What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-08-07 compared with 2024-05-08 · 230 added, 115 removed, 177 unchanged (66% of the section changed)

20 unchanged sentences

Recent Business Developments

• 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 July 2024, we suspended operations at our Temiscaming High Purity Cellulose plant for an indefinite period.

See Note 2—Indefinite Suspension of Operations to our Financial Statements for further information.

• In June 2024, we recognized $15 million in pre-tax income related to CEWS benefit claims deferred since 2021.

See Note 3—Discontinued Operations and Note 7—Accrued and Other Current Liabilities to our Financial Statements for further information.

• In June 2024, we sold our refund rights, including interest, related to softwood lumber duties paid from 2017 through 2021 for $39 million.

See Note 3—Discontinued Operations 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.

1 unchanged sentence

See Note 8—Debt and Finance Leases to our Financial Statements for further information.

We are actively pursuing the refinancing of our 2026 Senior Notes before they go current in January 2025 and strongly believe that, due to improving business performance and credit metrics, we will secure refinancing at satisfactory terms.

We have engaged Houlihan Lokey to explore refinancing options.

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.

We continue to run a thorough process involving multiple suitors.

While this process has been slowed due to complexities relating to the recently announced indefinite suspension of operations of the site’s High Purity Cellulose line, we remain highly committed to completing a near-term sale of these assets at a fair price.

In July 2024, we indefinitely suspended operations at our Temiscaming High Purity Cellulose plant.

This plan is expected to mitigate high capital needs and operating losses related to exposure to commodity viscose products and improve our consolidated free cash flow, however, future operational loss reductions will be partially offset by custodial site expenses.

In connection with the suspension of operations, we expect to incur one-time operating charges in 2024 of approximately $25 million to $30 million, including mothballing and severance and other employee costs.

Further, we also expect to incur non-cash charges in the third quarter of 2024 related to asset impairments.

We continue to expect that for 2024, the suspension of the Temiscaming High Purity Cellulose plant will be positive to Adjusted EBITDA and will increase free cash flow by $25 million to $30 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.

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

High Purity Cellulose

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.

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 we continue to prioritize value over volume.

Sales volumes for cellulose specialties are expected to increase compared to 2023 driven by increased volumes from the closure of a competitor’s plant, a modest increase in ethers sales and additional volume sold to customers ahead of the suspension of Temiscaming High Purity Cellulose operations, partially offset by a one-time favorable impact from a change in customer contract terms in the prior year first quarter and customer destocking in the acetate markets.

Demand for RYAM commodity products remains stable.

Commodity average sales prices are expected to be in line with 2023 prices.

Commodity sales volumes are expected to increase slightly in the second half of 2024 due to increased fluff sales.

Costs are expected to be lower in 2024 driven by lower key input and logistics costs, improved productivity and the suspension of operations at the Temiscaming High Purity Cellulose plant, partially offset by increased maintenance costs due to the timing of projects and net custodial site expenses related to the suspension.

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.

EBITDA in the third quarter of 2024 is expected to be lower than the second quarter of 2024 due to the anticipated net custodial site expenses at the Temiscaming site, no additional CEWS benefits to be recognized and lower cellulose specialties volumes to be sold ahead of the suspension of operations;

however, EBITDA in the third quarter of 2024 is expected to be significantly stronger than the third quarter of 2023.

Paperboard prices in the second half of 2024 are expected to decrease slightly compared to the first half of 2024, while sales volumes are expected to increase slightly as inventories reduce, despite higher planned maintenance downtime for our distributed control system upgrade.

Raw material prices are expected to increase compared to the first half of the year.

Overall, we expect a decline in EBITDA from this segment in the coming quarter.

High-Yield Pulp

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.

High-Yield Pulp prices are expected to decline in the second half of 2024, while sales volumes are expected to increase due to improved productivity.

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

Corporate costs are expected to increase in the second half of 2024 as we continue our ERP transformation project and considering the favorable foreign exchange rates in the first half of the year.

The ERP transformation 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.

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

Our bioethanol facility in Tartas, France is operating as expected and represents a significant milestone towards our goal of generating $42 million of annual EBITDA from these biomaterial products in 2027.

We have submitted notice of our GRAS self-certification for a prebiotics product to the U.S.

Food and Drug Administration and continue to move forward with plans for a bioethanol facility in Fernandina.

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

Results of Operations

Three Months Ended

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

Three Months Ended Six Months Ended

(in millions, except percentages) June 29, 2024 July 1, 2023 June 29, 2024 July 1, 2023

Net sales $ 419 $ 385 $ 807 $ 852

2 unchanged sentences

Selling, general and administrative expense (21) (18) (42) (37)

Foreign exchange gain 3 —

Other operating expense, net (2) (1)

Operating income 17 17

Foreign exchange gain (loss) — (2) 3 (2)

Indefinite suspension charges (7) — (7) —

Other operating income (expense), net 8 (2) 6 (3)

Operating income (loss) 28 (7) 45 10

Interest expense (21) (16) (42) (31)

1 unchanged sentence

Other income, net 1 3 2 3

Loss before income taxes (2) —

Income (loss) from continuing operations before income tax 8 (19) 6 (19)

Income tax benefit 1 3 2 6

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

Income (loss) from continuing operations 8 (16) 7 (14)

Income (loss) from discontinued operations, net of tax 3 (1) 3 (1)

Net income (loss) $ 11 $ (17) $ 10 $ (15)

2 unchanged sentences

Effective tax rate (10.9) % 17.9 % (21.4) % 31.5 %

Three Months Ended

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

Three Months Ended Six Months Ended

(in millions) June 29, 2024 July 1, 2023 June 29, 2024 July 1, 2023

High Purity Cellulose $ 332 $ 300 $ 639 $ 674

3 unchanged sentences

Net sales $ 419 $ 385 $ 807 $ 852

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.

Net sales for the quarter ended June 29, 2024 increased $34 million, or 9 percent, compared to the prior year quarter driven by higher sales prices in High Purity Cellulose and higher sales volumes in cellulose specialties and Paperboard, partially offset by lower sales prices in Paperboard and High-Yield Pulp and lower sales volumes in commodity products and High-Yield Pulp.

Net sales for the six months ended June 29, 2024 decreased $45 million, or 5 percent, compared to the same prior year period driven by lower sales prices in commodity products, Paperboard and High-Yield Pulp and lower sales volumes in commodity products and High-Yield Pulp, partially offset by higher sales prices in cellulose specialties and higher sales volumes in cellulose specialties and Paperboard.

See Operating Results by Segment below for further discussion.

Operating Income

Three Months Ended

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

Operating Income (Loss)

Three Months Ended Six Months Ended

(in millions) June 29, 2024 July 1, 2023 June 29, 2024 July 1, 2023

High Purity Cellulose $ 30 $ — $ 51 $ 13

2 unchanged sentences

Corporate (15) (14) (26) (27)

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.

Operating income (loss) $ 28 $ (7) $ 45 $ 10

Operating results for the quarter ended June 29, 2024 improved $35 million, or 500 percent compared to the prior year quarter driven by the higher net sales in High Purity Cellulose and Paperboard, lower key input and logistics costs and higher productivity, partially offset by the lower net sales in High-Yield Pulp and the impact of the timing of planned maintenance outages compared to the prior year.

Operating income for the six months ended June 29, 2024 increased $35 million, or 350 percent compared to the prior year period driven by higher Paperboard net sales, lower key input and logistics costs and higher productivity, partially offset by the net sales decreases in High Purity Cellulose and High-Yield Pulp and the impact of the timing of planned maintenance outages compared to the prior year.

Also included in operating income in the current quarter and six-month periods was the recognition of $10 million in CEWS benefit claims deferred since 2021 and $7 million in costs incurred related to the suspension of Temiscaming High Purity Cellulose operations.

Included in operating results in the prior year quarter and six-month periods was the recognition of a $3 million benefit from payroll tax credit carryforwards and $4 million and $11 million, respectively, of energy cost benefits from sales of excess emission allowances that did not repeat in the current year.

See Operating Results by Segment below for further discussion.

Non-Operating Income & Expense

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.

Interest expense for the quarter and six months ended June 29, 2024 increased $5 million and $11 million, respectively, compared to the same prior year periods 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 $56 million from July 1, 2023 to June 29, 2024.

Included in “other income, net” in the six months ended June 29, 2024 was a $1 million impact from favorable foreign exchange rates.

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

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

The effective tax rate on the income from continuing operations for the quarter and six months ended June 29, 2024 was a benefit of 11 percent and 21 percent, respectively.

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

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

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

and nondeductible executive compensation, offset by U.S.

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

Discontinued Operations

During the quarter ended June 29, 2024, we recorded pre-tax income from discontinued operations of $5 million related to CEWS benefit claims deferred since 2021 and a loss of $1 million on the sale of our softwood lumber duty refund rights.

Operating Results by Segment

High Purity Cellulose

Three Months Ended

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

Three Months Ended Six Months Ended

(in millions, unless otherwise stated) June 29, 2024 July 1, 2023 June 29, 2024 July 1, 2023

Net sales $ 332 $ 300 $ 639 $ 674

1 unchanged sentence

Average sales prices ($ per MT) $ 1,371 $ 1,301 $ 1,335 $ 1,313

$ 1,299 $ 1,322

Sales volumes (thousands of MTs) 225 214 444 479

Three Months Ended April 1, 2023

Net Sales - Three Months Ended

Three Months Ended July 1, 2023

Changes Attributable to:

Three Months Ended March 30, 2024

Three Months Ended June 29, 2024

(in millions) Price Volume/Mix/Other

4 unchanged sentences

(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.

Net sales of our High Purity Cellulose segment for the quarter ended June 29, 2024 increased $32 million compared to the same prior year quarter.

Included in the current and prior year quarters were $23 million and $22 million, respectively, of other sales primarily from bio-based energy and lignosulfonates.

Due to improved mix, total sales prices increased 5 percent.

Total sales volumes increased 5 percent due to a 25 percent increase in cellulose specialties volumes that was partially offset by a 13 percent decrease in commodity volumes.

Cellulose specialties sales volumes increased due to additional volumes sold to customers affected by the indefinite suspension of Temiscaming High Purity Cellulose operations that began in the third quarter, the closure of a competitor’s plant in late 2023 and a continued uptick in ethers sales.

The decrease in commodity sales volumes was primarily driven by a higher mix of cellulose specialties production.

Net Sales - Six Months Ended

Six Months Ended July 1, 2023

Changes Attributable to:

Six Months Ended June 29, 2024

(in millions) Price Volume/Mix/Other

Cellulose specialties $ 406 $ 5 $ 7 $ 418

Commodity products 223 (23) (25) 175

Other sales (a)

Net sales $ 674 $ (18) $ (17) $ 639

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

Net sales of our High Purity Cellulose segment for the six months ended June 29, 2024 decreased $35 million compared to the same prior year period.

Included in the current and prior year six-month periods were $46 million and $45 million, respectively, of other sales primarily from bio-based energy and lignosulfonates.

Total sales prices increased 2 percent due to a 1 percent increase in cellulose specialties prices that was partially offset by a 6 percent decrease in commodity prices.

Despite a cellulose specialties sales volumes increase of 2 percent, total sales volumes decreased 7 percent driven by a 16 percent decrease in commodity volumes.

Increased cellulose specialties sales volumes resulting from the additional volumes sold ahead of the suspension of Temiscaming High Purity Cellulose operations, the closure of a competitor’s plant in late 2023 and an uptick in ethers sales were nearly entirely offset by the one-time favorable impact from a change in customer contract terms in the prior year first quarter.

The decrease in commodity sales volumes was primarily driven by a higher mix of cellulose specialties production.

Operating Income - Three Months Ended

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

Three Months Ended June 29, 2024

(in millions, except percentages)

Sales Price Sales Volume/Mix/Other (a)

Cost SG&A and other

Operating income $ — $ (6) $ 14 $ 24 $ (2) $ 30

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

Three Months Ended March 30, 2024

Operating margin % — % (2.0) % 4.5 % 7.2 % (0.7) % 9.0 %

(a) Computed based on contribution margin.

Operating income of our High Purity Cellulose segment for the quarter ended June 29, 2024 increased $30 million compared to the same prior year quarter driven by the higher cellulose specialties sales volumes, decreased key input and logistics costs and higher productivity, partially offset by the impact of the timing of planned maintenance outages compared to the prior year.

Also included in the current quarter was the recognition of $5 million in CEWS benefit claims deferred since 2021 and $7 million in costs incurred related to the suspension of Temiscaming High Purity Cellulose operations.

Included in the operating results of the prior year quarter was the recognition of a $3 million benefit from payroll tax credit carryforwards and $4 million of energy cost benefits from sales of excess emission allowances that did not repeat in the current quarter.

Operating Income - Six Months Ended

Six Months Ended July 1, 2023

Gross Margin Changes Attributable to:

Six Months Ended June 29, 2024

(in millions, except percentages)

4 unchanged sentences

(a) Computed based on contribution margin.

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

Operating income of our High Purity Cellulose segment for the six months ended June 29, 2024 increased $38 million compared to the same prior year period driven by the increase in cellulose specialties sales prices and volumes, decreased key input and logistics costs and higher productivity, partially offset by the lower commodity sales prices and volumes and the impact of the timing of planned maintenance outages compared to the prior year.

Also included in the current six-month period was the recognition of $5 million in CEWS benefit claims deferred since 2021 and $7 million in costs incurred related to the suspension of Temiscaming High Purity Cellulose operations.

Included in operating income in the prior year six-month period was the recognition of a $3 million benefit from payroll tax credit carryforwards and $11 million of energy cost benefits from sales of excess emission allowances that did not repeat in the current year.

Three Months Ended Six Months Ended

(in millions, unless otherwise stated) June 29, 2024 July 1, 2023 June 29, 2024 July 1, 2023

Net sales $ 60 $ 48 $ 113 $ 107

1 unchanged sentence

Average sales prices ($ per MT) $ 1,384 $ 1,498 $ 1,383 $ 1,536

$ 1,382 $ 1,568

Sales volumes (thousands of MTs) 44 32 82 70

Three Months Ended April 1, 2023 Changes Attributable to:

Three Months Ended March 30, 2024

Net Sales - Three Months Ended

Three Months Ended July 1, 2023 Changes Attributable to:

Three Months Ended June 29, 2024

(in millions) Price Volume/Mix

Net sales $ 48 $ (5) $ 17 $ 60

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.

Net sales of our Paperboard segment for the quarter ended June 29, 2024 increased $12 million compared to the same prior year quarter driven by a 38 percent increase in sales volumes due to the easing of prior year customer destocking, partially offset by an 8 percent decrease in sales prices driven by mix and increased competitive activity from European imports.

Net Sales - Six Months Ended

Six Months Ended July 1, 2023

Changes Attributable to:

Six Months Ended June 29, 2024

(in millions) Price Volume/Mix

Net sales $ 107 $ (13) $ 19 $ 113

Net sales of our Paperboard segment for the six months ended June 29, 2024 increased $6 million compared to the same prior year period driven by a 17 percent increase in sales volumes due to the easing of prior year customer destocking, partially offset by a 10 percent decrease in sales prices driven by mix and increased competitive activity from European imports.

Operating Income - Three Months Ended

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

Three Months Ended June 29, 2024

(in millions, except percentages)

Sales Price Sales Volume/Mix (a)

Cost SG&A and other

Operating income $ 6 $ (5) $ 7 $ 2 $ 2 $ 12

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

Three Months Ended March 30, 2024

Operating margin % 12.5 % (10.2) % 11.0 % 3.3 % 3.4 % 20.0 %

(a) Computed based on contribution margin.

Operating income of our Paperboard segment for the quarter ended June 29, 2024 increased $6 million compared to the same prior year quarter driven by the higher sales volumes and lower purchased pulp costs, partially offset by the lower sales prices and the impact of the planned maintenance outage in the prior year.

Also included in operating income in the current quarter was the recognition of $2 million in CEWS benefit claims deferred since 2021.

Operating Income - Six Months Ended

Six Months Ended July 1, 2023

Gross Margin Changes Attributable to:

Six Months Ended June 29, 2024

(in millions, except percentages)

4 unchanged sentences

(a) Computed based on contribution margin.

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.

Operating income of our Paperboard segment for the six months ended June 29, 2024 increased $4 million compared to the same prior year period driven by the higher sales volumes and lower purchased pulp costs, partially offset by the lower sales prices and the impact of the planned maintenance outage in the prior year.

Also included in operating income in the current six-month period was the recognition of $2 million in CEWS benefit claims deferred since 2021.

High-Yield Pulp

Three Months Ended

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

Three Months Ended Six Months Ended

(in millions, unless otherwise stated) June 29, 2024 July 1, 2023 June 29, 2024 July 1, 2023

Net sales $ 33 $ 44 $ 67 $ 86

Operating income (loss) $ (1) $ 7

Operating income $ 1 $ 1 $ — $ 8

Average sales prices ($ per MT) (a)

$ 574 $ 633 $ 566 $ 691

Sales volumes (thousands of MTs) (a)

(a) External sales only.

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

During the quarters ended June 29, 2024 and July 1, 2023, the High-Yield Pulp segment sold 16,000 MTs and 14,000 MTs of high-yield pulp to the Paperboard segment for $7 million and $6 million, respectively.

During each of the six months ended June 29, 2024 and July 1, 2023, the High-Yield Pulp segment sold 32,000 MTs of high-yield pulp to the Paperboard segment for $13 million and $15 million, respectively.

Net Sales - Three Months Ended

Three Months Ended July 1, 2023 Changes Attributable to:

Three Months Ended June 29, 2024

(in millions)

1 unchanged sentence

Net sales $ 44 $ (3) $ (8) $ 33

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)

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

Three Months Ended March 30, 2024

Net sales of our High-Yield Pulp segment for the quarter ended June 29, 2024 decreased $11 million compared to the same prior year quarter driven by a 9 percent decrease in sales prices due to market supply dynamics in China and a 25 percent decrease in sales volumes due to lower demand.

Net Sales - Six Months Ended

Six Months Ended July 1, 2023

Changes Attributable to:

Six Months Ended June 29, 2024

(in millions)

Price Volume/Mix

Net sales $ 86 $ (14) $ (5) $ 67

Net sales of our High-Yield Pulp segment for the six months ended June 29, 2024 decreased $19 million compared to the same prior year period driven by an 18 percent decrease in sales prices due to market supply dynamics in China and an 8 percent decrease in sales volumes due to lower demand.

Operating Income - Three Months Ended

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

Three Months Ended June 29, 2024

(in millions, except percentages)

1 unchanged sentence

Cost SG&A and other

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

Operating income $ 1 $ (3) $ (4) $ 5 $ 2 $ 1

Operating margin % 2.3 % (7.2) % (13.3) % 15.2 % 6.0 % 3.0 %

(a) Computed based on contribution margin.

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

Operating income of our High-Yield Pulp segment for the quarter ended June 29, 2024 was flat compared to the same prior year quarter, as lower logistics and chemicals costs were offset by the lower sales prices and volumes and the impact of the planned maintenance outage in the prior year.

Also included in the current quarter was the recognition of $2 million in CEWS benefit claims deferred since 2021.

Operating Income - Six Months Ended

Six Months Ended July 1, 2023

Gross Margin Changes Attributable to:

Six Months Ended June 29, 2024

(in millions, except percentages)

Sales Price Sales Volume/Mix (a)

Cost SG&A and other

Operating income $ 8 $ (14) $ (2) $ 6 $ 2 $ —

Operating margin % 9.3 % (17.6) % (3.6) % 9.0 % 2.9 % — %

(a) Computed based on contribution margin.

Operating income of our High-Yield Pulp segment for the six months ended June 29, 2024 decreased $8 million compared to the same prior year period, as the lower sales prices and volumes and the impact of the planned maintenance outage in the prior year were partially offset by lower logistics and chemicals costs.

Also included in the current six-month period was the recognition of $2 million in CEWS benefit claims deferred since 2021.

Three Months Ended Six Months Ended

(in millions)

March 30, 2024 April 1, 2023

June 29, 2024 July 1, 2023 June 29, 2024 July 1, 2023

Operating loss $ (15) $ (14) $ (26) $ (27)

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.

The Corporate operating loss for the quarter and six months ended June 29, 2024 increased $1 million and decreased $1 million, respectively, compared to the same prior year periods.

The increase in the quarter loss was driven by higher costs related to our ERP transformation project and higher variable compensation costs and discounting and financing fees, partially offset by more favorable foreign exchange rates in the current quarter.

The improvement in the operating loss in the six-month period was driven by more favorable foreign exchange rates in the current year, partially offset by higher costs related to our ERP transformation project and higher variable compensation costs and discounting and financing fees.

Liquidity and Capital Resources

7 unchanged sentences

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

We did not repurchase any shares under this program during the three 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.

We have not repurchased shares under this program since 2018 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 $452 million, liabilities of $406 million, year-to-date revenue of $116 million and a trailing twelve month ABL Credit Facility and Term Loan covenant EBITDA for continuing operations of $12 million as of June 29, 2024.

Our liquidity and capital resources are summarized below:

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

(in millions, except ratios) June 29, 2024 December 31, 2023

Cash and cash equivalents $ 114 $ 76

5 unchanged sentences

(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.

At June 29, 2024, we had $167 million of gross availability and net available borrowings of $135 million after taking into account outstanding letters of credit of $32 million.

In addition to the availability under the ABL Credit Facility, we have $11 million available under our accounts receivable factoring line of credit in France.

6 unchanged sentences

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 three months ended March 30, 2024.

There have been no material changes to our contractual commitments during the six months ended June 29, 2024.

We remain subject to purchase obligations under the 20-year wood chip and residual fiber supply agreement with GreenFirst, under which total required purchase volumes of wood chips and residual fiber are dependent on sawmill production.

In connection with the indefinite suspension of operations at the Temiscaming High Purity Cellulose plant, we and GreenFirst have agreed that we will purchase the required volumes at market value and sell them to third parties at the same amount for an expected neutral impact.

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

2 unchanged sentences

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.

As of June 29, 2024 we were in compliance with all financial and other covenants under our 2027 Term Loan and other credit agreements.

See Note 8—Debt and Finance Leases to our Financial Statements for further information.

Three Months Ended

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

Six Months Ended

(in millions) June 29, 2024 July 1, 2023

Cash flows provided by (used in):

2 unchanged sentences

Financing activities (1) (26)

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 provided by operating activities increased $15 million primarily due to lower costs, proceeds of $39 million for the sale of our softwood lumber duty refund rights, net tax refunds in the current year compared to net tax payments in the prior year and higher payments in the prior year on deferred energy liabilities associated with our Tartas facility operations.

These cash inflows were partially offset by cash outflows from working capital in the current year compared to inflows in the prior year and higher payments of interest on long-term debt.

Cash used in investing activities increased $4 million primarily due to the timing of payments of capital expenditures and higher strategic capital spend.

Cash used in financing activities decreased $25 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.

16 unchanged sentences

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:

Income (loss) from continuing operations is reconciled to EBITDA and Adjusted EBITDA from continuing operations, by segment, as follows:

(in millions)

High Purity Cellulose Paperboard High-Yield Pulp Corporate Total

Three Months Ended March 30, 2024

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

Three Months Ended June 29, 2024

Income (loss) from continuing operations $ 30 $ 13 $ 1 $ (36) $ 8

Depreciation and amortization 29 2 1 1 33

1 unchanged sentence

Income tax benefit — — — (1) (1)

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

Three Months Ended April 1, 2023

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

EBITDA-continuing operations 59 15 2 (15) 61

Indefinite suspension charges 7 — — — 7

Adjusted EBITDA-continuing operations $ 66 $ 15 $ 2 $ (15) $ 68

Three Months Ended July 1, 2023

Income (loss) from continuing operations $ — $ 6 $ 1 $ (23) $ (16)

Depreciation and amortization 28 4 — 1 33

1 unchanged sentence

Income tax benefit — — — (3) (3)

EBITDA 44 13 8 (16) 49

EBITDA-continuing operations 28 10 1 (11) 28

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

Adjusted EBITDA-continuing operations $ 28 $ 10 $ 1 $ (12) $ 27

Six Months Ended June 29, 2024

Income (loss) from continuing operations $ 51 $ 21 $ — $ (65) $ 7

Depreciation and amortization 58 6 2 1 67

Interest expense, net — — — 41 41

Income tax benefit — — — (2) (2)

EBITDA-continuing operations 109 27 2 (25) 113

Indefinite suspension charges 7 — — — 7

Adjusted EBITDA-continuing operations $ 116 $ 27 $ 2 $ (25) $ 120

Six Months Ended July 1, 2023

Income (loss) from continuing operations $ 13 $ 16 $ 8 $ (51) $ (14)

Depreciation and amortization 59 7 1 1 68

Interest expense, net — — — 29 29

Income tax benefit — — — (6) (6)

EBITDA-continuing operations 72 23 9 (27) 77

Pension settlement loss — — — 2 2

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.

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

Adjusted EBITDA-continuing operations $ 72 $ 23 $ 9 $ (26) $ 78

EBITDA from continuing operations for the quarter ended June 29, 2024 increased $33 million compared to the same prior year quarter driven by higher net sales, lower key input and logistics costs, higher productivity and CEWS benefit claims income, partially offset by the impact of the timing of planned maintenance outages compared to the prior year and the costs incurred related to the suspension of Temiscaming High Purity Cellulose operations.

EBITDA from continuing operations for the six months ended June 29, 2024 increased $36 million compared to the same prior year period driven by lower key input and logistics costs, higher productivity and CEWS benefit claims income, partially offset by the decrease in net sales, the impact of the timing of planned maintenance outages compared to the prior year and the costs incurred related to the suspension of Temiscaming High Purity Cellulose operations.

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

4 unchanged sentences

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

Six Months Ended

(in millions) June 29, 2024 July 1, 2023

Cash provided by operating activities $ 99 $ 84

2 unchanged sentences

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

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.

Strategic capital expenditures for the six months ended June 29, 2024 and July 1, 2023 were $28 million and $22 million, respectively.

Adjusted free cash flow increased primarily due to lower costs and the proceeds from the sale of our softwood lumber duty refund rights, partially offset by changes in working capital.

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