Quarterly Report for Quarter Ending March 31, 2026 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") should be read in conjunction with Domtar Corporation's unaudited interim financial statements and notes thereto included in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2025, filed with the Securities and Exchange Commission ("SEC") on March 30, 2026. 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" refer 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" refers to a million board feet. In this report, unless otherwise indicated, all dollar amounts are expressed in U.S. dollars, and the term "dollars" and the symbol "$" refer to U.S. dollars. In the following discussion, unless otherwise noted, references to increases or decreases in income and expense items, prices, contribution to net earnings (loss), and shipment volumes are based on the three-month periods ended March 31, 2026 and March 31, 2025. The three-month periods are also referred to as the first quarter of 2026 and 2025. Reference to notes refers to footnotes to the consolidated financial statements and notes thereto included in Item 1 of this Form 10-Q.

Effective in the first quarter of 2026, our Ashdown, Plymouth and Skookumchuck pulp mills are now being reported under our Pulp and Tissue Business Unit. This change has been reflected in our reporting segments for all periods presented. The change in segment reporting did not have an impact on the Company's consolidated financial position, results of operations, cash flows, or stockholders' equity.

Recent Events and Items Affecting Comparability of Financial Results

Tariffs

In 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. On April 2, 2025, the U.S. administration issued an executive order imposing tariffs beginning at 10% on all imports into the U.S. from all countries, but with much higher rates for many. While Canada was not exempt, goods compliant with the United States-Mexico-Canada Agreement ("USMCA") are not subject to these additional tariffs. Multiple 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.

On February 20, 2026, the U.S. Supreme Court ruled that the International Emergency Economic Powers Act ("IEEPA") does not authorize the imposition of tariffs. The same day, the U.S. President issued a proclamation imposing a global 10% tariff on all articles imported into the United States under Section 122 of the Trade Act of 1974. The Section 122 tariffs maintain the existing exemption for USMCA compliant goods and do not apply to goods subject to Section 232 of the United States Trade Expansion Act of 1962 tariffs.

Refer to the discussion in our 2025 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" for discussion of some of the risks associated with tariffs.

Closure and Restructuring, and Impairment of long-lived assets

Idling of Coosa Pines, Alabama mill

On March 24, 2026, we announced that we will indefinitely idle operations at our Coosa Pines, Alabama, facility in May 2026. This idling will reduce our annual market pulp production capacity by approximately 270,000 ADMT and will result in a workforce reduction of approximately 285 employees.

During the first quarter of 2026, we recorded $9 million of write-off property, plant and equipment and $3 million of write-off of right-of-use assets, under Impairment of long-lived assets on the Consolidated Statement of Earnings (Loss) and Comprehensive Income (Loss). Additionally, we recorded $10 million of write-off of inventory and $7 million of severance and termination costs, under Closure and restructuring costs on the Consolidated Statement of Earnings (Loss) and Comprehensive Income (Loss).

Impairment of long-lived assets

In 2025, we identified indicators of impairment related to certain non-core pulp and paper assets and Wood Products lumber operations. These indicators were primarily driven by strategic actions to dispose of non-core assets, the indefinite closure and curtailment of certain operations, as well as persistent adverse market conditions affecting the lumber industry, including weaker demand, increased duties and tariffs, and ongoing economic uncertainty.

These market conditions and strategic actions continued during the first quarter of 2026. As a result, we recorded impairment charges of $6 million in the Wood Products segment, $5 million in the Paper and Packaging segment, and $2 million as corporate charges during the first quarter of 2026. The impairment charges were recognized as a reduction to the carrying value of property, plant and equipment of $6 million, and operating lease right-of-use assets of $7 million. These charges were recorded 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 our 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.

Catalyst

On January 25, 2024, we announced the indefinite curtailment of the Crofton mill paper operations. On December 2, 2025, we announced the permanent closure of operations at the Crofton pulp mill. While the pulp production is being discontinued, we continue to manage the site in compliance with all applicable environmental and other laws and we are exploring a variety of possibilities for the future of the site.

During the first quarter of 2026, we recorded $2 million of write-off of inventory (2025 - nil) and $1 million of other costs (2025 - nil), under Closure and restructuring costs on the Consolidated Statement of Earnings (Loss) and Comprehensive Income (Loss).

During the first quarter of 2025, we recorded $2 million of accelerated depreciation, under Depreciation and amortization on the Consolidated Statement of Earnings (Loss) and Comprehensive Income (Loss).

Espanola

The paper machines were shut down in early 2024. On April 9, 2025, we signed a purchase agreement for the sale of our Espanola facility. On October 17, 2025, we completed the sale of our Espanola facility. As a result, for the first quarter of 2025, we recorded $12 million of write-off of property, plant and equipment, under Impairment of long-lived assets on the Consolidated Statements of Earnings (Loss) and Comprehensive Income (Loss).

Other Costs

For the three months ended March 31, 2026, other costs related to previous and ongoing closures and restructuring included
$4 million of severance and termination costs (2025 - nil) and $10 million of other costs (2025 - nil).

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. Effective in the first quarter of 2026, our Ashdown, Plymouth and Skookumchuck pulp mills are now being reported under our Pulp and Tissue Business Unit. This change has been reflected in our reporting segments for all periods presented. The change in segment reporting did not have an impact on the Company's consolidated financial position, results of operations, cash flows, or stockholders' equity.

Paper and Packaging: Design, manufacture, market and distribute a wide variety of fiber-based products including communication papers, specialty and packaging papers. Largest integrated manufacturer and marketer of uncoated freesheet paper in North America as well as an important supplier of specialty and packaging papers.

Pulp and Tissue: Design, manufacture, market and distribute a wide variety of fiber-based products including market pulp, tissue, and paper. 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: 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.

Paper, Pulp and Tissue

The table below lists our operating paper, pulp and tissue manufacturing facilities, the number of machines we operate and their annual production capacity following the change in our reporting segment:

(1) ADMT refers to an air-dry metric ton and ST refers to short ton. (2) Paper capacity is based on an operating schedule of 360 days and the production at the winder. (3) Estimated third-party shipments dependent upon market conditions.

HIGHLIGHTS FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2026

For the first quarter of 2026, we reported an operating loss of $118 million, compared to operating income of $66 million in the first quarter of 2025.

The decrease of $184 million in operating results is principally driven by higher closure and restructuring costs, higher impairment charge, higher energy costs as well as freight costs, higher cash deposits for duties and higher U.S. tariffs for our wood products, lower

average selling prices for our pulp products and lower paper production, partially offset by higher average selling prices for our paper products.

These and other factors that affected the quarter-to-quarter 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 and include 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, as a paper company, 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 as well, with many manufacturers competing worldwide. Competition in the pulp market is primarily based on product quality and price.

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 U.S. government announced new tariffs on imports from numerous countries, and multiple nations countered with retaliatory tariffs and other actions in response. Subsequently, the U.S. 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 developments are likely over the next several months, particularly as the U.S. negotiates with trade partners. See section "Tariffs" above for more information and most recent update on the subject.

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 relative 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 impacts as they arise. The tariff environment is volatile and unpredictable, however, and such impacts may be significant in the future.

OUTLOOK

For the balance of 2026, we expect demand for paper to increase for most of our grades, with modest improvements anticipated in pulp demand, especially for fluff. We also expect strong price recovery in our fluff pulp as well as paper products. We will continue to actively manage our inventory levels and align our production with our customer demand. In our Wood Products business, soft demand in the U.S., combined with the implementation of additional 10% tariff on lumber exports to the U.S., has created challenging market conditions and contributed to a significant reduction in the North American lumber capacity. Despite near-term pressure, we remain confident 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 marginally increase year over year. We will continue to monitor the Middle-East conflict, which is driving increases in energy prices, supply and shipping disruptions, inflationary pressures, and broader supply chain uncertainty. Our near-term focus continues to be on controlling costs and generating cash flow.

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

CONSOLIDATED RESULTS OF OPERATIONS AND SEGMENT REVIEW

This section presents a discussion and analysis of our first quarter of 2026 and 2025 sales, operating (loss) income and other information relevant to the understanding of our results of operations. Effective in the first quarter of 2026, our Ashdown, Plymouth and Skookumchuck pulp mills are now being reported under our Pulp and Tissue operating segment. This change has been reflected in our reporting segments for all periods presented. The change in segment reporting did not have an impact on the Company's consolidated financial position, results of operations, cash flows, or stockholders' equity.

First quarter of 2026 compared to First quarter of 2025

Analysis of Sales

Sales in the first quarter of 2026 decreased by $182 million, or 10%, when compared to sales in the first quarter of 2025. 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. These decreases were partially offset by an increase in our net average selling prices for our paper.

Analysis of change in Operating Income (Loss)

Operating results in the first quarter of 2026 decreased by $184 million, or 279%, when compared to operating income in the first quarter of 2025. This decrease was principally driven by higher closure and restructuring costs related to our cost reduction measures, higher impairment charges, higher energy costs as well as freight costs, higher cash deposits for duties and higher U.S. tariffs for our wood products, lower average selling prices for our pulp products and lower paper production, partially offset by higher average selling prices for our paper products.

OTHER FACTORS

Interest Expense, net

We incurred $57 million of net interest expense in the first quarter of 2026, a decrease of $4 million compared to net interest expense of $61 million in the first quarter of 2025. Interest expense decreased mainly due to lower floating rates for SOFR, partially offset by higher debt levels for the three month period in 2026 compared to 2025. In the first quarter of 2026, we had capitalized interest of $1 million, compared to nil in the first quarter of 2025. See section "Capital Resources" below for more information on our debt structure.

Non-Service Components of net periodic benefit cost

For the first quarter of 2026, our non-service components of net periodic benefit cost were a benefit of $7 million, an increase of $3 million when compared to the first quarter of 2025. Refer to Item 1, Financial Statements and Supplementary Data, under Note 4 "Pension Plans and Other Post-Retirement Benefit Plans" for additional information.

Income Taxes

For the first quarter of 2026, we recorded no income tax expense. Our current income tax expense of $1 million was fully offset by our deferred income tax benefit of $1 million. This compares to an income tax expense of $3 million in the first quarter of 2025, consisting of $1 million of current income tax expense and a deferred income tax expense of $2 million. We made no payments during the first quarter of 2026, as payments were offset by income tax refunds. The effective tax rate for the first quarter of 2026 was 0% compared to 33% for the first quarter of 2025. The effective tax rate for 2026 was impacted by current year losses with no related tax benefit. This was partially offset by the recognition of previously unrecognized tax benefits. The effective tax rate for 2025 was impacted by a valuation allowance on tax assets arising from deferred interest expenses and additional U.S. tax expense on foreign operations. This was partially offset by research and experimentation tax credits.

In October 2021, the Organization for Economic Co-operation and Development ("OECD") announced the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting which agreed to a two-pillar framework to address tax challenges arising from digitalization of the economy and profit shifting. In December 2021, the OECD published the Pillar Two - Global Anti-Base Erosion Model Rules ("GloBE Rules") designed to ensure that multinational enterprises are subject to tax at an effective minimum tax rate of 15% in each jurisdiction where they operate. Although the U.S. has not enacted legislation to adopt GloBE Rules, the foreign countries where we have significant operations have already adopted or are in the process of adopting such legislation. We performed an assessment of potential exposure and concluded GloBE Rules did not impact our financial results for the first quarter of 2026.

Commentary - Segment Review

Effective in the first quarter of 2026, our Ashdown, Plymouth and Skookumchuck pulp mills are now being reported under our Pulp and Tissue operating segment. This change has been reflected in our reporting segments for all periods presented. The change in segment reporting did not have an impact on the Company's consolidated financial position, results of operations, cash flows, or stockholders' equity.

PAPER AND PACKAGING

Sales

Paper and Packaging segment sales in the first quarter of 2026 decreased by $96 million, or 10%, when compared to sales in the first quarter of 2025. This decrease in sales is mostly due to a decrease in our pulp net average selling prices and pulp volume, as well as a decrease in our paper volume. These decreases were partially offset by higher average selling price for our paper products. Our paper volume was impacted by lower demand, resulting from ongoing macroeconomic challenges and our pulp volume was impacted by the closure of Crofton pulp facility in December 2025.

Operating income

Operating income in our Paper and Packaging segment amounted to $46 million in the first quarter of 2026, a decrease of $41 million, when compared to operating income of $87 million in the first quarter of 2025. 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 first quarter of 2026 decreased by $75 million, or 12%, when compared to sales in the first quarter of 2025. This decrease in sales is mostly due to a decrease in our paper sales volume mostly due to lower demand resulting from ongoing macroeconomic challenges and by the closure of our Grenada paper facility in August 2025, as well as a decrease in our net average selling prices for pulp.

Operating income (loss)

Operating loss in our Pulp and Tissue segment amounted to $99 million in the first quarter of 2026, a decrease of $109 million, when compared to operating income of $10 million in the first quarter of 2025. 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 first quarter of 2026 decreased by $11 million, or 5%, when compared to sales in the first quarter of 2025. This decrease in sales is due to 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 $7 million in the first quarter of 2026, a decrease of $5 million, when compared to operating loss of $2 million in the first quarter of 2025. Our results were negatively impacted by:

These decreases 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 $295 million was undrawn and available as of March 31, 2026, 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 first quarter of 2026, we used $43 million of cash flows in operations, had capital expenditures of $56 million, and had debt repayments of $19 million. This compares to $32 million cash provided from operations, capital expenditures of $44 million and debt repayments of $17 million for the first quarter of 2025.

We are focused on generating additional liquidity, including from external sources. Accordingly, we have undertaken a number of actions that seek to enhance our access to liquidity in the business. We continue to conduct a comprehensive review of the assets in our portfolio to identify those that are not complementary to the business and therefore may merit divestiture to provide cash inflow and reduce operating costs; we are continuing a complete review of support function costs with the aim of reducing costs and right sizing the organization in anticipation of asset sales; we may also potentially idle certain underperforming mills and plan to reduce working capital. In addition, in 2025 and to date in 2026, 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; closure of the Nogales, Mexico converting facility and the closure of the Addison, Illinois converting facility; curtailment of operations at the Glenwood, Arkansas, sawmill and at the Maniwaki, Quebec sawmill in response to weaker lumber demand conditions; permanent closure of the Crofton, British Columbia pulp mill; announced the indefinite idling of the Coosa Pines, Alabama mill; and reduced capital expenditure programs for 2025 and 2026 to better focus on core functions such as the maintenance of assets, safety of our employees and compliance with applicable laws and regulations.

Our consolidated financial statements have been prepared on the basis that we are expected to be able to realize our assets and discharge our liabilities in the normal course of business as they become due for at least twelve months from the issuance date of these consolidated financial statements. Significant judgment was applied in performing a liquidity assessment to evaluate whether we have sufficient liquidity for the next 12 months using a cash flow model. Based on current assumptions, including those related to expected operating margin and other non-discretionary cash inflows and outflows, we expect to have sufficient liquidity to meet our obligations over the next 12 months. In addition to these assumptions, our liquidity position is supported by our available cash balances, access to existing credit facilities, and anticipated cash flows from operations.

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

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

Operating Activities

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

Cash flows used for operating activities totaled $43 million in the first quarter of 2026, a $75 million difference compared to cash flows provided from operating activities of $32 million in the first quarter of 2025. This decrease in cash flows from operating activities is primarily due to an increase in net loss. For the first quarter of 2026, we contributed $20 million (first quarter of 2025 - $20 million) to the pension plans and $3 million (first quarter of 2025 - $2 million) to the other post-retirement benefit plans.

Investing Activities

Cash flows used for investing activities in the first quarter of 2026 amounted to $13 million, a $27 million difference compared to cash flows used for investing activities of $40 million in the first quarter of 2025.

The use of cash for investing activities in the first quarter of 2026 was attributable to additions to property, plant and equipment of $56 million, partially offset by proceeds from the sale of property, plant and equipment of $1 million and proceeds from government assistance related to past and future additions to property, plant and equipment of $42 million.

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

Our annual capital expenditures for 2026 are expected to total between $260 million and $290 million.

Financing Activities

Cash flows provided from financing activities totaled $67 million in the first quarter of 2026 compared to cash flows used for financing activities of $16 million in the first quarter of 2025.

The source of cash flows from financing activities in the first quarter of 2026 was attributable to borrowings under our ABL Revolving Credit Facility ($95 million), partially offset by repayment of long-term debt as required for quarterly amortization of our term loans ($19 million) and lower bank indebtedness ($9 million).

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

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 $2,861 million as of March 31, 2026, compared to $2,781 million as of December 31, 2025. A substantial majority of this amount, approximately $1.9 billion, matures in 2028.

ABL Revolving Credit Facility

On February 26, 2025, we amended our ABL Revolving Credit Facility that matures on March 1, 2028. Pursuant to the Third ABL Amendment, the maximum availability under the ABL Revolving Credit Facility was increased from $1.0 billion to $1.14 billion, which includes a Tranche 1 Loan ("ABL Tranche I Loan") of $1.020 billion and First In, Last Out ("FILO") tranche of $120 million (the "ABL FILO Loan"). Our ABL Revolving Credit Facility provides for revolving loans and letters of credit in an aggregate amended amount of up to $1.14 billion, subject to borrowing base capacity. The facility was fully available as of March 31, 2026.

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, plus specified percentages of qualified cash, 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 $99.75 million and 10% of the lesser of the borrowing base and maximum borrowing capacity, requires the maintenance of a fixed charge coverage ratio of 1.00 to 1.00 at the end of each fiscal quarter for the trailing 12-month period. This covenant did not apply as of March 31, 2026.

On March 31, 2026, we had borrowings of $690 million and $155 million of letters of credit outstanding under this facility, leaving unused commitments available to us of $295 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 March 31, 2026, there were $142 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 on the Consolidated Balance Sheets. 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 an 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.

During the first quarter of 2026, we repaid $8 million of Farm Credit Term Loan A, and $4 million of Farm Credit Term Loan B, as required for quarterly amortization. At March 31, 2026, there were $566 million of borrowings under the Farm Credit Term Loan A and $237 million of borrowings under the Farm Credit Term Loan B.

First Lien Term Loan Facility

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

During the first quarter of 2026, we repaid $4 million as required for quarterly amortization. At March 31, 2026, there were $303 million of borrowings outstanding under the Term Loan Facility.

Senior Secured Notes

Pearl Merger Sub Inc., a wholly-owned subsidiary of Pearl Excellence Holdco L.P., a Delaware limited partnership, was the initial issuer of the $775 million aggregate principal amount of 6.75% Senior Secured Notes due 2028 (the "Notes"). This Note issue was part of financing related to the acquisition of Domtar by Pearl Excellence Holdco L.P. Upon the completion of the acquisition, the initial issuer was merged with and into Domtar with Domtar surviving the Merger and becoming the obligor of the Notes. As of March 31, 2026, 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, the Senior Secured Notes and IRB Bonds 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, First Lien Term Loan Facility and Bank Term Loan 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 59% 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.

Unsecured Notes

As of March 31, 2026, we had outstanding $116 million of the unsecured 6.25% Notes due 2042 and $150 million of the unsecured 6.75% Notes due 2044.

GUARANTEES

Indemnifications

In the normal course of business, we offer indemnifications relating to the sale of our businesses and real estate. In general, these indemnifications may relate to claims from past business operations, compliance with laws, the failure to abide by covenants and the breach of representations and warranties included in sales agreements. Typically, such representations and warranties relate to taxation, environmental, product and employee matters. The terms of these indemnification agreements are generally for an unlimited period of time. At March 31, 2026, we were unable to estimate the potential maximum liabilities for these types of indemnification guarantees as the amounts are contingent upon the outcome of future events, the nature and likelihood of which cannot be reasonably estimated at this time. Accordingly, no provision has been recorded. These indemnifications have not yielded significant expenses in the past.

Pension Plans

We have indemnified and held harmless the trustees of our pension funds, and the respective officers, directors, employees and agents of such trustees, from any and all costs and expenses arising out of the performance of their obligations under the relevant trust agreements, including in respect of their reliance on authorized instructions from us or for failing to act in the absence of authorized instructions. These indemnifications survive the termination of such agreements. At March 31, 2026, 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 liquidity assessment, environmental matters and asset retirement obligations, business combinations, impairment of property, plant and equipement, operating lease right-of-use assets and definite-lived intangible assets, useful lives, 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. We believe these accounting

policies, and others as set forth in Note 1 "Summary of Significant Accounting Policies", should be reviewed as they are essential to understanding our results of operations, 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, 2025.

There has not been any material change to our policies since December 31, 2025.

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 our Annual Report on Form 10-K for the year ended December 31, 2025, under 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.