RAYONIER ADVANCED MATERIALS INC. When we refer to "we," "us," "our" or "the Company," we meanRayonier Advanced Materials Inc. and its consolidated subsidiaries. References herein to "Notes to Consolidated Financial Statements" refer to the Notes to the Consolidated Financial Statements ofRayonier Advanced Materials Inc. included in Item 1 of this Quarterly Report on Form 10-Q (the "Report.") This Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to provide a reader of our consolidated financial statements with a narrative from the perspective of management on our financial condition, results of operations, liquidity and certain other factors which may affect future results. This MD&A should be read in conjunction with our 2021 Annual Report on Form 10-K and information contained in our subsequent Forms 8-K and other reports to theU.S. Securities and Exchange Commission (the "SEC").
We operate in the following business segments: High Purity Cellulose, Paperboard, High-Yield Pulp and Corporate.
As a result of the sale of the lumber and newsprint facilities and certain
related assets completed in
Note About Forward-Looking Statements
Certain statements in this Report regarding anticipated financial, business, legal or other outcomes including business and market conditions, outlook and other similar statements relating toRayonier Advanced Materials' ("the Company") 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," "expect," "estimate," "believe," "intend," "forecast," "anticipate" "guidance" and other similar language. However, the absence of these or similar words or expressions does not mean a statement is not forward-looking. While we believe these forward-looking statements are reasonable when made, 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 these expectations will be attained, and it is possible actual results may differ materially from those indicated by these forward-looking statements due to a variety of risks and uncertainties. The following risk factors and those contained in Item 1A - Risk Factors in our Annual Report on Form 10-K for the year endedDecember 31, 2021 as filed with theSEC , among others, could cause actual results or events to differ materially from the Company's historical experience and those expressed in forward-looking statements made in this document.
Amounts contained in this Report may not always add due to rounding.
Our operations are subject to a number of risks and uncertainties including, but not limited to, those listed below. When considering an investment in our securities, you should carefully read and consider these risks, together with all other information in our Annual Report on Form 10-K for the year endedDecember 31, 2021 as filed with theSEC and our other filings and submissions to theSEC , which provide much more information and detail on the risks described below. If any of the events described in the following risk factors actually occur, our business, financial condition or operating results, as well as the market price of our securities, could be materially adversely affected. These risks and events include, without limitation: 22 --------------------------------------------------------------------------------
Epidemic and Pandemic Risks
•We are subject to risks associated with epidemics and pandemics, including the COVID-19 pandemic and related impacts. The nature and extent of ongoing and future impacts of the pandemic are highly uncertain and unpredictable.
Macroeconomic and Industry Risks
•The businesses we operate are highly competitive which may result in fluctuations in pricing and volume that can materially adversely affect our business, financial condition and results of operations. •Changes in raw material and energy availability and prices could have a material adverse effect on our business, results of operations and financial condition. •We are subject to material risks associated with doing business outside ofthe United States . •Currency fluctuations may have a material negative impact on our business, financial condition and results of operations. •Restrictions on trade through tariffs, countervailing and anti-dumping duties, quotas and other trade barriers, inthe United States and internationally, could materially adversely affect our ability to access certain markets. •Our business, financial condition and results of operations could be adversely affected by disruptions in the global economy caused by the ongoing conflict betweenRussia andUkraine or other geopolitical conflict.
Business and Operational Risks
•Our ten largest customers represent approximately 40 percent of our 2021 revenue, and the loss of all or a substantial portion of our revenue from these large customers could have a material adverse effect on our business. •A material disruption at one of our major manufacturing facilities could prevent us from meeting customer demand, reduce our sales and profitability, increase our cost of production and capital needs, or otherwise materially adversely affect our business, financial condition and results of operation. •The availability of, and prices for, wood fiber may have a material adverse impact on our business, results of operations and financial condition. •Our operations require substantial capital. •We depend on third parties for transportation services and increases in costs and the availability of transportation could materially adversely affect our business. •Our failure to maintain satisfactory labor relations could have a material adverse effect on our business. •We are dependent upon attracting and retaining key personnel, the loss of whom could materially adversely affect our business. •Failure to develop new products or discover new applications for our existing products, or our inability to protect the intellectual property underlying such new products or applications, could have a material negative impact on our business. •The risk of loss of the Company's intellectual property and sensitive data, or disruption of its manufacturing operations, in each case due to cyberattacks or cybersecurity breaches, could materially adversely impact the Company.
Regulatory Risks
•Our business is subject to extensive environmental laws, regulations and permits that may materially restrict or adversely affect how we conduct business and our financial results. •The Company considers and evaluates climate-related risks in three general categories; Regulatory, Transition to a low-carbon economy, and Physical risks related to climate-change. •The potential longer-term impacts of climate-related risks remain uncertain at this time. Financial Risks •We may need to make significant additional cash contributions to our retirement benefit plans if investment returns on pension assets are lower than expected or interest rates decline, and/or due to changes to regulatory, accounting and actuarial requirements. •We have debt obligations that could materially adversely affect our business and our ability to meet our obligations. •The phase-out of the London Inter Bank Offered Rate ("LIBOR") as an interest rate benchmark in 2023 may impact our borrowing costs. •Challenges in the commercial and credit environments, including material increases in interest rates, may materially adversely affect our future access to capital. 23 -------------------------------------------------------------------------------- •We may need additional financing in the future to meet our capital needs or to make acquisitions, and such financing may not be available on favorable terms, if at all, and may be dilutive to existing stockholders.
Company's Common Stock and Certain Corporate Matters Risks
•Your percentage of ownership in the Company may be diluted in the future. •Certain provisions in our amended and restated certificate of incorporation and bylaws, and ofDelaware law, could prevent or delay an acquisition of the Company, which could decrease the price of our common stock. Forward-looking statements are only as of the date they are made, and the Company undertakes no duty to update its forward-looking statements except as required by law. You are advised, however, to review any further disclosures we have made or may make in our filings and other submissions to theSEC , including those on Forms 10-Q, 10-K, 8-K and other reports. Details on each of the above risk factors are more specifically described in Item 1A - Risk Factor sin our Annual Report on Form 10-K for the year endedDecember 31, 2021 as filed with theSEC .
Note About Non-GAAP Financial Measures
A "non-GAAP financial measure" is generally defined as a numerical measure of a company's historical or future performance that excludes or includes amounts, or is subject to adjustments, so as to be different from the most directly comparable measure calculated and presented in accordance withU.S. Generally Accepted Accounting Principles ("GAAP"). This Report contains certain non-GAAP financial measures, including Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA"), adjusted EBITDA, and adjusted free cash flows. Each non-GAAP measures is reconciled to each of its most directly comparable GAAP financial measures in Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations. We believe these non-GAAP measures provide useful information to our Board of Directors, management and investors regarding certain trends relating to our financial condition and results of operations. Our management uses these non-GAAP measures to compare our performance to that of prior periods for trend analyses, purposes of determining management incentive compensation and budgeting, forecasting and planning purposes. We do not consider non-GAAP measures an alternative to financial measures determined in accordance with GAAP. The principal limitation of these non-GAAP financial measures is they may exclude significant expense and income items that are required by GAAP to be recognized in our consolidated 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. In order to compensate for these limitations, reconciliations of the non-GAAP financial measures we use to their most directly comparable GAAP measures are provided. Non-GAAP financial measures should not be relied upon, in whole or part, in evaluating the financial condition, results of operations or future prospects of the Company.
Business
We are a global leader of cellulose-based technologies, which comprise a broad
offering of high purity cellulose specialties, a natural polymer commonly used
in the production of specialty chemicals and polymers for use in producing
liquid crystal displays, filters, textiles and performance additives for
pharmaceutical, food and other industrial applications. Starting from a tree and
building upon more than 95 years of experience in cellulose chemistry, we
provide high quality high-purity cellulose pulp products that make up the
essential building blocks for our customers' products while providing
exceptional service and value. We also produce unique, lightweight paperboard
and a bulky, high-yield pulp for use in consumer products.
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--------------------------------------------------------------------------------Recent Developments
•On
•OnMay 2, 2022 , we sold the 28,684,433 common shares of GreenFirst stock we received in connection with the sale of our lumber and newsprint assets inAugust 2021 . The common shares were sold for$43 million . The shares sale agreement contains a purchase price protection clause whereby we are entitled to participate in further stock price appreciation under certain circumstances over the next 18 months. •Our business has experienced a significant increase in the costs for wood, chemicals, energy and supply chain. In response, we announced a$146 per metric ton cost surcharge applicable to all shipments of our cellulose specialties, effective starting with shipments made onApril 1, 2022 and later. •Our fluff pulp now qualifies as an "Inspected Raw Material" by Nordic Swan Ecolabelling. The Nordic Swan Ecolabel sets strict environmental requirements in all phases of manufacturing, including requirements for eco-friendly chemicals used in ecolabeled products. The status will appear on products made with our fluff pulp and indicates to consumers and commercial buyers that the product is sustainably produced and environmentally friendly. •OnMarch 21, 2022 , our Board of Directors adopted a shareholder rights plan and declared a dividend of one preferred share purchase right for each outstanding share of our common stock, par value$0.01 per share. See Note 12 - Stockholders' Equity for further information.
Market Assessment
Overall, we expect to exceed$160 million of Adjusted EBITDA for 2022, subject to ongoing supply chain constraints. Additionally, we expect to reduce our Net Debt to$725 million by the end of the year. As we reduce this leverage ratio, we expect to refinance our Senior Notes due inJune 2024 .
High Purity Cellulose
Demand for cellulose specialties and commodity products remain strong. As such, average sales prices are expected to remain elevated in the third quarter. Sales volumes are expected to increase significantly as we increase productivity with the completion of all of our planned maintenance outages in the first half of 2022. However, total sales volumes remain dependent on managing ongoing supply-chain constraints. Overall, Adjusted EBITDA for the segment is expected to grow significantly in the third quarter compared to second quarter and for the full year compared to 2021. The Company is also updating standard cellulose specialties contracts to allow for greater flexibility.
Paperboard
Paperboard prices continue to increase driven by strong demand in both commercial printing and packaging segments. Price increases are expected to offset raw material cost increases in the third quarter, while sales volumes are expected to stay consistent with prior quarter. As a result, Adjusted EBITDA is anticipated to remain stable in the coming quarter.
High-Yield Pulp
High-yield pulp markets remain positive with realized prices expected to increase in the third quarter. Sales volumes remain dependent on production and supply chain constraints, while costs are expected to moderate slightly. Overall, Adjusted EBITDA is anticipated to improve in the coming quarter.
A Sustainable Future
For over 95 years, we have invested in renewable product offerings. As consumers demand sustainable products, our biorefinery model provides a platform to grow existing and new products to address needs of the changing economy. We remain enthusiastic about growing our biobased product offering. In the first six months of 2022, non-pulp sales in the High Purity Segment were$51 million primarily from sales of bioelectricity and lignin. We are investing in expanding our biomaterial product offering and expect to grow these sales and increase overall margins over time. Our investment into a bioethanol facility at our Tartas,France facility was expected to be operational in mid-2023. Given permitting delays, the project is currently behind schedule. Further updates will be provided as the schedule is finalized. 25 -------------------------------------------------------------------------------- We also remain committed to further managing our environmental impact. Earlier this year, we established a goal to reducecarbon emissions by 40 percent by 2030, using 2020 as a base year.
Critical Accounting Policies and Use of Estimates
The preparation of financial statements requires us to make estimates, assumptions and judgments that affect our assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities. We base these estimates and assumptions on historical data and trends, current fact patterns, expectations and other sources of information we believe are reasonable. Actual results may differ from these estimates.
For a full description of our critical accounting policies, see Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations in our 2021 Annual Report on Form 10-K. For recent accounting pronouncements see Item 1 of Part I, Financial Statements - Note 1 -Basis of Presentation and New Accounting Pronouncements for additional information.
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Results of Operations
Financial Information Three Months Ended % Six Months Ended %
(in millions, except
percentages) June 25, 2022 June 26, 2021 Change June 25, 2022 June 26, 2021 Change
Net Sales $ 399 $ 341 17% $ 751 $ 660 14%
Cost of Sales (372) (319) (718) (617)
Gross Margin 27 22 23% 33 43 (23)%
Selling, general and
administrative expenses (28) (18) (48) (34)
Foreign exchange losses 2 (2) 1 (3)
Other operating expense, net (4) (1) (5) (5)
Operating Income (Loss) (3) 1 NA (19) 1 NA
Interest expense (16) (16) (33) (32)
Interest income and other, net 3 (2) 3 (2)
Net periodic pension and OPEB
income, excluding service costs - - 1 1
Realized (loss) gain on
GreenFirst equity securities (4) - 5 -
Loss From Continuing Operations
Before Income Taxes (20) (17) (18)% (43) (32) (34)%
Income tax benefit (expense) (4) 25 (5) 25
Equity in loss of equity method
investment (1) - (1) (1)
Income (Loss) from Continuing
Operations $ (25) $ 8 NA $ (49) $ (8) NA
Loss from discontinued
operations, net of taxes 2 114 1 103
Net Income (Loss) $ (23) $ 122 $ (48) $ 95
Gross Margin % 7 % 7 % 4 % 6 %
Operating Margin % (1) % - % (2) % - %
Effective Tax Rate % (18) % 153 % (12) % 77 %
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Net sales by segment were as follows:
Three Months Ended Six Months Ended
Net sales (in millions) June 25, 2022 June 26, 2021 June 25, 2022 June 26, 2021
High Purity Cellulose $ 302 $ 255 $ 583 $ 504
Paperboard 63 57 117 105
High-Yield Pulp 40 37 62 64
Eliminations (6) (8) (11) (13)
Total net sales $ 399 $ 341 $ 751 $ 660
Net sales increased by $58 million and $91 million , respectively, during the
three and six months ended June 25, 2022 when compared to the same prior periods
ended June 26, 2021 driven primarily by higher sales prices across all segments.
For further discussion, see Operating Results by Segment.
Operating income (loss) by segment was as follows:
Three Months Ended Six Months Ended
Operating income (loss) (in
millions) June 25, 2022 June 26, 2021 June 25, 2022 June 26, 2021
High Purity Cellulose $ 7 $ 11 $ (1) $ 17
Paperboard 10 2 16 8
High-Yield Pulp (2) 1 (2) 1
Corporate (18) (13) (32) (25)
Total operating income (loss) $ (3) $ 1 $ (19) $ 1
The operating results for the three and six month periods ended June 25, 2022 ,
declined by $4 million and $20 million , respectively, when compared to the same
prior year periods ended June 26, 2021 , primarily due to increased costs driven
by inflation on key inputs, including chemicals, wood fiber and energy costs,
and lower sales volumes due to supply chain constraints and lower productions,
which were offset by the higher sales prices across all segments.
Non-operating Expenses
Interest expense was flat at$16 million and increased$1 million to$33 million for the three and six months endedJune 25, 2022 , respectively, when compared to the same prior year period. See Note 7 - Debt and Finance Leases for further information.
Included in non-operating expenses during the three and six months ended
Income Tax Benefit (Expense)
The effective tax rate for the second quarter 2022 loss on continuing operations was an expense of 18 percent compared to a benefit of 153 percent for the loss on continuing operations in the same quarter of 2021. The effective tax rate for the six months endedJune 25, 2022 , loss on continuing operations was an expense of 12 percent compared to a benefit of 77 percent for the comparable prior year period. The 2022 effective tax rate differs from the statutory rate of 21 percent primarily due to disallowed interest deductions in theU.S. and nondeductible executive compensation, partially offset byU.S. tax credits and tax return to accrual adjustments. The 2021 effective tax rates differ from the statutory rate of 21 percent primarily due to a tax benefit recognized by remeasuring the Company's Canadian deferred tax assets at a higher blended statutory tax rate inCanada . The statutory rate is higher as a result of changing the allocation of income between the Canadian provinces after the sale of Forest and Newsprint was completed. See Note 16 - Income Taxes for additional information. 28
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Discontinued Operations
As a result of the sale of lumber and newsprint assets, we are presenting prior year results for the Forest Products and Newsprint segments as discontinued operations.
The sale was completed onAugust 28, 2021 . The cash received at closing was preliminary and subject to final purchase price and other sale-related adjustments. During the first quarter of 2022, the Company trued-up certain sale-related items with GreenFirst for a total net cash outflow of$3 million , as previously disclosed. No changes occurred during the second quarter of 2022 to the previously recorded gain on sale. Pursuant to the terms of the asset purchase agreement, GreenFirst and the Company continue efforts to finalize the closing inventory valuation adjustment. Operating Results by Segment High Purity Cellulose Three Months Ended Six Months Ended (in millions) June 25, 2022 June 26, 2021 June 25, 2022 June 26, 2021 Net Sales$ 302 $ 255 $ 583 $ 504 Operating income (loss) $ 7 $ 11 $ (1) $ 17 Average Sales Prices ($ per metric ton): High Purity Cellulose$ 1,355 $ 1,128 $ 1,288 $ 1,086 Sales Volumes (thousands of metric tons): High Purity Cellulose 206 204 414 421 Changes in High Purity Cellulose net sales are as follows: Three Months Ended Changes Attributable to: Net Sales (in millions) June 26, 2021 Price Volume/Mix/Other June 25, 2022 Cellulose Specialties $ 168 $ 36 $ 14 $ 218 Commodity Products 62 8 (10) 60 Other sales (a) 25 - (1) 24 Total Net Sales (a) $ 255 $ 44 $ 3 $ 302
(a) includes other sales consisting of electricity, lignin and other by-products to third-parties.
Total sales for the three months endedJune 25, 2022 , improved$47 million when compared to the same prior year quarter. Cellulose specialties sales volumes increased 9 percent and sales prices increased by 20 percent during the three months endedJune 25, 2022 , when compared to the same prior year period due to the impact of contract negotiations. Commodity product sales prices rose 10 percent while commodity product sales volumes decreased 12 percent due to lower production, supply chain constraints and lower commodities volumes in favor of higher specialties volumes. Included within net sales for the period was$24 million of other sales, primarily from biobased energy and lignin. Six Months Ended Changes Attributable to: Net Sales (in millions) June 26, 2021 Price Volume/Mix/Other June 25, 2022 Cellulose Specialties $ 335 $ 53 $ 14 $ 402 Commodity Products 121 24 (15) 130 Other sales (a) 48 - 3 51 Total Net Sales (a) $ 504 $ 77 $ 2 $ 583
(a) includes other sales consisting of electricity, lignin and other by-products to third-parties.
29
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Total sales for the six months ended June 25, 2022 , improved $79 million when
compared to the same prior year period. Cellulose specialties sales volumes
increased 4 percent, while sales prices increased by 15 percent during the six
months ended June 25, 2022 , when compared to the same prior year period due to
the impact of contract negotiations. Commodity product sales prices rose 21
percent driven by higher demand while commodity product sales volumes decreased
11 percent due to lower production, supply chain constraints and lower
commodities volumes in favor of higher specialties volumes. Included within net
sales for the period was $51 million of other sales, primarily from biobased
energy and lignin.
Changes in High Purity Cellulose operating income are as follows
Three Months Ended Gross Margin Changes Attributable to (a): (in millions) June 26, 2021 Sales Price Sales Volume/Mix/Other Cost SG&A and other June 25, 2022 Operating income (loss)$ 11 $ 44 $ 6$ (52) $ (2) $ 7 Operating margin % 4.3 % 14.1 % 1.7 % (17.2) % (1.0) % 1.9 % (a) Sales Volume computed based on contribution margin. Operating income declined by$4 million during the three months endedJune 25, 2022 , to$7 million when compared to the same prior year quarter. Sales prices for the segment increased 20 percent during the current quarter driven by a 20 percent increase for cellulose specialties and a 10 percent increase in commodity prices. Total volumes increased by 1 percent when compared to the prior year quarter due to a 12 percent decline in commodities volumes offset by a 9 percent increase in specialties volumes. Costs increased compared to the prior year periods driven by inflation on key inputs, including chemicals, wood fiber and energy costs, and higher supply-chain expenses. Offsetting higher energy costs in the current period is a$5 million favorable impact related to sales of the majority of our excess emission allowances associated with the operations in Tartas,France . Six Months Ended Gross Margin Changes Attributable to (a): (in millions) June 26, 2021 Sales Price Sales Volume/Mix/Other Cost SG&A and other June 25, 2022 Operating income (loss)$ 17 $ 77 $ 3$ (94) $ (4)$ (1) Operating margin % 3.4 % 12.8 % 0.5 % (16.1) % (0.7) % (0.1) % (a) Sales Volume computed based on contribution margin. Operating results declined by$18 million during the six months endedJune 25, 2022 , to an operating loss of$1 million when compared to the same prior year period. Sales prices for the segment increased 19 percent during the current period driven by a 21 percent increase in commodity prices and a 15 percent increase for cellulose specialties. Total volumes declined 2 percent during the current period driven by lower production, supply chain constraints and lower commodities volumes in favor of higher specialties volumes. Costs increased compared to the prior year periods driven by inflation on key inputs, including chemicals, wood fiber and energy costs, and higher supply chain expenses. Offsetting higher energy costs in the current period is a$10 million favorable impact related to sales of the majority of our excess emission allowances associated with the operations in Tartas,France . 30
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Paperboard
Three Months Ended Six Months Ended
(in millions) June 25, 2022 June 26, 2021 June 25, 2022 June 26, 2021
Net Sales $ 63 $ 57 $ 117 $ 105
Operating income $ 10 $ 2 $ 16 $ 8
Average Sales Prices ($ per metric
tons):
Paperboard $ 1,439 $ 1,150 $ 1,384 $ 1,132
Sales Volumes (in thousands of
metric tons):
Paperboard 44 49 85 92
Changes in Paperboard net sales are as follows:
Three Months Ended Changes Attributable to:Net Sales (in millions) June 26, 2021 Price Volume/Mix June 25, 2022 Paperboard $ 57 $ 12 $ (6) $ 63 Sales for the three months endedJune 25, 2022 , increased$6 million compared to the three months endedJune 26, 2021 . During the second quarter endedJune 25, 2022 , sales volumes decreased 10 percent while sales prices were up 25 percent when compared to the same prior year period driven by strong demand. Six Months Ended Changes Attributable to: Net Sales (in millions) June 26, 2021 Price Volume/Mix June 25, 2022 Paperboard $ 105 $ 21 $ (9) $ 117 Sales for the six months endedJune 25, 2022 , increased$12 million compared to the six months endedJune 26, 2021 . During the six months endedJune 25, 2022 , sales volumes decreased 8 percent while sales prices were up 22 percent when compared to the same prior year period driven by strong demand.
Changes in Paperboard operating income are as follows:
Three Months Ended Gross Margin Changes Attributable to (a): (in millions) June 26, 2021 Sales Price Sales Volume/Mix Cost SG&A and other June 25, 2022 Operating income $ 2 $ 13 $ (2)$ (3) $ -$ 10 Operating margin % 3.5 % 17.9 % (0.8) % (4.8) % - % 15.8 % (a) Computed based on contribution margin. Operating income for the three months endedJune 25, 2022 , increased$8 million when compared to the same prior year period as higher sales prices were offset by higher raw material pulp input costs and lower sales volumes driven by lower productivity. Six Months Ended Gross Margin Changes Attributable to (a): (in millions) June 26, 2021 Sales Price Sales Volume/Mix Cost SG&A and other June 25, 2022 Operating income $ 8$ 21 $ (3)$ (10) $ - $
16
Operating margin % 7.6 % 15.4 % (0.8) % (8.6) % - % 13.6 % (a) Computed based on contribution margin. Operating income for the six months endedJune 25, 2022 , increased$8 million when compared to the same prior year period as higher sales prices were partially offset by higher raw material pulp input costs and lower sales volumes driven by lower productivity. 31 --------------------------------------------------------------------------------
High-Yield Pulp
Three Months Ended Six Months Ended
(in millions) June 25, 2022 June 26, 2021 June 25, 2022 June 26, 2021
Net Sales $ 40 $ 37 $ 62 $ 64
Operating income (loss) $ (2) $ 1 $ (2) $ 1
Average Sales Prices ($ per metric
ton):
High-Yield Pulp (a) $ 603 $ 539 $ 586 $ 510
Sales Volumes (in metric tons):
High-Yield Pulp (a) 55 55 85 99
(a) Average sales prices and volumes for external sales only. For each of the three month periods ended June 25, 2022 and
June 26, 2021 , the High-Yield Pulp segment sold 17,000 metric tons of high-yield pulp for $7 million to the Paperboard
segment. For the six months ended June 25, 2022 and June 26, 2021 , the High-Yield Pulp segment sold 31,000 metric tons and
34,000 metric tons of high-yield pulp for $13 million and $14 million , respectively, to the Paperboard segment.
Changes in High-Yield Pulp net sales are as follows:
Three Months Ended Changes Attributable to:Net Sales (in millions) June 26, 2021 Price Volume/Mix June 25, 2022 High-Yield Pulp Net Sales $ 37 $ 3 $ - $ 40 Sales for the three months endedJune 25, 2022 , increased$3 million compared to the three months endedJune 26, 2021 . High-yield pulp sales prices increased 12 percent during the three months endedJune 25, 2022 , when compared to the same prior year period while sales volumes remained flat. Six Months Ended Changes Attributable to: Net Sales (in millions) June 26, 2021 Price Volume/Mix June 25, 2022 High-Yield Pulp Net Sales $ 64 $ 6 $ (8) $ 62 Sales for the six months endedJune 25, 2022 , decreased$2 million compared to the six months endedJune 26, 2021 . High-yield pulp sales prices and volumes increased 15 percent and decreased 14 percent, respectively, during the six months endedJune 25, 2022 , when compared to the same prior year period. Higher sales prices were partially offset by lower sales volumes driven by supply chain constraints, lower productivity and higher input costs.
Changes in High-Yield Pulp operating income are as follows:
Three Months Ended Gross Margin Changes Attributable to (a): (in millions) June 26, 2021 Sales Price Sales Volume/Mix Cost SG&A and other June 25, 2022 Operating income $ 1 $ 3 $ -$ (6) $ -$ (2) Operating margin % 2.7 % 7.3 % - % (12.5) % - % (2.5) % (a) Sales Volume computed based on contribution margin.
Operating results for the second quarter ended
32
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Six Months Ended Gross Margin Changes Attributable to (a):
(in millions) June 26, 2021 Sales Price Sales Volume/Mix Cost SG&A and other June 25, 2022
Operating income $ 1 $ 6 $ (3) $ (6) $ - $ (2)
Operating margin % 1.6 % 8.4 % (3.5) % (9.7) % - % (3.2) %
(a) Sales Volume computed based on contribution margin.
Operating results for the six months ended June 25, 2022 , decreased $3 million
when compared to the same prior year period. Higher sales prices were more than
offset by lower sales volumes, driven by supply chain constraints, and lower
productivity and higher input costs.
Corporate
Three Months Ended Six Months Ended
Operating Income (Loss)
(in millions) June 25, 2022 June 26, 2021 June 25, 2022 June 26, 2021
Operating loss $ (18) $ (13) $ (32) $ (25)
The operating loss for the three and six month periods ended June 25, 2022 ,
increased by $5 million and $7 million , respectively, when compared to the same
prior year period driven by an increase in severance and variable stock-based
compensation costs partially offset by favorable foreign exchange impacts.
33
--------------------------------------------------------------------------------Liquidity and Capital Resources
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 as well as 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. As ofJune 25, 2022 , we are in compliance with all financial and other customary covenants. We believe our future cash flows from operations and availability under our ABL Credit Facility, as well as 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. The non-guarantor subsidiaries had assets of$829 million , year-to-date revenue of$124 million , covenant EBITDA for the last twelve months is a$39 million loss and liabilities of$263 million as ofJune 25, 2022 . OnSeptember 6, 2019 , our Board of Directors suspended our quarterly common stock dividend. No dividends have been declared since. The declaration and payment of future common stock dividends, if any, will be at the discretion of the Board of Directors and will be dependent upon our financial condition, results of operations, capital requirements and other factors the Board of Directors deem relevant. In addition, our debt facilities place limitations on the declaration and payment of future dividends.
On
Material Cash Requirements
Our principal contractual commitments include standby letters of credit, surety bonds, guarantees, purchase obligations and leases. We utilize arrangements such as standby letters of credit and surety bonds to provide credit support for certain suppliers and vendors in case of their default on critical obligations, collateral for certain of our self-insurance programs and guarantees for the completion of our remediation of environmental liabilities. As part of our ongoing operations, we also periodically issue guarantees to third parties. Our purchase obligations payments are expected to be made on natural gas, steam energy and wood chips purchase contracts. There have been no material changes outside the ordinary course of business to our material cash requirements during six months endedJune 25, 2022 .
A summary of liquidity and capital resources is shown below (in millions of dollars):
June 25, 2022
Cash and cash equivalents (a)$ 148 $
253
Availability under the ABL Credit Facility (b) 108 103 Total debt (c) 905 929 Stockholders' equity 761 814
Total capitalization (total debt plus equity)
1,743
Debt to capital ratio 54 % 53 %
(a) Cash and cash equivalents consisted of cash, money market deposits and time deposits with original maturities of 90 days or less.
(b) Amounts available under the ABL Credit Facility fluctuate based on eligible accounts receivable and inventory levels. AtJune 25, 2022 , we had$146 million of gross availability and net available borrowings of$108 million after taking into account standby letters of credit of approximately$38 million . In addition to the availability under the ABL Credit Facility, we have$18 million available under an accounts receivable factoring line of credit inFrance .
(c) See Note 7 - Debt and Finance Leases of our consolidated financial statements for additional information.
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On
With our next significant maturity in early 2024, we continue to monitor the capital markets and are prepared to opportunistically refinance the Senior Notes dueJune 1, 2024 , at the appropriate time considering market conditions and all other relevant factors. We are confident that by executing on our strategy we can obtain a refinancing at acceptable terms based on market conditions. We may also use a portion of our cash balances to opportunistically repay debt or assist in a holistic refinancing of our capital structure.
Cash Flows (in millions of dollars)
The following table summarizes our cash flows from operating, investing and financing activities for the six months ended:
Cash Flows Provided by (Used for): June 25, 2022 June 26, 2021 Operating activities-continuing operations $ (36) $
46
Operating activities-discontinued operations $ - $
141
Investing activities-continuing operations $ (87) $
(51)
Investing activities-discontinued operations $ 43 $ (6) Financing activities $ (22) $ (8) Cash flows used for operating activities of continuing operations increased by$82 million during the six months endedJune 25, 2022 , to$36 million when compared to the same prior year period due to changes in working capital and other items, which were influenced by the impact of the planned extensive planned maintenance outages through the second quarter. Cash flows used for investing activities of continuing operations increased$36 million during the six months endedJune 25, 2022 , when compared to the same prior year period primarily from increased capital spending related to the planned maintenance outages in the current year. Cash flows from investing activities of discontinued operations increased$49 million to an inflow of$43 million due to the proceeds from the sale of GreenFirst equity securities in the current year. Cash flows used for financing activities increased by$14 million during the six months endedJune 25, 2022 , to$22 million when compared to the same prior year period, primarily due to payments of long term debt offset by borrowing related to the bioethanol project at our Tartas facility. See Note 7 - Debt and Finance Leases and Note 12 - Stockholders' Equity, to our consolidated financial statements for additional information.
Performance and Liquidity Indicators
The discussion below is presented to enhance the reader's understanding of our operating performance, liquidity, ability to generate cash and satisfy rating agency and creditor requirements. This information includes the following measures of financial results: EBITDA, adjusted EBITDA and adjusted free cash flows. These measures are not defined byU.S. Generally Accepted Accounting Principles ("GAAP") and the discussion of EBITDA, adjusted EBITDA and adjusted free cash flows is not intended to conflict with or change any of the GAAP disclosures described above. Our management uses these non-GAAP measures to compare our performance to that of prior periods for trend analyses, purposes of determining management incentive compensation and budgeting, forecasting and planning purposes. Our management considers these measures, in addition to operating income, to be important to estimate the enterprise and stockholder values of the Company, and for making strategic and operating decisions. In addition, analysts, investors and creditors use these measures when analyzing our operating performance, financial condition and cash generating ability. Our management uses EBITDA and adjusted EBITDA as performance measures and adjusted free cash flows as a liquidity measure. See Item 2 - Note about Non-GAAP Financial Measures for limitations associated with non-GAAP measures. EBITDA is defined bySEC rules as earnings before interest, taxes, depreciation and amortization. EBITDA is not necessarily indicative of results that may be generated in future periods.
Below is a reconciliation of Income (Loss) from Continuing Operations to EBITDA from continuing operations by segment (in millions of dollars):
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High Purity Corporate &
Three Months Ended: Cellulose Paperboard High-Yield Pulp Other Total
June 25, 2022
Income (loss) from continuing
operations $ 6 $ 11 $ (1) $ (41) $ (25)
Depreciation and amortization 30 3 1 - 34
Interest expense, net - - - 16 16
Income tax expense (benefit) - - - 4 4
EBITDA from continuing operations $ 36 $ 14 $ - $ (21) $ 29
Pension settlement loss - - - 1 1
Severance - - - 4 4
Adjusted EBITDA from continuing
operations $ 36 $ 14 $ - $ (16) $ 34
June 26, 2021
Income (loss) from continuing
operations $ 11 $ 3 $ 1 $ (7) $ 8
Depreciation and amortization 27 4 2 33
Interest expense, net - - - 17 17
Income tax expense (benefit) - - - (25) (25)
EBITDA from continuing operations $ 38 $ 7 $ 1 $ (13) $ 33
Pension settlement loss - - - 1 1
Adjusted EBITDA from continuing
operations $ 38 $ 7 $ 1 $ (12) $ 34
High Purity Corporate &
Six Months Ended: Cellulose Paperboard High-Yield Pulp Other Total
June 25, 2022
Income (loss) from continuing
operations $ (1) $ 17 $ (1) $ (64) $ (49)
Depreciation and amortization 53 7 1 - 61
Interest expense, net - - - 32 32
Income tax expense (benefit) - - - 5 5
EBITDA from continuing operations $ 52
- $ (27) $ 49
Pension settlement (gain) loss - - - 1 1
Severance - - - 4 4
Adjusted EBITDA from continuing
operations $ 52 $ 24 $ - $ (22) $ 54
June 26, 2021
Income (loss) from continuing
operations $ 18 $ 9 $ 1 $ (36) $ (8)
Depreciation and amortization 55 8 1 2 66
Interest expense, net - - - 32 32
Income tax expense (benefit) - - - (25) (25)
EBITDA from continuing operations $ 73
2 $ (27) $ 65
Pension settlement loss - - - 1 1
Adjusted EBITDA from continuing
operations $ 73 $ 17 $ 2 $ (26) $ 66
EBITDA from continuing operations for the three and six months ended June 25,
2022 , declined by $4 million and $16 million when compared to the same periods
ended June 26, 2021 , driven by higher key input costs due to inflation and lower
volumes, offset by higher sales prices across all segments. Adjusted EBITDA from
continuing operations for the three months ended June 25, 2022 was comparable to
the same quarter in 2021 at $34 million , while Adjusted EBITDA from continuing
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operations for the six months ended June 25, 2022 , decreased by $12 million
primarily driven by higher key input costs due to inflation, lower volumes due
to supply chain constraints and lower production, offset by higher sales prices
across all segments. For the full discussion of changes to operating income, see
Management's Discussion of Results of Operations.
Adjusted free cash flows is defined as cash provided by operating activities of
continuing operations adjusted for capital expenditures, net of proceeds from
sale of assets, excluding strategic capital expenditures. Adjusted free cash
flows, as defined by the Company, is a non-GAAP measure of cash generated during
a period which is available for debt reduction, strategic capital expenditures
and acquisitions and repurchase of the Company's common stock. Adjusted free
cash flows is not necessarily indicative of the adjusted free cash flows that
may be generated in future periods.
Below is a reconciliation of cash flows from operations of continuing operations
to adjusted free cash flows of continuing operations for the respective periods
(in millions of dollars):
Six Months Ended Cash Flows from Operations to Adjusted Free Cash Flows Reconciliation
June 25, 2022 June 26, 2021
Cash provided by (used for) operating activities - continuing operations
$ (36) $ 46
Capital expenditures (a) (71) (43)
Adjusted Free Cash Flows - continuing operations $ (107) $ 3
(a) Capital expenditures exclude strategic capital expenditures which are
deemed discretionary by management. Strategic expenditures for the first six
months of 2022 were approximately $16 million . Strategic capital expenditures
for the same period of 2021 were approximately $4 million .
Adjusted free cash flows of continuing operations declined due to changes in
working capital and other items as well as higher capital expenditures. For the
full discussion of operating cash flows, see Management's Discussion and
Analysis of Cash Flows.
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