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Item 7. Management’s Discussion and Analysis

2024-02-29 compared with 2023-03-01 · 139 added, 150 removed, 290 unchanged (50% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Financial Statements, the notes thereto, and the other financial information appearing elsewhere in this 2022 Form 10-K.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Financial Statements, the notes thereto, and the financial information appearing elsewhere in this 2023 Form 10-K.

The following discussion includes forward-looking statements that involve certain risks and uncertainties.

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For a discussion of year-over-year comparisons between 2022 and 2021 and other financial information related to 2021 that is not included in this 2023 Form 10-K, refer to Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 1, 2023.

Overview of Operations

We are a diversified global leader of cellulose-based technologies that operates in the following business segments:

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• High-Yield Pulp

Our High Purity Cellulose business has leading positions in the cellulose specialties markets.

In addition, our other business segments provide a more diversified earnings stream.

High Purity Cellulose

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Wood fiber, chemicals and energy represent approximately 50 percent of our per MT cost of sales.

Labor, manufacturing and maintenance supplies, depreciation, manufacturing overhead and transportation costs represented our remaining cost of sales.

Labor, manufacturing and maintenance supplies, depreciation, manufacturing overhead and transportation costs represent our remaining cost of sales.

We manufacture paperboard that is used for packaging, printing documents, brochures, promotional materials, paperback book and catalog covers, file folders, tags and lottery tickets.

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Recent Business Developments

• During the second, third and fourth quarters of 2022, we repurchased a total $47 million of our Senior Notes through open-market transactions and retired the notes for $47 million in cash.

• During the third and fourth quarters of 2022, we repaid CAD fixed interest rate term loans in the total amount of CAD $24 million (USD $18 million).

• During the second quarter of 2022, we sold the 28.7 million shares of GreenFirst common stock we received in connection with the August 2021 sale of our lumber and newsprint assets for $43 million.

The shares sale agreement contains a purchase price protection clause whereby we are entitled to participate in further stock price appreciation under certain circumstances until December 2023.

• During 2022, our business experienced a significant increase in the costs for wood, chemicals, energy and supply chain.

In response, we implemented a $146 per MT cost surcharge applicable to all shipments of our cellulose specialties, effective starting with shipments made on April 1, 2022 and later.

In connection with contract negotiations, the cost surcharge was phased out in early 2023.

• As of March 2022, our fluff pulp qualifies as an “Inspected Raw Material” by Nordic Swan Ecolabelling.

The Nordic Swan Ecolabel sets strict environmental requirements in all phases of manufacturing, including requirements for eco-friendly chemicals used in ecolabeled products.

The status will appear on products made with our fluff pulp and indicates to consumers and commercial buyers that the product is sustainably produced and environmentally friendly.

• On March 21, 2022, our Board of Directors adopted a stockholder rights plan and declared a dividend of one preferred share purchase right for each outstanding share of our common stock, par value $0.01 per share.

See Note 13 — Stockholders’ Equity to our Financial Statements for further information.

Market Assessment

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

• In January 2024, we amended our 2027 Term Loan agreement to increase the maximum consolidated secured net leverage ratio that we must maintain in the fourth quarter of 2023 and through fiscal year 2024.

In addition, should we exceed the maximum ratio established by the original agreement during this period, we will incur a fee of 0.25% of the principal balance outstanding at the end of the applicable quarter.

• In the fourth quarter of 2023, we recorded a non-cash impairment of $62 million related to certain assets at our Temiscaming and Jesup plants in conjunction with the optimization and realignment of our High Purity Cellulose assets.

This realignment reflects a strategic decision expected to reduce commodity exposure and earnings volatility and allow us to better manage excess capacity of cellulose specialties by operating assets based on current demand for each end market.

See Note 7—Property, Plant and Equipment, Net to our Financial Statements for further information.

• 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.

See Note 9—Debt and Finance Leases to our Financial Statements for further information on debt-related items.

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.

The process is ongoing for this strategic review, which is consistent with our commitment to align our portfolio with our long-term growth strategy and provide flexibility to pay down debt, reduce leverage and minimize earnings volatility.

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

High Purity Cellulose

Demand for cellulose specialties and commodity products is mixed.

Strength in acetate, casings, filtration and nitrocellulose end markets are offsetting softness for construction ethers, food additives in microcrystalline cellulose and tire cord.

Fluff market demand remains resilient but at lower prices than fourth quarter levels.

Viscose markets started the year soft, with signs of improvement as China’s economy reopens.

Average sales prices for cellulose specialties in 2023 are expected to be high single-digit percent higher than average 2022 sales prices.

Commodity sales prices are expected to decline versus 2022 levels, in line with industry forecasts for fluff and viscose cellulose pricing.

Commodity sales volumes are expected to increase as production and logistics constraints improve.

Raw material prices are expected to remain elevated, offset by benefits expected from prior strategic capital investments.

Paperboard prices for 2023 are expected to continue to increase from 2022 levels, driven by strong demand in both the packaging and commercial printing end markets.

Sales volumes are expected to increase slightly, driven by improved logistics, while raw material prices reduce as pulp markets decline.

Average sales prices for cellulose specialties in 2024 are expected to increase by a low single-digit percentage as compared to average sales prices in 2023.

Sales volumes for cellulose specialties are expected to remain flat compared to 2023 as increased volumes from the closure of a competitor’s plant are offset by a favorable change in customer contract terms in the first quarter of 2023 that is not expected to repeat in 2024.

Demand for RYAM cellulose specialties will be mixed.

Acetate is expected to experience moderate destocking.

Ethers volumes are anticipated to improve albeit at lower than historical levels.

Other cellulose specialties volumes will benefit from the closure of a competitor’s facility.

Demand for RYAM commodity products remains resilient with fluff and viscose prices expected to improve from the fourth quarter of 2023, however not to the level of realized prices in early 2023.

Commodity sales volumes are expected to increase in 2024 as we focus on improving productivity, with fluff volume expected to improve due to higher demand and both viscose and paper pulp sales volume expected to decrease.

Raw material input and logistics costs are expected to be lower in 2024.

Additionally, we expect to commission our bioethanol facility in Tartas in the first quarter of 2024.

With a gradual ramp up, we expect to deliver $4 million of EBITDA from bioethanol in 2024, growing to $8 million to $10 million beginning in 2025.

Overall, EBITDA is expected to remain relatively flat in the first quarter of 2024 compared to the fourth quarter of 2023, with a strong finish in the back half of 2024.

Paperboard prices in 2024 are expected to decrease slightly as compared to the fourth quarter of 2023, while sales volumes are expected to improve as production is ramped up to meet improved customer demand.

Raw material prices are expected to increase as purchased pulp prices are forecast to increase from fourth quarter 2023 levels.

Overall, EBITDA is expected to remain flat sequentially.

High-Yield Pulp

High-yield pulp markets have declined as global economic demand slows, impacting sales price.

The reopening of the Chinese economy may provide catalyst for more stable pricing.

Sales volumes are expected to improve slightly in 2023, primarily due to improved productivity and logistics.

A Sustainable Future

For over 95 years, we have invested in renewable product offerings and our biorefinery model provides a platform to grow existing and new products to address the needs of the changing economy.

We continue to focus on growing our bio-based product offering.

In 2022, other sales in our High Purity Cellulose segment were $115 million, primarily related to sales of bioelectricity and lignosulfonates.

We expect to grow these sales and increase overall margins over time.

Our bioethanol facility at our Tartas, France facility is anticipated to be operational in 2024.

The total estimated cost of the project is approximately $39 million, with $29 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 in 2022, and $4 million in grants.

The project is expected to provide $9 million to $11 million of annual incremental EBITDA beginning in 2024.

High-yield pulp prices are expected to increase in the first quarter of 2024 as we capture the value of higher index pricing from the latter part of the fourth quarter of 2023.

Sales volumes are also expected to increase in the first quarter as production is ramped up to meet customer demand.

Overall, we expect to generate positive EBITDA from this segment in the coming quarter.

Corporate costs are expected to be flat or increase slightly in 2024 as we complete the final year of our multi-year ERP implementation.

The project will enhance our operating and reporting systems and is expected to drive additional improvements and efficiencies beginning in 2025.

Biomaterials Strategy

As previously announced at our Investor Day in October 2023, we are investing in new products to provide both increased end market diversity and incremental profitability.

These new products will target the growing green energy and products markets.

The commissioning of the bioethanol facility is a significant milestone towards our goal of generating $42 million of annual EBITDA from these new products by 2027.

We are progressing several other initiatives and expect to make announcements on the progress of these initiatives throughout the year.

Results of Operations:

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Selling, general and administrative expenses (76) (91)

Foreign exchange gain (loss) (3) 4

Asset impairment (62) —

Other operating expense, net (12) (10)

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Interest expense (74) (66)

Interest income and other, net 6 —

Other components of net periodic benefit (expense) 5 (4)

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

Gain on debt extinguishment — 1

Loss from continuing operations before income taxes (24) (83)

Components of pension and OPEB, excluding service costs — 5

Gain on GreenFirst equity securities — 5

Other income, net 7 6

Loss from continuing operations before income tax (132) (24)

Income tax (expense) benefit 32 (1)

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Loss from continuing operations (102) (27)

Income from discontinued operations, net of taxes 12 116

Net income (loss) $ (15) $ 66

Income from discontinued operations, net of tax — 12

Net loss $ (102) $ (15)

Gross margin % 5.4 % 7.2 %

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Net sales $ 1,643 $ 1,717

Net sales increased by $309 million or 22 percent, in 2022 compared to 2021, driven primarily by higher sales prices across all segments.

Net sales decreased $74 million in 2023 compared to 2022 driven by lower sales prices in commodity products and our High-Yield Pulp segment and lower sales volumes in cellulose specialties and our Paperboard and High-Yield Pulp segments, partially offset by higher sales prices in cellulose specialties and our Paperboard segment and higher commodity sales volumes.

See Operating Results by Segment below for further discussion.

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Operating income (loss) $ (65) $ 26

Operating results for 2022 improved by $36 million when compared to 2021 due to higher sales prices across all segments, partially offset by increased costs resulting from inflation on chemicals, wood fiber, energy and logistics costs.

Non-operating Expenses

Included in non-operating expenses for 2022 was a $5 million gain associated with the GreenFirst shares received in connection with the sale of lumber and newsprint assets in August 2021.

A loss of $4 million was recognized on these shares during the year ended December 31, 2021.

See Note 12 — Fair Value Measurements to our Financial Statements for further information.

Included in non-operating expenses for 2021 was $8 million in pension settlement losses.

Operating results for 2023 declined $91 million compared to 2022 primarily driven by a $62 million High Purity Cellulose non-cash asset impairment recorded in the fourth quarter of 2023 and the decrease in net sales across all segments due to the lower sales prices and sales volumes discussed above.

Additionally, our High Purity Cellulose and High-Yield Pulp segments saw increases in labor and wood costs, respectively.

These decreases were partially offset by lower key input and logistics costs in our High Purity Cellulose and Paperboard segments.

See Operating Results by Segment below for further discussion.

Non-Operating Income & Expense

Interest expen se increased $8 million i n 2023 compared to 2022 driven by an increase in the average effective interest rate on debt, partially offset by a decrease in the average outstanding balance of debt.

Total debt decreased $76 million from December 31, 2022 to December 31, 2023.

Interest income increased $3 million in 2023 compared to 2022 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.

See Note 9—Debt and Finance Leases to our Financial Statements for further information on these debt items.

Also included in non-operating other income in the year ended December 31, 2023 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 year ended December 31, 2022 was a $5 million net gain associated with the monetization of the GreenFirst common shares received in connection with the sale of our lumber and newsprint assets in 2021.

See Note 3—Discontinued Operations to our Financial Statements for further information.

The effective tax rate on the loss from continuing operations for 2023 was a benefit of 24 percent.

The 2023 effective tax rate differed from the federal statutory rate of 21 percent primarily due to different statutory tax rates in foreign jurisdictions, U.S.

tax credits, return-to-accrual adjustments related to previously filed tax returns and changes in the valuation allowance on disallowed interest deductions.

The effective tax rate on the loss from continuing operations for 2022 was an expense of 4 percent.

The most significant items creating a difference between the 2022 effective tax rate and the statutory rate of 21 percent were changes in the valuation allowance on disallowed U.S.

interest deductions, nondeductible executive compensation, U.S.

tax credits and tax return-to-accrual adjustments on filed returns.

The effective tax rate on continuing operations for 2021 was a benefit of 42 percent.

The 2021 effective tax rate differed from the statutory rate of 21 percent primarily due to a tax benefit recognized by remeasuring the Canadian DTAs at a higher Canadian blended statutory tax rate.

The Canadian statutory tax rate increased as a result of changing the allocation of income between the Canadian provinces after the sale of our lumber and newsprint assets.

The most significant items creating a difference between the 2022 effective tax rate and the statutory rate of 21 percent were changes in the valuation allowance on disallowed interest deductions, nondeductible executive compensation, U.S.

tax credits, tax return-to-accrual adjustments on filed returns and interest received from tax overpayments.

See Note 19—Income Taxes to our Financial Statements for further information.

Discontinued Operations

In 2021, we received $193 million of cash upon closing of the sale of our lumber and newsprint assets to GreenFirst.

In the first quarter of 2022, we trued-up certain sale-related items with GreenFirst for a total net cash outflow of $3 million, as expected and previously disclosed.

Pursuant to the terms of the asset purchase agreement, we had been engaged with GreenFirst in efforts to finalize the closing inventory valuation adjustment, which could have impacted the final purchase price.

In November 2022, the arbitration proceeding was resolved in our favor and no changes were made to the gain on sale recorded during 2021.

During the third quarter of 2022, the USDOC completed its third administrative review of duties applied to Canadian softwood lumber exports to the U.S.

during 2020 and reduced rates applicable to us to a combined 8.6 percent.

We recorded a $16 million pre-tax gain in connection with this development and increased the total long-term receivable related to the USDOC’s administrative reviews to date to $38 million.

In January 2023, the USDOC released the preliminary results of its fourth administrative review, which indicate a reduction in rates to a combined 8.2 percent.

We will adjust its long-term receivable as appropriate when these rates are finalized and issued, expected later in 2023.

In total, we paid approximately $112 million in softwood lumber duties from 2017 through 2021.

Although no assurances can be given, we expect to receive all or the vast majority of these duties upon settlement of the dispute.

In 2023, we recorded a pre-tax gain of $2 million related to a reduction in the rates applied to Canadian softwood lumber exports to the U.S.

during 2021 and a $2 million loss related to the settlement of a claim pursuant to the representations and warranties in the asset purchase agreement.

In 2022, we recorded a pre-tax gain of $16 million related to a reduction in the rates applied to Canadian softwood lumber exports to the U.S.

Cumulative through December 31, 2023 we have recorded total gains of $40 million related to USDOC administrative reviews, which are included as a long-term receivable within “other assets” in our consolidated balance sheets.

See Note 3—Discontinued Operations to our Financial Statements for further information.

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Year Ended December 31,

(in millions) 2022 2021

(in millions, unless otherwise stated) 2023 2022

Net sales $ 1,313 $ 1,336

Operating income $ 31 $ 20

Operating income (loss) $ (42) $ 31

Average sales prices ($ per MT)

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Other sales (a)

Net sales $ 1,091 $ 201 $ 44 $ 1,336

115 — (17) 98

Net sales $ 1,336 $ 27 $ (50) $ 1,313

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

Net sales of our High Purity Cellulose segment increased $245 million in 2022 when compared to 2021.

Cellulose specialties sales prices increased 19 percent, inclusive of the $146 per MT cost surcharge effective April 2022, due to the impact of contract negotiations, and sales volumes increased 2 percent due to improved demand.

Commodity products sales prices and volumes increased 19 percent and 7 percent, respectively, driven by higher demand.

Included within net sales for 2022 was $115 million of other sales, primarily from bio-based energy and lignosulfonates.

Operating Income

Net sales of our High Purity Cellulose segment decreased $23 million in 2023 compared to 2022.

Despite an 11 percent increase in cellulose specialties prices, total sales prices decreased 4 percent during the current year due to a 13 percent decrease in commodity prices.

Total sales volumes increased 4 percent during the current year driven by a 39 percent increase in commodity volumes, partially offset by an 18 percent decrease in cellulose specialties volumes.

Despite a significant increase in volume in the first quarter of 2023 due to improved customer contract terms, overall sales volumes for cellulose specialties were negatively impacted by significant customer destocking and market-driven demand declines, particularly in construction markets.

Included within net sales for 2023 and 2022 were $98 million and $115 million, respectively, of other sales primarily from bio-based energy and lignosulfonates.

Operating Income (Loss)

Year Ended December 31, 2022

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Cost SG&A and other

Operating income $ 20 $ 201 $ 30 $ (215) $ (5) $ 31

Operating income (loss) $ 31 $ 27 $ (31) $ (11) $ (58) $ (42)

Operating margin % 2.3 % 1.9 % (2.2) % (0.8) % (4.4) % (3.2) %

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(a) Computed based on contribution margin.

Operating income of our High Purity Cellulose segment increased $11 million in 2022 when compared to 2021, driven by higher sales prices and volumes.

Sales prices for the segment increased 19 percent, driven by 19 percent increases in both cellulose specialties, inclusive of the $146 per MT cost surcharge, and commodity products.

Total volumes increased 4 percent, driven by 2 percent and 7 percent increases in cellulose specialties and commodity products, respectively.

Costs increased compared to 2021 as the result of inflation on chemicals, wood fiber, energy and logistics costs.

Partially offsetting higher energy costs in both 2022 and 2021 were $12 million of sales of excess emission allowances related to our operations in Tartas, France.

Additionally, 2022 included $8 million of sales of certificates of energy savings associated with Tartas operations.

Operating results of our High Purity Cellulose segment declined $73 million in 2023 compared to 2022 driven by a $62 million non-cash impairment recorded in the fourth quarter of 2023 as a result of the optimization and realignment of our High Purity Cellulose assets.

The higher cellulose specialties sales prices and commodity sales volumes and decreased key input and logistics costs were offset by the lower cellulose specialties sales volumes and commodity sales prices and higher labor costs due to inflation.

Also contributing to the decline in operating results were $8 million of energy cost offsets in 2022 from sales of energy savings certificates associated with our Tartas operations, compared to only $1 million in 2023.

In addition, we earned income on our investment in LTF in 2023 as compared to a loss in 2022.

Year Ended December 31,

(in millions) 2022 2021

(in millions, unless otherwise stated) 2023 2022

Net sales $ 219 $ 250

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Net sales $ 250 $ 2 $ (33) $ 219

Net sales of our Paperboard segment increased $42 million in 2022 when compared to 2021, due to a 27 percent increase in sales prices, driven by strong demand, partially offset by a 6 percent decrease in sales volumes driven by the timing of sales and lower productivity.

Net sales of our Paperboard segment decreased $31 million in 2023 compared to 2022 driven by a 13 percent decrease in sales volumes due to customer destocking.

Sales prices increased slightly year over year.

Operating Income

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Operating margin % 14.8 % 0.7 % (3.6) % 5.0 % — % 16.9 %

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(a) Computed based on contribution margin.

Operating income of our Paperboard segment increased $24 million in 2022 when compared to 2021, due to higher sales prices, partially offset by higher logistics, raw material pulp and chemicals costs and lower sales volumes.

Operating income of our Paperboard segment was flat in 2023 compared to 2022 as lower purchased pulp, maintenance and logistics costs and the impact of maintenance and market-driven shutdowns were offset by the lower sales volumes.

High-Yield Pulp

Year Ended December 31,

(in millions) 2022 2021

(in millions, unless otherwise stated) 2023 2022

Net sales $ 136 $ 160

Operating income $ 16 $ 7

Operating income (loss) $ (3) $ 16

Average sales prices ($ per MT) (a)

Sales volumes (thousands of MTs) (a)

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(a) Average sales prices and sales volumes for external sales only.

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Net sales $ 160 $ (15) $ (9) $ 136

Net sales of our High-Yield Pulp segment increased $24 million in 2022 when compared to 2021, driven by a 25 percent increase in sales prices, partially offset by a 3 percent decline in sales volumes.

Operating Income

Net sales of our High-Yield Pulp segment decreased $24 million in 2023 compared to 2022 driven by 12 percent and 5 percent decreases in sales prices and sales volumes, respectively, due to lower demand.

Operating Income (Loss)

Year Ended December 31, 2022

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Cost SG&A and other

Operating income $ 7 $ 28 $ (2) $ (17) $ — $ 16

Operating income (loss) $ 16 $ (15) $ (3) $ (1) $ — $ (3)

Operating margin % 10.0 % (9.3) % (2.2) % (0.7) % — % (2.2) %

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(a) Computed based on contribution margin.

Operating income of our High-Yield Pulp segment increased $9 million in 2022 when compared to 2021, driven by higher sales prices, partially offset by higher chemicals and logistics costs and lower sales volumes.

Operating results of our High-Yield Pulp segment declined $19 million in 2023 compared to 2022 driven by the lower sales prices and sales volumes and increased wood costs.

Year Ended December 31,

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Operating loss $ (57) $ (58)

The operating loss of our Corporate segment increased $8 million in 2022 when compared to 2021, driven by an increase in severance and variable stock-based compensation costs, partially offset by favorable foreign currency exchange impacts.

Our Corporate operating loss decreased $1 million in 2023 compared to 2022 driven by lower variable compensation and other benefit costs and one-time severance costs incurred in 2022, largely offset by unfavorable foreign exchange rates in 2023 as compared to favorable rates in 2022.

Additionally, higher costs were recognized related to ERP transformation project expenditures, discounting and financing fees incurred to facilitate working capital enhancements and advisory and professional expenses related to the refinancing of our 2024 Notes.

Liquidity and Capital Resources

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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.

The declaration and payment of future common stock dividends, if any, will be at the discretion of our Board of Directors and 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 years ended December 31, 2022 and 2021, and do not expect to utilize any of the remaining $60 million in unused authorization in the near future.

As of December 31, 2022, 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 years ended December 31, 2023, 2022 and 2021, and do not expect to utilize any of the remaining $60 million in unused authorization in the future.

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.

In January 2024, we amended the 2027 Term Loan to increase the maximum consolidated secured net leverage ratio that we must maintain in the fourth quarter of 2023 and through our 2024 fiscal year.

The amendment provides us with the operational flexibility to execute our strategic initiatives in 2024.

In addition, should we exceed the maximum ratio established by the original agreement in any of these quarters, we will incur a fee of 0.25% of the principal balance outstanding at the end of the applicable quarter.

As of December 31, 2023, we were in compliance with all financial and other customary covenants under our 2027 Term Loan and other credit arrangements.

Our non-guarantor subsidiaries had assets of $470 million, liabilities of $408 million, year-to-date revenue of $164 million and a trailing twelve month ABL Credit Facility covenant EBITDA for continuing operations of $17 million as of December 31, 2023.

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Cash and cash equivalents (a)

Availability under the ABL Credit Facility (b)

Availability under the ABL Credit Facility (b)(c)

Total debt (c)

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Debt to capital ratio 51 % 51 %

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

(a) Consisted 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.

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In addition to the availability under the ABL Credit Facility, we have $5 million available under our accounts receivable factoring line of credit in France.

See Note 9 — Debt and Finance Leases to our Financial Statements for further information.

Other Sources of Cash

In May 2022, we sold our GreenFirst shares for $43 million.

See Note 3 — Discontinued Operations to our Financial Statements for further information.

In 2022, we received net tax refunds of $15 million.

See Note 19 — Income Taxes to our Financial Statements for further information.

Cash Requirements

We experienced increased operating expenses and capital expenditures during the year ended December 31, 2022, including for the extensive planned maintenance outages performed in the first half of the year.

Contractual Commitments

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See Note 21—Commitments and Contingencies to our Financial Statements for further information.

During the year ended December 31, 2022, we repurchased $47 million of our Senior Notes through open-market transactions and retired the notes for cash of $47 million.

Our next significant debt maturity is in June 2024.

We withdrew our opportunistic offering of senior secured notes earlier this year as terms and conditions were not sufficiently attractive at the time.

We continue to monitor the capital markets and are prepared to opportunistically refinance the Senior Notes at the appropriate time and at acceptable terms, considering market conditions and all other relevant factors.

We are confident that by executing on our strategy to improve our credit profile, we can obtain a refinancing at acceptable terms based on market conditions.

We may also use a portion of our cash balance to repay debt or assist in a holistic refinancing of our capital structure.

CAD Term Loans

During the year ended December 31, 2022, we repaid CAD fixed interest rate term loans in the amount of CAD $24 million (USD $18 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.

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.

See Note 9—Debt and Finance Leases to our Financial Statements for further information.

Year Ended December 31,

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Cash flows provided by (used in):

Operating activities-continuing operations $ 69 $ 74

Operating activities-discontinued operations — 159

Operating activities $ 136 $ 69

Investing activities-continuing operations (128) (138)

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Financing activities (87) (73)

Cash provided by operating activities of continuing operations decreased $5 million during 2022 when compared to 2021.

Operating cash flows in 2022 were driven by net tax refunds of $15 million, partially offset by increased cash outflows from working capital, driven by inflation and logistics constraints, and expenditures related to extensive planned maintenance outages through the first half of the year.

Operating cash flows in 2021 included the receipt of $35 million of net tax refunds and $20 million related to CEWS claims, partially offset by an increase in working capital.

Cash used in investing activities of continuing operations increased $41 million during 2022 when compared to 2021, due to increased capital spending related to the planned maintenance outages in the current year.

Cash provided by investing activities of discontinued operations decreased $139 million during 2022 when compared to 2021.

The cash inflow in 2022 was the result of the sale of GreenFirst common stock and the first installment on the credit note associated with the sale of our lumber and newsprint assets in August 2021.

The cash inflow in 2021 consisted of the net cash received in connection with the sale of our lumber and newsprint assets.

Cash used in financing activities decreased by $84 million during 2022 when compared to 2021, primarily due to a decrease in repayments of long-term debt.

Cash provided by operating activities increased $67 million primarily due to increased cash inflows from working capital, partially offset by payments on deferred energy liabilities associated with our Tartas facility operations, net tax payments of $7 million in 2023 and the receipt of net tax refunds of $15 million in 2022.

Cash used in investing activities of continuing operations decreased $10 million primarily 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 $14 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 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 should not be relied upon, in whole or part, in evaluating our financial condition, results of operations or future prospects.

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.

EBITDA and Adjusted EBITDA

EBITDA is defined as earnings before interest, taxes, depreciation and amortization.

EBITDA is not necessarily indicative of results that may be generated in future periods.

Adjusted EBITDA-continuing operations is defined as EBITDA-continuing operations adjusted for a settlement of certain pension plans, severance costs associated with an executive departure and gain on debt extinguishment.

Adjusted EBITDA is defined as EBITDA adjusted for items that management believes are not representative of our core operations.

Loss from continuing operations is reconciled to EBITDA and adjusted EBITDA as follows:

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EBITDA-continuing operations 75 173

Asset impairment 62 —

Pension settlement loss 2 1

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Adjusted EBITDA-continuing operations $ 139 $ 177

EBITDA and adjusted EBITDA from continuing operations increased $53 million and $50 million, respectively, compared to 2021, primarily driven by higher sales prices across all segments, partially offset by higher key input and logistics costs.

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

EBITDA from continuing operations decreased $98 million, primarily driven by the $62 million non-cash asset impairment recorded on certain High Purity Cellulose assets in the fourth quarter of 2023, the decrease in net sales across all segments and increased labor and wood costs in our High Purity Cellulose and High-Yield Pulp segments, respectively, partially offset by lower key input and logistics costs in our High Purity Cellulose and Paperboard segments.

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, as defined by us, 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.

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.

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

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Adjusted free cash flows-continuing operations $ 53 $ (35)

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

Strategic capital expenditures were $45 million and $34 million for the years ended December 31, 2023 and 2022, respectively.

Adjusted free cash flows of continuing operations declined due to changes in working capital and other items and higher capital expenditures.

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

See Liquidity and Capital Resources—Cash Flows for additional discussion of our operating cash flows.

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Asset Impairment

Long-lived assets are reviewed annually for impairment or whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable.

Long-lived assets are reviewed annually for impairment or when events or changes in circumstances indicate the carrying amount of an asset may not be recoverable.

Recoverability of assets that are held and used is measured by net undiscounted cash flows expected to be generated by the asset.

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Significant and unanticipated changes to these assumptions could require a provision for impairment in a future period.

Property, plant and equipment are grouped for purposes of evaluating recoverability at the combined plant level, the lowest level for which independent cash flows are identifiable.

Property, plant and equipment are primarily grouped for purposes of evaluating recoverability at the combined plant level, the lowest level for which independent cash flows are identifiable.

In the fourth quarter of 2023, we began efforts towards the optimization and realignment of our High Purity Cellulose assets that included the consolidation of commodity viscose production into our Temiscaming plant and fluff production into our Jesup plant’s C Line.

This realignment materially impacts the way we have managed and will manage the underlying assets and ultimately led to the recognition of a $62 million impairment.

Our impairment analysis involved various assumptions and estimates in the determination of fair value, the most significant being our estimates of future cash flows, including key assumptions regarding production levels, price levels, profit margins, capital expenditures and discount rate.

While the result of the impairment analysis is highly sensitive to these assumptions, we believe the assumptions are reasonable and appropriately supported;

however, our operating results could be adversely affected if actual results are not consistent with our estimates and assumptions.

See Note 7—Property, Plant and Equipment, Net to our Financial Statements for further information regarding this asset realignment and impairment.

Environmental Liabilities

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The actuarial rates are developed by models which incorporate high-quality (AA rated), long-term corporate bond rates into their calculations.

The weighted average discount rate increased from 2.82 percent at December 31, 2021 to 4.95 percent at December 31, 2022.

The weighted average discount rate decreased from 4.95 percent at December 31, 2022 to 4.71 percent at December 31, 2023.

Our defined pension plans were underfunded by $83 million at December 31, 2023.

The underfunded status decreased by $39 million in 2022, primarily due to actuarial gains as a result of increased discount rates.

In 2023, pension expense is expected to increase slightly as lower amortization of actuarial losses is offset by higher interest cost.

The underfunded status decreased by $4 million in 2023, primarily due to actuarial losses as a result of decreased discount rates, offset by returns on plan assets.

In 2024, pension expense is expected to be flat compared to 2023.

Future pension expense will be impacted by many factors including actual investment performance, changes in discount rates, timing of contributions and other employee related matters.

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In 2023, we made mandatory contributions and benefit payments to plan participants of $10 million.

During 2023, we expect to make mandatory and discretionary benefit payments to plan participants of $9 million.

During 2024, we expect to make mandatory contributions and benefit payments to plan participants of $10 million.

Future mandatory contribution requirements will vary depending on actual investment performance, changes in valuation assumptions, interest rates and legal requirements to maintain a certain funding status.

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(in millions) Increase (Decrease)

in 2023 Pension Expense Increase (Decrease)

in 2024 Pension Expense

Increase (Decrease)

in December 31, 2023

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The forecasted taxable income excludes depreciation, which can be deferred indefinitely under Canadian tax law.

The second step evaluates future projected Canadian earnings from continuing operations to confirm the Canadian operations are more-likely-than-not to be profitable in future years, inclusive of depreciation.

This second step establishes that the NOLs are not realized due solely to the suspension of Canadian tax depreciation.

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Evaluation of all available evidence supports the realizability of most recorded DTAs.

If the review of evidence indicates the realizability may be less than likely, then a valuation allowance is recorded, with the exception of DTAs for suspended U.S.

If the review of evidence indicates the realizability may be less than likely, then a valuation allowance is recorded, with the exception of recorded DTAs for suspended U.S.

interest deductions, which do not have a full valuation allowance in accordance with specific AICPA guidance.

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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-K

Item 7. Management’s Discussion and Analysis