Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OFFINANCIAL 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 and nine months ended September 30, 2025 and September 30, 2024. The three month and nine month periods are also referred to as the third quarter and first nine months of 2025 and 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

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. While Canada was not exempt, goods compliant with the United States-Mexico-Canada Agreement ("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 announcements and deferred or limited implementation in certain instances. The tariff environment continues to be dynamic, with changes occurring on an ongoing basis, and it is likely that additional developments will occur over the next several months, particularly as the U.S. negotiates with trade partners.

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 some of the risks associated with tariffs.

Acquisitions and Divestitures

Transfer of power generation assets

On September 8, 2025, we transferred certain power generation assets to Paper Excellence Canada Holdings Corporation, an affiliated company, for a consideration of $62 million, through the issuance of interest-bearing notes, in the principal amounts of $47 million and $15 million (the "Agreement"). For more details, refer to Note 10 "Closure and restructuring and impairment of long-lived assets", of the financial statements in this Quarterly Report on Form 10-Q.

Sale of Espanola, Ontario mill

On October 17, 2025, we completed the sale of our Espanola facility.

Sale of Forest Products Mauricie, Quebec sawmill

On July 1, 2025, we completed the sale of the Forest Products Mauricie ("FPM") sawmill, for a purchase price of $16 million, resulting in a net gain of $9 million.

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 four North American locations. At the acquisition date, Iconex had a location in Nogales, Mexico, that have been closed in the third quarter of 2025. Refer to Cost Reduction Measures below. 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 340 employees.

Closure and Restructuring, and Impairment of long-lived assets

Power generation assets impairment costs

On September 8, 2025, we transferred certain power generation assets to Paper Excellence Canada Holdings Corporation, an affiliated company. As a result, during the third quarter of 2025, we recorded $8 million of write-off of property, plant and equipment and off-market contracts, under Impairment of long-lived assets on the Consolidated Statements of Earnings (Loss) and Comprehensive Income (Loss).

Cost reduction measures

On August 20, 2025, as a result of a strategic review of our operations, we announced the indefinite idling of the Grenada, Mississippi, newsprint mill and the closure of the Addison, Illinois, and Nogales, Mexico, converting facilities. The Nogales facility ceased operations in August, while the Grenada mill and the Addison facility ceased operations in September.

During the third quarter of 2025, we recorded $1 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). Additionally, we recorded $17 million of write-off of inventory, $8 million of severance and termination costs and $3 million of other costs, under Closure and restructuring costs on the Consolidated Statement of Earnings (Loss) and Comprehensive Income (Loss).

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.

During the third quarter and first nine months of 2025, we recorded $2 million and $14 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).

During the third quarter and first nine months of 2024, we recorded nil 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).

On October 17, 2025, we completed the sale of our Espanola facility.

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 third quarter and first nine months of 2024, we recorded nil and $30 million, respectively, of accelerated depreciation, under Depreciation and amortization on the Consolidated Statement of Earnings (Loss) and Comprehensive Income (Loss). Additionally, we recorded nil and $1 million, respectively, of severance and termination costs and nil 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).

Crofton

On January 25, 2024, we announced the indefinite curtailment of the Crofton mill paper operations. During the third quarter and first nine months of 2025, we recorded $2 million and $9 million, respectively, of accelerated depreciation, under Depreciation and amortization on the Consolidated Statement of Earnings (Loss) and Comprehensive Income (Loss) (2024 - $3 million and $8 million, respectively).

Additionally, during the third quarter and first nine months of 2025, we recorded $1 million and $3 million, respectively, of severance and termination costs, under Closure and restructuring costs on the Consolidated Statement of Earnings (Loss) and Comprehensive Income (Loss) (2024 - nil and $3 million, respectively, of severance and termination costs and nil and $2 million, respectively, of write-off of inventory).

Other Costs

For the third quarter and first nine months of 2025, other costs related to previous and ongoing closures and restructuring included nil and $1 million, respectively, of severance and termination costs (2024 - nil and $2 million, respectively) and $2 million and $3 million, respectively, of other costs (2024 - $2 million and $11 million, respectively).

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)) 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) 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 SEPTEMBER 30, 2025

For the third quarter of 2025, we reported operating income of $40 million, compared to operating income of $120 million in the third quarter of 2024.

The decrease of $80 million in operating income is principally driven by higher closure and restructuring costs, lower volume for the majority of our products, higher input costs as well as freight costs, lower average selling prices for our pulp products and lower paper production, partially offset by higher average selling prices for our paper and wood products and a favorable exchange rate. In addition, in the third quarter of 2025, we recognized $11 million of impairment costs related to the sale of our Espanola pulp and paper mill and the transfer of certain power generating assets.

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

HIGHLIGHTS FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2025

For the first nine months of 2025, we reported operating income of $36 million, compared to operating income of $121 million in the first nine months of 2024.

The decrease of $85 million in operating income is principally driven by higher input costs, higher maintenance costs, as well as lower volume for our paper and wood products, partially offset by higher average selling prices for the majority of our products and a favorable

exchange rate. In addition, in the first nine months of 2025, we recognized $23 million of impairment costs related to the sale of our Espanola pulp and paper mill and the transfer of certain power generation assets.

These and other factors that affected the comparison of financial results are discussed in the consolidated 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 announcements and deferred or limited implementation in certain instances. The tariff environment has been dynamic over the last several months, with changes occurring on an ongoing basis, and it is likely that additional developments will occur over the next several months, particularly as the U.S. negotiates with trade partners.

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 still very volatile and unpredictable, and the impact may be significant in the future.

OUTLOOK

For the balance of 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 modest improvements in pulp demand but we expect downward pressure for our pulp prices. We will continue to closely monitor our inventory levels and balance our production with our customer demand. For our Wood Products business, declining U.S. housing starts coupled with the implementation of additional 10% tariff on our export of lumber into the U.S., have contributed to challenging market conditions. However, 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 third quarter and first nine months of 2025 and 2024 sales, operating (loss) income and other information relevant to the understanding of our results of operations.

Third quarter of 2025 compared to Third quarter of 2024

Analysis of Sales

Sales in the third quarter of 2025 decreased by $89 million, or 5%, when compared to sales in the third quarter of 2024. This decrease in sales is mostly due to lower volume for the majority of our products as well as lower average selling prices for pulp. This decline was largely attributable to weakened consumer demand resulting from ongoing macroeconomic challenges. Theses decreases were partially offset by an increase in our net average selling prices for our paper and wood products. In addition, our third 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 third quarter of 2025 decreased by $80 million, or 67%, when compared to operating income in the third quarter of 2024. This decrease in operating income was principally driven by higher closure and restructuring costs related to our costs reduction measures, lower volume for the majority of our products, higher input costs as well as freight costs, lower average selling prices for our pulp products and lower paper production, partially offset by higher average selling prices for our paper and wood products and a favorable exchange rate. In the third quarter of 2025, we recognized $11 million of impairment costs related to the sale of our Espanola pulp and paper mill and the transfer of certain power generation assets. In addition, our third quarter of 2025 includes the results of Iconex, acquired in the fourth quarter of 2024.

First nine months of 2025 compared to first nine months of 2024

Analysis of Sales

Sales in the first nine months of 2025 decreased by $2 million, or less than 1%, when compared to sales in the first nine months of 2024. This decrease in sales is mostly due to lower volume of paper and wood products. This decline was largely attributable to weakened consumer demand resulting from ongoing macroeconomic challenges. These decreases were partially offset by an increase in our net average selling prices for the majority of our products. Our paper volume was impacted by our paper machine closure at our Ashdown facility in early July 2024. In addition, our first nine months 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 nine months of 2025 decreased by $85 million, or 70%, when compared to operating income in the first nine months of 2024. This decrease in operating income is principally driven by higher closure and restructuring costs related to our costs reduction measures, higher input costs, higher maintenance costs and lower volume for our paper and wood products, partially offset by higher average selling prices for the majority of our products and favorable foreign exchange rate. Our paper volume was impacted by our paper machine closure at our Ashdown facility in early July 2024. In the first nine months of 2025, we recognized $23 million of impairment costs related to the sale of our Espanola pulp and paper mill and the transfer of certain power generating assets. In addition, our first nine months of 2025 include the results of Iconex, acquired in the fourth quarter of 2024.

OTHER FACTORS

Interest Expense, net

We incurred $59 million of net interest expense in the third quarter of 2025, a decrease of $2 million compared to net interest expense of $61 million in the third quarter of 2024. Interest expense decreased mainly due to lower floating rates for SOFR, partially offset by higher debt levels for the three months period in 2025 compared to 2024. In the third quarter of 2025 and third quarter of 2024, we had capitalized interest of $1 million, respectively. See section "Capital Resources" below for more information on our debt structure.

We incurred $178 million of net interest expense in the first nine months of 2025, an increase of $1 million compared to net interest expense of $177 million in the first nine months of 2024. Interest expense increased mainly due to higher debt levels for the nine months period in 2025 compared to 2024, partially offset by lower floating rates for SOFR. In the first nine months of 2025, we had capitalized interest of $1 million, compared to $5 million in the first nine months of 2024. See section "Capital Resources" below for more information on our debt structure.

Non-Service Components of net periodic benefit cost

For the third quarter of 2025, our non-service components of net periodic benefit cost were a benefit of $6 million, an increase of $1 million when compared to the third 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.

For the first nine months of 2025, our non-service components of net periodic benefit cost were a benefit of $13 million, a decrease of $3 million when compared to the first nine months 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 third quarter of 2025, we had income tax expense of $302 million, consisting of $24 million of current income tax expense and $278 million of deferred income tax expense. This compares to income tax expense of $121 million in the third quarter of 2024, consisting of $49 million of current income tax expense and deferred income tax expense of $72 million. We made payments, net of income tax refunds, of $1 million during the third quarter of 2025. Our effective tax rate for the third quarter of 2025 was -2,323% compared to 189% for the third quarter of 2024. The effective tax rate for the third quarter of 2025 was mainly impacted by our decision to record a full valuation allowance against our net U.S. deferred income tax assets, as further explained below. In each interim quarter we update our estimate of the annual effective tax rate and, if the estimated annual tax rate changes, we make a cumulative adjustment in that quarter. For both the third quarters of 2025 and 2024, the effective tax rates were impacted by such cumulative adjustments arising from updates to the estimated annual effective tax rate.

For the first nine months of 2025, our income tax expense was $256 million, consisting of current income tax expense of $8 million and deferred income tax expense of $248 million. This compares to income tax expense of $25 million in the first nine months of 2024, consisting of current income tax expense of $5 million and deferred income tax expense of $20 million. We made payments, net of income tax refunds, of $10 million during the first nine months of 2025. The effective tax rate was -198% compared to an effective tax rate of -63% in the first nine months of 2024. The effective tax rate for the first nine months of 2025 was mainly impacted by our decision to record a full valuation allowance on our net U.S. deferred income tax assets, as further explained below. Also, we recorded a tax expense of $5 million for the reduction of a foreign tax credit claimed in an earlier tax year. The effective tax rate for the first nine months of 2024 was unfavorably impacted by interest expense with no tax benefit, foreign exchange items, and additional U.S. tax expense on foreign operations. This was partially offset by additional research and experimentation tax credits.

On a quarterly basis, we assess whether it is more likely than not that the deferred income tax assets will be realized, based on the review of all available positive and negative evidence, including future reversals of existing taxable temporary differences, estimates of future taxable income, past operating results, and prudent and feasible tax planning strategies. Our assessment assigns the most weight to historical income or losses. A cumulative three-year loss position is considered significant negative evidence in assessing the realizability of deferred income tax assets that is difficult to overcome. The carrying value of deferred income tax assets reflects the expected ability to generate sufficient future taxable income in certain tax jurisdictions to utilize these deferred income tax assets.

Following the assessment of our ability to realize the deferred income tax assets related to our U.S. operations, we concluded that existing negative evidence outweighed the positive evidence. Our U.S. operations were in a cumulative three-year loss, as of September 30, 2025. Since the weight assigned to positive and negative evidence must align with how objectively verifiable that evidence is, the cumulative losses from our U.S. operations significantly constrains our ability to rely on more subjective positive indicators. As a result, for the three and nine months ended September 30, 2025, we recorded a net increase in the valuation allowance against our net U.S. deferred income tax assets. The non-cash charge to increase the valuation allowance does not have any impact on consolidated operating income or cash flow, nor does such an allowance preclude us from using tax loss carryforwards or other deferred tax assets in the future. If sufficient objective positive evidence becomes available in a subsequent period to substantiate the realizability of part or all our U.S. deferred income tax assets, the valuation allowance will be reduced as appropriate, with the related adjustment being recognized as a decrease to the income tax provision.

After evaluating the available positive and negative evidence, we continue to conclude that the remaining net deferred tax assets outside of the U.S. are more likely than not realizable.

Pillar Two - Global Anti-Base Erosion Model Rules ("GloBE Rules")

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 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 nine months of 2025, the GloBE Rules did not impact our financial results. We will continue 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. We have evaluated the impact of the OBBBA and determined that it does not have a material effect on the current quarter's income tax provision.

Commentary - Segment Review

PAPER AND PACKAGING

Sales

Paper and Packaging segment sales in the third quarter of 2025 decreased by $44 million, or 4%, when compared to sales in the third quarter of 2024. This decrease in sales is mostly due to lower volume for our paper products mostly due to lower demand resulting from ongoing macroeconomic challenges. This decrease was partially offset by an increase in our net average selling prices for our paper products. In addition, our third quarter of 2025 includes sales from Iconex, acquired in the fourth quarter of 2024.

Paper and Packaging segment sales in the first nine months of 2025 increased by $66 million, or 2%, when compared to sales in the first nine months 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 nine months of 2025 include sales from Iconex, acquired in the fourth quarter of 2024. These increases were partially offset by lower volume for our paper products. Our paper volume was impacted by lower demand, resulting from ongoing macroeconomic challenges and our paper machine closure at our Ashdown facility in July 2024.

Operating income

Operating income in our Paper and Packaging segment amounted to $97 million in the third quarter of 2025, a decrease of $40 million, when compared to operating income of $137 million in the third quarter of 2024. Our results were negatively impacted by:

These decreases were partially offset by:

Operating income in our Paper and Packaging segment amounted to $191 million in the first nine months of 2025, a decrease of $51 million, when compared to operating income of $242 million in the first nine months of 2024. Our results were negatively impacted by:

These decreases were partially offset by:

PULP AND TISSUE

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

Sales

Pulp and Tissue segment sales in the third quarter of 2025 decreased by $35 million, or 9%, when compared to sales in the third quarter of 2024. This decrease in sales is mostly due to a decrease in our pulp and paper sales volume mostly due to lower demand resulting from ongoing macroeconomic challenges, as well as a decrease in our net average selling prices for pulp and paper.

Pulp and Tissue segment sales in the first nine months of 2025 decreased by $80 million, or 7%, when compared to sales in the first nine months of 2024. This decrease in sales is mostly due to a decrease in our pulp and paper sales volume mostly due to lower demand

resulting from ongoing macroeconomic challenges, 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.

Operating income (loss)

Operating income in our Pulp and Tissue segment amounted to $7 million in the third quarter of 2025, a decrease of $14 million, when compared to operating income of $21 million in the third quarter of 2024. Our results were negatively impacted by:

These decreases were partially offset by:

Operating loss in our Pulp and Tissue segment amounted to $45 million in the first nine months of 2025, a decrease of $73 million, when compared to operating income of $28 million in the first nine months of 2024. Our results were negatively impacted by:

These decreases were partially offset by:

WOOD PRODUCTS

(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 the third quarter of 2025 decreased by $13 million, or 6%, when compared to sales in the third quarter of 2024. This decrease in sales is mostly due to a decrease in volume mostly due to lower demand resulting from a slowdown in residential construction and renovation activity, partially offset by higher net average selling prices.

Wood Products segment sales in the first nine months of 2025 increased by $5 million, or less than 1%, when compared to sales in the first nine months of 2024. This increase in sales is mostly due to higher net average selling prices, partially offset by a decrease in volume mostly due to lower demand resulting from a slowdown in residential construction and renovation activity.

Operating loss

Operating loss in our Wood Products segment amounted to $21 million in the third quarter of 2025, an improvement of $14 million, when compared to operating loss of $35 million in the third quarter of 2024. Our results were positively impacted by:

These increases were partially offset by:

Operating loss in our Wood Products segment amounted to $13 million in the first nine months of 2025, an improvement of $90 million, when compared to operating loss of $103 million in the first nine months of 2024. Our results were positively impacted by:

These increases were partially offset by:

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 various lending arrangements, including our ABL Revolving Credit facility, of which $480 million was undrawn and available as of September 30, 2025, and asset sales. Under adverse market conditions, there can be no assurance that these agreements would be available or sufficient. See "Capital Resources" below.

We expect that we will need to refinance all or a portion of our indebtedness on or before maturity. If we cannot timely refinance our indebtedness, we may have to take actions such as raising additional equity capital and reducing, delaying or foregoing capital expenditures, strategic acquisitions, investments and alliances. It is uncertain whether any such actions, if necessary, could be implemented on commercially reasonable terms or at all. In addition, if our cash flows and capital resources are insufficient to fund our debt service obligations, we could face substantial liquidity challenges and could be forced to reduce or delay investments and capital expenditures or to dispose of material assets or operations, seek additional debt or equity capital, and/or restructure our indebtedness. We may not be able to effect such alternative measures on commercially reasonable terms or at all, and, even if successful, those alternative actions may not allow us fully to meet our debt service obligations.

For the nine-month period ended September 30, 2025 we used $4 million of cash flows in operations, had capital expenditures of $164 million, and had debt repayments of $53 million. This compares to $17 million cash provided from operations, capital expenditures of $211 million and debt repayments of $51 million for the nine-month period ended September 30, 2024.

We are focused on generating additional liquidity, including from external sources. Accordingly, we have undertaken a number of actions that seek to enhance our liquidity position. We are conducting a comprehensive review of the assets in our portfolio to identify those that are not complementary to the business which may therefore merit divestiture to provide cash inflow and reduce operating costs; we have started a complete review of support function costs with a target to reduce costs and right size the organization given the

potential asset sales; and further contingent plans to idle certain underperforming mills. In addition, to date in 2025, we have: taken steps to adjust production capacity and reduce costs by taking market downtime in various locations to adjust to customer demand for paper, pulp and wood lumber products; idled indefinitely the Grenada, Mississippi newsprint mill in response to lower customer demand for newsprint; announced the closure of the Nogales, Mexico converting facility and the closure of the Addison, Illinois converting facility; announced the curtailment of operations at the Glenwood, Arkansas, sawmill and the Maniwaki, Quebec sawmill in response to weaker lumber demand conditions; and reduced capital expenditures programs for 2025 and 2026 to focus on core functions such as the maintenance of assets, safety of our employees and compliance with applicable laws and regulations.

Based on current assumptions, including those related to future prices, volumes, foreign exchange and capital expenditures, we expect to have sufficient liquidity to meet our obligations over the next 12 months.

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. Refer to the discussion in our 2024 Annual Report on Form 10-K under part 1, item 1A Risks Factors.

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 used for operating activities totaled $4 million in the first nine months of 2025, a $21 million difference compared to cash flows provided from operating activities of $17 million in the first nine months of 2024. This decrease in cash flows from operating activities is primarily due to an increase in working capital requirements, as well as an increase in net loss. In addition, we had income tax payments, net of refunds, of $10 million during the first nine months of 2025, compared to income tax refunds, net of payments, of $18 million during the first nine months of 2024. For the first nine months of 2025, we contributed $64 million (first nine months of 2024 - $68 million) to the pension plans and $12 million (first nine months of 2024 - $11 million) to the other post-retirement benefit plans in excess of expenses.

Investing Activities

Cash flows used for investing activities in the first nine months of 2025 amounted to $140 million, a $35 million difference compared to cash flows used for investing activities of $105 million in the first nine months of 2024.

The use of cash for investing activities in the first nine months of 2025 was attributable to additions to property, plant and equipment of $164 million, partially offset by proceeds from the sale of property, plant and equipment of $9 million and proceeds from the sales of businesses, net of cash disposed, of $16 million.

The use of cash for investing activities in the first nine months of 2024 was mostly attributable to additions to property, plant and equipment of $211 million, partially offset by proceeds from the sale of property, plant and equipment of $16 million and proceeds from the sale of businesses, net of cash disposed, of $91 million.

Our annual capital expenditures for 2025 are expected to total between $250 million and $260 million.

Financing Activities

Cash flows provided from financing activities totaled $109 million in the first nine months of 2025 compared to cash flows provided from financing activities of $6 million in the first nine months of 2024.

The source of cash flows from financing activities in the first nine months of 2025 was attributable to issuance of long-term debt ($148 million), borrowings under our ABL Revolving Credit Facility ($25 million), partially offset by repayment of long-term debt as required for quarterly amortization of our term loans ($53 million) and lower bank indebtedness ($8 million).

The source of cash flows from financing activities in the first nine months of 2024 was attributable to borrowing under our ABL Revolving Credit Facility ($71 million), partially offset by the repayment of long-term debt as required for quarterly amortization of our Farm Credit Term Loan Facility and First Lien Term Loan ($51 million) and lower bank indebtedness ($14 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 $2,678 million as of September 30, 2025, compared to $2,541 million as of December 31, 2024. A substantial majority of this amount, approximately $1.8 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 September 30, 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 September 30, 2025.

On September 30, 2025, we had borrowings of $505 million and $155 million of letters of credit outstanding under this facility, leaving unused commitments available to us of $480 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. At September 30, 2025, there were $146 million of borrowings outstanding under the Bank Term Loan.

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 third 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 September 30, 2025, there were $583 million of borrowings under the Farm Credit Term Loan A and $244 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 third quarter of 2025, we repaid $4 million as required for quarterly amortization. At September 30, 2025, there were $312 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 September 30, 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 57% 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 September 30, 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 September 30, 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 September 30, 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:

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.