RAYONIER ADVANCED MATERIALS INC. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following analysis of our financial condition and results of operations should be read in conjunction with our Financial Statements and the notes thereto included in this Quarterly Report on Form 10-Q and with our 2022 Form 10-K and information contained in subsequent Forms 8-K and other reports filed with the SEC. Forward-Looking Statements Certain statements in this Quarterly Report on Form 10-Q regarding anticipated financial, business, legal or other outcomes, including business and market conditions, outlook and other similar statements relating to future events, developments or financial or operational performance or results, are “forward-looking statements” made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. These forward-looking statements are identified by the use of words such as “may,” “will,” “should,” “could,” “expect,” “estimate,” “believe,” “intend,” “plan,” “forecast,” “anticipate,” “project,” “guidance” and other similar language. However, the absence of these or similar words or expressions does not mean that a statement is not forward-looking. Forward-looking statements are not guarantees of future performance or events and undue reliance should not be placed on these statements. Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, we can give no assurance that these expectations will be attained, and it is possible that actual results may differ materially from those indicated by these forward-looking statements due to a variety of risks and uncertainties. T he risk factors contained in Item 1A—Risk Factors of our 2022 Form 10-K, among others, could cause actual results or events to differ materially from our historical experience and those expressed in forward-looking statements made in this report. Forward-looking statements are only as of the date of the filing of this Quarterly Report on Form 10-Q and we undertake no duty to update its forward-looking statements except as required by law. You are advised to review any further disclosures that we have made or may make in our filings and other submissions to the SEC, including those on Forms 10-K, 10-Q, 8-K and other reports. Business Overview We are a global leader of specialty cellulose materials with a broad offering of high purity cellulose specialties, a natural polymer used in the production of a variety of specialty chemical products, including liquid crystal displays, filters, textiles and performance additives for pharmaceutical, food and other industrial applications. Building upon more than 95 years of experience in cellulose chemistry, we provide some of the highest quality high-purity cellulose pulp products that make up the essential building blocks for our customers’ products while providing exceptional service and value. We also produce a unique, lightweight multi-ply paperboard product and a bulky, high-yield pulp product. Our paperboard is used for production in the commercial printing, lottery ticket and high-end packaging sectors. Our high-yield pulp is used by paperboard producers, as well as in traditional printing, writing and specialty paper manufacturing. We operate in the following business segments: High Purity Cellulose, Paperboard and High-Yield Pulp. Recent Business Developments • 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. • In March 2023, we repurchased $5 million of our 2024 Notes through open-market transactions and retired the notes for cash of $5 million. Market Assessment 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. 18 Table of Contents 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 and market-driven demand declines. 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. 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 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 High-yield pulp prices have declined due to soft demand and new paper pulp capacity ramping up. 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. We expect to take downtime in the coming quarter due to market conditions and to improve working capital. A Sustainable Future 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 $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. 19 Table of Contents Results of Operations 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 Cost of sales (360) (419) (1,160) (1,138) Gross margin 9 47 61 79 Selling, general and administrative expense (22) (20) (59) (68) Foreign exchange gain (loss) 1 3 (1) 4 Other operating expense, net (2) (1) (5) (5) Operating income (loss) (14) 29 (4) 10 Interest expense (21) (16) (52) (49) Other components of pension and OPEB, excluding service costs — 1 (1) 2 Gain on GreenFirst equity securities — — — 5 Other income, net 4 3 7 6 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) 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 % Operating margin % (3.8) % 6.2 % (0.3) % 0.8 % Effective tax rate 17.0 % (10.6) % 22.4 % (12.6) % Net Sales 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 Paperboard 57 66 164 183 High-Yield Pulp 25 40 111 102 Eliminations (5) (9) (20) (20) Net sales $ 369 $ 466 $ 1,221 $ 1,217 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. 20 Table of Contents Operating Income (Loss) 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 Paperboard 13 12 29 28 High-Yield Pulp (6) 6 2 4 Corporate (15) (11) (42) (43) Operating income (loss) $ (14) $ 29 $ (4) $ 10 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 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. Income Taxes 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, 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. 21 Table of Contents 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 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 Operating income (loss) $ (6) $ 22 $ 7 $ 21 Average sales prices ($ per MT) $ 1,215 $ 1,402 $ 1,282 $ 1,329 Sales volumes (thousands of MTs) 217 240 696 653 Net Sales - Three Months Ended Three Months Ended September 24, 2022 Changes Attributable to: Three Months Ended September 30, 2023 (in millions) Price Volume/Mix/Other Cellulose specialties $ 243 $ 9 $ (87) $ 165 Commodity products 93 (23) 29 99 Other sales (a) 33 — (5) 28 Net sales $ 369 $ (14) $ (63) $ 292 (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 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 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: Nine Months Ended September 30, 2023 (in millions) Price Volume/Mix/Other Cellulose specialties $ 645 $ 59 $ (133) $ 571 Commodity products 223 (21) 120 322 Other sales (a) 84 — (11) 73 Net sales $ 952 $ 38 $ (24) $ 966 (a) Includes sales of bioelectricity, lignosulfonates and other by-products to third parties. 22 Table of Contents 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 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 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) Sales Price Sales Volume/Mix/Other (a) Cost SG&A and other Operating income (loss) $ 22 $ (14) $ (32) $ 19 $ (1) $ (6) Operating margin % 6.0 % (3.7) % (10.5) % 6.5 % (0.4) % (2.1) % (a) Computed based on contribution margin. 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) Sales Price Sales Volume/Mix/Other (a) Cost SG&A and other Operating income $ 21 $ 38 $ (16) $ (39) $ 3 $ 7 Operating margin % 2.2 % 3.7 % (1.5) % (4.0) % 0.3 % 0.7 % (a) Computed based on contribution margin. 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. Paperboard 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 Operating income $ 13 $ 12 $ 29 $ 28 Average sales prices ($ per MT) $ 1,459 $ 1,587 $ 1,508 $ 1,450 Sales volumes (thousands of MTs) 39 41 109 126 Net Sales - 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 23 Table of Contents 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 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 September 24, 2022 Gross Margin Changes Attributable to: Three Months Ended September 30, 2023 (in millions, except percentages) Sales Price Sales Volume/Mix (a) Cost SG&A and other Operating income $ 12 $ (6) $ (1) $ 8 $ — $ 13 Operating margin % 18.2 % (8.2) % (1.2) % 14.0 % — % 22.8 % (a) Computed based on contribution margin. 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) Sales Price Sales Volume/Mix (a) Cost SG&A and other Operating income $ 28 $ 6 $ (10) $ 5 $ — $ 29 Operating margin % 15.3 % 2.7 % (3.3) % 3.0 % — % 17.7 % (a) Computed based on contribution margin. 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 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 Operating income (loss) $ (6) $ 6 $ 2 $ 4 Average sales prices ($ per MT) (a) $ 489 $ 712 $ 635 $ 630 Sales volumes (thousands of MTs) (a) 39 45 142 130 (a) External sales only. 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. 24 Table of Contents Net Sales - 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 $ 40 $ (11) $ (4) $ 25 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) Price Volume/Mix Net sales $ 102 $ 1 $ 8 $ 111 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 September 24, 2022 Gross Margin Changes Attributable to: Three Months Ended September 30, 2023 (in millions, except percentages) Sales Price Sales Volume/Mix (a) Cost SG&A and other Operating income (loss) $ 6 $ (11) $ (2) $ 1 $ — $ (6) Operating margin % 15.0 % (32.2) % (10.8) % 4.0 % — % (24.0) % (a) Computed based on contribution margin. 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) Sales Price Sales Volume/Mix (a) Cost SG&A and other Operating income $ 4 $ 1 $ 3 $ (6) $ — $ 2 Operating margin % 3.9 % 0.9 % 2.4 % (5.4) % — % 1.8 % (a) Computed based on contribution margin. 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. Corporate Three Months Ended Nine Months Ended (in millions) September 30, 2023 September 24, 2022 September 30, 2023 September 24, 2022 Operating loss $ (15) $ (11) $ (42) $ (43) 25 Table of Contents 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 Overview Cash flows from operations, primarily driven by operating results, have historically been our primary source of liquidity and capital resources. As operating cash flows can be negatively impacted by fluctuations in market prices for our commodity products and changes in demand for our products, we maintain a key focus on cash, managing working capital closely and optimizing the timing and level of our capital expenditures. Our Board of Directors suspended our quarterly common stock dividend in September 2019. No dividends have been declared since. The declaration and payment of future common stock dividends, if any, will be at the discretion of our Board of Directors and will be dependent upon our financial condition, results of operations, capital requirements and other factors that the Board of Directors deems relevant. In addition, our debt facilities place limitations on the declaration and payment of future dividends. 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 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 $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. 26 Table of Contents Our liquidity and capital resources are summarized below: (in millions, except ratios) September 30, 2023 December 31, 2022 Cash and cash equivalents (a) $ 27 $ 152 Availability under the ABL Credit Facility (b) 112 130 Total debt (c) 749 853 Stockholders’ equity 786 829 Total capitalization (total debt plus stockholders’ equity) 1,535 1,682 Debt to capital ratio 49 % 51 % (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 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. (c) See Note 7—Debt and Finance Leases to our Financial Statements for further information. Cash Requirements Contractual Commitments Our principal contractual commitments include standby letters of credit, surety bonds, guarantees, purchase obligations and leases. We utilize arrangements such as standby letters of credit and surety bonds to provide credit support for certain suppliers and vendors in case of their default on critical obligations, collateral for certain of our self-insurance programs and guarantees for the completion of our remediation of environmental liabilities. As part of our ongoing operations, we also periodically issue guarantees to third parties. 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 nine months ended September 30, 2023. See Note 17—Commitments and Contingencies to our Financial Statements for further information. Debt 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 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. 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 $1.25 million. Cash Flows Nine Months Ended (in millions) September 30, 2023 September 24, 2022 Cash flows provided by (used in): Operating activities $ 82 $ 7 Investing activities-continuing operations (95) (114) Investing activities-discontinued operations — 44 Financing activities (112) (51) 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. 27 Table of Contents 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 $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 The discussion below is presented to enhance the reader’s understanding of our operating performance, liquidity and ability to generate cash and satisfy rating agency and creditor requirements. This information includes the non-GAAP financial measures of EBITDA, adjusted EBITDA and adjusted free cash flows. These measures are not defined by GAAP and our discussion of them is not intended to conflict with or change any of our GAAP disclosures provided in this report. We believe these non-GAAP financial measures provide useful information to our Board of Directors, management and investors regarding our financial condition and results of operations. Our management uses these non-GAAP financial measures to compare our performance to that of prior periods for trend analyses, to determine management incentive compensation and for budgeting, forecasting and planning purposes. Our management considers these non-GAAP financial measures, in addition to operating income, to be important in estimating our enterprise and stockholder values and for making strategic and operating decisions. In addition, analysts, investors and creditors use these non-GAAP financial measures when analyzing our operating performance, financial condition and cash-generating ability. We use EBITDA and adjusted EBITDA as performance measures and adjusted free cash flows as a liquidity measure. We do not consider non-GAAP financial measures an alternative to financial measures determined in accordance with GAAP. The principal limitation of these non-GAAP financial measures is that they may exclude significant expense and income items that are required by GAAP to be recognized in our Financial Statements. In addition, they reflect the exercise of management’s judgment about which expense and income items are excluded or included in determining these non-GAAP financial measures. In order to compensate for these limitations, reconciliations of our non-GAAP financial measures to their most directly comparable GAAP financial measures are provided below. Non-GAAP financial measures are not necessarily indicative of results that may be generated in future periods and should not be relied upon, in whole or part, in evaluating our financial condition, results of operations or future prospects. 28 Table of Contents EBITDA and Adjusted EBITDA EBITDA is defined as earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA is defined as EBITDA adjusted for the settlement of certain pension plans and other items. Reconciliations of income (loss) from continuing operations to EBITDA and Adjusted EBITDA from continuing operations, by segment, follow: (in millions) 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) Depreciation and amortization 32 3 1 — 36 Interest expense, net — — — 19 19 Income tax benefit — — — (5) (5) EBITDA-continuing operations 27 17 (5) (16) 23 Loss on debt extinguishment — — — 1 1 Adjusted EBITDA-continuing operations $ 27 $ 17 $ (5) $ (15) $ 24 Three Months Ended September 24, 2022 Income (loss) from continuing operations $ 23 $ 12 $ 6 $ (23) $ 18 Depreciation and amortization 30 3 — 2 35 Interest expense, net — — — 17 17 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) Depreciation and amortization 91 10 2 1 104 Interest expense, net — — — 48 48 Income tax benefit — — — (11) (11) EBITDA-continuing operations 99 40 4 (43) 100 Pension settlement loss — — — 2 2 Adjusted EBITDA-continuing operations $ 99 $ 40 $ 4 $ (41) $ 102 Nine Months Ended September 24, 2022 Income (loss) from continuing operations $ 22 $ 29 $ 5 $ (87) $ (31) Depreciation and amortization 83 10 1 2 96 Interest expense, net — — — 49 49 Income tax expense — — — 3 3 EBITDA-continuing operations 105 39 6 (33) 117 Pension settlement loss — — — 1 1 Severance — — — 4 4 Adjusted EBITDA-continuing operations $ 105 $ 39 $ 6 $ (28) $ 122 29 Table of Contents 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. Adjusted Free Cash Flows Adjusted free cash flows is defined as cash provided by operating activities of continuing operations adjusted for capital expenditures, net of proceeds from the sale of assets and excluding strategic capital expenditures deemed discretionary by management. Adjusted free cash flows is a non-GAAP financial measure of cash generated during a period, which is available for debt reduction, strategic capital expenditures, acquisitions and repurchases of our common stock. Adjusted free cash flows is not necessarily indicative of the adjusted free cash flows that may be generated in future periods. Cash flows of operating activities of continuing operations is reconciled to adjusted free cash flows as follows: Nine Months Ended (in millions) September 30, 2023 September 24, 2022 Cash provided by operating activities-continuing operations $ 82 $ 7 Capital expenditures, net (a) (55) (92) Adjusted free cash flows-continuing operations $ 27 $ (85) (a) Net of proceeds from the sale of assets and excluding strategic capital expenditures. 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. See Cash Flows above for additional discussion of our operating cash flows.