What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-11-08 compared with 2023-08-09 · 143 added, 152 removed, 242 unchanged (55% of the section changed)

19 unchanged sentences

Recent Business Developments

• In July 2023, we secured term loan financing of $250 million in aggregate principal amount, the proceeds of which will be used, together with cash on hand, to redeem the remaining $318 million in aggregate principal balance of the 2024 Notes.

• In July 2023, we secured term loan financing of $250 million in aggregate principal amount, the proceeds of which were used, together with cash on hand, to redeem the $318 million principal balance of the 2024 Notes in August 2023.

• In April 2023, we repurchased $10 million of our 2026 Notes through open-market transactions and retired the notes for cash of $9 million.

1 unchanged sentence

Market Assessment

This market assessment represents our best current estimate of our business segments’ future performance.

In October 2023, we announced that we engaged a financial advisor to explore the potential sale of our Paperboard and High-Yield Pulp assets located at our Temiscaming site.

This strategic move is aligned with our commitment to enhancing our operational and financial performance, optimizing our portfolio to align with our long-term growth strategy and providing flexibility to pay down debt and reduce leverage.

The following market assessment represents our best current estimate of our business segments’ future performance.

High Purity Cellulose

Average sales prices for cellulose specialties in 2023 are expected to be in the high single-digit percent higher than average 2022 sales prices, while sales volumes are expected to decrease from prior year due to softness in sales orders driven principally by significant customer destocking.

Market demand for commodity products remains resilient but at lower prices than the first half of the year, in line with industry forecasts.

Market demand for commodity products remains resilient with fluff and viscose prices bottoming in the third quarter and a slight uptick expected in the fourth quarter.

Commodity sales volumes are expected to continue to increase through the end of 2023.

The prices for certain inputs have come off the 2022 highs but are expected to remain significantly elevated versus pre-COVID pandemic levels.

Paperboard prices are expected to moderate over the balance of the year but remain elevated from 2022 levels, while sales volumes are expected to improve in the second half of the year.

Raw material prices are expected to moderate further as pulp markets decline.

We expect to take downtime at our Tartas facility at the end of 2023 due to market conditions and to improve working capital.

We recently began plans towards a realignment of our High Purity Cellulose assets to optimize production mix, including a consolidation of our commodity products production into the Temiscaming plant.

We are currently evaluating the potential impact of this realignment on our consolidated financial statements and disclosures.

Paperboard prices are expected to rebound slightly in the fourth quarter, remaining elevated from 2022 levels, while sales volumes are expected to improve in the second half of the year as customer inventories return to more normal levels.

Raw material prices are expected to increase slightly as purchased pulp prices are forecast to increase in the fourth quarter.

We expect to take downtime in the coming quarter due to market conditions and to improve working capital.

High-Yield Pulp

1 unchanged sentence

Prices are expected to decline overall in 2023 despite an expected uptick in the fourth quarter, in line with industry forecasts for the global paper pulp market.

Sales volumes are expected to decline in the coming quarter as we take downtime in the third quarter due to market conditions.

We expect to take downtime in the coming quarter due to market conditions and to improve working capital.

A Sustainable Future

We continue to focus on growing our bio-based product offering and expect to grow our biomaterials sales and increase overall margins over time.

The bioethanol facility at our Tartas, France plant is under construction and is anticipated to be operational in early 2024.

Our portfolio is aligned with sustainability drivers in the European Green Deal for the Renewable Energy Directive II and the 2G bio-fuel that is noncompetitive to human food supply.

The 2G bioethanol facility at our Tartas, France plant is near completion and is anticipated to be operational in the first quarter of 2024.

The total estimated cost of the project is approximately $40 million, with $22 million to be spent in 2023.

We plan to utilize $28 million of low-cost green loans to help fund the project, including $8 million already raised, and $4 million in grants.

The project is expected to provide $8 million to $10 million of annual incremental EBITDA, based on current exchange rates, beginning in 2025.

We plan to utilize $28 million of low-cost green loans to help fund the project, including $10 million already borrowed, and $4 million in grants.

The project is expected to provide $8 million to $10 million of annual incremental EBITDA, depending on current exchange rates, beginning in 2025.

Results of Operations

Three Months Ended Six Months Ended

(in millions, except percentages) July 1, 2023 June 25, 2022 July 1, 2023 June 25, 2022

Three Months Ended Nine Months Ended

(in millions, except percentages) September 30, 2023 September 24, 2022 September 30, 2023 September 24, 2022

Net sales $ 369 $ 466 $ 1,221 $ 1,217

7 unchanged sentences

Other components of pension and OPEB, excluding service costs — 1 (1) 2

Gain (loss) on GreenFirst equity securities — (4) — 5

Gain on GreenFirst equity securities — — — 5

Other income, net 4 3 7 6

Loss from continuing operations before income taxes (19) (20) (19) (43)

Income (loss) from continuing operations before income taxes (31) 17 (50) (26)

Income tax (expense) benefit 5 2 11 (3)

Equity in loss of equity method investment (1) (1) (2) (2)

Loss from continuing operations (16) (25) (14) (49)

Income (loss) from discontinued operations, net of taxes (1) 2 (1) 1

Net loss $ (17) $ (23) $ (15) $ (48)

Income (loss) from continuing operations (27) 18 (41) (31)

Income from discontinued operations, net of taxes 2 12 1 12

Net income (loss) $ (25) $ 30 $ (40) $ (19)

Gross margin % 2.4 % 10.1 % 5.0 % 6.5 %

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Effective tax rate 17.0 % (10.6) % 22.4 % (12.6) %

Three Months Ended Six Months Ended

(in millions) July 1, 2023 June 25, 2022 July 1, 2023 June 25, 2022

Three Months Ended Nine Months Ended

(in millions) September 30, 2023 September 24, 2022 September 30, 2023 September 24, 2022

High Purity Cellulose $ 292 $ 369 $ 966 $ 952

3 unchanged sentences

Net sales $ 369 $ 466 $ 1,221 $ 1,217

Net sales for the quarter ended July 1, 2023 decreased $14 million, or 4 percent, compared to the same prior year quarter, driven by lower commodity products sales prices in our High Purity Cellulose segment and lower sales volumes in cellulose specialties and our Paperboard segment, partially offset by higher sales prices in cellulose specialties, Paperboard and High-Yield Pulp and higher sales volumes in commodity products and High-Yield Pulp.

Net sales for the six months ended July 1, 2023 increased $101 million or 13 percent, compared to the same prior year period, driven primarily by higher sales prices across all segments and higher sales volumes in commodity products and our High-Yield Pulp segment, partially offset by lower sales volumes in cellulose specialties and our Paperboard segment.

Net sales for the quarter ended September 30, 2023 decreased $97 million, or 21 percent, compared to the same prior year quarter, driven by lower sales prices in commodity products, lower sales volumes in cellulose specialties and lower sales prices and sales volumes across our Paperboard and High-Yield Pulp segments, partially offset by higher sales prices in cellulose specialties and higher sales volumes in commodity products.

Net sales for the nine months ended September 30, 2023 increased $4 million, less than 1 percent, compared to the same prior year period, driven by higher sales prices in cellulose specialties and our Paperboard and High-Yield Pulp segments and higher sales volumes in commodity products and our High-Yield Pulp segment, offset by lower sales prices in commodity products and lower sales volumes in cellulose specialties and our Paperboard segment.

See Operating Results by Segment below for further discussion.

Operating Income (Loss)

Three Months Ended Six Months Ended

(in millions) July 1, 2023 June 25, 2022 July 1, 2023 June 25, 2022

Three Months Ended Nine Months Ended

(in millions) September 30, 2023 September 24, 2022 September 30, 2023 September 24, 2022

High Purity Cellulose $ (6) $ 22 $ 7 $ 21

3 unchanged sentences

Operating income (loss) $ (14) $ 29 $ (4) $ 10

Operating loss for the quarter ended July 1, 2023 increased $4 million, or 133 percent, compared to the same prior year quarter, driven by the decrease in net sales and increased labor, maintenance, input and logistics costs, partially offset by a decrease in Corporate expense items.

Operating results for the six months ended July 1, 2023 improved $29 million, or 153 percent, compared to the same prior year period, driven by the increase in net sales and a decrease in Corporate expense items, partially offset by increased labor, maintenance, input and logistics costs.

Included in operating results in the current three- and six-month periods was the recognition of a $3 million benefit from payroll tax credit carryforwards.

Operating results for the quarter ended September 30, 2023 declined $43 million, or 148 percent, compared to the same prior year quarter, driven by the decrease in net sales across all segments and an increase in Corporate expense items, partially offset by lower input, logistics and maintenance costs.

Operating results for the nine months ended September 30, 2023 declined $14 million, or 140 percent, compared to the same prior year period, driven by lower net sales in our Paperboard segment, higher labor costs and the impact of an extended maintenance outage in the prior year, partially offset by the increase in net sales in our High Purity Cellulose and High-Yield Pulp segments, lower input and logistics costs and the recognition of a $3 million benefit from payroll tax credit carryforwards in the current period.

See Operating Results by Segment below for further discussion.

Non-Operating Income & Expense

Included in “other income, net” in the three and six months ended July 1, 2023 was a $2 million gain on a passive land sale and a $1 million net gain on debt extinguishment, partially offset by unfavorable foreign exchange rates.

Also included in the six-month period was a pension settlement loss of $2 million.

Included in non-operating in the three and six months ended June 25, 2022 was a $4 million loss and a $5 million gain, respectively, associated with the GreenFirst common shares received in connection with the sale of our lumber and newsprint assets.

The effective tax rate on the loss from continuing operations for the three and six months ended July 1, 2023 was a benefit of 18 percent and 32 percent, respectively.

Interest expense increased $5 million and $3 million during the quarter and nine months ended September 30, 2023, respectively, compared to the same prior year periods, primarily due to an increase in the average interest rate on debt, partially offset by a decrease in the average outstanding balance of debt.

Debt principal outstanding decreased $109 million from September 24, 2022 to September 30, 2023.

Interest income increased $2 million and $3 million during the quarter and nine months ended September 30, 2023, respectively, compared to the same prior year periods, primarily due to the timing of the receipt of the 2027 Term Loan proceeds and their subsequent use in the repayment of the 2024 Notes.

Also included in non-operating other income in the quarter ended September 30, 2023 was a $1 million net loss on debt extinguishment.

Included in the current nine-month period was a $2 million gain on a passive land sale and a pension settlement loss of $2 million.

Included in non-operating other income in the nine months ended September 24, 2022 was a $5 million net gain associated with the GreenFirst common shares received in connection with the sale of our lumber and newsprint assets.

The effective tax rate on the loss from continuing operations for the quarter and nine months ended September 30, 2023 was a benefit of 17 percent and 22 percent, respectively.

The 2023 effective tax rates differed from the federal statutory rate of 21 percent primarily due to disallowed interest deductions in the U.S.

and nondeductible executive compensation, offset by U.S.

tax credits, return-to-accrual adjustments related to previously filed tax returns and an excess tax benefit on vested stock compensation.

The effective tax rate on the loss from continuing operations for the three and six months ended June 25, 2022 was an expense of 18 percent and 12 percent, respectively.

The 2022 effective tax rates differed from the federal statutory rate of 21 percent primarily due to disallowed interest deductions in the U.S.

and nondeductible executive compensation, partially offset by U.S.

tax credits, return-to-accrual adjustments related to previously filed tax returns, changes in the valuation allowance on disallowed interest deductions and interest received on overpayments of tax from prior years.

The effective tax rate for the nine-month period was also impacted by an excess tax benefit on vested stock compensation.

The effective tax rate on the income from continuing operations for the quarter ended September 24, 2022 was a benefit of 11 percent.

The effective tax rate on the loss from continuing operations for the nine months ended September 24, 2022 was an expense of 13 percent.

The 2022 effective tax rates differed from the statutory rate of 21 percent primarily due to changes in the valuation allowance on disallowed interest deductions in the U.S., nondeductible executive compensation, interest received on overpayments of tax from prior years, U.S.

tax credits and tax return-to-accrual adjustments.

Discontinued Operations

During the third quarter of 2023, the USDOC completed its fourth administrative review of duties applied to Canada softwood lumber exports to the U.S.

during 2021 and reduced applicable rates to a combined 8.05 percent.

In connection with this development, we recorded a pre-tax gain of $2 million.

During the nine months ended September 30, 2023, we also incurred a $2 million loss related to the settlement of a claim pursuant to the representations and warranties in the asset purchase agreement.

During the third quarter of 2022, the USDOC completed its third administrative review of duties applied during 2020 and reduced applicable rates to a combined 8.6 percent, for which we recorded a pre-tax gain of $16 million.

Cumulative through September 30, 2023, we have recorded total gains of $40 million related to the USDOC administrative reviews, which are included as a long-term receivable within “other assets” in our consolidated balance sheets.

Operating Results by Segment

High Purity Cellulose

Three Months Ended Six Months Ended

(in millions, except where otherwise stated) July 1, 2023 June 25, 2022 July 1, 2023 June 25, 2022

Three Months Ended Nine Months Ended

(in millions, except where otherwise stated) September 30, 2023 September 24, 2022 September 30, 2023 September 24, 2022

Net sales $ 292 $ 369 $ 966 $ 952

5 unchanged sentences

Net Sales - Three Months Ended

Three Months Ended

June 25, 2022

Three Months Ended September 24, 2022

Changes Attributable to:

Three Months Ended

Three Months Ended September 30, 2023

(in millions) Price Volume/Mix/Other

3 unchanged sentences

Net sales $ 369 $ (14) $ (63) $ 292

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(a) Includes sales of bioelectricity, lignosulfonates and other by-products to third parties.

Net sales of our High Purity Cellulose segment for the quarter ended July 1, 2023 decreased $2 million compared to the same prior year quarter.

Net sales of our High Purity Cellulose segment for the quarter ended September 30, 2023 decreased $77 million compared to the same prior year quarter.

Included in the current and prior year quarters were $28 million and $33 million, respectively, of other sales primarily from bio-based energy and lignosulfonates.

Sales prices decreased 13 percent during the current quarter, driven by a 22 percent decrease in commodity products prices, partially offset by a 6 percent increase in cellulose specialties prices.

Total sales volumes increased 4 percent during the current quarter, driven by a 72 percent increase in commodity products volumes, partially offset by a 27 percent decrease in cellulose specialties volumes.

Sales volumes for cellulose specialties were negatively impacted by market-driven demand declines primarily due to significant customer destocking, particularly those customers associated with construction markets.

Net Sales - Six Months Ended

Six Months Ended

June 25, 2022

Total sales volumes decreased 10 percent during the current quarter, driven by a 36 percent decrease in cellulose specialties volumes, partially offset by a 37 percent increase in commodity products volumes.

Sales volumes for cellulose specialties were negatively impacted by significant customer destocking and market-driven demand declines, particularly in construction markets.

Net Sales - Nine Months Ended

Nine Months Ended September 24, 2022

Changes Attributable to:

Six Months Ended

Nine Months Ended September 30, 2023

(in millions) Price Volume/Mix/Other

3 unchanged sentences

Net sales $ 952 $ 38 $ (24) $ 966

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(a) Includes sales of bioelectricity, lignosulfonates and other by-products to third parties.

Net sales of our High Purity Cellulose segment for the six months ended July 1, 2023 increased $91 million compared to the same prior year period.

Net sales of our High Purity Cellulose segment for the nine months ended September 30, 2023 increased $14 million compared to the same prior year period.

Included in the current and prior year periods were $73 million and $84 million, respectively, of other sales primarily from bio-based energy and lignosulfonates.

Sales prices increased 2 percent during the current period, driven by increases in cellulose specialties and commodity products prices of 15 percent and 1 percent, respectively.

Sales prices decreased 4 percent during the current period, driven by an 8 percent decrease in commodity products prices, partially offset by a 12 percent increase in cellulose specialties prices.

Total sales volumes increased 7 percent during the current period, driven by a 57 percent increase in commodity products volumes, partially offset by a 21 percent decrease in cellulose specialties volumes.

Sales volumes for cellulose specialties were negatively impacted by market-driven demand declines primarily due to significant customer destocking, particularly in construction markets.

Operating Income - Three Months Ended

Three Months Ended

June 25, 2022 Gross Margin Changes Attributable to:

Three Months Ended

Sales volumes for cellulose specialties were negatively impacted by significant customer destocking and market-driven demand declines, particularly in construction markets.

Operating Income (Loss) - Three Months Ended

Three Months Ended September 24, 2022 Gross Margin Changes Attributable to:

Three Months Ended September 30, 2023

(in millions, except percentages)

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Cost SG&A and other

Operating income $ 7 $ 16 $ (10) $ (16) $ 3 $ —

Operating income (loss) $ 22 $ (14) $ (32) $ 19 $ (1) $ (6)

Operating margin % 6.0 % (3.7) % (10.5) % 6.5 % (0.4) % (2.1) %

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(a) Computed based on contribution margin.

Operating income of our High Purity Cellulose segment for the quarter ended July 1, 2023 decreased $7 million compared to the same prior year quarter, driven by the lower cellulose specialties sales volumes and commodity products sales prices and increased labor and maintenance costs due to inflation, partially offset by higher cellulose specialties sales prices and commodity products sales volumes and decreased costs of certain inputs.

Included in operating income in the current quarter was the recognition of a $3 million benefit from payroll tax credit carryforwards.

Operating Income (Loss) - Six Months Ended

Six Months Ended

June 25, 2022 Gross Margin Changes Attributable to:

Six Months Ended

Operating results of our High Purity Cellulose segment for the quarter ended September 30, 2023 declined $28 million compared to the same prior year quarter, driven by the lower cellulose specialties sales volumes and commodity products sales prices, partially offset by the higher cellulose specialties sales prices and commodity products sales volumes and decreased input, logistics and maintenance costs.

Operating Income - Nine Months Ended

Nine Months Ended September 24, 2022 Gross Margin Changes Attributable to:

Nine Months Ended September 30, 2023

(in millions, except percentages)

1 unchanged sentence

Cost SG&A and other

Operating income (loss) $ (1) $ 56 $ 16 $ (62) $ 4 $ 13

Operating income $ 21 $ 38 $ (16) $ (39) $ 3 $ 7

Operating margin % 2.2 % 3.7 % (1.5) % (4.0) % 0.3 % 0.7 %

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(a) Computed based on contribution margin.

The operating results of our High Purity Cellulose segment for the six months ended July 1, 2023 improved $14 million compared to the same prior year period, driven by the higher cellulose specialties and commodity products sales prices and commodity products sales volumes and decreased costs of certain inputs, partially offset by the decrease in cellulose specialties sales volumes and higher labor and maintenance costs due to inflation.

Included in operating income in the current period was the recognition of a $3 million benefit from payroll tax credit carryforwards.

Three Months Ended Six Months Ended

(in millions, except where otherwise stated) July 1, 2023 June 25, 2022 July 1, 2023 June 25, 2022

Operating income of our High Purity Cellulose segment for the nine months ended September 30, 2023 decreased $14 million compared to the same prior year period, driven by the lower cellulose specialties sales volumes and commodity products sales prices, higher labor costs due to inflation and the impact of the extended maintenance outage in the prior year, partially offset by the higher cellulose specialties sales prices and commodity products sales volumes, decreased input and logistics costs and the recognition of a $3 million benefit from payroll tax credit carryforwards.

Three Months Ended Nine Months Ended

(in millions, except where otherwise stated) September 30, 2023 September 24, 2022 September 30, 2023 September 24, 2022

Net sales $ 57 $ 66 $ 164 $ 183

3 unchanged sentences

Sales volumes (thousands of MTs)

39 41 109 126

Net Sales - Three Months Ended

Three Months Ended

June 25, 2022 Changes Attributable to:

Three Months Ended

Three Months Ended September 24, 2022 Changes Attributable to:

Three Months Ended September 30, 2023

(in millions) Price Volume/Mix

Net sales $ 66 $ (6) $ (3) $ 57

Net sales of our Paperboard segment for the quarter ended July 1, 2023 decreased $15 million compared to the same prior year quarter due to a 27 percent decrease in sales volumes, driven by lower productivity and customer destocking, partially offset by a 4 percent increase in sales prices, driven by continued demand for sustainable packaging.

Net Sales - Six Months Ended

Six Months Ended

June 25, 2022 Changes Attributable to:

Six Months Ended

Net sales of our Paperboard segment for the quarter ended September 30, 2023 decreased $9 million compared to the same prior year quarter driven by 8 percent and 5 percent decreases in sales prices, due to product mix, and sales volumes, due to market-driven demand declines, respectively.

Net Sales - Nine Months Ended

Nine Months Ended September 24, 2022 Changes Attributable to:

Nine Months Ended September 30, 2023

(in millions) Price Volume/Mix

Net sales $ 183 $ 6 $ (25) $ 164

Net sales of our Paperboard segment for the six months ended July 1, 2023 decreased $10 million compared to the same prior year period due to an 18 percent decrease in sales volumes, driven by lower productivity and customer destocking, partially offset by an 11 percent increase in sales prices, driven by continued demand for sustainable packaging.

Net sales of our Paperboard segment for the nine months ended September 30, 2023 decreased $19 million compared to the same prior year period driven by a 13 percent decrease in sales volumes due to customer destocking in the first half of 2023, partially offset by a 4 percent increase in sales prices, driven by continued demand for sustainable packaging.

Operating Income - Three Months Ended

Three Months Ended

June 25, 2022 Gross Margin Changes Attributable to:

Three Months Ended

Three Months Ended September 24, 2022 Gross Margin Changes Attributable to:

Three Months Ended September 30, 2023

(in millions, except percentages)

3 unchanged sentences

Operating margin % 18.2 % (8.2) % (1.2) % 14.0 % — % 22.8 %

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(a) Computed based on contribution margin.

Operating income of our Paperboard segment for the quarter ended July 1, 2023 decreased $4 million compared to the same prior year quarter, driven by the lower sales volumes, partially offset by the higher sales prices.

Operating Income - Six Months Ended

Six Months Ended

June 25, 2022 Gross Margin Changes Attributable to:

Six Months Ended

Operating income of our Paperboard segment for the quarter ended September 30, 2023 increased $1 million compared to the same prior year quarter, driven by lower purchased pulp costs that were largely offset by the lower sales prices and sales volumes.

Operating Income - Nine Months Ended

Nine Months Ended September 24, 2022 Gross Margin Changes Attributable to:

Nine Months Ended September 30, 2023

(in millions, except percentages)

3 unchanged sentences

Operating margin % 15.3 % 2.7 % (3.3) % 3.0 % — % 17.7 %

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(a) Computed based on contribution margin.

Operating income of our Paperboard segment for the six months ended July 1, 2023 was flat compared to the same prior year period, as the higher sales prices were offset by the lower sales volumes and higher purchased pulp, chemicals and energy costs.

Operating income of our Paperboard segment for the nine months ended September 30, 2023 increased $1 million compared to the same prior year period, driven by the higher sales prices and lower purchased pulp and maintenance costs that were largely offset by the lower sales volumes.

High-Yield Pulp

Three Months Ended Six Months Ended

(in millions, except where otherwise stated) July 1, 2023 June 25, 2022 July 1, 2023 June 25, 2022

Three Months Ended Nine Months Ended

(in millions, except where otherwise stated) September 30, 2023 September 24, 2022 September 30, 2023 September 24, 2022

Net sales $ 25 $ 40 $ 111 $ 102

5 unchanged sentences

(a) External sales only.

For the three months ended July 1, 2023 and June 25, 2022, the High-Yield Pulp segment sold 14,000 MTs and 17,000 MTs of high-yield pulp to the Paperboard segment for $6 million and $7 million, respectively.

For the six months ended July 1, 2023 and June 25, 2022, the High-Yield Pulp segment sold 32,000 MTs and 31,000 MTs of high-yield pulp to the Paperboard segment for $15 million and $13 million, respectively.

During the three months ended September 30, 2023 and September 24, 2022, the High-Yield Pulp segment sold 17,000 MTs and 16,000 MTs of high-yield pulp to the Paperboard segment for $6 million and $7 million, respectively.

During the nine months ended September 30, 2023 and September 24, 2022, the High-Yield Pulp segment sold 49,000 MTs and 47,000 MTs of high-yield pulp to the Paperboard segment for $21 million and $20 million, respectively.

Net Sales - Three Months Ended

Three Months Ended

June 25, 2022 Changes Attributable to:

Three Months Ended

Three Months Ended September 24, 2022 Changes Attributable to:

Three Months Ended September 30, 2023

(in millions)

1 unchanged sentence

Net sales $ 40 $ (11) $ (4) $ 25

Net sales of our High-Yield Pulp segment for the quarter ended July 1, 2023 increased $4 million compared to the same prior year quarter, driven by 5 percent and 9 percent increases in sales prices and sales volumes, respectively, driven by stronger demand, increased productivity and easing logistics constraints.

Net Sales - Six Months Ended

Six Months Ended

June 25, 2022 Changes Attributable to:

Six Months Ended

Net sales of our High-Yield Pulp segment for the quarter ended September 30, 2023 decreased $15 million compared to the same prior year quarter, driven by 31 percent and 13 percent decreases in sales prices and sales volumes, respectively, due to lower demand and opportunistic downtime taken in response to market conditions.

Net Sales - Nine Months Ended

Nine Months Ended September 24, 2022 Changes Attributable to:

Nine Months Ended September 30, 2023

(in millions)

1 unchanged sentence

Net sales $ 102 $ 1 $ 8 $ 111

Net sales of our High-Yield Pulp segment for the six months ended July 1, 2023 increased $24 million compared to the same prior year period, driven by 18 percent and 21 percent increases in sales prices and sales volumes, respectively, driven by stronger demand, increased productivity and easing logistics constraints.

Net sales of our High-Yield Pulp segment for the nine months ended September 30, 2023 increased $9 million compared to the same prior year period, driven by 1 percent and 9 percent increases in sales prices and sales volumes, respectively, due to stronger demand and easing logistics constraints.

Operating Income (Loss) - Three Months Ended

Three Months Ended

June 25, 2022 Gross Margin Changes Attributable to:

Three Months Ended

Three Months Ended September 24, 2022 Gross Margin Changes Attributable to:

Three Months Ended September 30, 2023

(in millions, except percentages)

3 unchanged sentences

Operating margin % 15.0 % (32.2) % (10.8) % 4.0 % — % (24.0) %

——————————————

(a) Computed based on contribution margin.

The operating results of our High-Yield Pulp segment for the quarter ended July 1, 2023 improved $3 million compared to the same prior year quarter, driven by the higher sales prices and sales volumes.

Operating Income (Loss) - Six Months Ended

Six Months Ended

June 25, 2022 Gross Margin Changes Attributable to:

Six Months Ended

Operating results of our High-Yield Pulp segment for the quarter ended September 30, 2023 declined $12 million compared to the same prior year quarter, driven by the lower sales prices and sales volumes.

Operating Income - Nine Months Ended

Nine Months Ended September 24, 2022 Gross Margin Changes Attributable to:

Nine Months Ended September 30, 2023

(in millions, except percentages)

1 unchanged sentence

Cost SG&A and other

Operating income (loss) $ (2) $ 13 $ 4 $ (7) $ — $ 8

Operating income $ 4 $ 1 $ 3 $ (6) $ — $ 2

Operating margin % 3.9 % 0.9 % 2.4 % (5.4) % — % 1.8 %

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(a) Computed based on contribution margin.

The operating results of our High-Yield Pulp segment for the six months ended July 1, 2023 improved $10 million compared to the same prior year period, driven by the higher sales prices and sales volumes, partially offset by increased wood and logistics costs and higher labor and maintenance costs due to inflation.

Three Months Ended Six Months Ended

Operating income of our High-Yield Pulp segment for the nine months ended September 30, 2023 decreased $2 million compared to the same prior year period, as the higher sales prices and sales volumes were more than offset by increased wood costs and higher labor costs due to inflation.

Three Months Ended Nine Months Ended

(in millions)

July 1, 2023 June 25, 2022 July 1, 2023 June 25, 2022

September 30, 2023 September 24, 2022 September 30, 2023 September 24, 2022

Operating loss $ (15) $ (11) $ (42) $ (43)

The Corporate operating loss for the three and six months ended July 1, 2023 decreased $4 million and $5 million, respectively, compared to the same prior year periods, driven by lower variable stock-based compensation costs and lower severance, partially offset by unfavorable foreign exchange rates in the current year periods.

The Corporate operating loss for the quarter ended September 30, 2023 increased $4 million compared to the same prior year quarter, driven by less favorable foreign exchange rates in the current quarter compared to the prior year quarter.

The Corporate operating loss for the nine months ended September 30, 2023 decreased $1 million compared to the same prior year period, driven by lower stock compensation and severance costs that were largely offset by unfavorable foreign exchange rates in the current year as compared to favorable rates in the prior year.

Liquidity and Capital Resources

6 unchanged sentences

In January 2018, our Board of Directors authorized a $100 million common stock share buyback program.

We did not repurchase any shares under this program during the three and six months ended July 1, 2023 and June 25, 2022, and do not expect to utilize any authorization in the future.

As of July 1, 2023, we were in compliance with all financial and other customary covenants under our credit arrangements.

We did not repurchase any shares under this program during the nine months ended September 30, 2023 and September 24, 2022, and do not expect to utilize any authorization in the future.

As of September 30, 2023, we were in compliance with all financial and other customary covenants under our credit arrangements.

We believe our future cash flows from operations, availability under our ABL Credit Facility and our ability to access the capital markets, if necessary or desirable, will be adequate to fund our operations and anticipated long-term funding requirements, including capital expenditures, defined benefit plan contributions and repayment of debt maturities.

Our non-guarantor subsidiaries had assets of $466 million, liabilities of $139 million, year-to-date revenue of $79 million and a trailing twelve month ABL Credit Facility covenant EBITDA for continuing operations of $34 million as of July 1, 2023.

Our non-guarantor subsidiaries had assets of $444 million, liabilities of $373 million, year-to-date revenue of $119 million and a trailing twelve month ABL Credit Facility and Term Loan covenant EBITDA for continuing operations of $29 million as of September 30, 2023.

Our liquidity and capital resources are summarized below:

(in millions, except ratios) July 1, 2023 December 31, 2022

(in millions, except ratios) September 30, 2023 December 31, 2022

Cash and cash equivalents (a)

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Debt to capital ratio 49 % 51 %

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(a) Cash and cash equivalents consist of cash, money market deposits and time deposits with original maturities of 90 days or less.

(a) Consist of cash, money market deposits and time deposits with original maturities of 90 days or less.

(b) Amounts available under the ABL Credit Facility fluctuate based on eligible accounts receivable and inventory levels.

At July 1, 2023, we had $143 million of gross availability and net available borrowings of $109 million after taking into account standby letters of credit of $34 million.

At September 30, 2023, we had $146 million of gross availability and net available borrowings of $112 million after taking into account standby letters of credit of $34 million.

In addition to the availability under the ABL Credit Facility, we have $8 million available under our accounts receivable factoring line of credit in France.

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Our primary purchase obligation payments relate to natural gas, steam energy and wood chips purchase contracts.

There have been no material changes to our contractual commitments outside the ordinary course of business during the six months ended July 1, 2023.

There have been no material changes to our contractual commitments outside the ordinary course of business during the nine months ended September 30, 2023.

See Note 17—Commitments and Contingencies to our Financial Statements for further information.

Senior Notes and Term Loan

In March 2023, we repurchased $5 million of our 2024 Notes through open-market transactions and retired the notes for cash of $5 million.

In April 2023, we repurchased $10 million of our 2026 Notes through open-market transactions and retired the notes for cash of $9 million.

In July 2023, we secured term loan financing of $250 million in aggregate principal amount and received net proceeds of $243 million after original issue discount, which will be used, together with cash on hand, to redeem the remaining $318 million in aggregate principal balance of the 2024 Notes and pay fees and expenses related to the transaction.

The 2027 Term Loan matures in July 2027, bears interest at an annual rate equal to three-month Term SOFR (or, if greater, 3.00 percent) plus 8.00 percent and requires quarterly principal payments of 0.50 percent of the initial principal amount.

Six Months Ended

(in millions) July 1, 2023 June 25, 2022

In July 2023, we secured term loan financing of $250 million in aggregate principal amount and received net proceeds of $243 million after original issue discount, which was used, together with cash on hand of $89 million, to redeem the remaining $318 million in aggregate principal balance and accrued interest of $4 million of the 2024 Notes and pay fees and expenses related to the transaction.

Nine Months Ended

(in millions) September 30, 2023 September 24, 2022

Cash flows provided by (used in):

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Financing activities (112) (51)

Cash provided by operating activities increased $120 million primarily due to increased cash inflows from working capital, partially offset by payments on deferred energy liabilities associated with our Tartas facility operations.

Cash provided by operating activities increased $75 million primarily due to increased cash inflows from working capital, partially offset by payments on deferred energy liabilities associated with our Tartas facility operations and the receipt in 2022 of a $23 million U.S.

federal tax refund.

Cash used in investing activities of continuing operations decreased $19 million due to lower capital spending.

Cash provided by investing activities of discontinued operations of $44 million in 2022 related to the proceeds from the sale of GreenFirst equity securities.

Cash used in financing activities increased $4 million primarily due to higher repurchases of common stock to satisfy tax withholding requirements related to the issuance of stock under our incentive stock plans and decreased borrowings of long-term debt, partially offset by lower repayments of long-term debt.

Cash used in financing activities increased $61 million primarily due to the redemption of the 2024 Notes and repayment of borrowings under the ABL Credit Facility and other long-term debt, the payment of issuance costs related to our 2027 Term Loan and higher repurchases of common stock to satisfy tax withholding requirements related to the issuance of stock under our incentive stock plans.

These outflows were partially offset by the net proceeds received from the 2027 Term Loan issuance and borrowings under the ABL Credit Facility.

Performance and Liquidity Indicators

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(in millions)

High Purity Cellulose Paperboard High-Yield Pulp Corporate & Other Total

Three Months Ended July 1, 2023

High Purity Cellulose Paperboard High-Yield Pulp Corporate Total

Three Months Ended September 30, 2023

Income (loss) from continuing operations $ (5) $ 14 $ (6) $ (30) $ (27)

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EBITDA-continuing operations 27 17 (5) (16) 23

Gain on debt extinguishment — — — (1) (1)

Loss on debt extinguishment — — — 1 1

Adjusted EBITDA-continuing operations $ 27 $ 17 $ (5) $ (15) $ 24

Three Months Ended June 25, 2022

Three Months Ended September 24, 2022

Income (loss) from continuing operations $ 23 $ 12 $ 6 $ (23) $ 18

1 unchanged sentence

Interest expense, net — — — 17 17

Income tax expense — — — 4 4

EBITDA-continuing operations 36 14 — (21) 29

Pension settlement loss — — — 1 1

Severance — — — 4 4

Adjusted EBITDA-continuing operations $ 36 $ 14 $ — $ (16) $ 34

Six Months Ended July 1, 2023

Income tax benefit — — — (2) (2)

EBITDA and Adjusted EBITDA-continuing operations $ 53 $ 15 $ 6 $ (6) $ 68

Nine Months Ended September 30, 2023

Income (loss) from continuing operations $ 8 $ 30 $ 2 $ (81) $ (41)

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Pension settlement loss — — — 2 2

Gain on debt extinguishment — — — (1) (1)

Adjusted EBITDA-continuing operations $ 99 $ 40 $ 4 $ (41) $ 102

Six Months Ended June 25, 2022

Nine Months Ended September 24, 2022

Income (loss) from continuing operations $ 22 $ 29 $ 5 $ (87) $ (31)

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Adjusted EBITDA-continuing operations $ 105 $ 39 $ 6 $ (28) $ 122

EBITDA from continuing operations for the quarter ended July 1, 2023 decreased $1 million compared to the same prior year quarter, driven by the decrease in net sales and increased labor, maintenance, input and logistics costs, offset by a decrease in Corporate expense items and the recognition of a $3 million benefit from payroll tax credit carryforwards.

EBITDA from continuing operations for the six months ended July 1, 2023 increased $28 million compared to the same prior year period, driven by the increase in net sales, a decrease in Corporate expense items and the income recognized on the payroll tax credit carryforwards, partially offset by increased labor, maintenance, input and logistics costs.

EBITDA from continuing operations for the quarter ended September 30, 2023 decreased $45 million compared to the same prior year quarter, driven by the decrease in net sales across all segments, partially offset by lower input, logistics and maintenance costs.

EBITDA from continuing operations for the nine months ended September 30, 2023 decreased $17 million compared to the same prior year period, driven by lower net sales in our Paperboard segment, higher labor costs and the impact of an extended maintenance outage in the prior year, partially offset by the increase in net sales in our High Purity Cellulose and High-Yield Pulp segments and lower input and logistics costs.

See Results of Operations above for additional discussion of the changes in our operating results.

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Cash flows of operating activities of continuing operations is reconciled to adjusted free cash flows as follows:

Six Months Ended

(in millions) July 1, 2023 June 25, 2022

Cash provided by (used in) operating activities-continuing operations $ 84 $ (36)

Nine Months Ended

(in millions) September 30, 2023 September 24, 2022

Cash provided by operating activities-continuing operations $ 82 $ 7

Capital expenditures, net (a)

Adjusted free cash flows-continuing operations $ 27 $ (85)

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(a) Net of proceeds from the sale of assets and excluding strategic capital expenditures.

Strategic capital expenditures for the six months ended July 1, 2023 and June 25, 2022 were $22 million and $16 million, respectively.

Strategic capital expenditures for the nine months ended September 30, 2023 and September 24, 2022 were $40 million and $22 million, respectively.

Adjusted free cash flows of continuing operations increased primarily due to changes in working capital and lower capital expenditures.

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis