$150 million), would have to be funded if the Company does not obtain the relief sought. The hearing in this matter was held in March 2024. On August 27, 2024, the Quebec Superior Court rendered its judgment, declaring that (i) claims for additional contributions to the New Brunswick, and Newfoundland and Labrador pension plans resulting from partial wind-ups of these pension plans are extinguished and have been released and discharged by the sanction order confirming the CCAA debtors’ CCAA Plan of Reorganization and Compromise, as amended; and (ii) claims for additional contributions to the New Brunswick, and Newfoundland and Labrador pension plans resulting from partial wind-ups of the pension plans on the basis of facts that took place prior to April 17, 2009 are inconsistent with the sanction order confirming the CCAA debtors’ CCAA Plan of Reorganization and Compromise, as amended. On September 17, 2024, the Superintendent of Pensions for New Brunswick and the Superintendent of Pensions of Newfoundland and Labrador filed a motion seeking leave to appeal, which was denied. On January 7, 2025, the Superintendent of Pensions for New Brunswick and the Superintendent of Pensions of Newfoundland and Labrador filed an application for leave to appeal to the Supreme Court of Canada.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2025

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 14 – COMMITMENTS AND CONTINGENCIES (CONTINUED)

SUPERFUND SITE

On May 17, 2023, the EPA issued a General Notice of Liability and Demand for Reimbursement of Response Costs Expended at the Barite Hill/Nevada Goldfields Superfund Site (the “Notice of Liability”) to the Company. The Notice of Liability states that the EPA believes that the Company may be liable under Sections 106 and 107(a) of the Comprehensive, Environmental Response, Compensation, and Liability Act (“CERCLA”) for costs the EPA has incurred at the Barite Hill/Nevada Goldfields Superfund Site (the “Site”). The approximate total response costs identified by the EPA in the Notice of Liability through January 19, 2023 was approximately $21 million. The Company believes that the EPA may also seek to hold it responsible for future remediation costs at the Site. The Company is currently assessing its defenses to liability at the Site.

The Company recognized a provision of $15 million, with respect to the EPA’s cause of action for past costs described in the Notice of Liability, as an environmental liability in Other liabilities.

MENOMINEE FIRE

On October 6, 2022, a fire in a third-party owned warehouse that the Company leases adjacent to its Menominee recycled pulp mill damaged and, in some cases, destroyed, the warehouse, as well as certain of the Company’s property, plant and equipment and inventories, which resulted in the temporary idling of the mill. The mill was restarted during the first quarter of 2023, operating at a limited capacity. The fire incident resulted in third-party damages in addition to damages to the Company's Menominee mill. At this time, six claims have been filed in Michigan State Court against the Company, of which three have been settled including the complaint by the owner of the warehouse alleging damages in an amount in excess of $45 million. The separate complaint filed by a co-tenant in the warehouse and its insurer alleging damages in an amount in excess of $132 million is still pending. The Company currently does not believe it is probable that it will incur any material uninsured loss related to third party claims, nor could any possible loss contingency be reasonably estimable at the present time.

On December 6, 2024, Michigan EGLE sent a “Compliance Communication” to the Company regarding the alleged release of hazardous substances caused by the October 6, 2022 fire and fire suppression activities. EGLE alleges that the Company is liable under Part 201 for the facility and seeks reimbursement of EGLE’s response activity costs. The Company has responded to the letter on January 5, 2025 disputing EGLE’s allegations.

The Company also received a letter from USEPA Region 5 seeking recovery of "Response Costs" for the period up to November 30, 2024 as well as a notice from the U.S. Coast Guard, indicating that they received a claim from the City of Marinette identifying the Company as the party responsible for the October 6, 2022 warehouse fire.

The Company maintains insurance coverage, subject to customary deductibles and limits. Anticipated insurance recoveries related to losses and incremental costs incurred, in excess of the deductible, are recognized when receipt is probable. The anticipated insurance recoveries related to the fire, in excess of the net book value of the damaged operating assets and related to business interruption, will not be recognized until all contingencies related to the claim have been resolved.

For the three months ended March 31, 2025, the Company recognized direct costs of $4 million (2024 – $1 million), which were determined probable to be recovered and recognized an equivalent amount of recovery in reduction of Cost of sales. The Company also recognized a gain on disposition of property, plant and equipment of $2 million for the three months ended March 31, 2025 (2024 –
$1 million), under Other operating income, net on the Consolidated Statement of Earnings (Loss) and Comprehensive Income (Loss). For the three months ended March 31, 2025, $6 million were received from the insurer (2024 – $7 million).

The Company expects to continue to record additional costs and recoveries until the assessment is completed and insurance claims are fully settled. The timing and the amounts of additional insurance recoveries, including for business interruption, are not known at this time.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2025

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 15.

_________________

SEGMENT DISCLOSURES

The Company reports segment information consistent with the way its Chief Operating Decision Maker (“CODM”) evaluates the operating results and performance of the Company. The Company analyzes the results of its business through the following reportable segments, which also represent its three operating segments based on the Company's organizational structure:

•

Paper and Packaging – consists of the design, manufacturing, marketing and distribution of a wide variety of fiber-based products including communication, specialty and packaging papers as well as fluff and softwood pulp.

•

Pulp and Tissue – consists of the design, manufacturing, marketing and distribution of a wide variety of fiber-based products including market pulp, tissue and paper.

•

Wood products – consists of the production of lumber and other wood products for the residential construction and home renovation markets, as well as for specialized structural and industrial applications.

The Company’s CODM, the owner and sole shareholder of Domtar, reviews segment operating income, as well as revenue, in the budgeting and forecasting process and considers actual versus budget variances in assessing the performance of the segment and allocate resources. The CODM also uses segment operating income as an input to the overall compensation measures for segment management under our incentive compensation plans. The Company believes it is appropriate to disclose this measure to help analyze segment performance and trends. Expense information is provided to and reviewed by the CODM on a consolidated basis to evaluate cost efficiency and company level performance. Segment operating income excludes certain corporate expenses that are not related to segment activities and are presented on the Corporate and other line. The Company excludes these items from segment operating income in order to provide better transparency of its segment operating results.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2025

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 15 – 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:



	For the three months ended
	March 31,			March 31,
SEGMENT DATA	2025			2024
	$			$
Sales by segment
Paper and packaging		1,277			1,197
Pulp and tissue		366			369
Wood products		237			242
Total for reportable segments		1,880			1,808
Intersegment sales		(20	)		(22	)
Consolidated sales		1,860			1,786

Sales by product group
Communication papers		621			662
Specialty and packaging papers		326			291
Market pulp		476			419
Linerboard		58			36
Newsprint		81			81
Tissue		61			55
Wood		237			242
Consolidated sales		1,860			1,786

Other costs by segment
Paper and packaging		1,168			1,105
Pulp and tissue		358			342
Wood products		239			260
Total for reportable segments		1,765			1,707
Corporate and other		29			20
Consolidated other costs		1,794			1,727

Operating income (loss)
Paper and packaging		96			79
Pulp and tissue		1			18
Wood products		(2	)		(18	)
Corporate and other		(29	)		(20	)
Consolidated operating income		66			59
Interest expense, net		61			59
Non-service components of net periodic benefit cost		(4	)		(5	)
Earnings before income taxes		9			5
Income tax expense		3			5
Net earnings		6			—

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2025

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 16.

_________________

RELATED PARTY TRANSACTIONS

For the three months ended March 31, 2025, the Company recognized $5 million (2024 – $5 million) of administrative expenses paid to an affiliated company. These costs are included in the Consolidated Statements of Earnings (Loss) and Comprehensive Income (Loss) under Selling, general and administrative expense.

The Company has other receivables with affiliated companies of $34 million and $35 million at March 31, 2025 and December 31, 2024, respectively.

The Company has other payables with affiliated companies of $14 million and $7 million at March 31, 2025 and December 31, 2024, respectively.

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

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with Domtar Corporation’s unaudited interim financial statements and notes thereto included in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the Securities and Exchange Commission (“SEC”) on February 27, 2025. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those discussed in forward-looking statements. Factors that might cause a difference include, but are not limited to, those discussed below under “outlook”, “Forward-looking statements”, as well as in Item 1A, Risk Factors, in Part II, of this report. Throughout this MD&A, unless the context requires otherwise, “Domtar Corporation,” “the Company,” “Domtar,” “we,” “us” and “our” refers to Domtar Corporation and its subsidiaries. Except where otherwise indicated, all financial information reflected herein is determined on the basis of accounting principles generally accepted in the United States.

The information contained on our websites is not incorporated by reference into this Form 10-Q and should in no way be construed as a part of this or any other report that we file with or furnish to the SEC.

In accordance with industry practice, in this report, the term “ton” or the symbol “ST” refers to a short ton, an imperial unit of measurement equal to 0.9072 metric tons. The term “metric ton” or the symbol “ADMT” refers to an air dry metric ton, and the term “MBF” refer to a million board feet. In this report, unless otherwise indicated, all dollar amounts are expressed in U.S. dollars, and the term “dollars” and the symbol “$” refer to U.S. dollars. In the following discussion, unless otherwise noted, references to increases or decreases in income and expense items, prices, contribution to net earnings (loss), and shipment volumes are based on the three month periods ended March 31, 2025 and March 31, 2024. The three month periods are also referred to as the first quarter of 2025 and first quarter of 2024. Reference to notes refers to footnotes to the consolidated financial statements and notes thereto included in Item 1 of this Form 10-Q.

Certain reclassifications have been made to the prior year’s presentation to conform to the current year presentation.

Recent Events and Items Affecting Comparability of Financial Results

Tariffs

On April 2, 2025, the U.S. administration issued an executive order imposing tariffs beginning at 10% on all imports into the U.S. from all countries, but with much higher rates for many. While Canada was not exempt, goods compliant with the USMCA are not subject to these additional tariffs. Multiples nations have countered with retaliatory tariffs and other actions in response. Subsequently, the United States and other nations have adjusted their initial announcement and deferred or limited implementation in certain instances. It is unclear what additional changes in tariffs will be implemented.

Refer to the discussion in our 2024 Annual Report on Form 10-K under part 1, item 1A Risks Factors "Products the Company produces in one country and exports to another may become subject to additional duties, tariff or other international trade remedies or restrictions" as supplemented by the discussion in this Quarterly Report on Form 10-Q under "Risks Factors" for discussion of risks associated with the aforementioned tariffs.

Acquisitions and Divestitures

Sale of Espanola, Ontario mill

On April 9, 2025, we signed a purchase agreement for the sale of our Espanola facility, with the transaction expected to close in the coming months pending regulatory approvals.

Sale of Forest Products Mauricie, Quebec sawmill

On April 2, 2025, we reached an agreement for the sale of the Forest Products Mauricie ("FPM") sawmill, subject to the fulfillment of closing conditions. The related assets are classified as held for sale.

Acquisition of Iconex Paper

On November 1, 2024, we acquired Iconex Paper from a portfolio company owned by an investment fund managed by Atlas Holdings for a purchase price of $208 million in cash. Iconex Paper converts thermal paper parent rolls into point-of-sale ("POS") receipt rolls, serving customers in industries such as food service, retail, pharmacy, and financial from its five North American locations in Arizona,

Kansas, Tennessee, Virginia, and Mexico. Based upon recent results, Iconex Paper has an estimated annual run rate sales of approximately $300 million and EBITDA of approximately $50 million and employs 400 employees.

Closure and Restructuring, and Impairment of long-lived assets

Espanola

On September 6, 2023, we announced the indefinite idling of our Espanola, Ontario, pulp and paper mill for an expected period greater than one year. The mill was idled after years of ongoing operating losses and high costs associated with maintaining and operating the facility. The pulp operation was shut down in early October 2023, and the paper machines were shut down in early 2024.

On April 9, 2025, we signed a purchase agreement for the sale of our Espanola facility, with the transaction expected to close in the coming months pending regulatory approvals. As a result, during the first quarter of 2025, we recorded $12 million of write-off of property, plant and equipment, under Impairment of long-lived assets on the Consolidated Statements of Earnings (Loss) and Comprehensive Income (Loss).

During the first quarter of 2024, we recorded $1 million of other costs, under Closure and restructuring costs on the Consolidated Statement of Earnings (Loss) and Comprehensive Income (Loss).

Ashdown

On February 21, 2024, we announced that we would indefinitely curtail paper operations at our Ashdown facility. The paper machine and associated sheeter were indefinitely idled in July 2024. The curtailment did not result in a workforce reduction.

During the first quarter of 2024, we recorded $6 million of accelerated depreciation, under Depreciation and amortization on the Consolidated Statement of Earnings (Loss) and Comprehensive Income (Loss).

Crofton

On January 25, 2024, we announced the indefinite curtailment of the Crofton mill paper operations. During the first quarter of 2025, we recorded $2 million of accelerated depreciation, under Depreciation and amortization on the Consolidated Statement of Earnings (Loss) and Comprehensive Income (Loss) (first quarter of 2024 – $4 million).

Additionally, during the first quarter of 2024, we recorded $3 million of severance and termination costs and $2 million of write-off of inventory, under Closure and restructuring costs on the Consolidated Statement of Earnings (Loss) and Comprehensive Income (Loss).

Other Costs

For the first quarter of 2024, other costs related to previous and ongoing closures and restructuring included $1 million of severance and termination costs and $4 million of other costs.

OVERVIEW

We design, manufacture, market and distribute a wide variety of fiber-based products including paper, market pulp, wood products
and tissue, which are marketed in over 90 countries. We are the largest integrated manufacturer and marketer of uncoated freesheet
paper and uncoated mechanical papers in North America as well as a leading global producer of newsprint, fluff, recycled and softwood pulp. We own or operate manufacturing facilities, including pulp and paper mills, tissue facilities and sawmills, as well as power generation assets in the U.S. and Canada. Our paper and tissue manufacturing operations are supported by converting and forms
manufacturing operations.

Organizational structure

Our organizational structure is comprised of Business Units and a Corporate function. We manage and report our operating results through three reportable segments: Paper and Packaging, Pulp and Tissue and Wood Products.

Paper and Packaging: We design, manufacture, market and distribute a wide variety of fiber-based products including communication papers, specialty and packaging papers as well as fluff and softwood pulp. We are the largest integrated manufacturer and marketer of uncoated freesheet paper in North America. We are also an important supplier of specialty and packaging papers.

Pulp and Tissue: We design, manufacture, market and distribute a wide variety of fiber-based products including market pulp, tissue, and paper. We are the largest producer of uncoated mechanical papers in North America, a leading global producer of newsprint, and a fluff, recycled and softwood pulp producer in North America.

Wood Products: We are a large North American producer of lumber and other wood products for the residential construction and home renovation markets, as well as for specialized structural and industrial applications.

Our segment measure of profit (operating income (loss) from continuing operations) is used by management to evaluate performance and make operational decisions. Management believes that this measure allows for a better understanding of cost trends, operating efficiencies, prices and volume. Business segment operating income (loss) is defined as earnings (loss) from continuing operations before income taxes and equity losses, interest expense, and non-service components of net periodic benefit cost. Corporate expenses are allocated to our segment with the exception of certain discretionary charges and credits, which we present under “Corporate and Other” and do not allocate to the segments.

HIGHLIGHTS FOR THE THREE MONTH PERIOD ENDED MARCH 31, 2025

For the first quarter of 2025, we reported operating income of $66 million, compared to operating income of $59 million in the first quarter of 2024.

The increase of $7 million in operating income is principally driven by higher average selling for the majority of our products and a favorable exchange rate, partially offset by higher input costs, higher maintenance costs and freight costs as well as lower volume for our paper products. In addition, in the first quarter of 2025, we recognized $12 million of impairment costs related to the sale of our Espanola pulp and paper mill.

These and other factors that affected the quarter-to-quarter comparison of financial results are discussed in the quarter-to-quarter analysis and segment analysis.

Economic conditions and uncertainties

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

A portion of the products that we manufacture are exported to other countries, and a portion of the inputs that we use in manufacturing are imported from other countries. Starting in the first quarter of 2025, the United States government announced new tariffs on imports from numerous countries, and multiple nations countered with retaliatory tariffs and other actions in response. Subsequently, the United States and other nations have adjusted their initial announcement and deferred or limited implementation in certain instances. It is unclear what additional changes in tariffs will be implemented.

Implementation of new tariffs or increases in existing tariffs likely will have an adverse impact on our business. As noted above, we operate in a highly competitive environment, and tariffs that either increase our landed sales prices or our manufacturing costs make our products less competitive to those that are not subject to these impacts. Our main export markets from the United States are: China, Canada and Mexico and from Canada, our main export market is the United States. We continue to actively evaluate the potential impacts of the announced tariffs on our business as well as our ability to mitigate the impact. However, the tariff actions are so recent that we are not yet able to accurately predict or quantify the impacts.

OUTLOOK

In 2025, subject to the potential impact of changes in tariffs, we expect the demand and pricing for paper to remain stable and we expect some improvements in pulp demand and price. We will continue to closely monitor our inventory levels and balance our production with our customer demand. For our Wood Products business, we saw improvement in lumber demand and we expect this trend to carry on into the balance of the year. We remain positive on the medium and long-term housing fundamentals and the housing shortage in both the U.S. and Canada. Overall, we anticipate costs, including freight, labor and raw materials, to remain stable. Our near-term focus continues to be on controlling costs and generating cash flow.

This outlook reflects assumptions subject to change given the macro environment.

CONSOLIDATED RESULTS OF OPERATIONS AND SEGMENT REVIEW

This section presents a discussion and analysis of our first quarter of 2025 and first quarter of 2024 sales, operating income and other information relevant to the understanding of our results of operations.


	Three months ended
FINANCIAL HIGHLIGHTS	March 31, 2025			March 31, 2024			variance $
(In millions of dollars)
Sales	$	1,860		$	1,786		$	74
Operating income		66			59			7
Net earnings	$	6		$	—		$	6

Sales by segment
Paper and Packaging	$	1,277		$	1,197
Pulp and Tissue		366			369
Wood Products		237			242
Total for reportable segments	$	1,880		$	1,808
Intersegment sales		(20	)		(22	)
Consolidated sales	$	1,860		$	1,786

Operating income (loss) by segment
Paper and Packaging	$	96		$	79
Pulp and Tissue		1			18
Wood Products		(2	)		(18	)
Total for reportable segments	$	95		$	79
Corporate and Other		(29	)		(20	)
Consolidated operating income	$	66		$	59

				At March 31, 2025			At December 31, 2024
Total assets				$	7,307		$	7,316
Total long-term debt, including current portion of long-term debt and due to related party				$	2,625		$	2,630

First quarter of 2025 compared to First quarter of 2024

Analysis of Sales

Sales in the first quarter of 2025 increased by $74 million, or 4%, when compared to sales in the first quarter of 2024. This increase in sales is mostly due to an increase in our net average selling prices for the majority of our products and higher volume of pulp, partially offset by lower volume of paper and wood products. Our paper volume was impacted by our paper machine closure at our Ashdown in early July 2024. In addition, our first quarter of 2025 includes the sales of Iconex, acquired in the fourth quarter of 2024.

Analysis of change in Operating Income

Operating income in the first quarter of 2025 increased by $7 million, or 12%, when compared to operating income in the first quarter of 2024. This increase is principally driven by higher average selling prices for the majority of our products and favorable foreign exchange rate, partially offset by higher input costs, higher maintenance costs and freight costs and lower volume for our paper products. Our paper volume was impacted by our paper machine closure at our Ashdown facility in early July 2024. In addition, our first quarter of 2025 includes the results of Iconex, acquired in the fourth quarter of 2024.

OTHER FACTORS

Interest Expense, net

We incurred $61 million of net interest expense in the first quarter of 2025, an increase of $2 million compared to net interest expense of $59 million in the first quarter of 2024. Interest expense increased mainly due to higher debt levels for the three months period in 2025 compared to 2024, partially offset by lower floating rates for SOFR. In the first quarter of 2025, we had capitalized interest of nil, compared to $1 million in the first quarter of 2024. See section “Capital Resources” below for more information on our debt structure.

Non-Service Components of net periodic benefit cost

For the first quarter of 2025, our non-service components of net periodic benefit cost were a benefit of $4 million, a decrease of $1 million when compared to the first quarter of 2024. Refer to Item 1, Financial Statements and Supplementary Data, under Note 5 “Pension Plans and Other Post-Retirement Benefit Plans” for additional information.

Income Taxes

For the first quarter of 2025, we had income tax expense of $3 million, consisting of $1 million of current income tax expense and deferred income tax expense of $2 million. This compares to an income tax expense of $5 million in the first quarter of 2024, consisting of $2 million of current income tax expense and a deferred income tax expense of $3 million. We received refunds, net of income tax payments, of $1 million during the first quarter of 2025. The effective tax rate for the first quarter of 2025 was 33% compared to 100% for the first quarter of 2024. The effective tax rate for 2025 is unfavorably impacted by a valuation allowance on tax assets arising from deferred interest expenses and additional U.S. tax expense on foreign operations. This is partially offset by research and experimentation tax credits. The effective tax rate for 2024 was unfavorably impacted by a valuation allowance on tax assets arising from deferred interest expenses, foreign exchange items and additional U.S. tax expense on foreign operations.

In October 2021, the Organization for Economic Co-operation and Development ("OECD") announced the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting which agreed to a two-pillar framework to address tax challenges arising from digitalization of the economy and profit shifting. In December 2021, the OECD published the Pillar Two - Global Anti-Base Erosion Model Rules ("GloBE Rules") designed to ensure that multinational enterprises are subject to tax at an effective minimum tax rate of 15% in each jurisdiction where they operate. Although the U.S. has not enacted legislation to adopt GloBE Rules, the foreign countries where we have significant operations have already adopted or are in the process of adopting such legislation. For the first three months of 2025, the GloBE Rules did not impact our financial results. We will continue to evaluate their impact on future periods.

Commentary – Segment Review

PAPER AND PACKAGING


	Three months ended
(In millions of dollars, unless otherwise noted)	March 31, 2025		March 31, 2024		variance $
Sales
Paper	$	903	$	888	$	15
Pulp		374		309		65
Total sales	$	1,277	$	1,197	$	80
Operating income	$	96	$	79	$	17

Shipments
Paper - manufactured (in thousands of ST)		656		688		(32	)
Communication papers		410		442		(32	)
Specialty and Packaging papers		246		246		-
Pulp (in thousands of ADMT)		437		371		66

Sales

Paper and Packaging segment sales in the first quarter of 2025 increased by $80 million, or 7%, when compared to sales in the first quarter of 2024. This increase in sales is mostly due to an increase in our net average selling prices and volume for pulp, and an increase in our net average selling prices for our paper products. In addition, our first quarter of 2025 includes sales from Iconex, acquired in the fourth quarter of 2024. These increases were partially offset by lower volume for Communication papers. Our paper volume was impacted by lower demand and our paper machine closure at our Ashdown mill in July 2024.

Operating income

Operating income in our Paper and Packaging segment amounted to $96 million in the first quarter of 2025, an increase of $17 million, when compared to operating income of $79 million in the first quarter of 2024. Our results were positively impacted by:

•

Higher net average selling prices for pulp and paper ($44 million)

•

Positive impact of a lower Canadian dollar on our Canadian dollar denominated expenses ($13 million)

•

Lower closure and restructuring costs ($6 million) when compared to the first quarter of 2024 mostly due to the closure of the paper machine at our Crofton facility in the first quarter of 2024

These increases were partially offset by:

•

Higher input costs ($28 million) mostly due to higher costs of energy and fiber

•

Higher operating expenses ($10 million) when compared to the first quarter of 2024 mostly due to higher maintenance costs in part due the the timing of some major maintenance, as well as other operating expenses, partially offset by higher pulp production

•

Lower volume and mix ($7 million) of our Communications paper products, partially offset by higher volume of our pulp products

•

Higher depreciation charges ($1 million)

PULP AND TISSUE



	Three months ended
(In millions of dollars, unless otherwise noted)	March 31, 2025		March 31, 2024		variance $
Sales
Paper	$	183	$	182	$	1
Pulp		122		132		(10	)
Tissue		61		55		6
Total sales	$	366	$	369	$	(3	)
Operating income	$	1	$	18	$	(17	)

Shipments
Paper (in thousands of ST)		274		265		9
Pulp (in thousands of ADMT)		138		168		(30	)
Tissue (in thousands of ST) (1)		25		24		1

(1) Tissue converted products, which are measured in cases, are converted to short tons.

Sales

Pulp and Tissue segment sales in our first quarter of 2025 decreased by $3 million, or 1%, when compared to sales in the first quarter of 2024. This decrease in sales is mostly due to a decrease in our pulp sales volume as well as a decrease in our net average selling prices for paper, partially offset by an increase in our net average selling prices for pulp as well as an increase in our paper sales volume.

Operating income

Operating income in our Pulp and Tissue segment amounted to $1 million in the first quarter of 2025, a decrease of $17 million, when compared to operating income of $18 million in the first quarter of 2024. Our results were negatively impacted by:

•

Higher operating expenses ($19 million)

•

Higher input costs ($14 million)

•

Lower average selling prices for paper ($6 million)

•

Lower pulp volume and mix ($3 million)

•

Higher depreciation charges ($1 million)

These decreases were partially offset by:

•

Positive impact of a lower Canadian dollar on our Canadian dollar denominated expenses ($11 million)

•

Higher average selling prices for pulp ($12 million)

•

Higher other income ($3 million)

WOOD PRODUCTS


	Three months ended
(In millions of dollars, unless otherwise noted)	March 31, 2025			March 31, 2024			variance $
Sales	$	237		$	242		$	(5	)
Operating loss	$	(2	)	$	(18	)	$	16

Shipments
Wood products (in millions board feet) (1)		455			507			(52	)

(1)Includes wood pellets measured by mass, converted to board feet using a density-based conversion ratio, as well as engineered wood products measured by linear feet, converted to board feet.

Sales

Wood Products segment sales in our first quarter of 2025 decreased by $5 million, or 2%, when compared to sales in the first quarter of 2024. This decrease in sales is mostly due to a decrease in volume, partially offset by higher net average selling prices.

Operating loss

Operating loss in our Wood Products segment amounted to $2 million in the first quarter of 2025, an improvement of $16 million, when compared to operating loss of $18 million in the first quarter of 2024. Our results were positively impacted by:

•

Higher net average selling prices for wood products ($21 million)

•

Positive impact of a lower Canadian dollar on our Canadian dollar denominated expenses ($11 million)

•

Lower input costs ($1 million)

•

Lower depreciation charges ($1 million) when compared to the first quarter of 2024

These increases were partially offset by:

•

Higher operating expenses ($17 million)

•

Lower volume ($1 million)

LIQUIDITY AND CAPITAL RESOURCES

Our principal cash requirements are for ongoing operating costs, pension contributions, working capital and capital expenditures, as well as principal and interest payments on our debt and income tax payments. We expect to fund our liquidity needs primarily with internally generated funds from our operations and, to the extent necessary, through borrowings under our ABL Revolving Credit facility, of which $648 million was undrawn and available as of March 31, 2025. Under adverse market conditions, there can be no assurance that these agreements would be available or sufficient. See “Capital Resources” below.

Our ability to make payments on the requirements mentioned above will depend on our ability to generate cash in the future, which is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. Our credit facility and debt indentures impose various restrictions and covenants on us that could limit our ability to respond to market conditions, to provide for unanticipated capital investments or to take advantage of business opportunities.

A portion of our cash is held outside the U.S. by foreign subsidiaries. The earnings of the foreign subsidiaries reflect full provision for local income taxes. We remain indefinitely reinvested in the outside basis differences of our foreign subsidiaries.

Operating Activities

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

Cash flows provided from operating activities totaled $32 million in the first quarter of 2025, a $66 million difference compared to cash flows used for operating activities of $34 million in the first quarter of 2024. This improvement in cash flows from operating activities is primarily due to a decrease in working capital requirements as well as an increase in net earnings. In addition, we had an income tax refund, net of payments, of $1 million during the first quarter of 2025, compared to $8 million during the first quarter of 2024. For the first quarter of 2025, we contributed $20 million (first quarter of 2024 – $25 million) to the pension plans and $2 million (first quarter of 2024 – $3 million) to the other post-retirement benefit plans.

Investing Activities

Cash flows used for investing activities in the first quarter of 2025 amounted to $40 million, a $13 million difference compared to cash flows used for investing activities of $53 million in the first quarter of 2024.

The use of cash for investing activities in the first quarter of 2025 was attributable to additions to property, plant and equipment of $44 million, partially offset by proceeds from the sale of property, plant and equipment of $4 million.

The use of cash for investing activities in the first quarter of 2024 was mostly attributable to additions to property, plant and equipment of $53 million.

Our annual capital expenditures for 2025 are expected to total between $250 million and $280 million.

Financing Activities

Cash flows used for financing activities totaled $16 million in the first quarter of 2025 compared to cash flows used for financing activities of $8 million in the first quarter of 2024.

The use of cash flows from financing activities in the first quarter of 2025 was attributable to borrowings under our ABL Revolving Credit Facility ($145 million), repayment of long-term debt as required for quarterly amortization of our Farm Credit Term Loan Facility and First Lien Term Loan ($17 million), partially offset by issuance of long-term debt ($148 million).

The use of cash flows from financing activities in the first quarter of 2024 was attributable to repayment of long-term debt as required
for quarterly amortization of our Farm Credit Term Loan Facility and First Lien Term Loan ($16 million), lower bank indebtedness
($12 million), partially offset by borrowings under our ABL Revolving Credit Facility ($20 million).

Capital Resources

Net indebtedness, consisting of bank indebtedness, long-term debt and due to related party, net of cash and cash equivalents and restricted cash, was $2,560 million as of March 31, 2025, compared to $2,541 million as of December 31, 2024. A substantial majority of this amount, approximately $1.6 billion, matures in 2028.

ABL Revolving Credit Facility

On February 26, 2025, we amended our ABL Revolving Credit Facility that matures on March 1, 2028. Pursuant to the Third ABL Amendment, the maximum availability under the ABL Revolving Credit Facility was increased from $1.0 billion to $1.14 billion, which includes a Tranche 1 Loan ("ABL Tranche I Loan") of $1.020 billion and First In, Last Out (“FILO”) tranche of $120 million (the “ABL FILO Loan”). Our ABL Revolving Credit Facility provides for revolving loans and letters of credit in an aggregate amended amount of up to $1.14 billion, subject to borrowing base capacity. The facility was fully available as of March 31, 2025.

Borrowings under the ABL Tranche 1 Loan bears interest at a floating rate per annum of, at our option, SOFR (adjusted by 0.10%) plus an applicable margin of 1.50% to 2.00% or a base rate plus 0.50% to 1.00%, in each case, depending on excess availability. Borrowing under the ABL FILO Loan bears interest at a floating rate per annum of, at our option, SOFR (adjusted by 0.10%) plus an applicable margin of 2.75% or a base rate plus 1.75%. Utilization of the ABL Revolving Credit Facility is limited by borrowing base calculations based on the sum of specified percentages of eligible accounts receivable, plus specified percentages of eligible inventory, minus the amount of any applicable reserves. The ABL Revolving Credit Facility is subject to an unused line fee of 0.25% to 0.375%, depending upon utilization.

Our ABL Revolving Credit Facility, when specified excess availability is less than the greater of $99.8 million and 10% of the lesser of the borrowing base and maximum borrowing capacity, requires the maintenance of a fixed charge coverage ratio of 1.00 to 1.00 at the end of each fiscal quarter for the trailing 12-month period. This covenant did not apply as of March 31, 2025.

On March 31, 2025, we had borrowings of $335 million and $157 million of letters of credit outstanding under this facility, leaving unused commitments available to us of $648 million.

Bank Term Loan

On January 28, 2025, we entered into a Term Loan Credit Agreement (the “Bank Term Loan”) for $150 million which was used to repay borrowings under the ABL Revolving Credit Facility. The Bank Term Loan will mature on November 30, 2028. The Bank Term Loan bears interest at a floating rate per annum, of SOFR plus 5.00%. Borrowings under the Bank Term Loan will be amortized in equal quarterly installments in an amount equivalent to 5.00% per annum of the principal amount. The Bank Term Loan ranks pari passu with the Farm Credit Term Loan, the First Lien Term Loan Credit Agreement, the Senior Secured Notes and the Industrial Revenue Bond. The Bank Term Loan contains customary negative covenants, including, but not limited to, restrictions on our ability and that of our restricted subsidiaries to merge and consolidate with other companies, incur indebtedness, grant liens or security interests on assets, make investments, pay dividends or make other restricted payments, sell or otherwise transfer assets or enter into transactions with affiliates.

Industrial Revenue Bond (“IRB Bonds”)

On December 5, 2024, we issued IRB Bonds with a principal amount of $60 million through the Industrial Development Board of the City of Kingsport, Tennessee to finance an environmental project at our Kingsport linerboard mill. The proceeds of the financing are held in trust to pay for the costs of the project. The funds held in trust are included in Other assets. The rate on the bonds is 5.25% until November 15, 2029. The IRB Bond provisions include a mandatory remarketing event scheduled for November 15, 2029, where the bonds will be offered for remarketing at the prevailing market rate. We are obligated to repurchase any bonds not successfully remarketed. The interest on these bonds is exempt from federal income tax for holders. The bonds rank pari passu with the First Lien Term Loan Credit Agreement, the Senior Secured Notes, the Farm Credit Term Loan and the Bank Term Loan. While the bonds remain outstanding, we are obligated to follow the covenants contained in the Senior Note indenture or a replacement security.

Farm Credit Term Loan

On March 1, 2023, we entered into a Term Loan Credit Agreement (the “Farm Credit Term Loan”) for $949 million, consisting of two tranches: (a) $666 million of Farm Credit Term Loan A (as defined in the Farm Credit Term Loan) used to refinance renewable energy investments and facilitate the Acquisition and (b) $283 million of Farm Credit Term Loan B (as defined in the Farm Credit Term Loan) used to repay $283 million of borrowings under the Term Loan Facility.

Our Farm Credit Term Loan matures (i) with respect to the Farm Credit Term Loan A, on March 1, 2030, and (ii) with respect to the Farm Credit Term Loan B, on November 30, 2028. Our Farm Credit Term Loan bear interest at a floating rate per annum of, at Domtar’s option, (i) with respect to the Farm Credit Term Loan A, SOFR (adjusted by 0.10%) plus 6% or a base rate plus 5%, and (ii) with respect to the Farm Credit Term Loan B, SOFR (adjusted by 0.10%) plus 5.75% or a base rate plus 4.75%. The SOFR rate is subject to an interest rate floor of 0.75% and the base rate is subject to an interest rate floor of 1.75%. Borrowings under our Farm Credit Term Loan amortize in equal quarterly installments in an amount equivalent to 5% per annum of the principal amount. The Farm Credit Term Loan ranks pari passu with the First Lien Term Loan Credit Agreement and the Senior Secured Notes.

We are required to offer to prepay the loans under the Farm Credit Term Loan, the Term Loan Facility and the Senior Secured Notes with 100% of the net cash proceeds of certain asset sales subject to reinvestment rights. We are required to prepay the Farm Credit Term Loan and Term Loan Facility with 100% of the net cash proceeds of certain debt issuances and 50% of excess cash flow, subject to certain exceptions.

During the first quarter of 2025, we repaid $8 million of Farm Credit Term Loan A, and $4 million of Farm Credit Term Loan B, as required for quarterly amortization. At March 31, 2025, there were $599 million of borrowings under the Farm Credit Term Loan A and $251 million of borrowings under the Farm Credit Term Loan B.

First Lien Term Loan Facility

Borrowings under our First Lien Term Loan Facility amortize in equal quarterly installments in an amount equal to 5% per annum. The interest rate margin applicable to borrowings under our First Lien Term Loan Facility is, at our option, either (1) SOFR adjusted by 0.114% plus 5.50%, subject to interest rate floor of 0.75%. or (2) the base rate plus 4.50%, subject to a base rate floor of 1.75%.

During the first quarter of 2025, we repaid $5 million as required for quarterly amortization. At March 31, 2025, there were $321 million of borrowings outstanding under the Term Loan Facility.

Senior Secured Notes

Pearl Merger Sub Inc., a wholly-owned subsidiary of Pearl Excellence Holdco L.P., a Delaware limited partnership, was the initial issuer of the $775 million aggregate principal amount of 6.75% Senior Secured Notes due 2028 (the “Notes”). This Note issue was part of financing related to the acquisition of Domtar by Pearl Excellence Holdco L.P. Upon the completion of the acquisition, the initial issuer was merged with and into Domtar with Domtar surviving the Merger and becoming the obligor of the Notes. As of March 31, 2025, we had $642 million of Notes outstanding.

The Notes mature on October 1, 2028, and interest on the Notes is payable in cash semi-annually in arrears on April 1 and October 1 of each year, commencing on April 1, 2022.

Secured Debt Attributes

We are required to offer to prepay the loans under the Farm Credit Term Loan, the First Lien Term Loan Facility, the Bank Term Loan and the Senior Secured Notes with 100% of the net cash proceeds of certain asset sales subject to reinvestment rights.

We are required to prepay the Farm Credit Term Loan and First Lien Term Loan Facility with 100% of the net cash proceeds of certain debt issuances and 50% of excess cash flow, subject to certain exceptions.

Our ABL Revolving Credit Facility, Farm Credit Term Loan, the First Lien Term Loan Facility and the Senior Secured Notes contain customary negative covenants, including, but not limited to, restrictions on our ability and that of our restricted subsidiaries to merge and consolidate with other companies, incur indebtedness, grant liens or security interests on assets, make investments, pay dividends or make other restricted payments, sell or otherwise transfer assets or enter into transactions with affiliates.

Our ABL Revolving Credit Facility, Farm Credit Term Loan, the First Lien Term Loan Facility and the Senior Secured Notes provide that, upon the occurrence of certain events of default, our obligations thereunder may be accelerated. Such events of default include payment defaults to the lenders thereunder, material inaccuracies of representations and warranties, covenant defaults, cross-defaults to other material indebtedness, voluntary and involuntary bankruptcy, insolvency, corporate arrangement, winding-up, liquidation or similar proceedings, material money judgments, change of control and other customary events of default.

Our obligations under our ABL Revolving Credit Facility are guaranteed by our immediate parent (a company that has no assets other than Domtar shares) and our wholly-owned material U.S. subsidiaries and wholly-owned material Canadian subsidiaries. Our ABL Revolving Credit Facility has a first-priority lien on the current assets of such U.S. subsidiaries and all the assets of Canadian subsidiaries, and a second-priority lien on the fixed assets of our wholly-owned material U.S. subsidiaries (in all cases, excluding principal properties and shares of subsidiaries), in each case, subject to permitted liens.

Our obligations under our Farm Credit Term Loan, the First Lien Term Loan Facility and the Senior Secured Notes are guaranteed by our immediate parent (a company with no assets other than Domtar shares) and all of the Issuer’s direct and indirect wholly-owned material U.S. subsidiaries. Our Farm Credit Term Loan, the First Lien Term Loan Facility, the Senior Secured Notes, the Bank Term Loan and the IRB Bonds have a first priority lien on the fixed assets of our wholly-owned material U.S. subsidiaries, representing 55% of the Consolidated Fixed Assets, and a second-priority lien on the current asset collateral in the U.S. (second in priority to the liens securing our ABL Revolving Credit Facility discussed above), in each case, subject to other permitted liens.

Domtar Notes

As of March 31, 2025, we had outstanding $116 million of the unsecured 6.25% Notes due 2042 and $150 million of the unsecured 6.75% Notes due 2044.

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, compliance with laws, the failure to abide by covenants and the breach of representations and warranties included in sales agreements. Typically, such representations and warranties relate to taxation, environmental, product and employee matters. The terms of these indemnification agreements are generally for an unlimited period of time. At March 31, 2025, we were unable to estimate the potential maximum liabilities for these types of indemnification guarantees as the amounts are contingent upon the outcome of future events, the nature and likelihood of which cannot be reasonably estimated at this time. Accordingly, no provision has been recorded. These indemnifications have not yielded significant expenses in the past.

Pension Plans

We have indemnified and held harmless the trustees of our pension funds, and the respective officers, directors, employees and agents of such trustees, from any and all costs and expenses arising out of the performance of their obligations under the relevant trust agreements, including in respect of their reliance on authorized instructions from us or for failing to act in the absence of authorized instructions. These indemnifications survive the termination of such agreements. At March 31, 2025, we have not recorded a liability associated with these indemnifications, as we do not expect to make any payments pertaining to these indemnifications.

RECENT ACCOUNTING PRONOUNCEMENTS

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

CRITICAL ACCOUNTING ESTIMATES AND POLICIES

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

For more details on critical accounting policies, refer to our Annual Report on Form 10-K for the year ended December 31, 2024.

There has not been any material change to our policies since December 31, 2024.

FORWARD-LOOKING STATEMENTS

The information included in this Quarterly Report on Form 10-Q contains forward-looking statements relating to trends in, or representing management’s beliefs about, Domtar Corporation’s future growth, results of operations, performance, liquidity and business prospects and opportunities. These forward-looking statements are generally denoted by the use of words such as “anticipate”, “believe”, “expect”, “intend”, “aim”, “target”, “plan”, “continue”, “estimate”, “project”, “may”, “will”, “should” and similar expressions.

These statements reflect management’s current beliefs and are based on information currently available to management. Our future financial condition and results of operations, as well as any 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, many of which are beyond our control and are amplified by current and potential trade and tariff actions affecting the countries where we operate, that could cause actual results to differ materially from historical results. Accordingly, no assurances can be given that any of the events anticipated by the forward-looking statements will occur, or if any occur, what effect they will have on our results of operations or financial condition. These factors include, but are not limited to those discussed in Item 1A “Risk Factors,” and:

•

continued decline in usage of paper products in our core market;

•

our ability to implement our business diversification initiatives, including repurposing of assets and strategic acquisitions or divestitures, facility closures and integration of acquired businesses;

•

demand for linerboard;

•

product selling prices;

•

cyclicality of sales and prices in the lumber market and market pulp;

•

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

•

the recent tariffs announced by the United States government, the retaliatory tariffs and other actions in response announced by other countries, the implementation of new tariffs or future increases in existing tariffs, their impact on the landed sales prices of the products that we manufacture and export and on the cost of the inputs that we import from other countries, and their impact on our overall sales and profitability;

•

other economic or geopolitical developments;

•

impact of inflation on our costs and uncertainty of our ability to pass through increased costs to our customers;

•

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

•

significant indebtedness and resulting financial leverage;

•

performance of our manufacturing operations, including unexpected maintenance requirements;

•

the level of competition from domestic and foreign producers;

•

cyberattacks or other security breaches;

•

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

•

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

•

transportation costs;

•

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

•

legal proceedings;

•

changes in asset valuations, including impairment of long-lived assets, inventory, accounts receivable or other assets, including deferred assets, or other reasons;

•

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

•

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

•

a material disruption in our supply chain, manufacturing, distribution operations or customer demand such as public health crises that impact trade or the general economy, including viruses, diseases or illnesses; and

•

the other factors described under “Risk Factors”, in item 1A of our Annual Report on Form 10-K, for the year ended December 31, 2024.

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Information relating to quantitative and qualitative disclosure about market risk is contained in our Annual Report on Form 10-K for the year ended December 31, 2024. There has not been any material change in our exposure to market risk since December 31, 2024. A full discussion on Quantitative and Qualitative Disclosure about Market Risk, is found in Note 4 “Derivatives and Hedging Activities and Fair Value Measurement,” of the financial statements in this Quarterly Report on Form 10-Q.

Our operating income (loss) can be impacted by the following sensitivities:


SENSITIVITY ANALYSIS
(In millions of dollars, unless otherwise noted)
Each $10/unit change in the selling price of the following products1:
Papers			38
Pulp - net position			23
Wood			21
Tissue			1

Foreign exchange
(US $0.01 change in relative value to the Canadian dollar before hedging)			38
Energy 2
Natural gas: $0.25/MMBtu change in price before hedging			9

1. Based on estimated 2025 capacity (ST, ADMT or MBF).

2. Based on estimated 2025 consumption levels. The allocation between energy sources may vary during the year in order to take advantage of market condition.

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

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our reports under the Securities and Exchange Act of 1934, as amended (“Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. As of March 31, 2025, an evaluation was performed by members of management, at the direction and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Exchange Act). Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2025, our disclosure controls and procedures were effective.

Change in Internal Control over Financial Reporting

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

PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See Note 14 “Commitments and Contingencies” of the financial statements in this Quarterly Report on Form 10-Q for the discussion regarding legal proceedings.

ITEM 1A. RISK FACTORS

Our Annual Report on Form 10-K for the year ended December 31, 2024, contains important risk factors that could cause our actual results to differ materially from those projected in any forward-looking statement. There were no material changes to the risk factors described in our Annual Report on Form 10-K for the year ended December 31, 2024, except as noted below:

Products the Company produces in one country and exports to another may become subject to additional duties, tariff or other international trade remedies or restrictions.

The Company produces products in the U.S. and Canada and sells products worldwide. Under trade and investment treaties and domestic trade laws, custom duties (also called tariffs) can be imposed by national governments where imports are “dumped” or “subsidized” and such imports cause material injury, or an imminent threat of injury, to a domestic industry. International trade laws also generally provide that national governments can adopt countervailing measures, including countervailing duties, regarding imported products that are subsidized through foreign government programs under certain circumstances. A trade remedy investigation or proceeding may involve allegations of either dumping, subsidization, or both, which are generally initiated at the request of local producers. Where injurious dumping is found, the trade remedy is typically an anti-dumping duty order. Where injurious subsidization is found, the trade remedy is typically a countervailing duty order. In principle, a tariff equal to the amount of dumping or subsidization, as applicable, should be imposed on the importer of the product. Tariffs can be legally challenged before local or international review bodies, but national governments will generally continue levying deposits on estimated customs duties during the pendency of such review proceedings, which can span over many years. Legal rules applicable to tariffs could also be modulated should certain national governments amend their legislation or withdraw from international treaties on tariffs or should such international treaties be renegotiated or terminated. Changes in the import and export policies, including trade restrictions, new or increased tariffs or quotas, embargoes, sanctions and countersanctions, safeguards or customs restrictions by the U.S. and/or other foreign governments, could require the Company to change the way it conduct business and adversely affect its financial condition, results of operations, reputation and our relationships with customers, suppliers and employees in the short- or long-term. Likewise, changes in laws and policies governing foreign trade, manufacturing, development and investment in the territories or countries where we currently sell our products or conduct our business could adversely affect our business.

In the first quarter of 2025, the United States imposed tariffs on specific goods imported from numerous countries and suggested the potential for additional widespread tariffs in the near term. Between March 4, 2025 and March 6, 2025, 25% tariffs were imposed on our products shipped from Canada to the U.S., including lumber, paper and pulp. On March 6, 2025, the U.S. administration signed an executive order temporarily pausing tariffs on Canadian goods compliant with the United States-Mexico-Canada Agreement (“USMCA”) until April 2, 2025. Included in the USMCA are products such as lumber, paper and pulp. On April 2, 2025, the U.S. administration issued an executive order imposing tariffs beginning at 10% on all imports into the U.S. from all countries, but with much higher rates for many. While Canada was not exempt, goods compliant with the USMCA are not subject to these additional tariffs. Multiples nations have countered with retaliatory tariffs and other actions in response. Subsequently, the United States and other nations have adjusted their initial announcement and deferred or limited implementation in certain instances. It is unclear what additional changes in tariffs will be implemented.

These actions are expected to result in retaliatory measures on U.S. goods. If maintained, the newly announced tariffs and the potential escalation of trade disputes could pose a significant risk to our business and would affect our revenue and cost of goods sold. The extent and duration of the tariffs and the resulting impact on general economic conditions and on the Company business are uncertain and depend on various factors, such as negotiations between the U.S. and affected countries, the responses of other countries or regions, exemptions or exclusions that may be granted, availability and cost of alternative sources of supply, and demand for our products in affected markets. Further, actions the Company take to adapt to new tariffs or trade restrictions may cause the Company to modify its operations or forgo business opportunities.

In addition, national governments could also impose non-tariff measures to restrict the import of some or all of the Company's imported products, such as quotas, tariff-rate quotas, import bans, licensing regimes, price bands or targeted domestic taxes. While such non-tariff measures could be legally challenged under existing trade treaties, non-tariff measures adopted by any country where the Company sells its products internationally could materially affect its cash flow, and the competitive position of its operations relating to the affected products.

The Company is subject to countervailing and anti-dumping duty orders on the vast majority of its U.S. imports of softwood lumber products produced at its Canadian sawmills, which could materially affect its results of operations and cash flows.

Most of the Company's U.S. imports of softwood lumber products produced in Canada are subject to orders requiring the Company to pay cash deposits to U.S. Customs for estimated countervailing and anti-dumping duties. These cash deposit requirements are the result of petitions filed, shortly after the 2006 Softwood Lumber Agreement expired in October 2015, by U.S. softwood lumber products producers and forest landowners with U.S. Department of Commerce (“Commerce”) and the U.S. International Trade Commission.

All countervailing and anti-dumping duty orders issued by Commerce in the present softwood lumber dispute have been appealed before a binational review panel established under the North American Free Trade Agreement and its successor, the United States-Mexico-Canada Agreement (or, the “USMCA”) or before the U.S. Court of International Trade. Deposits paid to U.S. Customs in each period of review of the present dispute will not be converted into actual duties unless and until appeals have been exhausted for the corresponding period of review.

The Company has been required to pay cash deposits for estimated countervailing duties and anti-dumping duties on most of its U.S. imports of softwood lumber products produced at its Canadian sawmills, since April 28, 2017, and June 30, 2017, respectively. Subsequently, Commerce maintained cash deposits at varying rates as a result of annual administrative reviews; following the initial investigation, six administrative reviews were initiated and further administrative reviews could be initiated for years to come. As of March 31, 2025, the rates for estimated countervailing and anti-dumping duties applicable to the Company's U.S. imports of softwood lumber products were 6.74% and 7.66%, respectively and cumulatively. These rates will apply until Commerce sets new duty rates in subsequent administrative reviews, or until new rates are set on appeal through a remand determination by the binational review panel established under the USMCA or by a U.S. court. Commerce is expected to issue its final determination in the sixth administrative review of the countervailing and anti-dumping investigation in the third quarter of 2025, at which time a new rate will take effect for the Company; this new rate was estimated at 14.38% and 20.07%, respectively and cumulatively, for the Company in a non-binding, preliminary determination issued on April 3, 2025, and March 3, 2025, respectively, which is subject to modification in the upcoming final determination. On February 21, 2025, Commerce published a notice initiating the seventh administrative review of the countervailing duty and anti-dumping orders on softwood lumber from Canada. In decision issued April 9 and 21, 2025, the Company was selected as a respondent in the seventh administrative review of the anti-dumping and countervailing investigation, respectively.

The Company cannot provide any assurance regarding the estimated or final duty rates that may be determined by Commerce in its future administrative reviews. During any period in which the Company's U.S. imports of softwood lumber products from its Canadian sawmills are subject to countervailing or anti-dumping cash deposit requirements or duty requirements, its cash flows and the competitive position of those products and its related Canadian operations could be materially affected.

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

As of March 31, 2025, there are no publicly traded common shares of Domtar Corporation.

ITEM 3. DEFAULT UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 6. EXHIBITS


Exhibit Number	Exhibit Description	Form	Exhibit	Filing Date
10.1	Term Loan Credit Agreement, dated as of January 28, 2025	10-K	10.26	02/27/2025

10.2	Amendment No.3 to ABL Credit Agreement, dated February 26, 2025	10-K	10.27	02/27/2025

31.1	Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

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

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

32.2	Certification of the Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS	XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH	Inline XBRL Taxonomy Extension Schema With Embedded Linkbases Document

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

SIGNATURE

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


DOMTAR CORPORATION

Date: May 1, 2025

By:	/s/ Joseph Ragan
	Joseph Ragan
	Chief Financial Officer (Principal Accounting Officer and Duly Authorized Officer)