What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-08 compared with 2023-11-08 · 149 added, 242 removed, 143 unchanged (73% of the section changed)

3 unchanged sentences

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.

These forward-looking statements are identified by the use of words such as “may,” “will,” “should,” “could,” “expect,” “estimate,” “target,” “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.

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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.

You are advised to review any 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

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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.

Our specialized assets are also used to produce biofuels, bioelectricity and other biomaterials such as bioethanol and tall oils.

We also produce a unique, lightweight multi-ply paperboard product and a bulky, high-yield pulp product.

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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:

We operate in three 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.

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

• In May 2024, we announced the sale of our refund rights, including interest, related to softwood lumber duties paid from 2017 through 2021 for $39 million.

See Note 1—Basis of Presentation to our Financial Statements for further information.

• In April 2024, we announced the suspension of operations at our Temiscaming High Purity Cellulose plant, effective July 2, 2024, for an indefinite period.

See Note 1—Basis of Presentation to our Financial Statements for further information.

• 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.

See Note 6—Debt and Finance Leases to our Financial Statements for further information.

In October 2023, we announced that we are exploring the potential sale of our Paperboard and High-Yield Pulp assets located at our Temiscaming site.

The potential sale 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 sales process is progressing, albeit slower than originally anticipated, as buyers work through the complexity of carving out these assets from existing operations and consider the impact of the indefinite suspension of the Temiscaming High Purity Cellulose plant.

While the suspension and asset sale decisions affecting the Temiscaming site have been approached and carried out independently, we believe the suspension will bring clarity to the asset sale diligence process by validating that these assets can be efficiently run separately.

The indefinite suspension of operations at the Temiscaming High Purity Cellulose plant, announced on April 29, 2024, is anticipated to mitigate the plant’s ongoing operating losses and high capital needs and improve our consolidated free cash flow.

We realized an $18 million Adjusted EBITDA loss from these operations in 2023 and invested an average of $15 million in capital expenditures over the past three years;

however, any future operational loss reductions will be partially offset by stranded costs.

In connection with the suspension of operations, we expect to incur one-time operating charges in 2024 of approximately $30 million, including mothball, severance and other employee costs.

Further, we also expect to incur non-cash charges in 2024 related to impairments.

Overall, we expect that for 2024, the indefinite suspension of the Temiscaming High Purity Cellulose plant will be marginally positive to Adjusted EBITDA and will increase free cash flow by $15 million to $20 million as lower capital expenditures and benefits from the monetization of working capital are expected to more than offset the one-time and other cash costs associated with the suspension of operations.

On May 6, 2024, we announced the sale of our refund rights, including interest, related to softwood lumber duties paid from 2017 through 2021 for $39 million, with the opportunity for additional sale proceeds in the future contingent upon the timing and terms of the ultimate outcome of the trade dispute between the USDOC and Canada.

The following market assessment represents our current outlook 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 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.

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 as the Company prioritizes value over volume.

Sales volumes for cellulose specialties are expected to be comparable to 2023 driven by increased volumes from the closure of a competitor’s plant and a modest increase in ethers sales, offset by a one-time favorable impact from a change in customer contract terms in the prior year quarter and customer destocking in the acetate markets.

Demand for RYAM commodity products remains stable as prices are expected to be flat to 2023, despite a difficult comparison to the first quarter of 2023.

Commodity sales volumes are expected to decline in 2024 as we suspend operations at our Temiscaming High Purity Cellulose plant for the second half of 2024.

Costs are expected to be lower in 2024 driven by lower key input and logistics costs, improved productivity and the indefinite suspension of operations at the Temiscaming High Purity Cellulose plant.

Our bioethanol facility in Tartas, France became operational in the first quarter of 2024 and is expected to deliver $3 million to $4 million of EBITDA in 2024, growing to $8 million to $10 million beginning in 2025.

EBITDA is expected to decrease in the second quarter of 2024 compared to the first quarter of 2024 due to the annual planned maintenance outage at Jesup, but stronger than the second quarter of 2023.

Paperboard prices in 2024 are expected to remain relatively stable compared to the first quarter of 2024, while sales volumes are expected to improve due to improved customer demand.

Raw material prices are expected to increase as purchased pulp prices are forecast to increase from the first quarter 2024 levels.

Overall, EBITDA is expected to increase sequentially.

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.

High-Yield Pulp prices are expected to improve slightly in the second quarter and increase further in the second half of 2024, while sales volumes are expected to remain stable sequentially and then increase in the second half of 2024.

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 continue our 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

We continue to invest 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 successful shipment of our first production of 2G bioethanol from our Tartas, France bioethanol facility is a significant milestone towards our goal of generating $42 million of annual EBITDA from these new products by 2027.

Recent achievements include receiving conditional GRAS regulatory approval for a prebiotics product and moving forward with plans for a bioethanol facility in Fernandina Beach.

We are also advancing various other projects and are in the process of securing green capital to support these efforts.

Updates on the progress of these initiatives will be provided throughout the year.

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

Three Months Ended

(in millions, except percentages) March 30, 2024 April 1, 2023

Net sales $ 388 $ 467

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Selling, general and administrative expense (21) (19)

Foreign exchange gain (loss) 1 3 (1) 4

Foreign exchange gain 3 —

Other operating expense, net (2) (1)

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

Operating income 17 17

Interest expense (21) (15)

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

Gain on GreenFirst equity securities — — — 5

Components of pension and OPEB, excluding service costs 1 (2)

Other income, net 1 —

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

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

Loss before income taxes (2) —

Income tax benefit — 3

Equity in loss of equity method investment — (1)

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

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

Net income (loss) $ (2) $ 2

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Effective tax rate 29.7 % 783.6 %

Three Months Ended Nine Months Ended

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

Three Months Ended

(in millions) March 30, 2024 April 1, 2023

High Purity Cellulose $ 307 $ 374

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Net sales $ 388 $ 467

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.

Net sales for the quarter ended March 30, 2024 decreased $79 million, or 17 percent, compared to the prior year quarter driven by lower sales prices in commodity products, Paperboard and High-Yield Pulp and lower sales volumes in cellulose specialties and commodity products, partially offset by higher sales prices in cellulose specialties and higher sales volumes in High-Yield Pulp.

See Operating Results by Segment below for further discussion.

Operating Income (Loss)

Three Months Ended Nine Months Ended

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

Operating Income

Three Months Ended

(in millions) March 30, 2024 April 1, 2023

High Purity Cellulose $ 21 $ 13

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Corporate (11) (13)

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.

Operating income $ 17 $ 17

Operating income for the quarter ended March 30, 2024 was flat compared to the prior year quarter as lower key input and logistics costs and a decrease in Corporate expense items were offset by the decrease in net sales across all segments.

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.

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.

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.

Interest expense increased $6 million durin g the quarter ended March 30, 2024 compared to the prior year quarter 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 $67 million from April 1, 2023 to March 30, 2024.

Included in non-operating other income in the quarter ended March 30, 2024 was a $1 million impact from favorable foreign exchange rates in the current quarter.

Included in non-operating expense in the quarter ended April 1, 2023 was a $2 million pension settlement loss.

The effective tax benefit rate for the quarter ended March 30, 2024 was 30 percent.

The 2024 effective tax rate differed from the federal statutory rate of 21 percent primarily due to the release of certain tax reserves, partially offset by return-to-accrual adjustments, excess deficit on vested stock compensation and changes in the valuation allowance on disallowed interest deductions.

The effective tax rate for the quarter ended April 1, 2023 was not meaningful due to near break-even pretax income for the period, which results in any discrete tax adjustments significantly impacting the rate.

The largest adjustments creating a difference between the effective tax rate and the federal statutory rate of 21 percent were an excess tax benefit on vested stock compensation and return-to-accrual adjustments related to previously filed tax returns.

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

Three Months Ended

(in millions, unless otherwise stated) March 30, 2024 April 1, 2023

Net sales $ 307 $ 374

Operating income (loss) $ (6) $ 22 $ 7 $ 21

Operating income $ 21 $ 13

Average sales prices ($ per MT)

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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)

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

Three Months Ended April 1, 2023

Changes Attributable to:

Nine Months Ended September 30, 2023

Three Months Ended March 30, 2024

(in millions) Price Volume/Mix/Other

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Net sales $ 374 $ (14) $ (53) $ 307

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

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

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

Net sales of our High Purity Cellulose segment for the quarter decreased $67 million compared to the prior year quarter.

Included in each of the current and prior year quarters were $23 million of other sales primarily from bio-based energy and lignosulfonates.

Despite a 2 percent increase in cellulose specialties prices, total sales prices decreased 2 percent due to an 11 percent decrease in commodity prices.

Total sales volumes decreased 17 percent driven by 16 percent and 18 percent decreases in cellulose specialties and commodity volumes, respectively.

Increased cellulose specialties sales volumes resulting from the closure of a competitor’s plant in late 2023 and an uptick in ethers sales were more than offset by customer destocking in acetate products and the one-time favorable impact from a change in customer contract terms in the prior year quarter.

The decrease in commodity sales volumes was primarily driven by lower production in favor of cellulose specialties production as we built inventory ahead of Jesup’s second quarter planned maintenance outage.

Operating Income

Three Months Ended April 1, 2023 Gross Margin Changes Attributable to:

Three Months Ended March 30, 2024

(in millions, except percentages)

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(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.

Three Months Ended Nine Months Ended

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

Operating income of our High Purity Cellulose segment for the quarter increased $8 million compared to the prior year quarter driven by the higher cellulose specialties sales prices, decreased key input and logistics costs and improved productivity, partially offset by the lower cellulose specialties sales volumes, lower commodity sales prices and volumes and $7 million of energy cost benefits in the prior year quarter from sales of excess emission allowances that did not repeat in the current quarter.

Three Months Ended

(in millions, unless otherwise stated) March 30, 2024 April 1, 2023

Net sales $ 53 $ 59

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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

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

Three Months Ended April 1, 2023 Changes Attributable to:

Three Months Ended March 30, 2024

(in millions) Price Volume/Mix

Net sales $ 59 $ (7) $ 1 $ 53

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

Net sales of our Paperboard segment for the quarter decreased $6 million compared to the prior year quarter driven by a 12 percent decrease in sales prices due to market-driven demand declines and mix, partially offset by a slight increase in sales volumes.

Operating Income

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

Three Months Ended April 1, 2023 Gross Margin Changes Attributable to:

Three Months Ended March 30, 2024

(in millions, except percentages)

4 unchanged sentences

(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.

Operating income of our Paperboard segment for the quarter decreased $2 million compared to the prior year quarter driven by the lower sales prices, partially offset by lower purchased pulp costs.

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

Three Months Ended

(in millions, unless otherwise stated) March 30, 2024 April 1, 2023

Net sales $ 34 $ 42

1 unchanged sentence

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.

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

During the quarters ended March 30, 2024 and April 1, 2023, the High-Yield Pulp segment sold 16,000 MTs and 17,000 MTs of high-yield pulp to the Paperboard segment for $7 million and $8 million, respectively.

Three Months Ended April 1, 2023 Changes Attributable to:

Three Months Ended March 30, 2024

(in millions)

1 unchanged sentence

Net sales $ 42 $ (12) $ 4 $ 34

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

Net sales of our High-Yield Pulp segment for the quarter decreased $8 million compared to the prior year quarter driven by a 27 percent decrease in sales prices due to market supply dynamics in China, partially offset by a 16 percent increase in sales volumes.

Operating Income (Loss)

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

Three Months Ended April 1, 2023 Gross Margin Changes Attributable to:

Three Months Ended March 30, 2024

(in millions, except percentages)

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Cost SG&A and other

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

Operating income (loss) $ 7 $ (12) $ 2 $ 2 $ — $ (1)

Operating margin % 16.7 % (33.3) % 7.8 % 5.9 % — % (2.9) %

(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.

Three Months Ended Nine Months Ended

Operating results of our High-Yield Pulp segment for the quarter declined $8 million compared to the prior year quarter driven by the lower sales prices, partially offset by the higher sales volumes and lower logistics costs.

Three Months Ended

(in millions)

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

March 30, 2024 April 1, 2023

Operating loss $ (11) $ (13)

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.

The Corporate operating loss for the quarter decreased $2 million compared to the prior year quarter driven by more favorable foreign exchange rates in the current quarter, partially offset by higher discounting and financing fees in the current quarter.

Liquidity and Capital Resources

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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.

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 Board of Directors suspended our quarterly common stock dividend in September 2019.

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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.

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.

We did not repurchase any shares under this program during the three months ended March 30, 2024 and April 1, 2023, and do not expect to utilize any of the remaining $60 million in unused authorization in the future.

Our non-guarantor subsidiaries had assets of $450 million, liabilities of $400 million, year-to-date revenue of $56 million and a trailing twelve month ABL Credit Facility and Term Loan covenant EBITDA for continuing operations of $15 million as of March 30, 2024.

Our liquidity and capital resources are summarized below:

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

Cash and cash equivalents (a)

Availability under the ABL Credit Facility (b)

Total debt (c)

(in millions, except ratios) March 30, 2024 December 31, 2023

Cash and cash equivalents $ 55 $ 76

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

Total debt (b)

Stockholders’ equity 742 747

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Debt to capital ratio 51 % 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.

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

At March 30, 2024, we had $164 million of gross availability and net available borrowings of $131 million after taking into account outstanding letters of credit of $33 million.

In addition to the availability under the ABL Credit Facility, we have $13 million available under our accounts receivable factoring line of credit in France.

(b) See Note 6—Debt and Finance Leases to our Financial Statements for further information.

Cash Requirements

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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 nine months ended September 30, 2023.

There have been no material changes to our contractual commitments outside the ordinary course of business during the three months ended March 30, 2024.

See Note 15—Commitments and Contingencies to our Financial Statements for further information.

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.

Nine Months Ended

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

In January 2024, we amended the 2027 Term Loan to increase the maximum consolidated secured net leverage ratio that we must maintain beginning 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.

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 March 30, 2024 we were in compliance with all financial and other customary covenants under our 2027 Term Loan and other credit agreements.

See Note 6—Debt and Finance Leases to our Financial Statements for further information.

Three Months Ended

(in millions) March 30, 2024 April 1, 2023

Cash flows provided by (used in):

Operating activities $ 12 $ 51

Investing activities-continuing operations (95) (114)

Investing activities-discontinued operations — 44

Investing activities (33) (21)

Financing activities 1 (14)

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 $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.

Cash provided by operating activities decreased $39 million primarily due to net cash outflows from working capital in the current year compared to net inflows in the prior year and higher payments of interest on long-term debt, partially offset by higher payments in the prior year on deferred energy liabilities associated with our Tartas facility operations and the receipt of net tax refunds in the current year compared to net tax payments in the prior year.

Cash used in investing activities increased $12 million due to higher capital spending.

Cash used in financing activities decreased $15 million primarily due to net borrowings of long-term debt in the current year compared to net repayments in the prior year and a decrease in repurchases of common stock to satisfy tax withholding requirements related to the issuance of stock under our incentive stock plans, partially offset by debt issuance costs paid in the current year.

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.

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.

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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:

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

Net income (loss) is reconciled to EBITDA and Adjusted EBITDA, by segment, as follows:

(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

Three Months Ended March 30, 2024

Net income (loss) $ 21 $ 8 $ (1) $ (30) $ (2)

Depreciation and amortization 29 4 1 — 34

1 unchanged sentence

Income tax benefit — — — — —

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)

EBITDA and Adjusted EBITDA $ 50 $ 12 $ — $ (10) $ 52

Three Months Ended April 1, 2023

Net income (loss) $ 13 $ 10 $ 7 $ (28) $ 2

Depreciation and amortization 31 3 1 — 35

1 unchanged sentence

Income tax benefit — — — (3) (3)

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

EBITDA 44 13 8 (16) 49

Pension settlement loss — — — 2 2

Severance — — — 4 4

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

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.

Adjusted EBITDA $ 44 $ 13 $ 8 $ (14) $ 51

EBITDA for the quarter ended March 30, 2024 increased $3 million compared to the prior year quarter driven by lower key input and logistics costs, improved productivity and a decrease in Corporate expense items, partially offset by the decrease in net sales across all 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 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

Adjusted Free Cash Flow

Adjusted free cash flow is defined as cash provided by operating activities adjusted for capital expenditures, net of proceeds from the sale of assets and excluding strategic capital expenditures deemed discretionary by management.

Adjusted free cash flow 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 flow is not necessarily indicative of the adjusted free cash flow that may be generated in future periods.

Cash provided by operating activities is reconciled to adjusted free cash flow as follows:

Three Months Ended

(in millions) March 30, 2024 April 1, 2023

Cash provided by operating activities $ 12 $ 51

Capital expenditures, net (a)

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

Adjusted free cash flow $ (16) $ 36

(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.

Strategic capital expenditures for the three months ended March 30, 2024 and April 1, 2023 were $5 million and $6 million, respectively.

Adjusted free cash flow decreased primarily due to changes in working capital and higher capital expenditures.

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

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