Domtar 10Q 2024 Q3 Quarterly report

Domtar (UFS) 10-Q2024 Q3 Quarterly report

Content analysis

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


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

For the quarterly period ended September 30, 2024


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

For the transition period from ________to_______

COMMISSION FILE NUMBER 001-33164

DOMTAR CORPORATION

(Exact name of registrant as specified in its charter)

Delaware

(State or other jurisdiction of incorporation or organization)

20-5901152

(I.R.S. Employer Identification No.)

395 de Maisonneuve Blvd. West

Montreal, Quebec, Canada H3A 1L6

(514) 848-5555

234 Kingsley Park Drive

Fort Mill, SC 29715

(803) 802-7500

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

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

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

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

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

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

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

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

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

DOMTAR CORPORATION

FORM 10-Q

For the Quarterly Period Ended September 30, 2024

INDEX


PART I	FINANCIAL INFORMATION	3

ITEM 1.	FINANCIAL STATEMENTS (UNAUDITED)	3

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

	CONSOLIDATED BALANCE SHEETS	4

	CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY	5

	CONSOLIDATED STATEMENTS OF CASH FLOWS	7

	INDEX FOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	8

	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	9

ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	44

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK	59

ITEM 4.	CONTROLS AND PROCEDURES	60

PART II	OTHER INFORMATION	61

ITEM 1.	LEGAL PROCEEDINGS	61

ITEM 1A.	RISK FACTORS	61

ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	61

ITEM 3.	DEFAULT UPON SENIOR SECURITIES	61

ITEM 4.	MINE SAFETY DISCLOSURES	61

ITEM 5.	OTHER INFORMATION	61

ITEM 6.	EXHIBITS	62

PART I: FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS (UNAUDITED)

DOMTAR CORPORATION

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

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



	For the three months ended						For the nine months ended
	September 30,			September 30,			September 30,			September 30,
	2024			2023 (1)			2024			2023 (1)

	$			$			$			$
Sales		1,771			1,730			5,307			5,194
Operating expenses
Cost of sales, excluding depreciation and amortization		1,490			1,565			4,630			4,482
Depreciation and amortization		75			79			258			223
Selling, general and administrative		97			108			304			300
Impairment of long-lived assets (NOTE 10)		—			11			—			30
Closure and restructuring costs (NOTE 10)		2			63			24			70
Asset conversion costs (NOTE 10)		—			—			—			63
Transaction costs (NOTE 3)		—			4			—			67
Other operating income, net		(13	)		(3	)		(30	)		(7	)
		1,651			1,827			5,186			5,228
Operating income (loss) from continuing operations		120			(97	)		121			(34	)
Interest expense, net		61			65			177			176
Non-service components of net periodic benefit cost (NOTE 6)		(5	)		(2	)		(16	)		(10	)
Earnings (loss) before income taxes		64			(160	)		(40	)		(200	)
Income tax expense (benefit) (NOTE 7)		121			35			25			(30	)
Loss from continuing operations		(57	)		(195	)		(65	)		(170	)
Earnings from discontinued operations, net of taxes (NOTE 4)		—			—			—			13
Net loss		(57	)		(195	)		(65	)		(157	)
Other comprehensive income (loss) (NOTE 11):
Net derivative gains (losses) on cash flow hedges:
Net gains (losses) arising during the period, net of tax of $(2) and $4, respectively (2023 – $3 and $2, respectively)		6			(10	)		(11	)		(6	)
Less: Reclassification adjustment for losses included in net loss, net of tax of $(2) and $(4), respectively (2023 – $(1) and $(5), respectively)		3			3			10			14
Foreign currency translation adjustments		19			(25	)		(21	)		(4	)
Change in unrecognized gains (losses) and prior service cost related to pension and other post-retirement benefit plans, net of tax of $(2) and $(2), respectively (2023 – $1 and $1, respectively)		7			(4	)		6			(5	)
Other comprehensive income (loss)		35			(36	)		(16	)		(1	)
Comprehensive loss		(22	)		(231	)		(81	)		(158	)

(1) Adjusted to reflect the retrospective combination of the Company with Catalyst Paper Corporation, as if the combination had been in effect since the inception of common control on November 30, 2021 (refer to Note 3 “Acquisition and sale of businesses”).

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

DOMTAR CORPORATION

CONSOLIDATED BALANCE SHEETS

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



	At
	September 30,			December 31,
	2024			2023

	$			$
Assets
Current assets
Cash and cash equivalents, including restricted cash of $14 and $15		117			203
Receivables, less allowances of $5 and $9		786			742
Receivables from related party (NOTE 15)		29			21
Inventories (NOTE 8)		1,423			1,333
Prepaid expenses		78			58
Income and other taxes receivable		34			96
Other current assets		14			24
Assets held for sale		—			70
Total current assets		2,481			2,547
Property, plant and equipment, net		3,582			3,648
Operating lease right-of-use assets		101			98
Intangible assets, net		22			22
Deferred income tax assets		497			675
Other assets (NOTE 9)		554			541
Total assets		7,237			7,531
Liabilities and shareholders' equity
Current liabilities
Bank indebtedness		—			14
Trade and other payables		943			949
Income and other taxes payable		22			33
Operating lease liabilities due within one year		26			29
Due to related party (NOTE 15)		57			36
Long-term debt due within one year		67			67
Total current liabilities		1,115			1,128
Long-term debt		2,437			2,410
Operating lease liabilities		78			74
Deferred income taxes and other		22			175
Pension and other post-retirement benefit obligations		781			863
Other liabilities and deferred credits (NOTE 12)		310			306
Commitments and contingencies (NOTE 13)
Shareholders' equity
Common stock $0.01 par value; 100 shares issued and outstanding		—			—
Additional paid-in capital		2,727			2,727
Deficit		(173	)		(108	)
Accumulated other comprehensive loss		(60	)		(44	)
Total shareholders' equity		2,494			2,575
Total liabilities and shareholders' equity		7,237			7,531

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

DOMTAR CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

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


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

	$		$			$			$
Balance at June 30, 2024		2,727		(116	)		(95	)		2,516
Net loss		—		(57	)		—			(57	)
Net derivative gains on cash flow hedges:
Net gains arising during the period, net of tax of $(2)		—		—			6			6
Less: Reclassification adjustment for losses included in net loss, net of tax of $(2)		—		—			3			3
Foreign currency translation adjustments		—		—			19			19
Change in unrecognized gains and prior service cost related to pension and other post-retirement benefit plans, net of tax of $(2)		—		—			7			7
Balance at September 30, 2024		2,727		(173	)		(60	)		2,494


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

	$		$			$			$
Balance at December 31, 2023		2,727		(108	)		(44	)		2,575
Net loss		—		(65	)		—			(65	)
Net derivative losses on cash flow hedges:
Net losses arising during the period, net of tax of $4		—		—			(11	)		(11	)
Less: Reclassification adjustment for losses included in net loss, net of tax of $(4)		—		—			10			10
Foreign currency translation adjustments		—		—			(21	)		(21	)
Change in unrecognized gains and prior service cost related to pension and other post-retirement benefit plans, net of tax of $(2)		—		—			6			6
Balance at September 30, 2024		2,727		(173	)		(60	)		2,494

DOMTAR CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

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


	For the three months ended (1)
	September 30, 2023
	Additional paid-in capital		Deficit			Accumulated other comprehensive income (loss)			Total shareholders' equity

	$		$			$			$
Balance at June 30, 2023		2,409		(358	)		13			2,064
Net loss		—		(195	)		—			(195	)
Net derivative losses on cash flow hedges:
Net losses arising during the period, net of tax of $3		—		—			(10	)		(10	)
Less: Reclassification adjustment for losses included in net loss, net of tax of $(1)		—		—			3			3
Foreign currency translation adjustments		—		—			(25	)		(25	)
Change in unrecognized losses and prior service cost related to pension and post-retirement benefit plans, net of tax of $1		—		—			(4	)		(4	)
Capital contribution		83		—			—			83
Balance at September 30, 2023		2,492		(553	)		(23	)		1,916


	For the nine months ended (1)
	September 30, 2023
	Additional paid-in capital			Deficit			Accumulated other comprehensive loss			Total shareholders' equity

	$			$			$			$
Balance at December 31, 2022		1,994			(396	)		(22	)		1,576
Net loss		—			(157	)		—			(157	)
Net derivative gains on cash flow hedges:
Net losses arising during the period, net of tax of $2		—			—			(6	)		(6	)
Less: Reclassification adjustment for losses included in net loss, net of tax of $(5)		—			—			14			14
Foreign currency translation adjustments		—			—			(4	)		(4	)
Change in unrecognized losses and prior service cost related to pension and other post-retirement benefit plans, net of tax of $1		—			—			(5	)		(5	)
Capital contribution		683			—			—			683
Transaction with Skookumchuck Pulp Inc.'s stockholders (NOTE 3)		(130	)		—			—			(130	)
Deemed dividend		(55	)		—			—			(55	)
Balance at September 30, 2023		2,492			(553	)		(23	)		1,916

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

DOMTAR CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED, IN MILLIONS OF DOLLARS)



	For the nine months ended
	September 30,			September 30,
	2024			2023 (1)

	$			$
Operating activities
Net loss		(65	)		(157	)
Adjustments to reconcile net loss to cash flows provided from (used for) operating activities
Depreciation and amortization		258			223
Deferred income taxes and tax uncertainties (NOTE 7)		20			(40	)
Impairment of long-lived assets (NOTE 10)		—			30
Impairment of inventory (NOTE 10)		—			23
Net gain on disposals of assets		(17	)		(4	)
Other		3			18
Changes in assets and liabilities, excluding the effect of acquisition and sale of businesses
Receivables, including related party		(67	)		141
Inventories		(98	)		(16	)
Prepaid expenses		34			(6	)
Trade and other payables, including related party		(5	)		(264	)
Income and other taxes		38			(35	)
Difference between employer pension and other post-retirement contributions and pension and other post-retirement expense		(80	)		(30	)
Other assets and other liabilities		(4	)		3
Cash flows provided from (used for) operating activities		17			(114	)
Investing activities
Additions to property, plant and equipment		(211	)		(227	)
Proceeds from disposals of property, plant and equipment		16			7
Proceeds from sale of businesses, net of cash disposed		91			417
Acquisition of businesses, net of cash acquired		—			(1,098	)
Other		(1	)		(10	)
Cash flows used for investing activities		(105	)		(911	)
Financing activities
Issuance of capital		—			583
Net change in bank indebtedness		(14	)		(17	)
Change in revolving credit facility		71			335
Issuance of long-term debt, net of debt issue costs		—			933
Issuance to related party		—			206
Repayments to related party		—			(236	)
Repayments of long-term debt		(51	)		(685	)
Other		—			(8	)
Cash flows provided from financing activities		6			1,111
Net (decrease) increase in cash and cash equivalents		(82	)		86
Impact of foreign exchange on cash		(4	)		(6	)
Cash, cash equivalents and restricted cash at beginning of period		203			521
Cash, cash equivalents and restricted cash at end of period		117			601
Supplemental cash flow information
Net cash payments (refunds) for:
Interest		166			160
Income taxes		(18	)		68

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

INDEX FOR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1	BASIS OF PRESENTATION	9

NOTE 2	RECENT ACCOUNTING PRONOUNCEMENTS	10

NOTE 3	ACQUISITION AND SALE OF BUSINESSES	11

NOTE 4	DISCONTINUED OPERATIONS	15

NOTE 5	DERIVATIVES AND HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENT	17

NOTE 6	PENSION PLANS AND OTHER POST-RETIREMENT BENEFIT PLANS	21

NOTE 7	INCOME TAXES	23

NOTE 8	INVENTORIES	24

NOTE 9	OTHER ASSETS	25

NOTE 10	CLOSURE AND RESTRUCTURING, IMPAIRMENT OF LONG-LIVED ASSETS AND ASSET CONVERSION COSTS	26

NOTE 11	CHANGES IN ACCUMULATED OTHER COMPREHENSIVE LOSS BY COMPONENT	28

NOTE 12	OTHER LIABILITIES AND DEFERRED CREDITS	31

NOTE 13	COMMITMENTS AND CONTINGENCIES	32

NOTE 14	SEGMENT DISCLOSURES	40

NOTE 15	RELATED PARTY TRANSACTIONS	42

NOTE 16	SUBSEQUENT EVENT	43

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2024

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 1.

_________________

BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, in the opinion of Management, include all adjustments that are necessary for the fair statement of Domtar Corporation’s (“the Company”) financial position, results of operations, and cash flows for the interim periods presented. It is suggested that these consolidated financial statements be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Domtar Corporation Annual Report on Form 10-K for the fiscal year ended December 31, 2023, as filed with the Securities and Exchange Commission. The December 31, 2023 Consolidated Balance Sheet, presented for comparative purposes in this interim report, was derived from audited consolidated financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America.

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

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2024

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 2.

_________________

RECENT ACCOUNTING PRONOUNCEMENTS

FUTURE ACCOUNTING CHANGES

SEGMENT REPORTING

On November 27, 2023, the FASB issued ASU 2023-07, “Improvements to Reportable Segment Disclosures” which requires incremental disclosures about a public entity’s reportable segments but does not change the definition of a segment or the guidance for determining reportable segments. The new guidance requires disclosure of significant segment expenses that are (1) regularly provided to (or easily computed from information regularly provided to) the chief operating decision maker and (2) included in the reported measure of segment profit or loss. The new standard also allows companies to disclose multiple measures of segment profit or loss if those measures are used to assess performance and allocate resources. The guidance is effective for calendar year-end public entities in 2024 and should be adopted retrospectively unless impracticable. Early adoption is permitted.

The Company does not expect the new guidance to have a significant impact on its consolidated financial statements or related disclosures.

INCOME TAXES DISCLOSURE

On December 14, 2023, the FASB issued ASU 2023-09, “Improvements to Income Tax Disclosures” which requires significant additional disclosures about income taxes, primarily focused on the disclosure of income taxes paid and the rate reconciliation table. The new guidance will be applied prospectively (with retrospective application permitted) and is effective for calendar year-end public business entities in the 2025 annual period and in 2026 for interim periods, with early adoption permitted.

The Company is currently assessing the impact of the new guidance which is expected to have a disclosure impact only.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2024

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 3.

_________________

ACQUISITION AND SALE OF BUSINESSES

Sale of El Dorado, Arkansas sawmill

On April 30, 2024, Domtar Corporation through its wholly-owned subsidiary, Resolute El Dorado Inc., entered into an asset purchase agreement with Anthony Forest Products Company, LLC, an affiliate of Canfor Corporation (the “Purchaser”) to sell the Company’s sawmill located in El Dorado, Arkansas, to the Purchaser for a purchase price of $73 million in cash, subject to customary adjustments. This transaction closed on August 1, 2024. During the quarter, the Company recorded a gain on disposals of assets of $5 million. The related assets of this sawmill for periods prior to the sale were classified as held for sale in the consolidated Balance Sheets.

Acquisition of Catalyst Paper Corporation - transaction between entities under common control

On October 27, 2023, Domtar completed the acquisition of all the outstanding common and preferred shares of Catalyst Paper Corporation (“Catalyst”), which included one pulp and paper mill and one paper mill, both located in British Columbia, for a purchase consideration of $1 dollar. Paper Excellence group of companies owned both Domtar and Catalyst.

The acquisition of Catalyst from Paper Excellence was accounted for as a transaction between entities under common control in accordance with ASC 805-50, Business Combination – Related Issues, which requires that Catalyst’s related assets and liabilities be transferred at their historical carrying amounts on the acquisition date. Domtar recognized a capital contribution of $727 million, which corresponds to the excess of the carrying value of the net assets transferred on the acquisition date over the purchase consideration. Further, ASC 805-50 requires retrospective combination of entities as if the combination had been in effect since the inception of common control. Accordingly, the financial information for Domtar and Catalyst have been combined from the inception of common control, which was November 30, 2021, and the accompanying financial statements and related notes of Domtar have been retrospectively adjusted to include the historical results of Catalyst from that date. On January 1, 2024, Domtar and Catalyst were amalgamated.

The retrospective effects of the change resulting from the combination of Catalyst to the Company’s Consolidated Statements of Earnings (Loss) and Comprehensive Income (Loss) were as follows:


	For the three months ended			For the nine months ended
	September 30,			September 30,
	2023			2023
	$			$
Sales		101			415
Operating loss		(41	)		(88	)
Net loss		(45	)		(100	)
Other comprehensive income (loss)		2			(4	)

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2024

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 3 – ACQUISITION AND SALE OF BUSINESSES (CONTINUED)

Acquisition of Skookumchuck Pulp Inc. - transaction between entities under common control

On June 29, 2023, Domtar completed the acquisition of all the outstanding common and preferred shares of Skookumchuck Pulp Inc. (“SPI”), a pulp mill in British Columbia, for a purchase consideration of $185 million. Paper Excellence group of companies owned both Domtar and SPI. The acquisition consideration transferred to Paper Excellence consisted of: a $50 million non-interest bearing promissory note repaid on July 15, 2023; a $35 million promissory note bearing interest at 8.50% per annum, due after June 30, 2031; and non-voting, redeemable Series B preferred shares totaling $100 million bearing interest at 9.75% per annum and redeemable by Paper Excellence after June 30, 2031. Prior to the acquisition of Catalyst by Domtar, the $35 million promissory note and the non-voting, redeemable Series B were contributed to Catalyst by Paper Excellence and are no longer payable by Domtar following the amalgamation of Catalyst and Domtar on January 1, 2024.

The acquisition of SPI from Paper Excellence was accounted for as a transaction between entities under common control in accordance with ASC 805-50, Business Combination – Related Issues, which requires that SPI’s related assets and liabilities be transferred at their historical carrying amounts on the acquisition date. Domtar recognized a deemed dividend of $55 million, which corresponds to the excess of the purchase consideration of $185 million over the carrying value of the net assets transferred of $130 million on the acquisition date. Further, ASC 805-50 requires retrospective combination of entities as if the combination had been in effect since the inception of common control. Accordingly, the financial information for Domtar and SPI has been combined from the inception of common control, which was November 30, 2021, and the accompanying financial statements and related notes of Domtar have been retrospectively adjusted to include the historical results of SPI from that date.

For the three and nine months ended September 30, 2023, the Company recognized nil and $1 million, respectively, of transaction related costs associated to this acquisition. These costs are included in the Consolidated Statements of Earnings (Loss) and Comprehensive Income (Loss) in the line item entitled Transaction costs.

Acquisition of Resolute Forest Products Inc. by Paper Excellence through Domtar Corporation

On March 1, 2023, Paper Excellence completed the acquisition of all the outstanding common shares of Resolute Forest Products Inc. ("Resolute") through Domtar by means of a merger of Terra Acquisition Sub Inc. (a Domtar wholly-owned subsidiary) with and into Resolute, with Resolute continuing as the surviving corporation and as a subsidiary of Domtar (the "Acquisition"). Under the Acquisition agreement, Domtar acquired all outstanding shares of Resolute common stock for $20.50 per share and one contingent value right tied to any refunds on duty deposits made on or prior to June 30, 2022, of up to $500 million. Any proceeds attributable to the contingent value right will be distributed proportionally to contingent value right holders, and the value will ultimately be determined by the terms and timing of the resolution of the softwood lumber dispute between Canada and the United States.

The acquisition date fair value of the consideration transferred was $1.696 billion, less cash acquired of $480 million and including the contingent value right on softwood lumber duty deposit refunds estimated to be $118 million and included in Other liabilities and deferred credits in the Consolidated Balance Sheets.

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

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2024

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 3 – ACQUISITION AND SALE OF BUSINESSES (CONTINUED)

The following table summarizes the fair values of the assets acquired and liabilities assumed at the acquisition date.


Fair value of net assets acquired at the date of acquisition
Receivables	$	309
Inventories		508
Prepaid expenses		30
Other current assets		12
Property, plant and equipment		952
Operating lease right-of-use assets		38
Deferred income tax assets (1)		737
Other assets (2)		264
Assets held for sale		255
Total assets		3,105

Less: Assumed Liabilities
Trade and other payables		538
Operating lease liabilities (including short-term portion)		40
Long-term debt (including short-term portion)		312
Pension and other post-retirement liabilities		643
Other liabilities		90
Liabilities held for sale		41
Total liabilities		1,664

Fair value of net assets acquired at the date of acquisition		1,441

Gain on acquisition (3)		(225	)

Consideration transferred, less cash acquired		1,216

(1)

The Company recognized previously unrecognized deferred tax assets related to operating losses carried forward in the United States and research and development pools and credits in Canada. In addition, deferred tax assets related to timing difference mainly related to pension and other post-retirement benefits, asset retirement obligations and environmental liabilities. Management determines the recoverability of the net deferred tax assets based on a review of all available negative and positive evidence, including historical earnings, projected future results, future reversals of deferred tax liabilities, impact of the tax regulations and available tax planning opportunities.

(2)

The Company identified $74 million of off-market contracts, of which $21 million are being amortized over a weighted-average useful life of 11 years. Other assets also include $132 million of duty deposits and $25 million of equity method investments.

(3)

The purchase price allocation reflects a gain of $225 million recorded under Other operating income, net in the Consolidated Statements of Earnings (Loss) and Comprehensive Income (Loss). The gain resulted from the recognition and measurement of items, principally related to deferred income tax assets, in accordance with exemptions to the fair value model as provided for by US GAAP under the accounting for business combination.

The contingent consideration arrangement requires the Company to pay any refunds related to the countervailing and anti-dumping duty deposits made on or prior to June 30, 2022, of up to $500 million to contingent value right holders. The fair value of the contingent consideration arrangement at the acquisition date was $118 million. The Company estimated the fair value of the contingent consideration based on the last price of Resolute's common shares on the New York Stock Exchange on February 28, 2023, which is considered a Level 2 measurement.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2024

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 3 – ACQUISITION AND SALE OF BUSINESSES (CONTINUED)

The fair value of property, plant and equipment was primarily determined based on management’s estimate of depreciated replacement cost as further adjusted based on estimated cash flow forecasts. Management applied significant judgment in estimating the fair value of property plant and equipment acquired, which involved the use of assumptions with respect to estimated replacement and reproduction costs, estimated useful lives, and physical, functional and economic obsolescence for the estimated depreciated replacement cost and projections of product pricing, sales volumes, product costs, projected capital spending and discount rates at the time of acquisition for the discounted cash flow model.

The fair value of finished goods was calculated as the estimated selling price, adjusted for costs of the selling effort and a reasonable profit allowance relating to the selling effort. The fair value of work in process inventory and raw materials in wood products was primarily calculated as the estimated selling price, adjusted for estimated costs to complete the manufacturing, estimated costs of the selling effort, as well as a reasonable profit margin on the remaining manufacturing and selling effort. The fair value of raw materials, except for raw materials in wood products, was determined to approximate the historical carrying value. The fair value of operating and maintenance supplies was calculated using a method based on historical usage and consumption.

The fair value of other working capital items was determined to approximate their historical carrying values.

For the three and nine months ended September 30, 2023, the Company recognized nil and $57 million of transaction related costs associated to the Acquisition, respectively, which also includes advisor and legal fees, as well as the accelerated vesting of certain long-term incentive awards of Resolute. These costs are included in the Consolidated Statements of Earnings (Loss) and Comprehensive Income (Loss) in the line item entitled Transaction costs.

The amounts of Sales and Net loss of Resolute included in the Company’s Consolidated Statements of Earnings (Loss) and Comprehensive Income (Loss) for the period from March 1, 2023 to September 30, 2023 are $1,454 million and $118 million, respectively.

The following represents the unaudited pro forma Consolidated Statements of Earnings (Loss) and Comprehensive Income (Loss) if Resolute had been included in the Company’s consolidated results for the nine months ended September 30, 2023:


	For the nine months ended
	September 30,
	2023
	(Unaudited)
	$

Sales		5,641
Net loss		(83	)

These amounts have been calculated after applying the Company’s accounting policies and adjusting the results of Resolute to reflect the reduction in interest expense and the additional depreciation and operating costs that would have been charged assuming the fair value adjustments to property, plant and equipment and off-market energy contracts had been applied on January 1, 2022, together with the related tax effects. In addition, these amounts include the additional interest expense incurred by the Company in relation to the financing of the Acquisition.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2024

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 4.

DISCONTINUED OPERATIONS

Mandated sale of Thunder Bay and Dryden, Ontario mills

On March 1, 2023, Paper Excellence completed the acquisition of all the outstanding common shares of Resolute through Domtar by means of a merger of Terra Acquisition Sub Inc. (a Domtar wholly-owned subsidiary) with and into Resolute, with Resolute continuing as the surviving corporation and as a subsidiary of Domtar. The Acquisition was subject to regulatory approvals in various jurisdictions, including review by the Canadian Competition Bureau, which outlined certain stipulations in a consent agreement before providing their final approval.

The consent agreement filed by the Canadian Commissioner of Competition (the “Commissioner”) with the Competition Tribunal fulfilled the final condition to the closing of the Acquisition. According to the consent agreement, following the closing of the Acquisition, Resolute’s pulp and paper mill in Thunder Bay, Ontario and Domtar's pulp mill in Dryden, Ontario were to be sold in order to resolve the Commissioner’s concerns that the Acquisition would likely lessen competition substantially in the supply of northern bleached softwood kraft pulp in Eastern and Central Canada and in the purchase of wood fiber from private lands in Northwestern Ontario.

The two mills were sold to two independent purchasers that were approved by the Commissioner.

On August 1, 2023, the Company completed the sale of the Thunder Bay pulp and paper mill (the "Thunder Bay disposal group") for a purchase price of $231 million. In connection with the sale, the Company entered into Transition Services Agreements with the acquirer pursuant to which the Company agreed to provide various back-office and information technology support until the business is fully separated from the Company.

The results of operations of the Thunder Bay disposal group were classified as discontinued operations as the mill was part of Resolute's acquired assets. These results have been summarized in Earnings from discontinued operations, net of taxes on the Company’s Consolidated Statements of Earnings (Loss) and Comprehensive Income (Loss) for the period of March 1, 2023 to September 30, 2023. The Consolidated Statements of Cash Flows were not reclassified to reflect discontinued operations.

On August 1, 2023, the Company also completed the sale of the Dryden, Ontario mill (the "Dryden disposal group") for a purchase price of $186 million. In connection with the sale, the Company entered into Transition Services Agreements with the acquirer pursuant to which the Company agreed to provide various back-office and information technology support until the business is fully separated from Domtar.

The results of operations of the Dryden disposal group were not classified as discontinued operations as the mill was part of the pre-existing assets of Domtar. For the three and nine months ended September 30, 2023, the Company recognized $4 million and $9 million, respectively, of transaction related costs associated with this sale. These costs are included in the Consolidated Statements of Earnings (Loss) and Comprehensive Income (Loss) in the line item entitled Transaction costs.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2024

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 4 – DISCONTINUED OPERATIONS (CONTINUED)

Major components of earnings from discontinued operations:



	For the three months ended		For the nine months ended
	September 30,		September 30,
	2023		2023
	$		$
Sales		26		123
Operating expenses
Cost of sales, excluding depreciation and amortization		26		105
Other operating loss, net		—		1
		26		106
Operating income		—		17
Earnings from discontinued operations before income taxes		—		17
Income tax expense		—		4
Net earnings from discontinued operations		—		13

Cash Flows from Discontinued Operations:



	For the nine months ended
	September 30,
	2023
	$
Cash flows from operating activities		27
Cash flows used for investing activities		(5	)

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2024

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 5.

________________

DERIVATIVES AND HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENT

HEDGING PROGRAMS

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

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

CREDIT RISK

The Company is exposed to credit risk on accounts receivable from its customers. In order to reduce this risk, the Company reviews new customers’ credit history before granting credit and conducts regular reviews of existing customers’ credit performance. As of September 30, 2024 and December 31, 2023, no single customer represented more than 10% of the Company's receivables.

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

INTEREST RATE RISK

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

COST RISK

Cash flow hedges:

The Company is exposed to price volatility for raw materials and energy used in its manufacturing process. The Company manages its exposure to cost risk primarily through the use of supplier contracts. The Company purchases natural gas at the prevailing market price at the time of delivery. To reduce the impact on cash flow and earnings due to pricing volatility, the Company may utilize derivatives to fix the price of forecasted natural gas purchases. The changes in the fair value on qualifying instruments are included in Accumulated other comprehensive loss to the extent effective, and reclassified into Cost of sales in the period during which the hedged transaction affects earnings. Current contracts are used to hedge a portion of forecasted purchases of natural gas over the next 12 months.

The natural gas derivative contracts were effective as of September 30, 2024.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2024

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 5 – DERIVATIVES AND HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENT (CONTINUED)

FOREIGN CURRENCY RISK

Cash flow hedges:

The Company has manufacturing operations in the United States and Canada. As a result, it is exposed to movements in foreign currency exchange rates in Canada. Moreover, certain assets and liabilities are denominated in Canadian dollars and are exposed to foreign currency movements. Accordingly, the Company’s earnings are affected by increases or decreases in the value of the Canadian dollar. The Company may use derivative financial instruments (currency options and foreign exchange forward contracts) to mitigate its exposure to fluctuations in foreign currency exchange rates.

Current contracts are used to hedge forecasted purchases in Canadian dollars by the Company’s Canadian subsidiaries over the next 16 months. Such derivatives are designated as cash flow hedges. The changes in the fair value on qualifying instruments are included in Accumulated other comprehensive loss to the extent effective, and reclassified into Sales or Cost of sales in the period during which the hedged transaction affects earnings.

The foreign exchange derivative contracts were effective as of September 30, 2024.

FAIR VALUE MEASUREMENT

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

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

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

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

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2024

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 5 – DERIVATIVES AND HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENT (CONTINUED)

The following tables present information about the Company’s financial assets and financial liabilities measured at fair value on a recurring basis (except Long-term debt, see (b) and (c) below) at September 30, 2024 and December 31, 2023, in accordance with the accounting standards for fair value measurements and disclosures and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value.


Fair Value of financial instruments at:	September 30, 2024		Quoted prices in active markets for identical assets (Level 1)		Significant observable inputs (Level 2)		Significant unobservable inputs (Level 3)			Balance sheet classification
	$		$		$		$
Derivatives designated as hedging instruments:
Asset derivatives
Currency derivatives		8		—		8		—	(a)	Prepaid expenses
Natural gas swap contracts		2		—		2		—	(a)	Prepaid expenses
Total Assets		10		—		10		—

Liabilities derivatives
Currency derivatives		2		—		2		—	(a)	Trade and other payables
Natural gas swap contracts		1		—		1		—	(a)	Trade and other payables
Total Liabilities		3		—		3		—

Other Instruments:
Long-term debt due within one year		67		—		67		—	(b)	Long-term debt due within one year
Long-term debt		2,255		—		2,255		—	(c)	Long-term debt
Contingent consideration for contingent value right		148		—		—		148	(d)	Other liabilities and deferred credits

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2024

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 5 – DERIVATIVES AND HEDGING ACTIVITIES AND FAIR VALUE MEASUREMENT (CONTINUED)


Fair Value of financial instruments at:	December 31, 2023		Quoted prices in active markets for identical assets (Level 1)		Significant observable inputs (Level 2)		Significant unobservable inputs (Level 3)			Balance sheet classification
	$		$		$		$
Derivatives designated as hedging instruments:
Asset derivatives
Currency derivatives		9		—		9		—	(a)	Prepaid expenses
Natural gas swap contracts		1		—		1		—	(a)	Prepaid expenses
Currency derivatives		4		—		4		—	(a)	Other assets
Natural gas swap contracts		1		—		1		—	(a)	Other assets
Total Assets		15		—		15		—

Liabilities derivatives
Currency derivatives		2		—		2		—	(a)	Trade and other payables
Natural gas swap contracts		5		—		5		—	(a)	Trade and other payables
Total Liabilities		7		—		7		—

Other Instruments:
Long-term debt due within one year		67		—		67		—	(b)	Long-term debt due within one year
Long-term debt		2,234		—		2,234		—	(c)	Long-term debt
Contingent consideration for contingent value right		133		—		—		133	(d)	Other liabilities and deferred credits

(a)

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

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

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

(b)

Fair value of the Company’s long-term debt is measured by comparison to market prices of its debt. The Company’s long-term debt is not carried at fair value on the Consolidated Balance Sheets at September 30, 2024 and December 31, 2023. The carrying value of the Company’s long-term debt due within one year is $67 million at both September 30, 2024 and December 31, 2023.

(c)

The carrying value of the Company’s long-term debt is $2,437 million and $2,410 million at September 30, 2024 and December 31, 2023, respectively.

(d)

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

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

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2024

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 6.

_________________

PENSION PLANS AND OTHER POST-RETIREMENT BENEFIT PLANS

DEFINED CONTRIBUTION PLANS

The Company has several defined contribution plans and multi-employer plans. The pension expense under these plans is equal to the Company’s contribution. For the three and nine months ended September 30, 2024, the pension expense was $15 million and $47 million, respectively (2023 – $15 million and $44 million, respectively).

The Company expects to contribute approximately $15 million under these plans during the remainder of the year.

DEFINED BENEFIT PLANS AND OTHER POST-RETIREMENT BENEFIT PLANS

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

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



	For the three months ended					For the nine months ended
	September 30, 2024					September 30, 2024
	Pension plans			Other post-retirement benefit plans		Pension plans			Other post-retirement benefit plans
	$			$		$			$
Service cost		4			—		15			—
Interest expense		49			1		148			5
Expected return on plan assets		(55	)		—		(168	)		—
Amortization of net actuarial gain		—			—		—			(1	)
Net periodic benefit cost		(2	)		1		(5	)		4



	For the three months ended						For the nine months ended
	September 30, 2023						September 30, 2023
	Pension plans			Other post-retirement benefit plans			Pension plans			Other post-retirement benefit plans
	$			$			$			$
Service cost		5			1			17			1
Interest expense		57			2			140			5
Expected return on plan assets		(63	)		—			(156	)		—
Amortization of net actuarial gain		—			(1	)		—			(2	)
Curtailment loss (gain) (1)		3			(1	)		3			(1	)
Special termination benefits recognized (1)		13			2			13			2
Net periodic benefit cost		15			3			17			5

(1) Special termination benefits recognized of $13 million in the pension plans and $2 million in other post-retirement plans, as well as a curtailment gain of $1 million in other post-retirement plans, related to the idling of the Espanola, Ontario mill were presented in Closure and restructuring costs on the Consolidated Statement of Earnings (Loss) and Comprehensive Income (Loss).

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2024

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 6 – PENSION PLANS AND OTHER POST-RETIREMENT BENEFIT PLANS (CONTINUED)

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

For the three and nine months ended September 30, 2024, the Company contributed $20 million and $68 million, respectively (2023 – $17 million and $41 million, respectively) to the pension plans and $4 million and $11 million, respectively (2023 – $2 million and $9 million, respectively) to the other post-retirement benefit plans.

The Company expects to make cash contributions of approximately $20 million to the pension plans and $4 million to the other post-retirement benefit plans during the remainder of the year.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2024

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 7.

_________________

INCOME TAXES

For the third quarter of 2024, the Company had income tax expense of $121 million, consisting of $49 million of current income tax expense and a deferred income tax expense of $72 million. This compares to an income tax expense of $35 million in the third quarter of 2023, consisting of $10 million of current income tax expense and a deferred income tax expense of $25 million. The Company made payments, net of income tax refunds, of $2 million during the third quarter of 2024. The effective tax rate for the third quarter of 2024 was 189% compared to -22% for the third quarter of 2023. In each interim quarter the Company updates its estimate of the annual effective tax rate and, if the estimated annual tax rate changes, makes a cumulative adjustment in that quarter. The effective tax rate for the third quarter of 2024 was unfavorably impacted by such a cumulative adjustment. The effective tax rate for the third quarter of 2023 was also unfavorably impacted by such a cumulative adjustment, mainly due to a change in the mix of earnings or loss between jurisdictions, the inclusion of a full valuation allowance on deferred interest expenses, certain losses with no corresponding tax benefit, and additional U.S. taxes from the sale of Canadian mills.

For the first nine months of 2024, the Company’s income tax expense was $25 million, consisting of a current income tax expense of $5 million and a deferred income tax expense of $20 million. This compares to an income tax benefit of $30 million in the first nine months of 2023, consisting of a current income tax expense of $16 million and a deferred income tax benefit of $46 million. The Company received refunds, net of income tax payments, of $18 million during the first nine months of 2024. The effective tax rate was -63% compared to an effective tax rate of 15% in the first nine months of 2023. 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. The effective tax rate for the first nine months of 2023 was impacted by the reversal of the valuation allowance on tax loss carryforwards due to management’s assessment that the future income would be sufficient to utilize the losses prior to expiration. This was partly offset by the inclusion of a full valuation allowance on deferred interest expenses, certain losses with no corresponding tax benefit, U.S. taxes from the sale of Canadian mills, and transaction costs with minimal tax benefit.

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 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. The GloBE Rules have been enacted or are in the process of being enacted into the domestic law of the majority of countries wherein the Company operates. For the first nine months of 2024, the GloBE Rules did not impact the Company’s financial results. The Company continues to evaluate their impact on future periods.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2024

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 8.

_________________

INVENTORIES

The following table presents the components of inventories:


	September 30,		December 31,
	2024		2023
	$		$
Work in process and finished goods		722		670
Raw materials		333		328
Operating and maintenance supplies		368		335
		1,423		1,333

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2024

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 9.

_________________

OTHER ASSETS

The following table presents the components of other assets:


	September 30,		December 31,
	2024		2023
	$		$
Pension asset - defined benefit pension plans		239		225
Countervailing duty and anti-dumping duty cash deposits on softwood lumber		184		159
Off-market contracts		71		72
Other		60		85
		554		541

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2024

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 10.

_________________

CLOSURE AND RESTRUCTURING, IMPAIRMENT OF LONG-LIVED ASSETS AND ASSET CONVERSION COSTS

Ashdown curtailment, Arkansas mill

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

For the three and nine months ended September 30, 2024, the Company 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, the Company recorded nil and $3 million, respectively, of write-off of inventory and nil and $1 million, respectively, of severance and termination costs, under Closure and restructuring costs on the Consolidated Statement of Earnings (Loss) and Comprehensive Income (Loss).

Catalyst restructuring and impairment costs, British Columbia mills

On October 6, 2022, it was announced that paper operations at the Crofton mill would be curtailed indefinitely starting early December 2022. However, the paper operations restarted in January 2023 but were curtailed again in July 2023. On January 25, 2024, the Company announced the indefinite curtailment of the Crofton mill paper operations. As a result, for the three and nine months ended September 30, 2024, the Company recorded $3 million and $8 million, respectively, of accelerated depreciation, under Depreciation and amortization on the Consolidated Statement of Earnings (Loss) and Comprehensive Income (Loss) (2023 – $2 million and $21 million, respectively, of write-off of property, plant and equipment, under Impairment of long-lived assets on the Consolidated Statement of Earnings (Loss) and Comprehensive Income (Loss)).

On December 1, 2021, it was announced that operations at the Tiskwat mill at Powell River would be curtailed indefinitely.
On August 16, 2023, it was announced that operations would be curtailed permanently.

For the three and nine months ended September 30, 2024, the Company recorded nil and $3 million, respectively, of severance and termination costs and nil and $2 million, respectively, of write-off of inventory, under Closure and restructuring costs on the Consolidated Statement of Earnings (Loss) and Comprehensive Income (Loss) (2023 – $1 million and $8 million, respectively, of severance and terminations costs and $8 million and $8 million, respectively, of environmental closure costs).

Idling of Espanola, Ontario mill

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

For the three and nine months ended September 30, 2024, the Company 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).

During the third quarter of 2023, the Company recorded $6 million of write-off of property, plant and equipment and $3 million of write-off of investment under Impairment of long-lived assets, on the Consolidated Statement of Earnings (Loss) and Comprehensive Income (Loss). Additionally, the Company recorded $23 million of inventory obsolescence, $11 million of severance and termination costs, $14 million of pension and other post-retirement costs and $6 million of other costs, under Closure and restructuring costs, on the Consolidated Statement of Earnings (Loss) and Comprehensive Income (Loss).

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2024

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 10 – CLOSURE AND RESTRUCTURING, IMPAIRMENT OF LONG-LIVED ASSETS AND ASSET CONVERSION COSTS (CONTINUED)

Conversion of Kingsport, Tennessee mill

The Company has entered the linerboard market with the conversion of the Kingsport paper machine. The conversion was fully completed in June 2023. For the first six month of 2023, the Company recorded $63 million under Asset conversion costs on the Consolidated Statement of Earnings (Loss) and Comprehensive Income (Loss).

Other Costs

For the three and nine months ended September 30, 2024, other costs related to previous and ongoing closures and restructuring included nil and $2 million, respectively, of severance and termination costs and $2 million and $11 million, respectively, of other costs (2023 – nil).

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2024

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 11.

_________________

CHANGES IN ACCUMULATED OTHER COMPREHENSIVE LOSS BY COMPONENT

The following table presents the changes in Accumulated other comprehensive loss by component(1) for the nine months ended September 30, 2024 and the year ended December 31, 2023:


	Net derivative (losses) gains on cash flow hedges			Pension items(2)			Post-retirement benefit items(2)			Foreign currency items			Total
	$			$			$			$			$
Balance at December 31, 2022		(12	)		(5	)		36			(41	)		(22	)
Natural gas swap contracts		(9	)	N/A			N/A			N/A				(9	)
Currency options		1		N/A			N/A			N/A				1
Foreign exchange forward contracts		9		N/A			N/A			N/A				9
Net loss	N/A				(69	)		(3	)	N/A				(72	)
Foreign currency items	N/A			N/A			N/A				34			34
Other comprehensive income (loss) before reclassifications		1			(69	)		(3	)		34			(37	)
Amounts reclassified from Accumulated other comprehensive loss		16			2			(3	)		—			15
Net current period other comprehensive income (loss)		17			(67	)		(6	)		34			(22	)
Balance at December 31, 2023		5			(72	)		30			(7	)		(44	)
Natural gas swap contracts		(3	)	N/A			N/A			N/A				(3	)
Foreign exchange forward contracts		(8	)	N/A			N/A			N/A				(8	)
Net gain	N/A				7			—		N/A				7
Foreign currency items	N/A			N/A			N/A				(21	)		(21	)
Other comprehensive (loss) income before reclassifications		(11	)		7			—			(21	)		(25	)
Amounts reclassified from Accumulated other comprehensive loss		10			—			(1	)		—			9
Net current period other comprehensive (loss) income		(1	)		7			(1	)		(21	)		(16	)
Balance at September 30, 2024		4			(65	)		29			(28	)		(60	)

(1)

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

(2)

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

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2024

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 11 – CHANGES IN ACCUMULATED OTHER COMPREHENSIVE LOSS BY COMPONENT (CONTINUED)

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


Details about Accumulated other comprehensive loss components	Amounts reclassified from Accumulated other comprehensive loss
	For the three months ended
	September 30,			September 30,
	2024			2023
	$			$
Net derivative losses on cash flow hedge
Natural gas swap contracts (1)		(3	)		(2	)
Currency options and forwards (1)		(2	)		(2	)
Total before tax		(5	)		(4	)
Tax benefit		2			1
Net of tax		(3	)		(3	)

Amortization of defined benefit pension items
Curtailment loss (2)		—			(11	)
Total before tax		—			(11	)
Tax benefit		—			3
Net of tax		—			(8	)

Amortization of other post-retirement benefit items
Amortization of net actuarial gain (3)		—			1
Total before tax		—			1
Tax expense		—			—
Net of tax		—			1

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2024

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 11 – CHANGES IN ACCUMULATED OTHER COMPREHENSIVE LOSS BY COMPONENT (CONTINUED)


	Amounts reclassified from Accumulated other comprehensive loss
	For the nine months ended
	September 30,			September 30,
	2024			2023
	$			$
Net derivative losses on cash flow hedge
Natural gas swap contracts (1)		(9	)		(9	)
Currency options and forwards (1)		(5	)		(10	)
Total before tax		(14	)		(19	)
Tax benefit		4			5
Net of tax		(10	)		(14	)

Amortization of defined benefit pension items
Curtailment loss (2)		—			(11	)
Total before tax		—			(11	)
Tax benefit		—			3
Net of tax		—			(8	)

Amortization of other post-retirement benefit items
Amortization of net actuarial gain (3)		1			2
Total before tax		1			2
Tax expense		—			—
Net of tax		1			2

(1)

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

(2)

For 2023, includes $3 million curtailment triggered by the termination of two pensions plans, which was included in the computation of net periodic benefit costs, and a remeasurement of $8 million of benefit obligation to reflect curtailment as a result of the closure and sale of two mills.

(3)

These amounts are included in the computation of net periodic benefit cost (see Note 6 “Pension plans and other post-retirement benefit plans” for more details).

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2024

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 12.

_________________

OTHER LIABILITIES AND DEFERRED CREDITS

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


	September 30,		December 31,
	2024		2023
	$		$
Provision for environmental and asset retirement obligations		112		111
Contingent consideration for contingent value right		148		133
Other		50		62
		310		306

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2024

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 13.

_________________

COMMITMENTS AND CONTINGENCIES

ENVIRONMENTAL MATTERS

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

The Company has environmental liabilities of $61 million and $64 million recorded as of September 30, 2024 and December 31, 2023, respectively, primarily related to environmental remediation related to closed sites. The amount of these liabilities represents management’s estimate of the ultimate settlement based on an assessment of relevant factors and assumptions and could be affected by changes in facts or assumptions not currently known to management for which the outcome cannot be reasonably estimated at this time.

The Company also has asset retirement obligations of $60 million recorded as of September 30, 2024 and December 31, 2023, respectively, primarily consisting of liabilities associated with landfills, sludge basins and the dismantling of retired assets.

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

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

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

CONTINGENCIES

In the normal course of operations, the Company becomes involved in various legal actions mostly related to contract disputes, patent infringements, environmental and product warranty claims, and labor issues. While the final outcome with respect to actions outstanding or pending at September 30, 2024, cannot be predicted with certainty, it is management’s opinion that their resolution will not have a material adverse effect on the Company’s financial position, results of operations or cash flows.

INDEMNIFICATIONS

In the normal course of business, the Company offers indemnifications relating to the sale of its businesses and real estate. In general, these indemnifications may relate to claims from past business operations, compliance with laws, the failure to abide by covenants and the breach of representations and warranties included in the sales agreements. Typically, such representations and warranties relate to taxation, environmental, product and employee matters. The terms of these indemnification agreements are generally for an unlimited period of time. At September 30, 2024, the Company is unable to estimate the potential maximum liabilities for these types of indemnification guarantees as the amounts are contingent upon the outcome of future events, the nature and likelihood of which cannot be reasonably estimated at this time. Accordingly, no provision has been recorded. These indemnifications have not yielded a significant expense in the past.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2024

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 13 – COMMITMENTS AND CONTINGENCIES (CONTINUED)

Pension Plans

The Company has indemnified and held harmless the trustees of its pension funds, and the respective officers, directors, employees and agents of such trustees, from any and all costs and expenses arising out of the performance of their obligations under the relevant trust agreements, including in respect of their reliance on authorized instructions from the Company or for failing to act in the absence of authorized instructions. These indemnifications survive the termination of such agreements. At September 30, 2024, the Company has not recorded a liability associated with these indemnifications, as it does not expect to make any payments pertaining to these indemnifications.

CLIMATE CHANGE AND AIR QUALITY REGULATIONS

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

In 2019, the EPA repealed the Clean Power Plan and replaced it with the “Affordable Clean Energy” (“ACE”) rule. The ACE rule was legally challenged in the U.S. Court of Appeals for the D.C. Circuit. The Court vacated the ACE rule and, the repeal of the Clean Power Plan, but the court stayed its mandate as to the Clean Power Plan repeal to avoid reinstating that now outdated rule. However, on June 30, 2022, the Supreme Court reversed the D.C. Circuit’s decision, holding that the Clean Power Plan was an “extraordinary” case of an agency claiming transformative power over a “major question” of policy without a clear statement from Congress. The decision does not completely bar the EPA from regulating greenhouse gas emissions from the power sector but prohibits the EPA from imposing standards based on “generation shifting” away from coal-fired power plants to natural gas plants and renewable resources. On May 23, 2023, the EPA proposed a new climate change rule for existing power plants and repealed the ACE rule. The new rule requires, by 2030, all existing coal-fired power plants operating beyond 2039 to choose between carbon capture and sequestration by 2032, natural gas-co-firing by 2030, or retirement before 2032. The new rule also applies to all new gas combustion turbines which are categorized by operating level. Units that operate greater than 40% of their operating capacity in a year require carbon capture and sequestration. Units that operate less have an emission limit or the requirement to use lower emitting fuels. These new climate rules have been challenged in the D.C. Circuit, and the challengers have also filed applications to the Supreme Court for a stay during the litigation, which remains pending. Existing combustion turbines will be addressed in a future rule making, which EPA is expected to propose before the end of 2024. These climate change rules are expected to drive additional coal plant retirements, increase electricity pricing and result in electricity reliability concerns. However, the Company does not expect to be disproportionately affected compared with other pulp and paper producers located in the states where the Company operates.

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

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

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

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2024

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 13 – COMMITMENTS AND CONTINGENCIES (CONTINUED)

LEGAL MATTERS

The Company becomes involved in various legal proceedings, claims and governmental inquiries, investigations, and other disputes in the normal course of business, including matters related to contracts, torts, commercial and trade disputes, taxes, environmental issues, activist damages, employment and workers’ compensation claims, grievances, human rights complaints, pension and benefit plans and obligations, health and safety, product safety and liability, asbestos exposure, financial reporting and disclosure obligations, corporate governance, Indigenous peoples’ claims, antitrust, governmental regulations, and other matters. Although the final outcome is subject to many variables and cannot be predicted with any degree of certainty, the Company regularly assesses the status of the matters and establishes provisions (including legal costs expected to be incurred) when it believes an adverse outcome is probable, and the amount can be reasonably estimated. Any recovery from litigation or settlement of claims that is a gain contingency is recognized if, and when, realized or realizable. Except as described below and for claims that cannot be assessed due to their preliminary nature, the Company believes that the ultimate disposition of these matters outstanding or pending as of September 30, 2024, will not have a material adverse effect on the Company's Consolidated Financial Statements.

ASBESTOS-RELATED LAWSUITS

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

COUNTERVAILING DUTY AND ANTI-DUMPING INVESTIGATIONS ON SOFTWOOD LUMBER

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

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


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

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2024

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 13 – COMMITMENTS AND CONTINGENCIES (CONTINUED)


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

Ongoing Administrative Reviews

Following Commerce’s completion of the Canadian softwood lumber investigation and the first, second, third, fourth and fifth administrative reviews, the sixth administrative review remains pending. On March 5, 2024, Commerce published a notice initiating the sixth administrative review of the countervailing duty and anti-dumping orders on softwood lumber products from Canada; in decisions published on April 9, and 19, 2024, the Company was not selected as a mandatory respondent in the countervailing and anti-dumping proceedings, respectively.

Ongoing Appellate Reviews

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

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2024

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 13 – COMMITMENTS AND CONTINGENCIES (CONTINUED)

Sunset Reviews

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

World Trade Organization Appeal

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

Financial assurance

The Company is required by U.S. Customs to provide surety bonds to secure the payment of its cash deposits. As of September 30, 2024, the Company had $119 million of surety bonds outstanding in favor of U.S. Customs, of which $62 million were secured by letters of credit.

As of September 30, 2024, a total of $629 million of cash deposits ($471 million of countervailing and $158 million of anti-dumping duties) on estimated softwood lumber duties were paid. Of this amount, $563 million of deposits ($443 million of countervailing and $120 million of anti-dumping duties) were paid at acquisition date and were included in the purchase price allocation (refer to Note 3 “Acquisition and sale of businesses”). These deposits are measured, since the acquisition, using a model based on the assumptions that a settlement would be reached and that a certain percentage of the deposits would be recovered after a certain period of time. Deposits are remeasured with that model every reporting date and the variation is recorded under Other operating income, net on the Consolidated Statement of Earnings (Loss) and Comprehensive Income (Loss).

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


	For the three months ended									For the nine months ended
	September 30, 2024									September 30, 2024
	Countervailing duty			Anti-dumping duty			Total			Countervailing duty			Anti-dumping duty			Total
	$			$			$			$			$			$
Cash deposits paid (1)		2			7			9			6			21			27
Cash deposits paid recognized as receivable		(1	)		(1	)		(2	)		(2	)		(5	)		(7	)
		1			6			7			4			16			20

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2024

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 13 – COMMITMENTS AND CONTINGENCIES (CONTINUED)


	For the three months ended									For the nine months ended
	September 30, 2023									September 30, 2023
	Countervailing duty			Anti-dumping duty			Total			Countervailing duty			Anti-dumping duty			Total
	$			$			$			$			$			$
Cash deposits paid (1)		6			4			10			20			11			31
Cash deposits paid recognized as receivable		(1	)		(1	)		(2	)		(5	)		(3	)		(8	)
		5			3			8			15			8			23

(1)

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

The following table outlines the change in duties receivable during the nine months ended September 30, 2024 and the year ended December 31, 2023:


	September 30, 2024						December 31, 2023
	Countervailing duty		Anti-dumping duty		Total		Countervailing duty		Anti-dumping duty		Total
	$		$		$		$		$		$
Beginning of year		123		36		159		104		28		132
Cash deposits paid recognized as recoverable		2		5		7		6		4		10
Accretion		14		4		18		13		4		17
Balance at end of period (1)		139		45		184		123		36		159

(1)

The balance of $184 million is shown in Other assets in the Consolidated Balance Sheets.

FIBREK ACQUISITION

Effective July 31, 2012, the Company completed the final step of the transaction pursuant to which it acquired the remaining 25.40% of the outstanding Fibrek Inc. shares, following the approval of Fibrek’s shareholders on July 23, 2012, and the issuance of a final order by the Quebec Superior Court in Canada (the “Quebec Superior Court”) approving the arrangement on July 27, 2012. Certain former shareholders of Fibrek exercised rights of dissent in respect of the transaction, asking for a judicial determination of the fair value of their claim under the Canada Business Corporations Act. On September 26, 2019, the Quebec Superior Court rendered a decision fixing the fair value of the shares of the dissenting shareholders at C$1.99 per share, or $23 million (C$31 million) in aggregate, plus interest and an additional indemnity, for a total estimated at $33 million (C$44 million) payable in cash. Of this amount, $14 million (C$19 million) was payable immediately and paid on October 2, 2019. The Company has appealed the decision, which was reversed by the Court of Appeal in a judgment dated February 2, 2024, fixing the fair value of the shares of the dissenting shareholders at C$1.5973 per share, or $19 million (C$25 million) in aggregate, plus interest and the additional indemnity for a revised total amount of $28 million (C$38 million), and therefore ordering the Company to pay a balance of $15 million (C$19 million), which was paid on February 7, 2024.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2024

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 13 – COMMITMENTS AND CONTINGENCIES (CONTINUED)

PARTIAL WIND-UPS OF PENSION PLANS

On June 12, 2012, the Company filed a motion for directives with the Quebec Superior Court, the court with jurisdiction in the creditor protection proceedings under the Companies’ Creditors Arrangement Act (Canada) (the “CCAA Creditor Protection Proceedings”), seeking an order to prevent pension regulators in each of Quebec, New Brunswick, and Newfoundland and Labrador from declaring partial wind-ups of pension plans relating to employees of former operations in New Brunswick, and Newfoundland and Labrador, or a declaration that any claim for accelerated reimbursements of deficits arising from a partial wind-up is a barred claim under the CCAA Creditor Protection Proceedings. The Company's position is that any such declaration, if issued, would be inconsistent with the Quebec Superior Court’s sanction order confirming the CCAA debtors’ CCAA Plan of Reorganization and Compromise, as amended, and the terms of the Company's emergence from the CCAA Creditor Protection Proceedings. A partial wind-up would likely shorten the period in which any deficit within those plans, which could reach up to $111 million (C$150 million), would have to be funded if the Company does not obtain the relief sought. The hearing in this matter was held in March 2024. On August 27, 2024, the Quebec Superior Court rendered its judgment, declaring that (i) claims for additional contributions to the New Brunswick, and Newfoundland and Labrador pension plans resulting from partial wind-ups of these pension plans are extinguished and have been released and discharged by the sanction order confirming the CCAA debtors’ CCAA Plan of Reorganization and Compromise, as amended; and (ii) claims for additional contributions to the New Brunswick, and Newfoundland and Labrador pension plans resulting from partial wind-ups of the pension plans on the basis of facts that took place prior to April 17, 2009 are inconsistent with the sanction order confirming the CCAA debtors’ CCAA Plan of Reorganization and Compromise, as amended. On September 17, 2024, the Superintendent of Pensions for New Brunswick and the Superintendent of Pensions of Newfoundland and Labrador filed a motion seeking leave to appeal.

SUPERFUND SITE

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

The Company recognized a provision of $15 million, with respect to the EPA’s cause of action for past costs described in the Notice of Liability, as an environmental liability in Other liabilities in the purchase price allocation. See Note 3 “Acquisition and sale of businesses” for more information.

MENOMINEE FIRE

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

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

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2024

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 13 – COMMITMENTS AND CONTINGENCIES (CONTINUED)

Prior to the Acquisition, total costs of $32 million, net of deductible, were determined probable to be recovered, of which $18 million were received. The balance of $14 million was recorded under Receivables on the Consolidated Balance Sheet at the Acquisition date.

Subsequent to the Acquisition, additional costs of $32 million were determined probable to be recovered and insurance recoveries of $46 million were received.

For the three and nine months ended September 30, 2024, the Company recognized direct costs of nil and $5 million, respectively, (2023 – $6 million and $24 million, respectively), which were determined probable to be recovered and recognized an equivalent amount of recovery in reduction of Cost of sales. For the three and nine months ended September 30, 2024, $1 million and $16 million, respectively, were received from the insurer (2023 – nil and $20 million, respectively). After September 30, 2024, the Company expects to receive $11 million from the insurers.

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

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2024

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 14.

_________________

SEGMENT DISCLOSURES

The Company operates as three reportable segments as described below, which also represent its three operating segments based on the Company's organizational structure:

•

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

•

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

•

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

The Company evaluates segment performance based on operating income. Certain Corporate general and administrative costs are allocated to each respective segment. Corporate costs that are not related to segment activities are presented on the Corporate and other line. The Company does not allocate interest expense and income taxes to the segment. No segment assets are reported as they are not identifiable by segment.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2024

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 14 – SEGMENT DISCLOSURES (CONTINUED)

An analysis and reconciliation of the Company’s business segment information to the respective information in the financial statements is as follows:



	For the three months ended						For the nine months ended
	September 30,			September 30,			September 30,			September 30,
SEGMENT DATA	2024			2023			2024			2023
	$			$			$			$
Sales by segment
Paper and packaging		1,192			1,159			3,526			3,755
Pulp and tissue		372			326			1,122			834
Wood products		232			253			727			620
Total for reportable segments		1,796			1,738			5,375			5,209
Intersegment sales		(25	)		(8	)		(68	)		(15	)
Consolidated sales		1,771			1,730			5,307			5,194

Sales by product group
Communication papers		617			642			1,874			1,999
Specialty and packaging papers		275			273			852			860
Market pulp		444			376			1,284			1,287
Linerboard		56			34			138			34
Newsprint		92			94			264			259
Tissue		55			58			168			135
Wood		232			253			727			620
Consolidated sales		1,771			1,730			5,307			5,194

Operating income (loss) from continuing operations
Paper and packaging		137			(38	)		242			161
Pulp and tissue		21			4			28			8
Wood products		(35	)		(32	)		(103	)		(58	)
Corporate and other		(3	)		(31	)		(46	)		(145	)
Consolidated operating income (loss) from continuing operations		120			(97	)		121			(34	)
Interest expense, net		61			65			177			176
Non-service components of net periodic benefit cost		(5	)		(2	)		(16	)		(10	)
Earnings (loss) before income taxes		64			(160	)		(40	)		(200	)
Income tax expense (benefit)		121			35			25			(30	)
Loss from continuing operations		(57	)		(195	)		(65	)		(170	)
Earnings from discontinued operations, net of taxes		—			—			—			13
Net loss		(57	)		(195	)		(65	)		(157	)

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2024

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 15.

_________________

RELATED PARTY TRANSACTIONS

Following the acquisition of SPI, on June 29, 2023, the purchase price of $185 million was financed by the seller, an affiliated company, with the issuance by Domtar of a $50 million non-interest bearing promissory note, repaid July 15, 2023; a $35 million promissory note bearing interest at 8.50% per annum, due after June 30, 2031; and non-voting, redeemable Series B preferred shares totaling $100 million bearing interest at 9.75% per annum and redeemable by the seller after June 30, 2031. Prior to the acquisition of Catalyst by Domtar, the $35 million promissory note and the non-voting, redeemable Series B were contributed to Catalyst by the seller. Refer to Note 3 “Acquisition and sale of businesses” for details.

For the three and nine months ended September 30, 2024, the Company recognized $5 million and $16 million, respectively (2023 – $8 million and $22 million, respectively) of management fees paid to an affiliated company. These costs are included in the Consolidated Statements of Earnings (Loss) and Comprehensive Income (Loss) under Selling, general and administrative expense.

The Company has other receivables with affiliated companies of $29 million and $21 million at September 30, 2024 and December 31, 2023, respectively.

The Company has other payables with affiliated companies of $57 million and $36 million at September 30, 2024 and December 31, 2023, respectively.

In 2023, prior to the acquisition of Catalyst by Domtar, Catalyst converted loans due to an affiliated company to equity for an amount of $235 million.

In 2023, prior to the acquisition of SPI by Domtar, SPI converted loans due to an affiliated company to equity for an amount of $100 million.

DOMTAR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2024

(IN MILLIONS OF DOLLARS, UNLESS OTHERWISE NOTED)

(UNAUDITED)

NOTE 16.

_________________

SUBSEQUENT EVENT

Acquisition of Iconex Paper

On November 1, 2024, Domtar acquired Iconex Paper from a portfolio company owned by an investment fund managed by Atlas Holdings for a purchase price of $210 million in cash, subject to customary post-closing adjustments. Of the purchase price, $100 million was funded through a contribution to equity by the Parent company.

Iconex Paper converts thermal paper parent rolls into point-of-sale (POS) receipt rolls, serving customers in industries such as food service, retail, pharmacy, and financial from its five North American locations in Arizona, Kansas, Tennessee, Virginia, and Mexico. Based upon recent results, Iconex Paper has an estimated annual run rate sales of approximately $300 million.

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

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with Domtar Corporation’s unaudited interim financial statements and notes thereto included in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the Securities and Exchange Commission (“SEC”) on March 1, 2024. 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, 2024 and September 30, 2023. The three month and nine month periods are also referred to as the third quarter and first nine months of 2024 and 2023. Reference to notes refers to footnotes to the consolidated financial statements and notes thereto included in Item 1 of this Form 10-Q.

Recent Events and Items Affecting Comparability of Financial Results

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 $210 million in cash, subject to customary post-closing adjustments. Iconex Paper converts thermal paper parent rolls into point-of-sale (POS) receipt rolls, serving customers in industries such as food service, retail, pharmacy, and financial from its five North American locations in Arizona, Kansas, Tennessee, Virginia, and Mexico. Based upon recent results, Iconex Paper has an estimated annual run rate sales of approximately $300 million and EBITDA of approximately $50 million and employs 400 employees.

Acquisitions and Divestitures

Sale of El Dorado, Arkansas sawmill

On April 30, 2024, we, through our wholly-owned subsidiary, Resolute El Dorado Inc., entered into an asset purchase agreement with Anthony Forest Products Company, LLC, an affiliate of Canfor Corporation (the “Purchaser”) to sell our sawmill located in El Dorado, Arkansas, to the Purchaser for a purchase price of $73 million in cash, subject to customary adjustments. This transaction closed on August 1, 2024. During the quarter, we recorded a gain on disposals of assets of $5 million. The related assets of this sawmill for periods prior to the sale were classified as held for sale in the Consolidated Balance Sheets.

Acquisition of Catalyst Paper Corporation - transaction between entities under common control

On October 27, 2023, we completed the acquisition of all the outstanding common and preferred shares of Catalyst Paper Corporation (“Catalyst”), which included one pulp and paper mill and one paper mill, both located in British Columbia, for a purchase consideration of $1 dollar. Paper Excellence group of companies owned both Domtar and Catalyst.

The acquisition of Catalyst from Paper Excellence was accounted for as a transaction between entities under common control, which requires that Catalyst’s related assets and liabilities be transferred at their historical carrying amounts on the acquisition date and requires retrospective combination of entities as if the combination had been in effect since the inception of common control, which was November 30, 2021. Refer to Item 1, Financial Statements and Supplementary Data, under Note 3 “Acquisition and sale of businesses” for more information on the acquisition of Catalyst.

Acquisition of Skookumchuck Pulp Inc. - transaction between entities under common control

On June 29, 2023, we completed the acquisition of all the outstanding common and preferred shares of Skookumchuck Pulp Inc. (“SPI”), a pulp mill in British Columbia, for a purchase consideration of $185 million. Paper Excellence group of companies owned both Domtar and SPI.

The acquisition of SPI from Paper Excellence was accounted for as a transaction between entities under common control, which requires that SPI's related asset and liabilities be transferred at their historical carrying amounts on the acquisition date and requires retrospective

combination of entities as if the combination had been in effect since the inception of common control, which was November 30, 2021. Refer to Item 1, Financial Statements and Supplementary Data, under Note 3 “Acquisition and sale of businesses” for more information on the acquisition of SPI.

Paper Excellence completes the acquisition of Resolute Forest Products Inc. through Domtar Corporation

On March 1, 2023, Paper Excellence completed the acquisition of Resolute Forest Products Inc. ("Resolute") through Domtar (referred to as the "Acquisition"). The acquisition date fair value of the consideration transferred was $1.696 billion, less cash acquired of $480 million and including the contingent value right on softwood lumber duty deposit refunds. The purchase price allocation reflects a gain of $225 million recorded under Other operating (income) loss, net in the Consolidated Statements of Earnings (Loss) and Comprehensive Income (Loss). The Resolute businesses manufacture and market a diverse range of products, including market pulp, tissue, wood products and paper. Total net sales for Resolute during its most recent pre-acquisition year ended December 31, 2022, were $3.8 billion. Refer to Item 1, Financial Statements and Supplementary Data, under Note 3 “Acquisition and sale of businesses” for additional information.

For the third quarter and first nine months of 2023, we recognized nil and $57 million, respectively, of transaction related costs associated to the Acquisition, which include advisor and legal fees, as well as the accelerated vesting of certain long-term incentive awards of Resolute. These costs are included in the Consolidated Statements of Earnings (Loss) and Comprehensive Income (Loss) in the line item entitled Transaction costs.

As a condition to obtain the approval of the Acquisition from the Canadian Competition Bureau, we were required to commit to the divestiture of our Dryden, Ontario pulp mill (Domtar) and Thunder Bay, Ontario pulp and paper mill (Resolute), within a short period of time following the Acquisition. Each mill was to be sold to an independent purchaser approved by the Commissioner. On August 1, 2023, we completed the sale of the Dryden pulp mill and related assets for a purchase price of $186 million. On August 1, 2023, we completed the sale of the Thunder Bay pulp and paper mill and related assets for a purchase price of $231 million. The results of operations of the Dryden disposal group were not classified as discontinued operations as the mill was part of the pre-existing assets of Domtar. For the Thunder Bay pulp and paper mill, at the time of the Acquisition on March 1, 2023, the sale of the mill met the criteria for discontinued operations and as such, earnings are included within Earnings from discontinued operations, net of taxes in the Consolidated Statement of Earnings (Loss) and Comprehensive income (loss) for the period from March 1, 2023, to September 30, 2023. The Consolidated Statement of Cash Flows was not reclassified to reflect discontinued operations. The assets and liabilities related to both mills for periods prior to the sale, were presented as held for sale in the Consolidated Balance Sheet. Refer to Item 1, Financial Statements and Supplementary Data, under Note 4 “Discontinued Operations” for additional information on the Discontinued Operations.

Domtar was determined to be the accounting acquirer in the Acquisition, which was accounted for using the acquisition method of accounting. Under the acquisition method of accounting, the purchase consideration allocated to Resolute’s assets and liabilities is based upon their fair values at the acquisition date. Following the Acquisition date, the operating results of the Resolute business have been included in our consolidated financial statements. Our first nine months of 2023 reflects Resolute financial results for the seven months from March 1, 2023 to September 30, 2023. These financial statements may not be indicative of our future performance.

Closure and Restructuring, Impairment of long-lived assets and Asset Conversion Costs

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).

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

Catalyst

On October 6, 2022, it was announced that paper operations at the Crofton mill would be curtailed indefinitely starting early December 2022. However, the paper operations restarted in January 2023, but were curtailed again in July 2023. On January 25, 2024, we announced the indefinite curtailment of the Crofton mill paper operations. As a result, during the third quarter and first nine months of 2024, we recorded $3 million and $8 million, respectively, of accelerated depreciation, under Depreciation and amortization on the Consolidated Statement of Earnings (Loss) and Comprehensive Income (Loss) (third quarter and first nine months of 2023 – $2 million and $21 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)).

On December 1, 2021, we announced that operations at the Tiskwat mill at Powell River would be curtailed indefinitely. On August 16, 2023, we announced that operations would be curtailed permanently.

During the third quarter and first nine months of 2024, we recorded nil and $3 million, respectively, of severance and termination costs and nil and $2 million, respectively, of write-off of inventory, under Closure and restructuring costs on the Consolidated Statement of Earnings (Loss) and Comprehensive Income (Loss) (2023 – $1 million and $8 million, respectively, of severance and termination costs and $8 million and $8 million, respectively, of environmental closure costs).

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 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).

During the third quarter of 2023, we recorded $6 million of write-off of property, plant and equipment and $3 million of write-off of investment under Impairment of long-lived assets, on the Consolidated Statement of Earnings (Loss) and Comprehensive Income (Loss). Additionally, we recorded $23 million of inventory obsolescence, $11 million of severance and termination costs, $14 million of pension and other post-retirement costs and $6 million of other costs, under Closure and restructuring costs, on the Consolidated Statement of Earnings (Loss) and Comprehensive Income (Loss).

Conversion of Kingsport

We have entered the linerboard market with the conversion of our Kingsport facility. The mill is designed to produce and market approximately 600,000 tons annually of high-quality recycled linerboard and medium, providing us with a strategic footprint in a growing adjacent market. This mill is part of our Paper and Packaging business unit. The conversion was fully completed in June 2023. For the first six months of 2023, we recorded $63 million, under Asset conversion costs on the Consolidated Statement of Earnings (Loss) and Comprehensive Income (Loss).

Other Costs

For the third quarter and first nine months of 2024, other costs related to previous and ongoing closures and restructuring included nil and $2 million, respectively, of severance and termination costs and $2 million and $11 million, respectively, of other costs (2023 – 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 80 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. In the fourth quarter of 2023, our internal reporting and reportable segments changed as a result of organizational changes, which are intended to advance and support our long-term growth plans by streamlining and synergizing our North American businesses. Subsequently, we manage and report our operating results through three reportable segments: Paper and Packaging, Pulp and Tissue and Wood Products. We have reflected this change in all historical periods presented. In addition, in the second quarter of 2023, we completed the acquisition of SPI and in the fourth quarter of 2023, we completed the acquisition of Catalyst, which both require retrospective combination of entities as if the combination had been in effect since the inception of common control. Accordingly, the financial information for Domtar, SPI and Catalyst has been combined from the inception of common control which was November 30, 2021, and we have reflected this structure for all historical periods presented for our Paper and Packaging segment.

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

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

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

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

HIGHLIGHTS FOR THE THREE MONTH PERIOD ENDED SEPTEMBER 30, 2024

For the third quarter of 2024, we reported operating income from continuing operations of $120 million, compared to operating loss from continuing operations of $97 million in the third quarter of 2023.

The increase of $217 million to an operating income from continuing operations is principally driven by higher pulp production, higher average selling prices for our pulp products as well as lower input costs, partially offset by lower average selling prices for our paper products. In the third quarter of 2023, we recognized $63 million of closure and restructuring costs mostly related to the idling of our Espanola pulp and paper mill, compared to $2 million in the third quarter of 2024.

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

HIGHLIGHTS FOR THE FIRST NINE MONTHS ENDED SEPTEMBER 30, 2024

For the first nine months of 2024, we reported operating income from continuing operations of $121 million, compared to operating loss from continuing operations of $34 million in the first nine months of 2023.

The first nine months of 2023 includes seven months of operations of Resolute following its acquisition on March 1, 2023, while the first nine months of 2024 included nine months of operations of Resolute. The increase of $155 million to an operating income from continuing operations is principally driven the inclusion of nine months, rather than seven months, of the results of Resolute, lower input costs, higher pulp production and lower maintenance costs, partially offset by lower average selling prices for the majority of our products. In addition, in the first nine months of 2023, we recognized $70 million of closure and restructuring costs mostly related to the idling of our Espanola pulp and paper mill, $67 million of transaction costs mostly due to our Resolute acquisition, as well as asset conversion costs of $63 million related to our Kingsport mill conversion, compared to $24 million of closure and restructuring costs in the first nine months of 2024 mostly related to paper machine closures in the first nine months of 2024.

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

Economic conditions and uncertainties

The markets in which our businesses operate are highly competitive with well-established domestic and foreign manufacturers. Most of our products are commodities that are widely available from other producers as well. Because commodity products have few distinguishing qualities from producer to producer, competition for these products is based primarily on price, which is determined by supply relative to demand. For our pulp and paper products, we also compete on the basis of product quality, breadth of offering and service solutions. Furthermore, 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.

OUTLOOK

For the balance of 2024, we expect the demand and pricing for paper to remain stable and expect some downward price pressure for pulp with demand relatively stable. We will continue to closely monitor our inventory levels and balance our production with demand. For our wood products business, we saw improvement in lumber demand and prices over the last few weeks and we expect this trend to carry on into the balance of the year. We remain positive on the medium and long-term housing fundamentals due to recent decreases in mortgage rates and the housing shortage in both 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.

CONSOLIDATED RESULTS OF OPERATIONS AND SEGMENT REVIEW

This section presents a discussion and analysis of our third quarter of 2024 and first nine months of 2024 sales, operating income from continuing operations and other information relevant to the understanding of our results of operations. As a result of the closing of the Acquisition of Resolute on March 1, 2023, the Company’s consolidated financial statements for the nine months ended September 30, 2023, only reflect Resolute financial results for the period from March 1, 2023 to September 30, 2023.


	Three months ended								Nine months ended
FINANCIAL HIGHLIGHTS	September 30, 2024			September 30, 2023			variance $		September 30, 2024			September 30, 2023			variance $
(In millions of dollars, unless otherwise noted)
Sales	$	1,771		$	1,730		$	41	$	5,307		$	5,194		$	113
Operating income (loss) from continuing operations		120			(97	)		217		121			(34	)		155
Loss from continuing operations		(57	)		(195	)		138		(65	)		(170	)		105
Earnings from discontinued operations, net of taxes		—			—			—		—			13			(13	)
Net loss	$	(57	)	$	(195	)	$	138	$	(65	)	$	(157	)	$	92

Sales, per segment
Paper and Packaging	$	1,192		$	1,159				$	3,526		$	3,755
Pulp and Tissue		372			326					1,122			834
Wood Products		232			253					727			620
Total for reportable segment	$	1,796		$	1,738				$	5,375		$	5,209
Intersegment sales		(25	)		(8	)				(68	)		(15	)
Consolidated sales	$	1,771		$	1,730				$	5,307		$	5,194

Operating income (loss) from continuing operations, per segment
Paper and Packaging	$	137		$	(38	)			$	242		$	161
Pulp and Tissue		21			4					28			8
Wood Products		(35	)		(32	)				(103	)		(58	)
Total for reportable segment	$	123		$	(66	)			$	167		$	111
Corporate and Other		(3	)		(31	)				(46	)		(145	)
Consolidated operating income (loss) from continuing operations	$	120		$	(97	)			$	121		$	(34	)

				At September 30, 2024			At December 31, 2023
Total assets				$	7,237		$	7,531
Total long-term debt, including current portion of long-term debt and due to related party				$	2,561		$	2,513

Third quarter of 2024 compared to Third quarter of 2023

Analysis of Sales

Sales in the third quarter of 2024 increased by $41 million, or 2%, when compared to sales in the third quarter of 2023. This increase in sales is mostly due to an increase in our net average selling prices for our pulp products, partially offset by lower average selling prices for our paper and wood products. Our paper volume was impacted by our paper machine closures at our Crofton and Espanola facilities earlier in 2024 and at Ashdown in early July 2024. Our pulp sales volume was impacted by the sale of our Dryden pulp mill in the third quarter of 2023 and the closure of our Espanola pulp mill in the fourth quarter of 2023.

Analysis of change in Operating Income (Loss) from continuing operations

Operating income from continuing operations in the third quarter of 2024 increased by $217 million when compared to operating loss from continuing operations in the third quarter of 2023. This increase is principally driven by higher production and lower input costs, partially offset by lower average selling prices for the majority of our paper and wood products. Our paper volume was impacted by our paper machine closures at our Crofton and Espanola facilities earlier in 2024 and at Ashdown in early July 2024. Our pulp sales volume was also impacted by the sale of our Dryden pulp mill in the third quarter of 2023.

First nine months of 2024 compared to first nine months of 2023

Analysis of Sales

Sales in the first nine months of 2024 increased by $113 million, or 2%, when compared to sales in the first nine months of 2023. The inclusion of three months of sales of Resolute in the first quarter of 2024 compared to one month of sales in the first quarter of 2023, resulted in an increase in sales of $371 million. Excluding the impact of two additional months of sales of Resolute in our first nine months of 2024 when compared to our first nine months of 2023, our sales decreased by $258 million, mostly due to a decrease in our net average selling prices for the majority of our products, as well as a decrease in our paper sales volume, in part due to our paper machine closures at our Crofton, Espanola and Ashdown facilities. Our pulp sales volume was also impacted by the sale of our Dryden pulp mill in the third quarter of 2023 and the closure of our Espanola pulp mill in the fourth quarter of 2023.

Analysis of change in Operating Income from continuing operations

Operating income from continuing operations in the first nine months of 2024 increased by $155 million when compared to the first nine months of 2023. The inclusion of three months of operations of Resolute in the first quarter of 2024 compared to one month of operations in the first quarter of 2023, resulted in an increase in operating income from continuing operations of $33 million. Excluding the operations of Resolute in the first quarter of 2024 and 2023, operating income from continuing operations amounted to $122 million in the first nine months of 2024, an increase of $122 million compared to operating income from continuing operations of nil in the first nine months of 2023. This increase is principally driven by higher pulp production, lower input costs, partially offset by lower average selling prices for the majority of our products as well as lower volume in our paper products. Our paper volume was impacted by our paper machine closures at our Crofton and Espanola facilities earlier in 2024 and at Ashdown in early July 2024. Our pulp sales volume was impacted by the sale of our Dryden pulp mill in the third quarter of 2023 and the closure of our Espanola pulp mill in the fourth quarter of 2023. In addition, in the first nine months of 2024, we recognized $24 million of closure and restructuring costs compared to $70 million in the first nine months of 2023. In the first nine months of 2023, we recognized asset conversion costs of $63 million related to the conversion of our Kingsport facility compared to nil in the first nine months of 2024, due to the start-up of our Kingsport operations in the second half of 2023. In the first nine months of 2023, we recognized $44 million of transaction costs related to our acquisition of Resolute compared to nil in the first nine months of 2024, under Corporate and Other, excluding costs expensed by Resolute.

OTHER FACTORS

Interest Expense, net

We incurred $61 million of net interest expense in the third quarter of 2024, a decrease of $4 million compared to net interest expense of $65 million in the third quarter of 2023. Interest expense decreased mainly due to lower debt levels for the three months period in 2024 compared to 2023. In the third quarter of 2024, we had capitalized interest of $1 million, compared to $2 million in the third quarter of 2023. See section “Capital Resources” below for more information on our debt structure following our Acquisition on March 1, 2023.

We incurred $177 million of net interest expense in the first nine months of 2024, an increase of $1 million compared to net interest expense of $176 million in the first nine months of 2023. Interest expense increased due to slightly higher floating rates for SOFR as well as slightly higher average debt levels for the first nine months of 2024 compared to the first nine months of 2023. In the first nine months of 2024, we had capitalized interest of $5 million, compared to $6 million in the first nine months of 2023. See section “Capital Resources” below for more information on our debt structure following our Acquisition on March 1, 2023.

Non-Service Components of net periodic benefit cost

For the third quarter of 2024, our non-service components of net periodic benefit cost were a benefit of $5 million, an increase of $3 million when compared to the third quarter of 2023. Refer to Item 1, Financial Statements and Supplementary Data, under Note 6 “Pension Plans and Other Post-Retirement Benefit Plans” for additional information.

For the first nine months of 2024, our non-service components of net periodic benefit cost were a benefit of $16 million, an increase of $6 million when compared to the first nine months of 2023. Refer to Item 1, Financial Statements and Supplementary Data, under Note 6 “Pension Plans and Other Post-Retirement Benefit Plans” for additional information.

Income Taxes

For the third quarter of 2024, we had income tax expense of $121 million, consisting of $49 million of current income tax expense and deferred income tax expense of $72 million. This compares to income tax expense of $35 million in the third quarter of 2023, consisting of $10 million of current income tax expense and deferred income tax expense of $25 million. We made payments, net of income tax refunds, of $2 million during the third quarter of 2024. Our effective tax rate for the third quarter of 2024 was 189% compared to -22% for the third quarter of 2023. In each interim quarter we update our estimate of the annual effective tax rate and, if there are changes, we make a cumulative adjustment in that quarter. Our effective tax rate for the third quarter of 2024 was unfavorably impacted by such a cumulative adjustment. Our effective tax rate for the third quarter of 2023 was also unfavorably impacted by such a cumulative adjustment, mainly due to a change in the mix of earnings or loss between jurisdictions, the inclusion of a full valuation allowance on deferred interest expenses, certain losses with no corresponding tax benefit, and additional U.S. taxes from the sale of Canadian mills.

For the first nine months of 2024, our income tax expense was $25 million, consisting of current income tax expense of $5 million and deferred income tax expense of $20 million. This compares to income tax benefit of $30 million in the first nine months of 2023, consisting of current income tax expense of $16 million and deferred income tax benefit of $46 million. We received refunds, net of income tax payments, of $18 million during the first nine months of 2024. Our effective tax rate was -63% compared to an effective tax rate of 15% in the first nine months of 2023. Our effective tax rate for the first nine months of 2024 was unfavorably impacted by interest expenses with no corresponding tax benefits, foreign exchange items and additional U.S. tax expense on foreign operations. This was partially offset by additional research and experimentation tax credits. Our effective tax rate for the first nine months of 2023 was impacted by the reversal of the valuation allowance on tax loss carryforwards due to management’s assessment that the future income would be sufficient to utilize the losses prior to expiration. This was partly offset by the inclusion of a full valuation allowance on deferred interest expenses, certain losses with no corresponding tax benefit, U.S. taxes from the sale of Canadian mills, and transaction costs with minimal tax benefit.

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 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. The GloBE Rules have been enacted or are in the process of being enacted into the domestic law of the majority of countries where we operate. For the first nine months of 2024, the GloBE Rules did not impact our financial results. We continue to evaluate their impact on future periods.

Discontinued Operations

For the third quarter and first nine months of 2023, we reported earnings from discontinued operations, net of taxes, of nil and $13 million, respectively.

Mandated sale of Thunder Bay, Ontario mill

As a condition to obtain the approval of the March 1, 2023, Acquisition from the Canadian Competition Bureau, we were required to commit to the divestiture of Resolute's pulp and paper mill in Thunder Bay, Ontario, within a short period of time following the Acquisition. On August 1, 2023, the mill was sold to an independent acquirer approved by the Commissioner. The assets and liabilities related to the pulp and paper mill for periods after the Acquisition, are presented as held for sale in the Consolidated Balance Sheet. At the time of the Acquisition, the sale of the pulp and paper mill met the criteria for discontinued operations and as such, earnings were included within Earnings (loss) from discontinued operations, net of taxes in the Consolidated Statement of Earnings (Loss) and Comprehensive income (loss) for all periods presented after the acquisition date of March 1, 2023 to July 31, 2023. Refer to Item 1, Financial Statements and Supplementary Data, under Note 4 “Discontinued Operations” for additional information on the Discontinued Operations.

Commentary – Segment Review

PAPER AND PACKAGING


	Three months ended								Nine months ended
(In millions of dollars, unless otherwise noted)	September 30, 2024		September 30, 2023			variance $			September 30, 2024		September 30, 2023		variance $
Sales
Paper	$	861	$	886		$	(25	)	$	2,573	$	2,710	$	(137	)
Pulp		331		273			58			953		1,045		(92	)
Total sales	$	1,192	$	1,159		$	33		$	3,526	$	3,755	$	(229	)
Operating income (loss) from continuing operations	$	137	$	(38	)	$	175		$	242	$	161	$	81

Shipments
Paper - manufactured (in thousands of ST)		656		658			(2	)		1,980		1,889		91
Communication papers		405		409			(4	)		1,240		1,275		(35	)
Specialty and Packaging papers		251		249			2			740		614		126
Pulp (in thousands of ADMT)		369		347			22			1,099		1,162		(63	)

Sales

Paper and Packaging segment sales in the third quarter of 2024 increased by $33 million, or 3% when compared to sales in the third quarter of 2023. 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 packaging paper products, following its start-up in the third quarter of 2023. These increases were partially offset by lower net average selling prices for paper. Our paper volume was impacted by our paper machine closures at our Crofton and Espanola facilities earlier in 2024 and at Ashdown in early July 2024. Our pulp sales in the third quarter of 2024 was impacted by the sale of our Dryden pulp mill in the third quarter of 2023 and the closure of the pulp operation at our Espanola facility in the fourth quarter of 2023.

Paper and Packaging segment sales in the first nine months of 2024 decreased by $229 million, or 6% when compared to sales in the first nine months of 2023. This decrease in sales is mostly due to a decrease in our net average selling prices for pulp and paper, as well as a decrease in our Communication paper sales volumes, mostly due to a maintenance shutdown at one of our facilities in the second quarter of 2024. Our pulp sales in the first nine months of 2024 were impacted by the sale of our Dryden pulp mill in the third quarter of 2023 and the closure of the pulp operations at our Espanola facility in the fourth quarter of 2023. The increase in our Specialty and Packaging papers volume is due to including the sales of our recently converted Kingsport mill in our first nine months of 2024 results, partially offset by the closure earlier in 2024 of the paper machine at our Espanola facility and at our Crofton facility and in early July 2024 at our Ashdown facility.

Operating income from continuing operations

Operating income from continuing operations in our Paper and Packaging segment amounted to $137 million in the third quarter of 2024, an increase of $175 million, when compared to operating loss from continuing operations of $38 million in the third quarter of 2023. Our results were positively impacted by:

•

Lower operating expenses ($87 million) when compared to the third quarter of 2023 mostly due to higher pulp production, the increase in operations of our converted Kingsport mill that had started operations in the third quarter of 2023, lower freight costs, as well as the closure of our Espanola facility and Crofton paper machine, partially offset by higher maintenance costs

•

Higher net average selling prices for pulp ($30 million)

•

Lower depreciation charges ($10 million) when compared to the third quarter of 2023, mostly due to an impairment charge ($9 million) in the third quarter of 2023 related to the announced idling of our Espanola pulp and paper mill

•

Lower closure and restructuring costs ($53 million) when compared to the third quarter of 2023 mostly due to the announced idling of our Espanola pulp and paper mill in the third quarter of 2023

•

Positive impact of a lower Canadian dollar on our Canadian dollar denominated expenses ($1 million)

•

Lower input costs ($8 million) mostly due to lower costs of chemicals and energy

These increases were partially offset by:

•

Lower net average selling prices for paper ($9 million)

•

Lower volume and mix ($5 million)

Operating income from continuing operations in our Paper and Packaging segment amounted to $242 million in the first nine months of 2024, an increase of $81 million, when compared to operating income from continuing operations of $161 million in the first nine months of 2023. Our results were positively impacted by:

•

Lower input costs ($83 million) mostly related to lower costs of fiber and chemicals

•

Lower asset conversion charges ($63 million). We recorded $63 million of asset conversion costs for our Kingsport mill as part of the conversion to a linerboard facility in the first nine months of 2023 compared to nil in the first nine months of 2024

•

Lower closure and restructuring costs ($45 million) when compared to the first nine months of 2023 due to the indefinite curtailment of our Crofton mill paper operations announced in January 2024 and our Ashdown paper machine announced in February 2024 compared to costs related to the idling of our Espanola pulp and paper mill in the third quarter of 2023

•

Lower operating expenses ($40 million) when compared to the first nine months of 2023 mostly due to to higher production, lower maintenance costs and lower freight costs partially offset by the sales of our Dryden pulp mill and the closure of our Espanola facility and Crofton paper machine, as well as the operations of our Kingsport mill, included in our first nine months of 2024 compare to three months in the first nine months of 2023 due to it start-up in the third quarter of 2023

•

Lower impairment of long-lived assets charges ($30 million) when compared to the first nine months of 2023 mostly due to the curtailment of our Crofton mill paper operation in 2023

•

Positive impact of a lower Canadian dollar on our Canadian dollar denominated expenses ($7 million)

These increases were partially offset by:

•

Lower net average selling prices for pulp and paper ($140 million)

•

Lower volume and mix ($23 million)

•

Higher depreciation charges ($16 million) when compared to the first nine months of 2023 mostly due to the accelerated depreciation related to our Ashdown paper machine curtailment announced in February 2024 as well as depreciation charges from our recently converted Kingsport mill, included in our first nine months of 2024 results

•

Lower other operating income ($8 million)

PULP AND TISSUE



	Three months ended							Nine months ended
(In millions of dollars, unless otherwise noted)	September 30, 2024		September 30, 2023		variance $			September 30, 2024		September 30, 2023		variance $
Sales
Paper	$	179	$	157	$	22		$	555	$	440	$	115
Pulp		138		111		27			399		259		140
Tissue		55		58		(3	)		168		135		33
Total sales	$	372	$	326	$	46		$	1,122	$	834	$	288
Operating income from continuing operations	$	21	$	4	$	17		$	28	$	8	$	20

Shipments
Paper (in thousands of ST)		270		218		52			827		573		254
Pulp (in thousands of ADMT)		154		141		13			477		305		172
Tissue (in thousands of ST) (1)		24		24		-			73		56		17

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

Sales

Pulp and Tissue segment sales in our third quarter of 2024 increased by $46 million, or 14%, when compared to sales in the third quarter of 2023. This increase in sales is mostly due to an increase in our pulp and paper sales volume as well as an increase in our net average selling prices for pulp, partially offset by a decrease in our net average selling prices for paper.

Pulp and Tissue segment sales in our first nine months of 2024 increased by $288 million, or 35%, when compared to sales in the first nine months of 2023. The inclusion of three months of sales of Resolute in the first quarter of 2024 compared to one month of sales in the first quarter of 2023, resulted in an increase in sales of $224 million. Excluding the impact of two additional months of sales of Resolute in our first nine months of 2024 when compared to our first nine months of 2023, our sales increased by $64 million, mostly due to an increase in our pulp and paper sales volume as well as an increase in our net average selling prices for pulp, partially offset by a decrease in our net average selling prices for paper.

Operating income from continuing operations

Operating income from continuing operations in our Pulp and Tissue segment amounted to $21 million in the third quarter of 2024, an increase of $17 million, when compared to operating income from continuing operations of $4 million in the third quarter of 2023. Our results were positively impacted by:

•

Lower operating expenses ($6 million) when compared to the third quarter of 2023

•

Lower depreciation ($5 million)

•

Higher volume and mix ($4 million)

•

Positive impact of a lower Canadian dollar on our Canadian dollar denominated expenses ($3 million)

•

Higher average selling prices ($2 million)

These increases were partially offset by:

•

Higher input costs ($3 million)

Operating income from continuing operations in our Pulp and Tissue segment amounted to $28 million for our first nine months of 2024, an increase of $20 million when compared to operating income from continuing operation of $8 million in the first nine months of 2023. The inclusion of three months of results of Resolute in the first quarter of 2024 compared to one month of results in the first quarter of 2023, resulted in an increase in operating income from continuing operations of $13 million. Excluding the impact of two additional months of results of Resolute in our first nine months of 2024 when compared to our first nine months of 2023, our results were positively impacted by:

•

Lower operating expenses ($31 million) mostly due to lower maintenance

•

Lower input costs ($6 million) mostly related to lower costs of fiber and chemicals

•

Higher volume and mix ($6 million)

•

Higher net average selling prices for pulp ($8 million)

•

Positive impact of a lower Canadian dollar on our Canadian dollar denominated expenses ($6 million)

These increases were partially offset by:

•

Lower net average selling prices for paper ($53 million)

WOOD PRODUCTS


	Three months ended									Nine months ended
(In millions of dollars, unless otherwise noted)	September 30, 2024			September 30, 2023			variance $			September 30, 2024			September 30, 2023			variance $
Sales	$	232		$	253		$	(21	)	$	727		$	620		$	107
Operating Loss from continuing operations	$	(35	)	$	(32	)	$	(3	)	$	(103	)	$	(58	)	$	(45	)

Shipments
Wood products (in millions board feet) (1)		513			511			2			1,560			1,261			299

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

Sales

Wood Products segment sales in our third quarter of 2024 decreased by $21 million, or 8%, when compared to sales in the third quarter of 2023. This decrease in sales is mostly due to a decrease in our net average selling prices.

Wood Products segment sales in our first nine months of 2024 increased by $107 million, or 17%, when compared to sales in the first nine months of 2023. The inclusion of three months of sales of Resolute in the first quarter of 2024 compared to one month of sales in the first quarter of 2023, resulted in an increase in sales of $147 million. Excluding the impact of two additional months of sales of Resolute in our first nine months of 2024 when compared to our first nine months of 2023, our sales decreased by $40 million, mostly due to a decrease in our net average selling prices.

Operating loss from continuing operations

Operating loss from continuing operations in our Wood Products segment amounted to $35 million in the third quarter of 2024, an increase in loss of $3 million, when compared to operating loss from continuing operations of $32 million in the third quarter of 2023.

Our results were negatively impacted by:

•

Lower net average selling prices for wood products ($24 million)

This decrease was partially offset by:

•

Lower input costs ($9 million) mostly related to lower costs of fiber

•

Positive impact of a lower Canadian dollar on our Canadian dollar denominated expenses ($3 million)

•

Lower operating expenses ($9 million)

Operating loss from continuing operations in our Wood Products segment amounted to $103 million for our first nine months of 2024, an increase in loss of $45 million when compared to operating loss from continuing operation of $58 million in the first nine months of 2023. The inclusion of three months of results of Resolute in the first quarter of 2024 compared to one month of results in the first quarter of 2023, resulted in an increase in operating loss from continuing operations of $9 million. Excluding the impact of two additional months of results of Resolute in our first nine months of 2024 when compared to our first nine months of 2023, our results were negatively impacted by:

•

Lower net average selling prices for wood products ($38 million)

•

Unfavorable inventory valuation variance ($45 million)

These decreases were partially offset by:

•

Lower input costs ($26 million) mostly related to lower costs of fiber due in part to costs related to the forest fires in Quebec regions, Canada in the second quarter of 2023

•

Positive impact of a lower Canadian dollar on our Canadian dollar denominated expenses ($7 million)

•

Lower cash deposits for duties ($2 million)

•

Lower operating expenses ($11 million)

LIQUIDITY AND CAPITAL RESOURCES

Our principal cash requirements are for ongoing operating costs, pension contributions, working capital and capital expenditures, as well as principal and interest payments on our debt and income tax payments. We expect to fund our liquidity needs primarily with internally generated funds from our operations and, to the extent necessary, through borrowings under our $1.0 billion ABL Revolving Credit facility, of which $430 million was undrawn and available as of September 30, 2024. Under adverse market conditions, there can be no assurance that this facility would be available or sufficient. See “Capital Resources” below.

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

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

Operating Activities

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

Cash flows provided from operating activities, including discontinued operations, totaled $17 million in the first nine months of 2024, a $131 million difference compared to cash flows used for operating activities, including discontinued operations, of $114 million in the first nine months of 2023. This improvement in cash flows used for operating activities is primarily due to a decrease in working capital requirements as well as a reduction in our net loss. In addition, we had an income tax refund, net of payments, of $18 million during the first nine months of 2024, compared to income tax payments, net of refunds, of $68 million during the first nine months of 2023. For the three and nine months ended September 30, 2024, we contributed $20 million and $68 million, respectively (2023 – $17 million and $41 million, respectively) to the pension plans and $4 million and $11 million, respectively (2023 – $2 million and $9 million, respectively) to the other post-retirement benefit plans.

Investing Activities

Cash flows used for investing activities, including discontinued operations, in the first nine months of 2024 amounted to $105 million, a $806 million difference compared to cash flows used for investing activities, including discontinued operations, of $911 million in the first nine months of 2023.

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

The use of cash for investing activities in the first nine months of 2023 was mostly attributable to the acquisition of the Resolute business, net of cash acquired, of $1,098 million, additions to property, plant and equipment of $227 million and was partially offset by the proceeds from the sale of business, net of cash disposed, of $417 million and proceeds from the sale of property, plant and equipment of $7 million.

Our annual capital expenditures for 2024 are expected to total between $300 million and $320 million.

Financing Activities

Cash flows provided from financing activities, including discontinued operations, totaled $6 million in the first nine months of 2024 compared to cash flows provided from financing activities, including discontinued operations, of $1,111 million in the first nine months of 2023.

The cash flows provided from financing activities in the first nine months of 2024 was attributable to borrowings under our ABL Revolving Credit Facility ($71 million), partially offset by 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).

The primary source of cash flows provided from financing activities in the first nine months of 2023 was attributable to the proceeds from the issuance of the Farm Credit Term Loan ($930 million), issuance of capital ($583 million) and borrowings under our ABL Revolving Credit Facility ($335 million). This was partially offset by the partial repayment of our First Lien Term Loan Facility ($283 million), repayment of the assumed debt acquired under the Resolute Acquisition on March 1, 2023 ($307 million) and repayment to related party ($236 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 $2,444 million as of September 30, 2024 compared to $2,324 million as of December 31, 2023.

ABL Revolving Credit Facility

On March 1, 2023, we amended our ABL Revolving Credit Facility to mature on March 1, 2028 (extended from November 30, 2026). Our ABL Revolving Credit Facility provides for revolving loans and letters of credit in an aggregate amended amount of up to $1.0 billion (up from $400 million), subject to borrowing base capacity. On March 1, 2023, the ABL Revolving Credit Facility was drawn by $210 million to partially fund the Acquisition.

Borrowings under the ABL Revolving Credit Facility bear 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. The base rate is subject to an interest rate floor of 1.00%. 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 $87.5 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 twelve month period. This covenant did not apply as at September 30, 2024.

On September 30, 2024, we had borrowings of $406 million and $164 million of letters of credit outstanding under this facility, leaving unused commitments available to us of $430 million.

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 ended September 30, 2024, 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, 2024, there were $616 million of borrowings under the Farm Credit Term Loan A and $258 million of borrowings under the Farm Credit Term Loan B.

First Lien Term Loan Facility

On November 30, 2021, we entered into a First Lien Term Loan Facility maturing November 30, 2028, of which $525 million was immediately drawn and up to $250 million was available as a Delayed Draw Term Loan. On January 7, 2022, we utilized $127 million under the Delayed Draw Term Loan facility to fund a portion of the redemptions of the Existing Domtar Notes pursuant to the Domtar

Notes Change of Control Offers that terminated on January 3, 2022. The remainder of the Delayed Draw Term Loan facility was cancelled.

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 ended September 30, 2024, we repaid $5 million as required for quarterly amortization. At September 30, 2024, there were $330 million of borrowings outstanding under the Term Loan Facility. In the third quarter of 2023, we repaid $5 million as required for quarterly amortization and we also repaid $283 million on March 1, 2023 pursuant to the Acquisition and related to the issue of the Farm Credit Term Loan B for $283 million.

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.

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.

Pending completion of the Domtar Existing Notes Change of Control Offers that terminated on January 3, 2022, $250 million of the proceeds of the Notes issue were set aside as restricted cash to fund approximately half of the funds required to complete the Change of Control Offers. Such funds were reflected as restricted cash and included in Cash and cash equivalents on the Balance Sheet at December 31, 2021. Funds not utilized were to be used to redeem a portion of the Senior Secured Notes at a 100% price. On January 7, 2022, $133 million of the Senior Secured Notes were redeemed as a result of the Domtar Existing Notes Change of Control Offers that terminated on January 3, 2022, leaving $642 million of Notes outstanding as of September 30, 2024.

Secured Debt Attributes

We are required to offer to prepay the loans under the Farm Credit Term Loan, the First Lien 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 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. and Canadian subsidiaries, and a second-priority lien on the fixed assets of our wholly-owned material U.S. subsidiaries, excluding principal properties (second in priority to the liens securing our First Lien Term Loan Facility (“First Lien Term Loan Facility”) discussed above), 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 and the Senior Secured Notes have a first priority lien on the fixed assets of our wholly-owned material U.S. subsidiaries, representing 53% 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, 2024, $116 million of the 6.25% Notes due 2042 and $150 million of the 6.75% Notes due 2044, remain outstanding.

Due to Related Party

Following the acquisition of SPI, on June 29, 2023, the purchase price of $185 million was financed by the seller, an affiliated company with the issuance by Domtar of a $50 million unsecured note due July 15, 2023, a $35 million unsecured note due after June 30, 2031 and $100 million preferred shares redeemable by the holder after June 30, 2031, with Domtar having the option to satisfy the redemption with cash or Domtar securities. For more information, refer to Item 1, Financial Statements and Supplementary Data under Note 3 “Acquisition and sale of businesses” and Note 15 “Related Party Transaction”.

Redemption of Resolute Notes

Resolute had $300 million of notes outstanding upon the Acquisition taking place. On February 14, 2023, Resolute delivered notice of redemption to holders of the 4.875% Senior Notes due 2026. The redemption notice provided for the full redemption of $300 million principal amount of the notes on March 1, 2023 at a redemption price equal to 102.438% of the principal amount of the Notes redeemed, plus accrued and unpaid interest. The redemption of the Notes was subject to the consummation of the Acquisition. Following the redemption on March 1, 2023, no Resolute notes remain outstanding.

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, 2024, 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, 2024, 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, 2023.

There has not been any material change to our policies since December 31, 2023.

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. 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 that could cause actual results to differ materially from historical results or those anticipated. 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:

•

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

•

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

•

asset conversion costs in excess of our expectations;

•

demand for linerboard;

•

product selling prices;

•

cyclicality of sales and prices in the lumber market;

•

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

•

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

•

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

•

significant indebtedness and resulting financial leverage;

•

performance of our manufacturing operations, including unexpected maintenance requirements;

•

the level of competition from domestic and foreign producers;

•

cyberattacks or other security breaches;

•

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

•

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

•

transportation costs;

•

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

•

legal proceedings;

•

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

•

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

•

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

•

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

•

the other factors described under “Risk Factors”, in item 1A of our Annual Report on Form 10-K, for the year ended December 31, 2023.

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Information relating to quantitative and qualitative disclosure about market risk is contained in our Annual Report on Form 10-K for the year ended December 31, 2023. There has not been any material change in our exposure to market risk since December 31, 2023. A full discussion on Quantitative and Qualitative Disclosure about Market Risk, is found in Note 5 “Derivatives and Hedging Activities and Fair Value Measurement,” of the financial statements in this Quarterly Report on Form 10-Q.

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


SENSITIVITY ANALYSIS
(In millions of dollars, unless otherwise noted)
Each $10/unit change in the selling price of the following products1:
Papers			38
Pulp - net position			22
Wood			21
Tissue			1

Foreign exchange
(US $0.01 change in relative value to the Canadian dollar before hedging)			35
Energy 2
Natural gas: $0.25/MMBtu change in price before hedging			9

1. Based on estimated 2024 capacity (ST, ADMT or MBF).

2. Based on estimated 2024 consumption levels. The allocation between energy sources may vary during the year in order to take advantage of market condition.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our reports under the Securities and Exchange Act of 1934, as amended (“Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. As of September 30, 2024, an evaluation was performed by members of management, at the direction and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Exchange Act). Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2024, our disclosure controls and procedures were effective.

Change in Internal Control over Financial Reporting

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

PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

See Note 13 “Commitments and Contingencies” of the financial statements in this Quarterly Report on Form 10-Q for the discussion regarding legal proceedings.

ITEM 1A. RISK FACTORS

Our Annual Report on Form 10-K for the year ended December 31, 2023, contains important risk factors that could cause our actual results to differ materially from those projected in any forward-looking statement. There were no material changes to the risk factors described in our Annual Report on Form 10-K for the year ended December 31, 2023.

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

As of September 30, 2024, there are no publicly traded common shares of Domtar Corporation.

ITEM 3. DEFAULT UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

On November 1, 2024, the Company acquired Iconex Paper from a portfolio company owned by an investment fund managed by Atlas Holdings for a purchase price of $210 million in cash, subject to customary post-closing adjustments. Of the purchase price, $100 million was funded through a contribution to equity by the Parent company. The assets acquired include facilities in Arizona, Kansas, Tennessee, Virginia, and Mexico as well as customary production and other equipment and current assets. Based upon recent results, Iconex Paper has an estimated annual run rate sales of approximately $300 million and EBITDA of approximately $50 million and employs 400 employees. The description of the transaction does not purport to be complete and is qualified in its entirety by reference to the Equity Purchase Agreement by and among Atlas Receiptco Holdings LLC, and, Domtar Paper Company, LLC, dated as of November 1, 2024 and by reference to the Asset Purchase Agreement by and among Iconex (Canada) Ltd., and, Domtar Inc. The Equity Purchase Agreement is filed as Exhibit 2.1 and the Asset Purchase Agreement is filed as Exhibit 2.2, to this Form 10-Q, the contents of which are incorporated herein by reference.

ITEM 6. EXHIBITS


Exhibit Number	Exhibit Description	Form	Exhibit	Filing Date
2.1	Equity Purchase Agreement, dated November 1, 2024, between Atlas Receiptco Holdings LLC and Domtar Paper Company, LLC

2.2	Asset Purchase Agreement, dated November 1, 2024, between Iconex (Canada) Ltd. and Domtar Inc.

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

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

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

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

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

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

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

SIGNATURE

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


DOMTAR CORPORATION

Date: November 4, 2024

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

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Legalese
Litigous
Readability	H.S. junior Avg

Large accelerated filer

Accelerated filer

Non-accelerated filer

Small reporting company

Emerging growth company