RAYONIER ADVANCED MATERIALS INC. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following analysis of our financial condition and results of operations should be read in conjunction with our Financial Statements and the notes thereto included in this Quarterly Report on Form 10-Q and with our 2023 Form 10-K and information contained in subsequent Forms 8-K and other reports filed with the SEC. Forward-Looking Statements Certain statements in this Quarterly Report on Form 10-Q regarding anticipated financial, business, legal or other outcomes, including business and market conditions, outlook and other similar statements relating to future events, developments or financial or operational performance or results, are “forward-looking statements” made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. These forward-looking statements are identified by the use of words such as “may,” “will,” “should,” “could,” “expect,” “estimate,” “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. Forward-looking statements are not guarantees of future performance or events and undue reliance should not be placed on these statements. Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, we can give no assurance that these expectations will be attained, and it is possible that actual results may differ materially from those indicated by these forward-looking statements due to a variety of risks and uncertainties. T he risk factors contained in Item 1A—Risk Factors of our 2023 Form 10-K, among others, could cause actual results or events to differ materially from our historical experience and those expressed in forward-looking statements made in this report. Forward-looking statements are only as of the date of the filing of this Quarterly Report on Form 10-Q and we undertake no duty to update its forward-looking statements except as required by law. You are advised to review any disclosures that we have made or may make in our filings and other submissions to the SEC, including those on Forms 10-K, 10-Q, 8-K and other reports. Business Overview We are a global leader of specialty cellulose materials with a broad offering of high purity cellulose specialties, a natural polymer used in the production of a variety of specialty chemical products, including liquid crystal displays, filters, textiles and performance additives for pharmaceutical, food and other industrial applications. Building upon more than 95 years of experience in cellulose chemistry, we provide some of the highest quality high-purity cellulose pulp products that make up the essential building blocks for our customers’ products while providing exceptional service and value. 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. Our paperboard is used for production in the commercial printing, lottery ticket and high-end packaging sectors. Our high-yield pulp is used by paperboard producers, as well as in traditional printing, writing and specialty paper manufacturing. We operate in three business segments: High Purity Cellulose, Paperboard and High-Yield Pulp. Recent Business Developments • 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. 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 8—Debt and Finance Leases to our Financial Statements for further information. 19 Table of Contents 2024 Outlook 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. 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 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 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 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 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 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. 20 Table of Contents 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 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 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 Cost of sales (371) (370) (722) (800) Gross margin 48 15 85 52 Selling, general and administrative expense (21) (18) (42) (37) 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) Components of pension and OPEB, excluding service costs — 1 1 (1) Other income, net 1 3 2 3 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) Gross margin % 11.5 % 3.9 % 10.5 % 6.1 % Operating margin % 6.7 % (1.8) % 5.6 % 1.2 % Effective tax rate (10.9) % 17.9 % (21.4) % 31.5 % Net Sales 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 Paperboard 60 48 113 107 High-Yield Pulp 33 44 67 86 Eliminations (6) (7) (12) (15) Net sales $ 419 $ 385 $ 807 $ 852 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. 21 Table of Contents 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 (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 Paperboard 12 6 20 16 High-Yield Pulp 1 1 — 8 Corporate (15) (14) (26) (27) 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 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. Income Taxes 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. 22 Table of Contents 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 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 Operating income $ 30 $ — $ 51 $ 13 Average sales prices ($ per MT) $ 1,371 $ 1,301 $ 1,335 $ 1,313 Sales volumes (thousands of MTs) 225 214 444 479 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/Other Cellulose specialties $ 179 $ (1) $ 46 $ 224 Commodity products 99 (5) (9) 85 Other sales (a) 22 — 1 23 Net sales $ 300 $ (6) $ 38 $ 332 (a) Included sales of bioelectricity, lignosulfonates and other by-products to third parties. 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) 45 — 1 46 Net sales $ 674 $ (18) $ (17) $ 639 (a) Included sales of bioelectricity, lignosulfonates and other by-products to third parties. 23 Table of Contents 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 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) Sales Price Sales Volume/Mix/Other (a) Cost SG&A and other Operating income $ 13 $ (18) $ (19) $ 78 $ (3) $ 51 Operating margin % 1.9 % (2.7) % (3.0) % 12.2 % (0.4) % 8.0 % (a) Computed based on contribution margin. 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. Paperboard 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 Operating income $ 12 $ 6 $ 20 $ 16 Average sales prices ($ per MT) $ 1,384 $ 1,498 $ 1,383 $ 1,536 Sales volumes (thousands of MTs) 44 32 82 70 24 Table of Contents 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 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 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) Sales Price Sales Volume/Mix (a) Cost SG&A and other Operating income $ 16 $ (13) $ 8 $ 7 $ 2 $ 20 Operating margin % 15.0 % (11.8) % 6.5 % 6.2 % 1.8 % 17.7 % (a) Computed based on contribution margin. 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. 25 Table of Contents High-Yield Pulp 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 $ 1 $ 1 $ — $ 8 Average sales prices ($ per MT) (a) $ 574 $ 633 $ 566 $ 691 Sales volumes (thousands of MTs) (a) 45 60 95 103 (a) External sales only. 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) Price Volume/Mix Net sales $ 44 $ (3) $ (8) $ 33 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) Sales Price Sales Volume/Mix (a) Cost SG&A and other 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 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. 26 Table of Contents 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. Corporate Three Months Ended Six Months Ended (in millions) 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 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 Overview Cash flows from operations, primarily driven by operating results, have historically been our primary source of liquidity and capital resources. As operating cash flows can be negatively impacted by fluctuations in market prices for our commodity products and changes in demand for our products, we maintain a key focus on cash, managing working capital closely and optimizing the timing and level of our capital expenditures. 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. No dividends have been declared since. The declaration and payment of future common stock dividends, if any, will be at the discretion of our Board of Directors and will be dependent upon our financial condition, results of operations, capital requirements and other factors that the Board of Directors deems relevant. In addition, our debt facilities place limitations on the declaration and payment of future dividends. In January 2018, our Board of Directors authorized a $100 million common stock share buyback program. We 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) June 29, 2024 December 31, 2023 Cash and cash equivalents $ 114 $ 76 Availability under the ABL Credit Facility (a)(b) 135 118 Total debt (b) 778 777 Stockholders’ equity 755 747 Total capitalization (total debt plus stockholders’ equity) 1,533 1,524 Debt to capital ratio 51 % 51 % (a) Amounts available under the ABL Credit Facility fluctuate based on eligible accounts receivable and inventory levels. 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. (b) See Note 8—Debt and Finance Leases to our Financial Statements for further information. 27 Table of Contents Cash Requirements Contractual Commitments Our principal contractual commitments include standby letters of credit, surety bonds, guarantees, purchase obligations and leases. We utilize arrangements such as standby letters of credit and surety bonds to provide credit support for certain suppliers and vendors in case of their default on critical obligations, collateral for certain of our self-insurance programs and guarantees for the completion of our remediation of environmental liabilities. As part of our ongoing operations, we also periodically issue guarantees to third parties. Our primary purchase obligation payments relate to natural gas, steam energy and wood chips purchase contracts. There have been no material changes to our contractual commitments 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. Debt 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 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. Cash Flows Six Months Ended (in millions) June 29, 2024 July 1, 2023 Cash flows provided by (used in): Operating activities $ 99 $ 84 Investing activities (58) (54) Financing activities (1) (26) 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. Performance and Liquidity Indicators The discussion below is presented to enhance the reader’s understanding of our operating performance, liquidity and ability to generate cash and satisfy rating agency and creditor requirements. This information includes the non-GAAP financial measures of EBITDA, adjusted EBITDA and adjusted free cash flows. These measures are not defined by GAAP and our discussion of them is not intended to conflict with or change any of our GAAP disclosures provided in this report. 28 Table of Contents We believe these non-GAAP financial measures provide useful information to our Board of Directors, management and investors regarding our financial condition and results of operations. Our management uses these non-GAAP financial measures to compare our performance to that of prior periods for trend analyses, to determine management incentive compensation and for budgeting, forecasting and planning purposes. Our management considers these non-GAAP financial measures, in addition to operating income, to be important in estimating our enterprise and stockholder values and for making strategic and operating decisions. In addition, analysts, investors and creditors use these non-GAAP financial measures when analyzing our operating performance, financial condition and cash-generating ability. We use EBITDA and adjusted EBITDA as performance measures and adjusted free cash flows as a liquidity measure. We do not consider non-GAAP financial measures an alternative to financial measures determined in accordance with GAAP. The principal limitation of these non-GAAP financial measures is that they may exclude significant expense and income items that are required by GAAP to be recognized in our Financial Statements. In addition, they reflect the exercise of management’s judgment about which expense and income items are excluded or included in determining these non-GAAP financial measures. To compensate for these limitations, reconciliations of our non-GAAP financial measures to their most directly comparable GAAP financial measures are provided below. Non-GAAP financial measures are not necessarily indicative of results that may be generated in future periods and should not be relied upon, in whole or part, in evaluating our financial condition, results of operations or future prospects. EBITDA and Adjusted EBITDA EBITDA is defined as earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA is defined as EBITDA adjusted for items that management believes are not representative of our core operations. 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 June 29, 2024 Income (loss) from continuing operations $ 30 $ 13 $ 1 $ (36) $ 8 Depreciation and amortization 29 2 1 1 33 Interest expense, net — — — 21 21 Income tax benefit — — — (1) (1) 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 Interest expense, net — — — 14 14 Income tax benefit — — — (3) (3) EBITDA-continuing operations 28 10 1 (11) 28 Gain on debt extinguishment — — — (1) (1) Adjusted EBITDA-continuing operations $ 28 $ 10 $ 1 $ (12) $ 27 29 Table of Contents 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 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. 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: Six Months Ended (in millions) June 29, 2024 July 1, 2023 Cash provided by operating activities $ 99 $ 84 Capital expenditures, net (a) (30) (32) Adjusted free cash flow $ 69 $ 52 (a) Net of proceeds from the sale of assets and excluding strategic 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. 30 Table of Contents