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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


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

For the quarterly period ended June 30, 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 June 30, 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	7

	INDEX FOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	8

	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	9

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	37

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK	51

ITEM 4.	CONTROLS AND PROCEDURES	51

PART II	OTHER INFORMATION	52

ITEM 1.	LEGAL PROCEEDINGS	52

ITEM 1A.	RISK FACTORS	52

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	53

ITEM 3.	DEFAULT UPON SENIOR SECURITIES	53

ITEM 4.	MINE SAFETY DISCLOSURES	53

ITEM 5.	OTHER INFORMATION	53

ITEM 6.	EXHIBITS	54

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						For the six months ended
	June 30,			June 30,			June 30,			June 30,
	2025			2024			2025			2024

	$			$			$			$
Sales		1,763			1,750			3,623			3,536
Operating expenses
Cost of sales, excluding depreciation and amortization		1,634			1,607			3,242			3,164
Depreciation and amortization		85			99			173			183
Selling, general and administrative		96			92			193			183
Impairment of long-lived assets (NOTE 10)		—			—			12			—
Closure and restructuring costs (NOTE 10)		2			11			2			22
Other operating loss (income), net		16			(1	)		5			(17	)
		1,833			1,808			3,627			3,535
Operating (loss) income		(70	)		(58	)		(4	)		1
Interest expense, net		58			57			119			116
Non-service components of net periodic benefit cost (NOTE 5)		(3	)		(6	)		(7	)		(11	)
Loss before income taxes		(125	)		(109	)		(116	)		(104	)
Income tax benefit (NOTE 6)		(49	)		(101	)		(46	)		(96	)
Net loss		(76	)		(8	)		(70	)		(8	)
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 $(10) and $(12), respectively (2024 – $2 and $6, respectively)		31			(3	)		36			(17	)
Less: Reclassification adjustment for losses included in net loss, net of tax of $(1) and $(3), respectively (2024 – $(1) and $(2), respectively)		1			4			9			7
Foreign currency translation adjustments		60			(14	)		61			(40	)
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	)		(1	)		(1	)
Other comprehensive income (loss)		92			(14	)		105			(51	)
Comprehensive income (loss)		16			(22	)		35			(59	)

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
	June 30,			December 31,
	2025			2024

	$			$
Assets
Current assets
Cash and cash equivalents, including restricted cash of $14 and $14		113			97
Receivables, less allowances of $5 and $5		740			767
Receivables from related party (NOTE 16)		35			35
Inventories (NOTE 7)		1,429			1,394
Prepaid expenses		110			53
Income and other taxes receivable		77			45
Other current assets		12			16
Assets held for sale (NOTE 3)		5			—
Total current assets		2,521			2,407
Property, plant and equipment, net		3,492			3,535
Operating lease right-of-use assets		106			113
Goodwill and other intangible assets, net (NOTE 8)		153			161
Deferred income tax assets		513			482
Other assets (NOTE 9)		659			618
Total assets		7,444			7,316
Liabilities and shareholders' equity
Current liabilities
Bank indebtedness		—			8
Trade and other payables		1,016			937
Income and other taxes payable		31			11
Operating lease liabilities due within one year		30			28
Due to related party (NOTE 16)		21			7
Long-term debt due within one year (NOTE 11)		74			66
Total current liabilities		1,172			1,057
Long-term debt (NOTE 11)		2,550			2,557
Operating lease liabilities		77			86
Deferred income taxes and other		29			29
Pension and other post-retirement benefit obligations (NOTE 5)		671			684
Other liabilities and deferred credits (NOTE 13)		322			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		(195	)		(125	)
Accumulated other comprehensive loss		(9	)		(114	)
Total shareholders' equity		2,623			2,588
Total liabilities and shareholders' equity		7,444			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
	June 30, 2025
	Additional paid-in capital		Deficit			Accumulated other comprehensive loss			Total shareholders' equity

	$		$			$			$
Balance at March 31, 2025		2,827		(119	)		(101	)		2,607
Net loss		—		(76	)		—			(76	)
Net derivative gains on cash flow hedges:
Net gains arising during the period, net of tax of $(10)		—		—			31			31
Less: Reclassification adjustment for losses included in net loss, net of tax of $(1)		—		—			1			1
Foreign currency translation adjustments		—		—			60			60
Change in unrecognized losses and prior service cost related to pension and other post-retirement benefit plans, net of tax of nil		—		—			—			—
Balance at June 30, 2025		2,827		(195	)		(9	)		2,623


	For the six months ended
	June 30, 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 loss		—		(70	)		—			(70	)
Net derivative gains on cash flow hedges:
Net gains arising during the period, net of tax of $(12)		—		—			36			36
Less: Reclassification adjustment for losses included in net loss, net of tax of $(3)		—		—			9			9
Foreign currency translation adjustments		—		—			61			61
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 June 30, 2025		2,827		(195	)		(9	)		2,623

DOMTAR CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(UNAUDITED, IN MILLIONS OF DOLLARS)


	For the three months ended
	June 30, 2024
	Additional paid-in capital		Deficit			Accumulated other comprehensive loss			Total shareholders' equity

	$		$			$			$
Balance at March 31, 2024		2,727		(108	)		(81	)		2,538
Net loss		—		(8	)		—			(8	)
Net derivative gains on cash flow hedges:
Net losses arising during the period, net of tax of $2		—		—			(3	)		(3	)
Less: Reclassification adjustment for losses included in net loss, net of tax of $(1)		—		—			4			4
Foreign currency translation adjustments		—		—			(14	)		(14	)
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 June 30, 2024		2,727		(116	)		(95	)		2,516


	For the six months ended
	June 30, 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 loss		—		(8	)		—			(8	)
Net derivative losses on cash flow hedges:
Net losses arising during the period, net of tax of $6		—		—			(17	)		(17	)
Less: Reclassification adjustment for losses included in net loss, net of tax of $(2)		—		—			7			7
Foreign currency translation adjustments		—		—			(40	)		(40	)
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 June 30, 2024		2,727		(116	)		(95	)		2,516

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 six months ended
	June 30,			June 30,
	2025			2024
	$			$
Operating activities
Net loss		(70	)		(8	)
Adjustments to reconcile net loss to cash flows provided from operating activities
Depreciation and amortization		173			183
Deferred income taxes and tax uncertainties (NOTE 6)		(30	)		(52	)
Impairment of long-lived assets (NOTE 10)		12			—
Net (gains) losses on disposals of assets		(4	)		3
Other		7			(2	)
Changes in assets and liabilities, excluding the effects of sale of business
Receivables, including related party		20			(21	)
Inventories		(25	)		(35	)
Prepaid expenses		7			17
Trade and other payables, including related party		87			(2	)
Income and other taxes		(11	)		(20	)
Difference between employer pension and other post-retirement contributions and pension and other post-retirement expense		(48	)		(55	)
Other assets and other liabilities		—			(4	)
Cash flows provided from operating activities		118			4
Investing activities
Additions to property, plant and equipment		(101	)		(132	)
Proceeds from disposals of property, plant and equipment		9			1
Proceeds from sale of business, net of cash disposed		—			14
Other		(1	)		(1	)
Cash flows used for investing activities		(93	)		(118	)
Financing activities
Net change in bank indebtedness		(8	)		(6	)
Change in revolving credit facility		(115	)		20
Issuance of long-term debt, net of debt issue costs		148			—
Repayments of long-term debt		(35	)		(34	)
Other		(3	)		—
Cash flows used for financing activities		(13	)		(20	)
Net increase (decrease) in cash and cash equivalents		12			(134	)
Impact of foreign exchange on cash		3			(4	)
Cash, cash equivalents and restricted cash at beginning of period		156			203
Cash, cash equivalents and restricted cash at end of period		171			65
Supplemental cash flow information
Net cash payments (refunds) for:
Interest		108			115
Income taxes		9			(20	)

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		99			51
Restricted cash included in Cash and cash equivalents		14			14
Restricted cash included in Other assets		58			—
Total cash, cash equivalents, and restricted cash shown in the Consolidated Statements of Cash Flows		171			65

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

INDEX FOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1	BASIS OF PRESENTATION	9

NOTE 2	RECENT ACCOUNTING PRONOUNCEMENTS	10

NOTE 3	ACQUISITION AND SALE OF BUSINESSES	11

NOTE 4	DERIVATIVES AND HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENT	13

NOTE 5	PENSION PLANS AND OTHER POST-RETIREMENT BENEFIT PLANS	17

NOTE 6	INCOME TAXES	18

NOTE 7	INVENTORIES	19

NOTE 8	GOODWILL AND OTHER INTANGIBLE ASSETS	20

NOTE 9	OTHER ASSETS	21

NOTE 10	CLOSURE AND RESTRUCTURING AND IMPAIRMENT OF LONG-LIVED ASSETS	22

NOTE 11	LONG-TERM DEBT	23

NOTE 12	CHANGES IN ACCUMULATED OTHER COMPREHENSIVE LOSS BY COMPONENT	24

NOTE 13	OTHER LIABILITIES AND DEFERRED CREDITS	26

NOTE 14	COMMITMENTS AND CONTINGENCIES	27

NOTE 15	SEGMENT DISCLOSURES	34

NOTE 16	RELATED PARTY TRANSACTIONS	36

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 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 six 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

JUNE 30, 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

JUNE 30, 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. On July 1, 2025, the Company completed the sale for a purchase price of $16 million, resulting in a net gain of $9 million.

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

JUNE 30, 2025

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 3 – ACQUISITION AND SALE 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 (loss) earnings of the Company if Iconex Paper had been included in the Company's consolidated results for the three and six months ended June 30, 2024:


	For the three months ended			For the six months ended
	June 30,			June 30,
	2024			2024
	(Unaudited)			(Unaudited)
	$			$

Sales		1,799			3,634
Net (loss) earnings		(4	)		4

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 (loss) earnings.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 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 June 30, 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 7 months.

The natural gas derivative contracts were effective as of June 30, 2025.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 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 June 30, 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

JUNE 30, 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 June 30, 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:	June 30, 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		24		—		24		—	(a)	Prepaid expenses
Natural gas swap contracts		2		—		2		—	(a)	Prepaid expenses
Total Assets		26		—		26		—

Liabilities derivatives
Currency derivatives		2		—		2		—	(a)	Trade and other payables
Total Liabilities		2		—		2		—

Other Instruments:
Long-term debt due within one year		74		—		74		—	(b)	Long-term debt due within one year
Long-term debt		2,288		—		2,288		—	(c)	Long-term debt
Contingent consideration for contingent value right		166		—		—		166	(d)	Other liabilities and deferred credits

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 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 June 30, 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 June 30, 2025 and December 31, 2024, respectively.

(c)

The carrying value of the Company’s long-term debt is $2,550 million and $2,557 million at June 30, 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

JUNE 30, 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 and six months ended June 30, 2025, the pension expense was $15 million and $33 million, respectively (2024 – $16 million and $32 million, respectively).

The Company expects to contribute approximately $32 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						For the six months ended
	June 30, 2025						June 30, 2025
	Pension plans			Other post-retirement benefit plans			Pension plans			Other post-retirement benefit plans
	$			$			$			$
Service cost		4			—			10			—
Interest expense		44			3			86			4
Expected return on plan assets		(49	)		—			(98	)		—
Amortization of net actuarial gain		—			(1	)		—			—
Settlement loss		—			—			1			—
Net periodic benefit cost		(1	)		2			(1	)		4



	For the three months ended						For the six months ended
	June 30, 2024						June 30, 2024
	Pension plans			Other post-retirement benefit plans			Pension plans			Other post-retirement benefit plans
	$			$			$			$
Service cost		6			—			11			—
Interest expense		48			3			99			4
Expected return on plan assets		(56	)		—			(113	)		—
Amortization of net actuarial gain		—			(1	)		—			(1	)
Net periodic benefit cost		(2	)		2			(3	)		3

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 and six months ended June 30, 2025, the Company contributed $22 million and $42 million, respectively (2024 – $23 million and $48 million, respectively) to the pension plans and $5 million and $7 million, respectively (2024 – $4 million and
$7 million, respectively) to the other post-retirement benefit plans.

The Company expects to make cash contributions of approximately $39 million to the pension plans and $6 million to the other post-retirement benefit plans during the remainder of the year.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2025

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 6.

_________________

INCOME TAXES

For the second quarter of 2025, the Company had an income tax benefit of $49 million, consisting of $17 million of current income tax benefit and a deferred income tax benefit of $32 million. This compares to an income tax benefit of $101 million in the second quarter of 2024, consisting of $46 million of current income tax benefit and a deferred income tax benefit of $55 million. The Company made payments, net of income tax refunds, of $10 million during the second quarter of 2025. The effective tax rate for the second quarter of 2025 was 39% compared to 93% for the second quarter of 2024. The effective tax rate for the second quarter of 2025 is increased by a valuation allowance on tax assets arising from deferred interest expenses as well as other nondeductible expenses. This is partially offset by research and experimentation tax credits and foreign exchange items. Also, the Company recorded a tax expense in the quarter of $5 million pertaining to the reduction of a foreign tax credit claimed in an earlier tax year. The effective tax rate for the second quarter of 2024 was increased by a valuation allowance on tax assets arising from deferred interest expenses, foreign exchange items and additional U.S. tax expense on foreign operations.

For the first six months of 2025, the Company's income tax benefit was $46 million, consisting of a current income tax benefit of $16 million and a deferred income tax benefit of $30 million. This compares to an income tax benefit of $96 million in the first six months of 2024, consisting of a current income tax benefit of $44 million and a deferred income tax benefit of $52 million. The Company made payments, net of income tax refunds, of $9 million during the first six months of 2025. The effective tax rate was 40% compared to an effective tax rate of 92% in the first six months of 2024. The effective tax rate for the first half of 2025 is increased by a valuation allowance on tax assets arising from deferred interest expenses as well as other nondeductible expenses. This is partially offset by research and experimentation tax credits and foreign exchange items. Also, the Company recorded a tax expense of $5 million pertaining to the reduction of a foreign tax credit claimed in an earlier tax year. The effective tax rate for the first half of 2024 was increased 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 six months of 2025, the GloBE Rules did not impact the Company’s financial results. The Company continues to evaluate their impact on future periods.

One Big Beautiful Bill Act ("OBBBA")

On July 4, 2025, the OBBBA was signed into law in the United States. The legislation contains several significant tax provisions, including, reinstatement of 100% bonus depreciation for qualified property, introduction of Section 174A, allowing immediate expensing of domestic research and experimentation expenditures, modifications to the limitation on interest deductibility under Section 163(j), changes to the Global Intangible Low-Taxed Income and Foreign-Derived Intangible Income regimes, and expansion of the Section 162(m) limitation on the deductibility of executive compensation.

As the enactment occurred after the balance sheet date but before the issuance of these financial statements, the Company has not recorded any adjustments related to the OBBBA in its Consolidated Financial Statements as of and for the periods ended June 30, 2025.

The Company is currently evaluating the impact of the OBBBA on its Consolidated Financial Statements, including the potential effects on its effective tax rate, deferred tax assets and liabilities, and related disclosures. The impact, if any, will be reflected in the period of enactment, in accordance with ASC 740, Income Taxes.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2025

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 7.

_________________

INVENTORIES

The following table presents the components of inventories:


	June 30,		December 31,
	2025		2024
	$		$
Work in process and finished goods		707		682
Raw materials		340		344
Operating and maintenance supplies		382		368
		1,429		1,394

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 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 June 30, 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:


			June 30, 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		(4	)		11		15		(3	)		12
Customer relationships	8			110		(9	)		101		110		(2	)		108
Total				134		(14	)		120		134		(6	)		128

Amortization expense related to intangible assets for the three and six months ended June 30, 2025 was $4 million and $8 million, respectively (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

JUNE 30, 2025

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 9.

_________________

OTHER ASSETS

The following table presents the components of other assets:


	June 30,		December 31,
	2025		2024
	$		$
Pension asset - defined benefit pension plans		271		250
Countervailing duty and anti-dumping duty cash deposits on softwood lumber		216		195
Off-market contracts		70		71
Restricted cash		58		59
Other		44		43
		659		618

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 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, for the three and six months ended June 30, 2025, the Company recorded nil and $12 million, respectively, 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 and six months ended June 30, 2024, the Company recorded $1 million and $1 million, respectively, of severance and termination costs and nil and $1 million, respectively, of other costs, under Closure and restructuring costs on the Consolidated Statement of Earnings (Loss) and Comprehensive Income (Loss).

Catalyst restructuring and impairment costs, British Columbia mills

On January 25, 2024, the Company announced the indefinite curtailment of the Crofton mill paper operations. For the three and six months ended June 30, 2025, the Company recorded $5 million and $7 million, respectively, of accelerated depreciation, under Depreciation and amortization on the Consolidated Statement of Earnings (Loss) and Comprehensive Income (Loss) (2024 –
$1 million and $5 million, respectively).

For the three and six months ended June 30, 2024, the Company recorded nil and $3 million, respectively, of severance and termination costs and nil and $2 million, respectively, 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.

For the three and six months ended June 30, 2024, the Company recorded $24 million and $30 million, respectively, of accelerated depreciation, under Depreciation and amortization on the Consolidated Statement of Earnings (Loss) and Comprehensive Income (Loss). Additionally, the Company recorded $1 million and $1 million, respectively, of severance and termination costs and $3 million and $3 million, respectively, 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 three and six months ended June 30, 2025, other costs related to previous and ongoing closures and restructuring included
$1 million and $1 million, respectively, of severance and termination costs (2024 – $1 million and $2 million, respectively) and
$1 million and $1 million, respectively, of other costs (2024 – $5 million and $9 million, respectively).

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 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 June 30, 2025, the Company had borrowings of $365 million and $157 million of letters of credit outstanding under this facility, leaving unused commitments of $618 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. At June 30, 2025, there were $148 million of borrowings outstanding under the Bank Term Loan.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 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 six months ended June 30, 2025 and the year ended December 31, 2024:


	Net derivative gains (losses) on cash flow hedges		Pension items(2)			Post-retirement benefit items(2)	Foreign currency items	Total
	$		$			$	$	$
Balance at December 31, 2023		5		(72	)

Large accelerated filer

Accelerated filer

Non-accelerated filer

Small reporting company

Emerging growth company

Domtar CORP 10-Q