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 October 2024, we secured term loan financing of $700 million in aggregate principal amount and received net proceeds of $683 million after original issue discount, which will be used in the fourth quarter, together with cash on hand, to redeem the outstanding principal balances of the 2026 Notes and the 2027 Term Loan and pay fees and expenses related to the transaction. In conjunction with this refinancing, we secured commitments for a five-year $175 million ABL credit facility. See Note 1—Basis of Presentation to our Financial Statements. • In October 2024, an isolated fire occurred at our Jesup plant during planned maintenance activity. We estimate an unfavorable impact to EBITDA in 2024 from the incident of approximately $10 million and additional required maintenance capital of $3 million. See Note 1—Basis of Presentation to our Financial Statements. • In September 2024, we announced price increases for our cellulose specialties products of up to 10 percent, depending on product grade, as contracts allow. This increase was driven by market dynamics, cost inflation and other economic drivers. • In September 2024, we repurchased $12 million principal of our 2026 Notes through open-market transactions for $12 million cash. See Note 8—Debt and Finance Leases to our Financial Statements. 22 Table of Contents • In July 2024, we indefinitely suspended operations at our Temiscaming High Purity Cellulose plant and in September 2024, we recorded a $25 million non-cash asset impairment, among other charges, related to the suspension. See Note 2—Indefinite Suspension of Operations to our Financial Statements. • 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. • 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. • In January 2024, we amended our 2027 Term Loan agreement to increase the maximum consolidated net secured 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. Business Outlook 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 remain committed to pursuing a 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 continuing custodial site expenses. In connection with the suspension of operations, we have incurred one-time operating charges, including mothballing and severance and other employee costs, of $14 million and a $25 million non-cash asset impairment. Potential remaining one-time charges to be incurred in the fourth quarter are estimated at $2 million to $3 million. For 2024, the suspension of the Temiscaming High Purity Cellulose plant is expected to be positive to Adjusted EBITDA. Free cash flow is expected to increase by $30 million to $35 million in 2024 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. In October 2024, an isolated fire occurred at our Jesup plant during planned maintenance activity. There were no injuries to employees or contractors and no risk to the surrounding community. The plant’s C line operations resumed within two days and the A and B lines’ operations resum ed within a two-week period. While we continue to assess the financial impact of the incident, the unfavorable impact to EBITDA in 2024 is expected to approximate $10 million, with an additional required $3 million of maintenance capital . Additional capital expenditures will be required over the next couple of years to complete repairs. We carry insurance for property and business interruption loss with a $15 million combined deductible. 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 demand and additional volume sold to customers affected by the indefinite 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, customer destocking in the acetate markets and reduced sales related to the fire in Jesup. Demand for RYAM’s commodity products remains steady. Sales prices for fluff products are expected to decline by a high single-digit percentage compared to 2023, while sales volumes are projected to increase by nearly 30 percent year over year. For non-fluff commodities, average sales prices are expected to rise by a mid-single-digit percentage over 2023 levels, though sales volumes are expected to decrease nearly 50 percent compared to 2023 levels, aligned with strategic initiatives to reduce exposure to non-fluff commodities. Pricing for all commodity High Purity Cellulose products is forecasted to soften slightly in Q4, with volumes seeing a modest increase sequentially. 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 costs due to the timing of maintenance projects, net custodial site expenses related to the suspension and recovery costs related to the Jesup fire. Our bioethanol facility in Tartas, France became operational in the first quarter of 2024 and is expected to deliver approximately $3 million to $4 million of EBITDA in 2024, growing to $8 million to $10 million beginning in 2025. EBITDA in the fourth quarter of 2024 is expected to be lower than the third quarter of 2024 due to the anticipated net custodial site expenses at the Temiscaming site, Jesup fire repair costs and the impact of the fire on sales and costs. 23 Table of Contents Looking forward to 2025, we announced price increases of up to 10 percent for our cellulose specialties products, as contracts allow, and expect higher margins for cellulose specialties in the coming year. We expect to continue reducing our exposure to non-fluff commodities in 2025. Paperboard Paperboard prices are expected to decrease in the fourth quarter while sales volumes are expected to increase. Raw material prices are expected to increase compared to the third quarter. Overall, we expect a decline in EBITDA from this segment in the coming quarters as market pressure continues with new competitive supply coming online in 2025. High-Yield Pulp High-Yield Pulp prices are expected to decline in the fourth quarter, while sales volumes are expected to increase significantly due to timing of shipments. Overall, we expect to incur a loss in EBITDA from this segment in the coming quarter due to the decline in sales prices. Current pricing is expected to remain low in the coming quarters. Corporate Corporate costs are expected to decrease in the fourth quarter subject to fluctuations in foreign exchange rates. 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. Current projects include: • Our bioethanol facility in Tartas, France is operating to available feedstock and represents a significant milestone towards our goal of generating $42 million of annual EBITDA from all of RYAM’s future 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. • Our involvement in AGE, a company that aims to utilize renewable forestry waste and other biomass generally discarded as waste to generate sustainable electricity for the state of Georgia. While still in the development phase, the project achieved a significant milestone when AGE was recently awarded a Purchase Power Agreement to sell electricity to Georgia Power Company. Additional information regarding the progress of this project will be shared in 2025. We are also advancing various other projects and expect to secure financing for many of these projects in the coming quarter. 24 Table of Contents Results of Operations Three Months Ended Nine Months Ended (in millions, except percentages) September 28, 2024 September 30, 2023 September 28, 2024 September 30, 2023 Net sales $ 401 $ 369 $ 1,208 $ 1,221 Cost of sales (357) (360) (1,079) (1,160) Gross margin 44 9 129 61 Selling, general and administrative expense (24) (22) (66) (59) Foreign exchange gain (loss) (2) 1 1 (1) Asset impairment (25) — (25) — Indefinite suspension charges (7) — (14) — Other operating income (expense), net (3) (2) 3 (5) Operating income (loss) (17) (14) 28 (4) Interest expense (20) (21) (62) (52) Components of pension and OPEB, excluding service costs 1 — 2 (1) Other income (expense), net — 4 2 7 Loss from continuing operations before income tax (36) (31) (30) (50) Income tax benefit 4 5 6 11 Equity in loss of equity method investment (1) (1) (2) (2) Loss from continuing operations (33) (27) (26) (41) Income from discontinued operations, net of tax — 2 3 1 Net loss $ (33) $ (25) $ (23) $ (40) Gross margin % 11.0 % 2.4 % 10.7 % 5.0 % Operating margin % (4.2) % (3.8) % 2.3 % (0.3) % Effective tax rate 12.5 % 17.0 % 19.4 % 22.4 % Net Sales Three Months Ended Nine Months Ended (in millions) September 28, 2024 September 30, 2023 September 28, 2024 September 30, 2023 High Purity Cellulose $ 325 $ 292 $ 964 $ 966 Paperboard 55 57 168 164 High-Yield Pulp 28 25 95 111 Eliminations (7) (5) (19) (20) Net sales $ 401 $ 369 $ 1,208 $ 1,221 Net sales for the quarter ended September 28, 2024 increased $32 million, or 9 percent, compared to the same prior year quarter driven by higher sales prices in High Purity Cellulose and High-Yield Pulp and higher sales volumes in cellulose specialties, partially offset by lower sales prices in Paperboard and lower sales volumes in commodity products and High-Yield Pulp. Net sales for the nine months ended September 28, 2024 decreased $13 million, or 1 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. 25 Table of Contents Operating Income (Loss) Three Months Ended Nine Months Ended (in millions) September 28, 2024 September 30, 2023 September 28, 2024 September 30, 2023 High Purity Cellulose $ (6) $ (6) $ 45 $ 7 Paperboard 7 13 27 29 High-Yield Pulp — (6) — 2 Corporate (18) (15) (44) (42) Operating income (loss) $ (17) $ (14) $ 28 $ (4) Operating loss for the quarter ended September 28, 2024 increased $3 million, or 21 percent, compared to the same prior year quarter primarily driven by $7 million in one-time costs incurred related to the indefinite suspension of Temiscaming High Purity Cellulose operations and an associated $25 million non-cash asset impairment. The loss also included $4 million of Temiscaming High Purity Cellulose continuing custodial site costs. The increase in the quarter’s operating loss was further driven by lower Paperboard net sales and higher purchased pulp costs. Partially offsetting these increases to the loss were the higher net sales in High Purity Cellulose and High-Yield Pulp, lower key input and labor costs in High Purity Cellulose and higher productivity in High-Yield Pulp. Operating results for the nine months ended September 28, 2024 improved $32 million, or 800 percent, compared to the same prior year period despite one-time charges of $14 million related to the indefinite suspension of Temiscaming High Purity Cellulose operations and an associated $25 million non-cash asset impairment. Results also included $4 million of Temiscaming High Purity Cellulose continuing custodial site costs. The improvement in operating results was driven by higher Paperboard net sales, lower key input, logistics and labor costs in High Purity Cellulose, lower purchased pulp costs in Paperboard, lower logistics, chemicals and wood costs and higher productivity in High-Yield Pulp and the recognition of $10 million in CEWS benefit claims deferred since 2021. Partially offsetting these improvements, in addition to the indefinite suspension charges, asset impairment and custodial site costs, were lower High Purity Cellulose and High-Yield Pulp net sales, the impact of the timing of planned maintenance outages compared to the prior year, the prior year recognition of a $3 million benefit from payroll tax credit carryforwards that we do not expect to repeat and $11 million of energy cost benefits from sales of excess emission allowances recognized in the prior year, the current year sales of which are expected in the fourth quarter. See Operating Results by Segment below for further discussion. Non-Operating Income & Expense Interest expense for the quarter and nine months ended September 28, 2024 was nearly flat and increased $10 million, respectively, compared to the same prior year periods. The increase in the nine-month period was driven by an increase in the average effective interest rate on debt, partially offset by a decrease in the average outstanding principal balance. Total debt increased $24 million from September 30, 2023 to September 28, 2024, as we secured $26 million of green capital to further our biomaterials strategy. Interest income for the quarter and nine months ended September 28, 2024 decreased $2 million and $3 million, respectively, compared to the same prior year periods driven by the prior year timing of the receipt of the 2027 Term Loan proceeds and their subsequent use in the repayment of senior notes. Unfavorable foreign exchange rates during the quarter ended September 28, 2024 compared to favorable rates in the same prior year quarter resulted in a net unfavorable impact of $1 million. The net impact when comparing the current and prior year nine-month periods was favorable but immaterial. Also included in “other income (expense), net” in the quarter and nine months ended September 30, 2023 was a $1 million net loss on debt extinguishment. Additionally, we recorded a $2 million gain on a passive land sale and a $2 million pension settlement loss in the prior year nine-month period. 26 Table of Contents Income Taxes The effective tax rate on the loss from continuing operations for the quarter and nine months ended September 28, 2024 was a benefit of 13 percent and 19 percent, respectively. The 2024 effective tax rate differed from the federal statutory rate of 21 percent primarily due to changes in the valuation allowance on disallowed interest deductions, the release of certain tax reserves, different statutory tax rates in foreign jurisdictions, U.S. tax credits, excess deficit on vested stock compensation and return-to-accrual adjustments. 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. Discontinued Operations During the nine months ended September 28, 2024, we recorded pre-tax income from discontinued operations of $5 million related to CEWS benefit claims deferred since 2021 and a pre-tax loss of $1 million on the sale of our softwood lumber duty refund rights. During the quarter and nine months ended September 30, 2023, the USDOC completed its administrative review of duties applied to Canada softwood lumber exports to the U.S. during 2021 and reduced rates applicable to us, for which we recorded a pre-tax gain of $2 million. Also during the nine months ended September 30, 2023, we incurred a $2 million pre-tax loss related to the settlement of a claim pursuant to the representations and warranties in the asset purchase agreement. Operating Results by Segment High Purity Cellulose Three Months Ended Nine Months Ended (in millions, unless otherwise stated) September 28, 2024 September 30, 2023 September 28, 2024 September 30, 2023 Net sales $ 325 $ 292 $ 964 $ 966 Operating income (loss) $ (6) $ (6) $ 45 $ 7 Average sales prices ($ per MT) $ 1,369 $ 1,215 $ 1,346 $ 1,282 Sales volumes (thousands of MTs) 218 217 663 696 Net Sales - Three Months Ended Three Months Ended September 30, 2023 Changes Attributable to: Three Months Ended September 28, 2024 (in millions) Price Volume/Mix/Other Cellulose specialties $ 165 $ 3 $ 52 $ 220 Commodity products 99 — (20) 79 Other sales (a) 28 — (2) 26 Net sales $ 292 $ 3 $ 30 $ 325 (a) Includes sales of bioelectricity, lignosulfonates and other by-products to third parties. 27 Table of Contents Net sales of our High Purity Cellulose segment for the quarter ended September 28, 2024 increased $33 million compared to the same prior year quarter. Included in the current and prior year quarters were $26 million and $28 million, respectively, of other sales primarily from bio-based energy and lignosulfonates. Total sales prices increased 13 percent due to a higher mix of cellulose specialties and included 2 percent and 5 percent increases in cellulose specialties and commodity prices, respectively. Total sales volumes were nearly flat as a 32 percent increase in cellulose specialties volumes was offset by a 24 percent decrease in commodity volumes. The cellulose specialties sales volumes increase includes 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, the easing of prior year customer destocking and a continued uptick in ethers sales volumes. The decrease in commodity sales volumes was primarily driven by a higher mix of cellulose specialties production and the indefinite suspension of Temiscaming High Purity Cellulose operations. Net Sales - Nine Months Ended Nine Months Ended September 30, 2023 Changes Attributable to: Nine Months Ended September 28, 2024 (in millions) Price Volume/Mix/Other Cellulose specialties $ 571 $ 8 $ 59 $ 638 Commodity products 322 (22) (46) 254 Other sales (a) 73 — (1) 72 Net sales $ 966 $ (14) $ 12 $ 964 (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 28, 2024 was nearly flat compared to the same prior year period. Included in the current and prior year nine-month periods were $72 million and $73 million, respectively, of other sales primarily from bio-based energy and lignosulfonates. Total sales prices increased 5 percent due to a 1 percent increase in cellulose specialties prices that was partially offset by a 3 percent decrease in commodity prices. Despite a cellulose specialties sales volumes increase of 10 percent, total sales volumes decreased 5 percent driven by a 19 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, the easing of prior year customer destocking and an uptick in ethers sales volumes were partially 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 and the indefinite suspension of Temiscaming High Purity Cellulose operations. Operating Loss - Three Months Ended Three Months Ended September 30, 2023 Gross Margin Changes Attributable to: Three Months Ended September 28, 2024 (in millions, except percentages) Sales Price Sales Volume/Mix/Other (a) Cost SG&A and other Operating loss $ (6) $ 3 $ 6 $ 25 $ (34) $ (6) Operating margin % (2.1) % 1.0 % 1.9 % 7.7 % (10.3) % (1.8) % (a) Computed based on contribution margin. Operating loss of our High Purity Cellulose segment for the quarter ended September 28, 2024 was nearly flat compared to the same prior year quarter despite one-time charges of $7 million related to the indefinite suspension of Temiscaming High Purity Cellulose operations and an associated $25 million non-cash asset impairment. Results also included $4 million of Temiscaming High Purity Cellulose continuing custodial site costs. The quarter results were driven by the higher cellulose specialties sales prices and volumes, lower key input costs and lower labor costs reflective of the suspended operations, offset by the indefinite suspension charges, asset impairment, custodial site costs and lower commodity sales volumes. 28 Table of Contents Operating Income - Nine Months Ended Nine Months Ended September 30, 2023 Gross Margin Changes Attributable to: Nine Months Ended September 28, 2024 (in millions, except percentages) Sales Price Sales Volume/Mix/Other (a) Cost SG&A and other Operating income $ 7 $ (14) $ (13) $ 102 $ (37) $ 45 Operating margin % 0.7 % (1.5) % (1.3) % 10.6 % (3.8) % 4.7 % (a) Computed based on contribution margin. Operating income of our High Purity Cellulose segment for the nine months ended September 28, 2024 increased $38 million compared to the same prior year period despite one-time charges of $14 million related to the indefinite suspension of Temiscaming High Purity Cellulose operations and an associated $25 million non-cash asset impairment. Results also included $4 million of Temiscaming High Purity Cellulose continuing custodial site costs. The increase in operating income in the nine-month period was driven by the higher cellulose specialties sales prices and volumes, lower key input and logistics costs, lower labor costs reflective of the suspended operations and the recognition of $5 million in CEWS benefit claims deferred since 2021. Partially offsetting these increases were the indefinite suspension charges, asset impairment, custodial site costs, the lower commodity sales prices and volumes, the impact of the timing of planned maintenance outages compared to the prior year, the prior year recognition of a $3 million benefit from payroll tax credit carryforwards that we do not expect to repeat and $11 million of energy cost benefits from sales of excess emission allowances recognized in the prior year, the current year sales of which are expected in the fourth quarter. Paperboard Three Months Ended Nine Months Ended (in millions, unless otherwise stated) September 28, 2024 September 30, 2023 September 28, 2024 September 30, 2023 Net sales $ 55 $ 57 $ 168 $ 164 Operating income $ 7 $ 13 $ 27 $ 29 Average sales prices ($ per MT) $ 1,400 $ 1,459 $ 1,388 $ 1,508 Sales volumes (thousands of MTs) 39 39 121 109 Net Sales - Three Months Ended Three Months Ended September 30, 2023 Changes Attributable to: Three Months Ended September 28, 2024 (in millions) Price Volume/Mix Net sales $ 57 $ (2) $ — $ 55 Net sales of our Paperboard segment for the quarter ended September 28, 2024 decreased $2 million compared to the same prior year quarter driven by a 4 percent decrease in sales prices due to mix and increased competitive activity from European imports. Sales volumes were nearly flat. Net Sales - Nine Months Ended Nine Months Ended September 30, 2023 Changes Attributable to: Nine Months Ended September 28, 2024 (in millions) Price Volume/Mix Net sales $ 164 $ (14) $ 18 $ 168 Net sales of our Paperboard segment for the nine months ended September 28, 2024 increased $4 million compared to the same prior year period. Sales volumes increased 11 percent driven by the easing of prior year customer destocking in the current year, partially offset by an 8 percent decrease in sales prices driven by mix and increased competitive activity from European imports. 29 Table of Contents Operating Income - Three Months Ended Three Months Ended September 30, 2023 Gross Margin Changes Attributable to: Three Months Ended September 28, 2024 (in millions, except percentages) Sales Price Sales Volume/Mix (a) Cost SG&A and other Operating income $ 13 $ (2) $ — $ (4) $ — $ 7 Operating margin % 22.8 % (2.8) % — % (7.3) % — % 12.7 % (a) Computed based on contribution margin. Operating income of our Paperboard segment for the quarter ended September 28, 2024 decreased $6 million compared to the same prior year quarter driven by the lower sales prices and higher purchased pulp costs. Operating Income - Nine Months Ended Nine Months Ended September 30, 2023 Gross Margin Changes Attributable to: Nine Months Ended September 28, 2024 (in millions, except percentages) Sales Price Sales Volume/Mix (a) Cost SG&A and other Operating income $ 29 $ (14) $ 8 $ 3 $ 1 $ 27 Operating margin % 17.7 % (7.7) % 3.7 % 1.8 % 0.6 % 16.1 % (a) Computed based on contribution margin. Operating income of our Paperboard segment for the nine months ended September 28, 2024 decreased $2 million compared to the same prior year period driven by the lower sales prices and the impact of the planned maintenance outage in the prior year, partially offset by the higher sales volumes, lower purchased pulp costs and the recognition of $2 million in CEWS benefit claims deferred since 2021. High-Yield Pulp Three Months Ended Nine Months Ended (in millions, unless otherwise stated) September 28, 2024 September 30, 2023 September 28, 2024 September 30, 2023 Net sales $ 28 $ 25 $ 95 $ 111 Operating income (loss) $ — $ (6) $ — $ 2 Average sales prices ($ per MT) (a) $ 559 $ 489 $ 564 $ 635 Sales volumes (thousands of MTs) (a) 38 39 133 142 (a) External sales only. During the quarters ended September 28, 2024 and September 30, 2023, the High-Yield Pulp segment sold 15,000 MTs and 17,000 MTs of high-yield pulp to the Paperboard segment for $7 million and $6 million, respectively. During the nine months ended September 28, 2024 and September 30, 2023, the High-Yield Pulp segment sold 47,000 MTs and 49,000 MTs of high-yield pulp to the Paperboard segment for $20 million and $21 million, respectively. Net Sales - Three Months Ended Three Months Ended September 30, 2023 Changes Attributable to: Three Months Ended September 28, 2024 (in millions) Price Volume/Mix Net sales $ 25 $ 4 $ (1) $ 28 Net sales of our High-Yield Pulp segment for the quarter ended September 28, 2024 increased $3 million compared to the same prior year quarter driven by a 14 percent increase in sales prices, partially offset by a 3 percent decrease in sales volumes driven by timing of shipments. 30 Table of Contents Net Sales - Nine Months Ended Nine Months Ended September 30, 2023 Changes Attributable to: Nine Months Ended September 28, 2024 (in millions) Price Volume/Mix Net sales $ 111 $ (10) $ (6) $ 95 Net sales of our High-Yield Pulp segment for the nine months ended September 28, 2024 decreased $16 million compared to the same prior year period driven by 11 percent and 6 percent decreases in sales prices and volumes, respectively, due to market supply dynamics in China, lower demand and timing of shipments. Operating Income (Loss) - Three Months Ended Three Months Ended September 30, 2023 Gross Margin Changes Attributable to: Three Months Ended September 28, 2024 (in millions, except percentages) Sales Price Sales Volume/Mix (a) Cost SG&A and other Operating income (loss) $ (6) $ 4 $ (1) $ 3 $ — $ — Operating margin % (24.0) % 17.1 % (3.8) % 10.7 % — % — % (a) Computed based on contribution margin. Operating results of our High-Yield Pulp segment for the quarter ended September 28, 2024 improved $6 million compared to the same prior year quarter driven by the higher sales prices and higher productivity, partially offset by the lower sales volumes. Operating Income - Nine Months Ended Nine Months Ended September 30, 2023 Gross Margin Changes Attributable to: Nine Months Ended September 28, 2024 (in millions, except percentages) Sales Price Sales Volume/Mix (a) Cost SG&A and other Operating income $ 2 $ (10) $ (3) $ 9 $ 2 $ — Operating margin % 1.8 % (9.7) % (3.7) % 9.5 % 2.1 % — % (a) Computed based on contribution margin. Operating income of our High-Yield Pulp segment for the nine months ended September 28, 2024 decreased $2 million compared to the same prior year period driven by the lower sales prices and volumes, partially offset by lower logistics, chemicals and wood costs, higher productivity and the recognition of $2 million in CEWS benefit claims deferred since 2021. Corporate Three Months Ended Nine Months Ended (in millions) September 28, 2024 September 30, 2023 September 28, 2024 September 30, 2023 Operating loss $ (18) $ (15) $ (44) $ (42) The Corporate operating loss for the quarter and nine months ended September 28, 2024 increased $3 million and $2 million, respectively, compared to the same prior year periods. The increase in the quarter loss was driven by unfavorable foreign exchange rates in the current period compared to favorable rates in the prior period and higher environmental and variable compensation expense. The increase in the nine-month period loss was driven by higher costs related to our ERP transformation project, variable and other compensation and discounting and financing fees, partially offset by favorable foreign exchange rates in the current period compared to unfavorable rates in the prior period. 31 Table of Contents 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 $468 million, liabilities of $416 million, year-to-date revenue of $173 million and a trailing twelve month ABL Credit Facility and Term Loan covenant EBITDA for continuing operations of $15 million as of September 28, 2024. Our liquidity and capital resources are summarized below: (in millions, except ratios) September 28, 2024 December 31, 2023 Cash and cash equivalents $ 136 $ 76 Availability under the ABL Credit Facility (a)(b) $ 135 $ 118 Total debt (b) $ 773 $ 777 Stockholders’ equity $ 733 $ 747 Total capitalization (total debt plus stockholders’ equity) $ 1,506 $ 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 September 28, 2024, we had $170 million of gross availability and net available borrowings of $135 million after taking into account outstanding letters of credit of $35 million. In addition to the availability under the ABL Credit Facility, we have $10 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. 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 nine months ended September 28, 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. 32 Table of Contents Debt As of September 28, 2024 we were in compliance with all financial and other covenants under our debt agreements. See Note 1—Basis of Presentation and Note 8—Debt and Finance Leases to our Financial Statements for further information of the following transactions. 2026 Notes . In September 2024, we repurchased $12 million principal of our 2026 Notes through open-market transactions for $12 million cash. See Note 8—Debt and Finance Leases to our Financial Statements for further information. 2027 Term Loan . In January 2024, we amended the 2027 Term Loan to increase the maximum consolidated net secured 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. Debt issuance and redemption . In October 2024, we raised $700 million in aggregate principal amount of secured term loan financing and received net proceeds of $683 million after original issue discount, which will be used in the fourth quarter, together with cash on hand, to redeem the respective $453 million and $246 million outstanding principal balances of the 2026 Notes and 2027 Term Loan and pay fees and expenses related to the transaction. The 2029 Term Loan matures in October 2029, bears interest at an annual rate equal to three-month Term SOFR plus an initial spread of 7 percent and requires quarterly principal payments of $1.75 million. The initial spread may fluctuate by one half percent based on our net secured leverage ratio. We may voluntarily make prepayments at any time, subject to customary breakage costs and, if within the first three anniversaries of closing, an additional premium. The agreement governing the 2029 Term Loan contains various customary covenants, including the requirement to maintain a specified consolidated net secured leverage ratio, based on covenant EBITDA. In conjunction with the above refinancing, we secured commitments for a five-year $175 million ABL credit facility. The facility is initially priced at Term SOFR plus a spread of 2 percent. Cash Flows Nine Months Ended (in millions) September 28, 2024 September 30, 2023 Cash flows provided by (used in): Operating activities $ 149 $ 82 Investing activities (80) (95) Financing activities (10) (112) Cash provided by operating activities increased $67 million primarily due to proceeds of $39 million for the sale of our softwood lumber duty refund rights, net tax refunds of $20 million 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 decreased $15 million primarily due to the timing of payments of capital expenditures, lower strategic capital spend and lower custodial capital spend due to the indefinite suspension of operations. Cash used in financing activities decreased $102 million primarily due to lower net repayment of long-term debt, a decrease in debt issuance costs and a decrease in repurchases of common stock to satisfy tax withholding requirements related to the issuance of stock under our incentive stock plans. 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. 33 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 September 28, 2024 Income (loss) from continuing operations $ (5) $ 7 $ 1 $ (36) $ (33) Depreciation and amortization 32 4 — — 36 Interest expense, net — — — 20 20 Income tax benefit — — — (4) (4) EBITDA-continuing operations 27 11 1 (20) 19 Asset impairment 25 — — — 25 Indefinite suspension charges 7 — — — 7 Adjusted EBITDA-continuing operations $ 59 $ 11 $ 1 $ (20) $ 51 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 34 Table of Contents Nine Months Ended September 28, 2024 Income (loss) from continuing operations $ 46 $ 28 $ 1 $ (101) $ (26) Depreciation and amortization 90 10 2 1 103 Interest expense, net — — — 61 61 Income tax benefit — — — (6) (6) EBITDA-continuing operations 136 38 3 (45) 132 Asset impairment 25 — — — 25 Indefinite suspension charges 14 — — — 14 Adjusted EBITDA-continuing operations $ 175 $ 38 $ 3 $ (45) $ 171 Nine Months Ended September 30, 2023 Income (loss) from continuing operations $ 8 $ 30 $ 2 $ (81) $ (41) Depreciation and amortization 91 10 2 1 104 Interest expense, net — — — 48 48 Income tax benefit — — — (11) (11) EBITDA-continuing operations 99 40 4 (43) 100 Pension settlement loss — — — 2 2 Adjusted EBITDA-continuing operations $ 99 $ 40 $ 4 $ (41) $ 102 EBITDA from continuing operations for the quarter ended September 28, 2024 decreased $4 million compared to the same prior year quarter driven by the costs incurred related to the indefinite suspension of Temiscaming High Purity Cellulose operations, non-cash asset impairment and Temiscaming High Purity Cellulose continuing custodial site costs. The decrease was further driven by lower Paperboard net sales and higher purchased pulp costs. Partially offsetting these decreases were higher net sales in High Purity Cellulose and High-Yield Pulp, lower key input and labor costs in High Purity Cellulose and higher productivity in High-Yield Pulp. EBITDA from continuing operations for the nine months ended September 28, 2024 increased $32 million compared to the same prior year period driven by higher Paperboard net sales, lower key input, logistics and labor costs in High Purity Cellulose, lower purchased pulp costs in Paperboard, lower logistics, chemicals and wood costs and higher productivity in High-Yield Pulp and the CEWS benefit. Partially offsetting these increases were the costs incurred related to the indefinite suspension of operations, non-cash asset impairment, continuing custodial site costs, lower High Purity Cellulose and High-Yield Pulp net sales, the impact of the timing of planned maintenance outages compared to the prior year and the prior year recognition of benefits from payroll tax credit carryforwards and sales of excess emission allowances that did not repeat in the current year. 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 that 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. 35 Table of Contents Cash provided by operating activities is reconciled to adjusted free cash flow as follows: Nine Months Ended (in millions) September 28, 2024 September 30, 2023 Cash provided by operating activities $ 149 $ 82 Capital expenditures, net (a) (50) (55) Adjusted free cash flow $ 99 $ 27 (a) Net of proceeds from the sale of assets and excluding strategic capital expenditures. Strategic capital expenditures for the nine months ended September 28, 2024 and September 30, 2023 were $30 million and $40 million, respectively. Adjusted free cash flow increased primarily due to proceeds from the sale of our softwood lumber duty refund rights, net tax refunds and lower capital expenditures, partially offset by changes in working capital and higher interest payments. See Liquidity and Capital Resources—Cash Flows above for additional discussion of our operating cash flows.