Rayonier Advanced Materials Inc.: Form 10-Q for the period ended Jun 28, 2025

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 2024 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 various risks and uncertainties. The risk factors contained in Item 1A—Risk Factors of our 2024 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 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 in the production of cellulose specialties, a natural polymer used in the manufacturing of various specialty chemical products, including liquid crystal displays, filters, textiles and performance additives for pharmaceutical, food and other industrial applications. Building upon nearly 100 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 also produce bioelectricity, biomaterials, including biofuels, lignin and tall oil soap, and commodity fluff, viscose and paper pulp.

Additionally, we 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.

New Segment Structure

In the first quarter of 2025, we reorganized our High Purity Cellulose operating segment as a result of changes in our internal operating model, significant developments in our Biomaterials strategy and the successful launch of an enterprise reporting system that significantly enhances our financial reporting and costing capabilities. Specifically, we determined, in light of these new developments and capabilities, that the performance and outlook of the High Purity Cellulose business will be better managed as three separate businesses: Cellulose Specialties, Cellulose Commodities and a new Biomaterials business. No changes were made to the composition of the Paperboard and High-Yield Pulp operating segments.

As a result of this reorganization, we now operate in five operating segments: Cellulose Specialties, Biomaterials, Cellulose Commodities, Paperboard and High-Yield Pulp. Prior period segment results have been recast to align with this new segment reporting structure.

Business Outlook

Our business has been significantly impacted by several extraordinary and primarily non-recurring challenges during the first half of the year, including global trade disruptions, tariff-driven market volatility, operational challenges, softer demand in Paperboard and High-Yield Pulp, a non-cash environmental charge and foreign exchange headwinds.

While these near-term pressures weighed on second quarter results, they are largely considered to have peaked in the period. Since May, order trends in Cellulose Specialties have improved month over month and operational performance across our cellulose facilities has remained broadly stable. With signs of normalization emerging, RYAM is positioned to rebuild momentum in the second half of the year.

Looking ahead, we expect to meaningfully grow EBITDA over the two years following 2025, supported by focused efforts to increase Cellulose Specialties sales volume from the expected market demand growth, expand Cellulose Specialties margins by increasing prices and investing in high return cost reduction projects and accelerate high-return investments in Biomaterials. These actions are core to RYAM’s long-term strategy.

We remain committed to disciplined capital allocation. As previously disclosed, we began a process to explore the sale of our Paperboard and High-Yield Pulp businesses; however, given current market conditions and trade-related uncertainty, the process is now effectively on hold.

The following segment outlooks reflect RYAM’s current performance expectations for our operating businesses for the remainder of 2025.

Cellulose Specialties

Average cellulose specialties sales prices in 2025 are expected to increase by a mid single-digit percentage compared to the prior year. Sales volumes are anticipated to decline by a high single-digit percentage, reflecting tariff impacts, accelerated destocking of acetate and the absence of 2024 bridge volumes following the indefinite suspension of production at the Temiscaming plant. Acetate demand remains soft due to tariff-driven impacts, accelerated customer destocking and weaker global cigarette market trends. Ethers volumes are anticipated to improve, while demand for other cellulose specialties grades remains strong, supported by tight global supply conditions. Raw material input and logistics costs are expected to increase moderately year-over-year. All cellulose plants are currently running at expected operating rates.

Biomaterials

We continue to evaluate investments in new green energy and renewable products to provide both increased end-market diversity and incremental profitability. We intend to proceed only with those projects that are expected to meet our investment hurdles: a minimum 30 percent return on equity and a less than two-year payback period for RYAM equity. In the fourth quarter of 2024, we secured green capital of €67 million, which allows us to advance the biomaterials strategy and further progress towards our goal of generating over $70 million of EBITDA from RYAM’s Biomaterials business, inclusive of the projects summarized below:

• Our bioethanol facility in France is operational since the first quarter of 2024.
• We re-started our lignosulfonate powder plant in France in the first quarter of 2025.
• We continue to pursue an investment in a bioethanol facility in Fernandina Beach, Florida, similar to our bioethanol facility in France. While the City of Fernandina Beach recently denied the site plan application for this project, we believe the City erred in making its determination and we are pursuing all available legal remedies. In expectation of a favorable outcome, we continue to advance engineering plans and explore potential commercial agreements.
• We are evaluating investments in crude tall oil facilities in Jesup, Georgia and Tartas and a prebiotics facility at the Jesup plant, and are currently working on permitting, engineering and commercial agreements for these new facilities. In July 2025, we received GRAS status for our prebiotics product with a letter of no objection from the U.S. Food and Drug Administration.
• We are a partner in AGE, a start-up entity that aims to utilize renewable forestry waste and other biomass generally discarded as waste to generate green electricity for the State of Georgia from a new facility to be constructed adjacent to our Jesup plant. Although the project remains in the development phase, AGE is actively evaluating the construction and financing requirements for the new facility.
• We recently signed Memoranda of Understanding with Verso Energy to explore eSAF opportunities at both our Jesup and Tartas facilities, and with GranBio to develop a pilot-scale SAF plant at the Jesup site.

We expect to make final investment decisions on several of these projects in 2025.

Cellulose Commodities

Chinese retaliatory tariffs continue to disrupt global fluff market dynamics, creating a mismatch between supply and demand. As a result, RYAM’s production is being actively shifted toward non-fluff commodities until RYAM’s new dissolving wood pulp fluff product is fully qualified in China. While demand remains uncertain, we will continue to adjust production mix to mitigate the impact of direct tariffs and related second-order effects. Raw material input and logistics costs are expected to increase moderately.

Paperboard

Paperboard sales volumes are expected to remain soft due to continued economic uncertainty and weaker customer demand. Additionally, prices are expected to decline year-over-year, reflecting increased competitive activity from new U.S. competitor capacity. Input costs are projected to rise as a result of higher purchased pulp prices, increased allocation of Temiscaming custodial site costs and ongoing tariff mitigation efforts. In response to ongoing market weakness and a softer sales outlook, we are idling Paperboard production for two weeks during the third quarter as a proactive measure to align inventory levels with demand and preserve cash flow.

High-Yield Pulp

High-Yield Pulp sales prices and volumes are expected to decline in 2025, driven primarily by continued oversupply in the Chinese market. Input costs are also projected to rise due to a higher allocation of custodial site costs at the Temiscaming facility. Given the ongoing market weakness, we continue to take proactive steps to manage production and costs. In response to ongoing market weakness and a softer sales outlook, we are idling High-Yield Pulp production for three weeks during the third quarter to proactively manage inventory levels and preserve cash flow.

Corporate

Corporate costs for full year 2025 are expected to be higher compared to the prior year primarily due to the $12 million of non-cash environmental reserve charges recorded in the first quarter and potential continued foreign exchange headwinds from a weaker U.S. dollar. These impacts are expected to be partially offset by lower corporate spending in the second half of the year following the completion of our ERP implementation.

Results of Operations

(in millions, except percentages)

Net Sales

(in millions)

Net sales for the quarter and six months ended June 28, 2025 decreased $79 million, or 19 percent, and $111 million, or 14 percent, respectively, compared to the same prior year periods driven by lower sales prices in Paperboard and High-Yield Pulp and lower sales volumes across all segments that were largely a response to imposed tariffs and a labor strike at the Tartas cellulose plant in the current quarter. Partially offsetting the decrease in sales volumes were higher sales prices in Cellulose Specialties and Cellulose Commodities.

See Operating Results by Segment below for further discussion.

Operating Income (Loss)

(in millions)

Operating results for the quarter ended June 28, 2025 declined $29 million, or 104 percent, compared to the same prior year quarter driven primarily by the decrease in net sales, lower production due to operational challenges and the labor strike at the Tartas cellulose plant in the current quarter, unfavorable foreign exchange rates and the one-time prior year recognition of $10 million in CEWS benefit claims. Partially offsetting these decreases were lower indefinite suspension charges and lower variable compensation costs.

Operating results for the six months ended June 28, 2025 declined $61 million, or 136 percent, compared to the same prior year period driven primarily by the decrease in net sales, lower production due to operational challenges and the labor strike at the Tartas cellulose plant in the current period, current period non-cash environmental reserves charges of $12 million, unfavorable foreign exchange rates and the one-time prior year recognition of $10 million in CEWS benefit claims. Partially offsetting these decreases were lower indefinite suspension charges and lower variable compensation costs.

See Operating Results by Segment below for further discussion.

Non-Operating Income & Expense

Interest expense for the quarter and six months ended June 28, 2025 increased $2 million and $5 million, respectively, compared to the same prior year periods driven primarily by an increase in the average effective interest rate on debt, partially offset by a decrease in the average outstanding principal balance. Total debt decreased $32 million from June 29, 2024 to June 28, 2025.

Unfavorable foreign exchange rates during the quarter and six months ended June 28, 2025 compared to favorable rates in the same prior year periods resulted in net unfavorable impacts of $2 million and $3 million, respectively.

Income Taxes

The effective tax rates on the loss from continuing operations for the quarter and six months ended June 28, 2025 were not meaningful as a result of the valuation allowance placed on our Canadian DTAs. Also driving the differences between the effective tax rates and the federal statutory rate of 21 percent were different statutory tax rates in foreign jurisdictions, valuation allowances on nondeductible U.S. interest expense, U.S. tax credits and nondeductible executive compensation.

The effective tax rates on income from continuing operations for the quarter and six months ended June 29, 2024 were benefits of 11 percent and 21 percent, respectively. These rates 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.

See Note 16—Income Taxes to our Financial Statements for further details of the Canadian DTA write-off.

Discontinued Operations

During the quarter and six months ended June 28, 2025, we recorded pre-tax income from discontinued operations of $4 million related to the remaining CEWS benefit claims deferred since 2021.

During the quarter and six months 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 pre-tax loss of $1 million on the sale of our softwood lumber duty refund rights.

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

Operating Results by Segment

Following the indefinite suspension of Temiscaming cellulose operations in the third quarter of 2024, certain infrastructure assets of the site’s cellulose plant continue to run in support of the ongoing energy needs of the Paperboard and High-Yield Pulp operations. As such, beginning in the fourth quarter of 2024, the net impact of the custodial site costs being incurred and the sales of any electricity generated by the running of the cellulose plant assets are reflected within the operating results of the Paperboard and High-Yield Pulp businesses.

Cellulose Specialties

(in millions, unless otherwise stated)

Net Sales - Three Months Ended

(in millions)

Net sales of our Cellulose Specialties segment for the quarter ended June 28, 2025 decreased $33 million, or 14 percent, compared to the same prior year quarter driven by a 15 percent decrease in sales volumes that was in line with expectations and due primarily to a pause in customer orders driven by uncertainty surrounding imposed tariffs, strong sales in the prior year quarter ahead of the indefinite suspension of Temiscaming cellulose operations in July 2024 and the impact of the labor strike at the Tartas cellulose plant in the current quarter. Partially offsetting the sales volume decrease was a 3 percent increase in sales prices.

Net Sales - Six Months Ended

(in millions)

Net sales of our Cellulose Specialties segment for the six months ended June 28, 2025 decreased $37 million, or 8 percent, compared to the same prior year period driven by a 9 percent decrease in sales volumes due primarily to a pause in customer orders driven by uncertainty surrounding imposed tariffs, strong sales in the prior year period ahead of the indefinite suspension of Temiscaming cellulose operations and the impact of the labor strike at the Tartas cellulose plant in the current period. Partially offsetting the sales volume decrease was a 3 percent increase in sales prices.

Operating Income - Three Months Ended

(in millions, except percentages)

(a) Computed based on contribution margin.

Operating income of our Cellulose Specialties segment for the quarter ended June 28, 2025 decreased $21 million, or 42 percent, compared to the same prior year quarter driven by the lower sales volumes, higher key input costs, lower production due to operational challenges and the labor strike at the Tartas cellulose plant, and the one-time prior year recognition of $3 million in CEWS benefit claims.

Operating Income - Six Months Ended

(in millions, except percentages)

(a) Computed based on contribution margin.

Operating income of our Cellulose Specialties segment for the six months ended June 28, 2025 decreased $27 million, or 31 percent, compared to the same prior year period driven by the lower sales volumes, higher key input costs, lower production due to operational challenges and the labor strike at the Tartas cellulose plant, and the one-time prior year recognition of $3 million in CEWS benefit claims.

Biomaterials

(in millions)

Net Sales - Three Months Ended

Net sales of our Biomaterials segment for the quarter ended June 28, 2025 decreased $2 million, or 25 percent, compared to the same prior year quarter driven by lower production due to operational challenges and the impact of the labor strike at the Tartas cellulose plant in the current quarter, which limited raw material supply due to the bioethanol facility’s reliance on the Tartas cellulose plant for feedstock.

Net Sales - Six Months Ended

Net sales of our Biomaterials segment for the six months ended June 28, 2025 decreased $1 million, or 7 percent, compared to the same prior year period driven by lower production due to operational challenges and the impact of the labor strike at the Tartas cellulose plant in the current period, which limited raw material supply due to the bioethanol facility’s reliance on the Tartas cellulose plant for feedstock.

Operating Income - Three Months Ended

Operating income of our Biomaterials segment for the quarter ended June 28, 2025 was flat compared to the same prior year quarter as higher shared and ancillary service costs under the business’s newly established cost structure were offset by lower production costs as a result of the current quarter operational challenges and labor strike at the Tartas cellulose plant that reduced feedstock availability.

Operating Income - Six Months Ended

Operating income of our Biomaterials segment for the six months ended June 28, 2025 was flat compared to the same prior year period as higher shared and ancillary service costs under the business’s newly established cost structure were offset by lower production costs as a result of the current period operational challenges and labor strike at the Tartas cellulose plant that reduced feedstock availability.

Cellulose Commodities

(in millions, unless otherwise stated)

Net Sales - Three Months Ended

(in millions)

Net sales of our Cellulose Commodities segment for the quarter ended June 28, 2025 decreased $26 million, or 31 percent, compared to the same prior year quarter driven by a 33 percent decrease in sales volumes due primarily to lower non-fluff commodity sales and the impact of the labor strike at the Tartas cellulose plant, partially offset by a 7 percent increase in sales prices driven by market supply dynamics for fluff.

Net Sales - Six Months Ended

(in millions)

Net sales of our Cellulose Commodities segment for the six months ended June 28, 2025 decreased $47 million, or 26 percent, compared to the same prior year period driven by a 26 percent decrease in sales volumes due primarily to lower non-fluff commodity sales and the impact of the labor strike at the Tartas cellulose plant, partially offset by a 4 percent increase in sales prices driven by market supply dynamics for fluff.

Operating Loss - Three Months Ended

(in millions, except percentages)

(a) Computed based on contribution margin.

Operating loss of our Cellulose Commodities segment for the quarter ended June 28, 2025 improved $12 million, or 57 percent, compared to the same prior year quarter driven by lower non-fluff commodity losses, lower indefinite suspension charges and lower key input costs, partially offset by lower production due to operational challenges and the labor strike at the Tartas cellulose plant, and the one-time prior year recognition of $2 million in CEWS benefit claims.

Operating Loss - Six Months Ended

(in millions, except percentages)

(a) Computed based on contribution margin.

Operating loss of our Cellulose Commodities segment for the six months ended June 28, 2025 improved $17 million, or 44 percent, compared to the same prior year period driven by lower non-fluff commodity losses, lower indefinite suspension charges and lower key input costs, partially offset by lower production due to operational challenges and the labor strike at the Tartas cellulose plant, and the one-time prior year recognition of $2 million in CEWS benefit claims.

Paperboard

(in millions, unless otherwise stated)

Net Sales - Three Months Ended

(in millions)

Net sales of our Paperboard segment for the quarter ended June 28, 2025 decreased $13 million, or 22 percent, compared to the same prior year quarter. Sales prices and volumes decreased 3 percent and 23 percent, respectively, driven by mix, shifting customer dynamics associated with tariff uncertainty and increased competitive activity due to increased European Union imports and the start-up of new U.S. capacity.

Net Sales - Six Months Ended

(in millions)

Net sales of our Paperboard segment for the six months ended June 28, 2025 decreased $17 million, or 15 percent, compared to the same prior year period. Sales prices and volumes decreased 4 percent and 12 percent, respectively, driven by mix, shifting customer dynamics associated with tariff uncertainty and increased competitive activity due to increased European Union imports and the start-up of new U.S. capacity.

Operating Income (Loss) - Three Months Ended

(in millions, except percentages)

(a) Computed based on contribution margin.

Operating results of our Paperboard segment for the quarter ended June 28, 2025 declined $12 million, or 100 percent, compared to the same prior year quarter driven by the lower sales, the impact of Temiscaming net custodial site costs and the one-time prior year recognition of $2 million in CEWS benefit claims.

Operating Income (Loss) - Six Months Ended

(in millions, except percentages)

(a) Computed based on contribution margin.

Operating results of our Paperboard segment for the six months ended June 28, 2025 declined $22 million, or 110 percent, compared to the same prior year period driven by the lower sales, the impact of Temiscaming net custodial site costs and the one-time prior year recognition of $2 million in CEWS benefit claims.

High-Yield Pulp

(in millions, unless otherwise stated)

(a) External sales only. During the quarters ended June 28, 2025 and June 29, 2024, the High-Yield Pulp segment sold 17,000 MTs and 16,000 MTs of high-yield pulp to the Paperboard segment for $7 million each period, respectively. During the six months ended June 28, 2025 and June 29, 2024, the High-Yield Pulp segment sold 33,000 MTs and 32,000 MTs of high-yield pulp to the Paperboard segment for $14 million and $13 million, respectively.

Net Sales - Three Months Ended

(in millions)

Net sales of our High-Yield Pulp segment for the quarter ended June 28, 2025 decreased $4 million, or 12 percent, compared to the same prior year quarter. Sales prices and volumes decreased 11 percent and 7 percent, respectively, driven by lower demand, including in China where demand for all grades of market pulp were down, continued oversupply in China and the timing of shipments, primarily related to shipping challenges to customers in India.

Net Sales - Six Months Ended

(in millions)

Net sales of our High-Yield Pulp segment for the six months ended June 28, 2025 decreased $7 million, or 10 percent, compared to the same prior year period. Sales prices and volumes decreased 9 percent and 5 percent, respectively, driven by lower demand, including in China where demand for all grades of market pulp were down, continued oversupply in China and the timing of shipments, primarily related to shipping challenges to customers in India.

Operating Income (Loss) - Three Months Ended

(in millions, except percentages)

(a) Computed based on contribution margin.

Operating results of our High-Yield Pulp segment for the quarter ended June 28, 2025 declined $8 million compared to the same prior year quarter driven by the lower sales, higher logistics costs, the impact of Temiscaming net custodial site costs and the one-time prior year recognition of $2 million in CEWS benefit claims.

Operating Income (Loss) - Six Months Ended

(in millions, except percentages)

(a) Computed based on contribution margin.

Operating results of our High-Yield Pulp segment for the six months ended June 28, 2025 declined $14 million, or 100%, compared to the same prior year period driven by the lower sales, higher logistics costs, the impact of Temiscaming net custodial site costs and the one-time prior year recognition of $2 million in CEWS benefit claims. These negative impacts were partially offset by lower wood costs.

Corporate

(in millions)

The Corporate operating loss for the quarter ended June 28, 2025 was flat compared to the same prior year quarter as lower variable compensation costs and a decrease in costs related to our ERP implementation were offset by unfavorable foreign exchange rates in the current quarter compared to favorable rates in the prior year quarter.

The Corporate operating loss for the six months ended June 28, 2025 declined $15 million compared to the same prior year period driven by first quarter non-cash environmental reserves charges of $12 million and unfavorable foreign exchange rates in the current period compared to favorable rates in the prior year period, partially offset by lower variable compensation costs. The environmental reserves charges are associated with recent developments at the Port Angeles, Washington, and Augusta, Georgia, remediation sites. The cash impact associated with the Augusta remediation site is expected in early 2027; the cash impact for the Port Angeles remediation site is not expected to begin before 2028, with outflows in the following three to five years.

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 depend on 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 liquidity and capital resources are summarized below:

(in millions, except ratios)

(a) Amounts available under the ABL Credit Facility fluctuate based on eligible accounts receivable and inventory levels. At June 28, 2025, we had $154 million of gross availability and net available borrowings of $116 million after taking into account outstanding letters of credit of $26 million. In addition to the availability under the ABL Credit Facility, we have $15 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.

As of June 28, 2025, we were in compliance with all financial and other covenants under our debt agreements.

Other Sources of Cash

SWEN Investment

In November 2024, we secured €30 million to be provided by SWEN in return for a 20 percent preferred equity interest in BioNova. We received €15 million from SWEN in 2024. Subsequent funding is contingent on the achievement of certain project milestones.

BioNova Term Loan

In November 2024, we entered into a credit agreement that authorizes up to €37 million in seven- and eight-year secured term loan tranches. As of June 28, 2025, no amounts were outstanding on the BioNova Term Loan.

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, electricity and wood chips purchase contracts. There have been no material changes outside the ordinary course of business to the purchase obligations presented in our 2024 Form 10-K during the six months ended June 28, 2025. See Note 18—Commitments and Contingencies to our Financial Statements for further information.

Cash Flows

(in millions)

Cash provided by operating activities decreased $89 million compared to the prior year period primarily due to the decline in operating results, the one-time prior year proceeds of $39 million from the sale of our softwood lumber duty refund rights and lower income tax net refunds, partially offset by net cash inflows from working capital in the current year compared to net outflows in the prior year and lower interest paid on long-term debt due to the timing of payments.

Cash used in investing activities increased $17 million compared to the prior year period as higher custodial capital spend was partially offset by decreased strategic capital spend.

Cash inflows from financing activities increased $2 million compared to the prior year period due to higher net borrowings of long-term debt and the prior year payment of debt issuance costs, partially offset by higher net repayments of short-term financing and higher repurchases of common stock to satisfy tax withholding requirements.

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 flow. 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.

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 flow 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)

35

(in millions)

EBITDA from continuing operations for the quarter ended June 28, 2025 decreased $34 million, or 56 percent, compared to the same prior year quarter. EBITDA from continuing operations for the six months ended June 28, 2025 decreased $69 million, or 61 percent, compared to the same prior year period. The decreases in these periods were driven primarily by the decrease in net sales, lower production due to operational challenges and the labor strike at the Tartas cellulose plant in the current period, unfavorable foreign exchange rates and the one-time prior year recognition of $10 million in CEWS benefit claims. Also driving the decrease in the year-to-date period were current period non-cash environmental reserves charges of $12 million. Partially offsetting the decreases in both periods were lower indefinite suspension charges and lower variable compensation costs.

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.

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

(in millions)

(a) Net of proceeds from the sale of assets and excluding strategic capital expenditures. Strategic capital expenditures for the six months ended June 28, 2025 and June 29, 2024 were $13 million and $28 million, respectively.

Adjusted free cash flow decreased $121 million compared to the prior year period primarily due to the decline in operating results and higher custodial capital expenditures. See Liquidity and Capital Resources—Cash Flows above for additional discussion of our operating cash flows and capital expenditures.

Market and Other Economic Risks

We are exposed to various market risks, primarily changes in interest rates, currency and commodity prices. Our objective is to minimize the economic impact of these market risks. We may use derivatives in accordance with policies and procedures approved by the Finance and Strategic Planning Committee of our Board of Directors.

Foreign Currency

We manage our foreign currency exposures by balancing certain assets and liabilities denominated in foreign currencies. We may also use foreign currency forward contracts to manage these exposures. The principal objective of such contracts is to minimize the potential volatility and financial impact of changes in foreign currency exchange rates. We do not utilize financial instruments for trading or other speculative purposes.

Prices

The prices, sales volumes and margins of our Cellulose Commodities and High-Yield Pulp operating segments’ products have historically been cyclically affected by economic and market shifts, fluctuations in capacity and changes in foreign currency exchange rates. These products have fewer distinguishing qualities from producer to producer and competition is based primarily on price, which is determined by market supply relative to demand. The overall levels of demand for the products we manufacture, and consequently our sales and profitability, reflect fluctuations in end user demand. Our Cellulose Specialties operating segment’s product prices are impacted by market supply and demand, raw material and processing costs, changes in global currencies and other factors.

Certain key input costs, such as wood fiber, chemicals and energy, may experience significant price fluctuations, also impacted by market shifts, fluctuations in capacity and other demand and supply dynamics. We may periodically enter into commodity forward contracts to fix some of our energy costs that are subject to price volatility caused by weather, supply conditions, political and economic variables and other unpredictable factors. Such forward contracts partially mitigate the risk of changes to our gross margins resulting from an increase or decrease in these costs. Forward contracts that are derivative instruments are reported in our consolidated balance sheets at their fair values, unless they qualify for the normal purchase normal sale exception and such exception has been elected, in which case, the fair values of such contracts are not recognized in the balance sheet.

Variable Interest Rates

At June 28, 2025 and December 31, 2024, we had $713 million and $702 million, respectively, of variable rate debt subject to interest rate risk. At these borrowing levels, a hypothetical one percent change in interest rates would result in a $7 million annual change in interest expense.

The fair market value of our long-term fixed interest rate debt is also subject to interest rate risk when the debt becomes due or if we do not hold the debt until maturity. The estimated fair value of our fixed rate debt at June 28, 2025 and December 31, 2024 was $79 million and $75 million, respectively, compared to respective $77 million and $75 million carrying values at period end. We use quoted market prices to estimate the fair value of our fixed rate debt. Generally, the fair market value of fixed rate debt will increase as interest rates fall and decrease as interest rates rise.

Management’s Evaluation of Disclosure Controls and Procedures

Our management is responsible for establishing and maintaining adequate disclosure controls and procedures. Disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) are designed with the objective of ensuring that information required to be disclosed in reports filed under the Exchange Act, such as this Quarterly Report on Form 10-Q, is (1) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Because of the inherent limitations in all control systems, no control evaluation can provide absolute assurance that all control exceptions and instances of fraud have been prevented or detected on a timely basis. Even systems determined to be effective can provide only reasonable assurance their objectives are achieved.

Based on an evaluation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q, our management, including the Chief Executive Officer and Chief Financial Officer, concluded the design and operation of the disclosure controls and procedures were effective as of June 28, 2025.

Internal Control over Financial Reporting

In January of 2025, the Company implemented a new financial accounting system for product costing. Our processes, procedures and controls have been updated and evaluated by management, as appropriate. We will continue to refine and further evaluate these control changes as part of our assessment of control design and effectiveness throughout 2025. For the quarter ended June 28, 2025, based upon the evaluation required by SEC Rule 13a-15(d), including the changes related to the new financial accounting system, there were no changes in our internal control over financial reporting that would materially affect or are reasonably likely to materially affect our internal control over financial reporting.