Rayonier Advanced Materials(RYAM) - 2023 Q4 - Annual Report

FORM 10-K Filing Information Registrant Information This section provides key identification details for Rayonier Advanced Materials Inc, its stock exchange listing, and confirms its SEC filing status - Rayonier Advanced Materials Inc (RYAM) is incorporated in Delaware with IRS Employer Identification No 46-4559529; its common stock is traded on the New York Stock Exchange under the symbol RYAM[1][2] - The aggregate market value of common stock held by non-affiliates as of July 1, 2023, was $270,254,732, with 65,398,056 shares outstanding as of February 27, 2024[3][4] Registrant Filing Status | Status | Indication | | :--- | :--- | | Well-known seasoned issuer | No | | Required to file reports | Yes | | Filed all required reports | Yes | | Submitted Interactive Data | Yes | | Accelerated filer | Yes | Table of Contents Glossary Terms and Abbreviations This section defines key financial, regulatory, operational, and sustainability terms and abbreviations used throughout the 2023 Form 10-K - The glossary defines financial instruments such as '2024 Notes' ($550 million, due June 2024), '2026 Notes' ($500 million, due January 2026), and '2027 Term Loan' ($250 million, maturing July 2027)[11] - Key operational and regulatory terms include 'ABL Credit Facility', 'EBITDA', 'GAAP', 'SEC', and various environmental acts like 'CERCLA' and 'RCRA'[11][12] - Sustainability-related terms such as 'GHG' (Greenhouse gas), 'ISCC EU', and 'ISCC PLUS' are also defined, highlighting the company's focus on environmental standards[11] Forward-Looking Statements Disclaimer on Future Performance This section cautions that forward-looking statements are subject to risks and uncertainties and advises against undue reliance on them - Forward-looking statements, identified by words like 'may,' 'will,' 'expect,' and 'believe,' are not guarantees of future performance and are subject to risks and uncertainties[15][16] - Actual results may differ materially from expectations due to various risks, including those outlined in Item 1A—Risk Factors[16] - The company undertakes no duty to update forward-looking statements except as required by law, advising readers to review subsequent SEC filings[17] Part I Item 1. Business Rayonier Advanced Materials Inc is a global leader in specialty cellulose materials, focusing on strategic investments in renewable products and exploring the potential sale of its Paperboard and High-Yield Pulp assets - The company is a global leader in specialty cellulose materials, producing high-purity cellulose pulp, a unique multi-ply paperboard, and a bulky, high-yield pulp product[18] - Strategic investments are focused on optimizing assets for renewable products, including projects like Anomera (CNC), prebiotic development, and 2G bioethanol production at its Tartas and Fernandina facilities[19][22] - The company has set an ambitious goal to achieve at least a 40% reduction in Scope 1 and Scope 2 GHG emissions by 2030 (2020 baseline), with 40% absolute and 25% intensity reductions achieved to date[22] - In October 2023, the company announced it is exploring the potential sale of its Paperboard and High-Yield Pulp assets at its Temiscaming site to align with its long-term growth strategy and reduce debt[29] Strategic Growth Investments - Investments are focused on projects that optimize assets to meet demand for renewable products, aligning with sustainability drivers like the European Union Green Deal for the Renewable Energy Directive II[19] - Key projects include investment in Anomera for CNC production, development of a prebiotic for poultry/swine gut health, and production of 2G bioethanol fuel at Tartas (expected Q1 2024) and Fernandina facilities[22] Our Sustainability Profile - Four production facilities (US, Canada, France) are ISCC PLUS/EU certified and hold Forest Stewardship Council and Programme for the Endorsement of Forest Certification Chain of Custody standards[20] - Fluff pulp from the Jesup facility is certified as an 'Inspected Raw Material' by Nordic Swan Ecolabeling, indicating adherence to rigorous environmental requirements[21] - The company aims for a 40% reduction in Scope 1 and Scope 2 GHG emissions by 2030 (2020 baseline), having achieved approximately 40% in absolute and 25% in intensity emissions reductions for 2021-2022[22] - Over 75% of energy consumed by facilities is derived from renewable sources, primarily biomass, using production process residuals rather than harvesting living trees for energy[23] - Water is extensively reused in production, with 98% treated and returned to natural sources, and waste generation is minimized through recycling and co-product generation[24][25] Business Operations - The company became an independent publicly-traded entity in June 2014, following its separation from Rayonier Inc, and acquired Tembec Inc in November 2017[26] - In August 2021, the lumber and newsprint assets acquired from Tembec were sold, with their operating results presented as discontinued operations[27] - Current business segments include High Purity Cellulose, Paperboard, and High-Yield Pulp[28] - A strategic review is ongoing to explore the potential sale of Paperboard and High-Yield Pulp assets at the Temiscaming site, aiming to align the portfolio with long-term growth and reduce earnings volatility[29] High Purity Cellulose - This segment is the primary driver of profitability, manufacturing cellulose specialties used in diverse consumer products like LCDs, pharmaceuticals, and textiles, tailored to precise customer specifications[30][35][36] - The company's four production facilities have a combined annual capacity of 1,045,000 MTs, with 270,000 MTs dedicated to commodity products (absorbent materials and viscose pulp)[33] - Wood fiber, chemicals, and energy constitute approximately 50% of the per MT cost of sales for this segment[34] - The company leverages its global manufacturing asset base and proprietary processes to offer supply chain security and customized product functionality, being the only producer with flexibility across hardwood/softwood fibers and cooking processes[37] - Biomaterials production, including 2G bioethanol (Tartas facility expected Q1 2024), is a core priority to meet demand for renewable materials and sustainable products[32][41][42] - Competition in cellulose specialties is characterized by high barriers to entry, with major competitors including Bracell and Borregaard, while commodity products compete primarily on price[43][45][46] Paperboard - The Temiscaming plant in Quebec, Canada, has an annual production capacity of 180,000 MTs of multi-ply paperboard, used for packaging, printing, and lottery tickets[51][52] - Wood pulp, chemicals, and energy account for approximately 80% of the per MT cost of sales in this segment[51] - Competition is primarily based on price and product performance, with major competitors including WestRock, Graphic Packaging, and Sappi[53][54] High-Yield Pulp - The Temiscaming plant produces 290,000 MTs of high-yield pulp annually, with approximately 65,000 MTs used internally for paperboard production[55] - This segment primarily uses hardwood aspen, maple, and birch species to produce a bulky, high-yield pulp for paperboard, packaging, and printing papers[57] - Wood fiber, chemicals, and energy represent about 40% of the per MT cost of sales[56] - Competition is mainly price-driven, though higher quality can command a premium, with major competitors including Winstone Pulp, Sappi, and Paper Excellence[58][59] Raw Materials and Input Costs - Manufacturing operations require significant amounts of wood fiber (logs or chips), chemicals (caustic soda, sulfuric acid), and energy, all subject to significant price volatility due to supply, demand, and weather[60][61][62][63] - Over 75% of the company's energy is derived from renewable biomass, using production process residuals[23] Intellectual Property - Substantially all intellectual property relates to the High Purity Cellulose segment, including patents, trademarks, trade secrets, and expertise in high purity cellulose and paperboard production[64] Seasonality - Operating results may be materially affected by seasonal changes and their impact on energy prices[65] Customers - One customer in the High Purity Cellulose segment accounted for 10% of total sales for the year ended December 31, 2023[66] Research and Development - R&D activities are primarily focused on the High Purity Cellulose segment, aiming to develop new products/technologies, improve cellulose fiber grades, enhance manufacturing efficiency, and reduce fossil fuel consumption[67] R&D Spend (2021-2023) | Year | R&D Spend (Millions USD) | | :--- | :--- | | 2023 | $6 | | 2022 | $7 | | 2021 | $7 | Environmental Matters - Manufacturing operations are subject to stringent federal, state, provincial, and local environmental laws and regulations concerning air emissions, wastewater discharges, and waste handling[68] - Compliance with these laws and permits often requires significant expenditures, and future spending could change based on new legislation or stricter interpretations[68][69] - Management believes the company is in material compliance with current environmental requirements[69] Human Capital - The company employs approximately 2,800 people across the US, Canada, and France, with 61% belonging to labor unions[71] - Employee safety is a top priority, with the company-wide injury rate decreasing by 17% in 2023, driven by a focus on five leading safety metrics[72] - Efforts to attract, retain, and develop employees include partnerships with colleges, scholarships, internships, and an Early Career Development (ECD) program[73] - The company upholds a Human Rights Policy and a Standard of Ethics and Code of Corporate Conduct, emphasizing safe workplaces, anti-corruption, fair compensation, and diversity and inclusion[74][75] Availability of Reports and Other Information - Annual, quarterly, and current reports, proxy statements, and corporate governance guidelines are available free of charge on the company's investor relations website and the SEC's website[76] Item 1A. Risk Factors The company faces significant risks from macroeconomic challenges, operational disruptions, regulatory changes, and financial obligations - Macroeconomic risks include disruptions from geopolitical conflicts, epidemics/pandemics (eg, COVID-19's impact on costs and supply chains), and the highly competitive and cyclical nature of the company's businesses, leading to price and volume fluctuations[78][79][80] - Operational risks encompass potential manufacturing disruptions from unexpected outages, raw material shortages, transportation failures, natural disasters, labor interruptions, and cybersecurity incidents[96] - Regulatory and environmental risks include stringent and evolving environmental laws, potential interventions from environmental groups, and significant liabilities for environmental remediation at current and former sites, with estimated exposure up to $85 million beyond recorded liabilities[112][113][114][115][418] - Financial risks are substantial, with total indebtedness of $777 million as of December 31, 2023, and covenants in debt agreements that could impair business operations, alongside potential needs for additional financing[125][126][130] - International operations, which generated 67% of revenue in 2023, expose the company to foreign currency fluctuations, trade protection laws (eg, China tariffs, Canadian softwood lumber duties), and political/economic instability[87][89][90][91][92] Macroeconomic and Industry Risks - Geopolitical conflicts and public health crises (like COVID-19) can negatively impact the global economy, leading to input material shortages, increased costs, and reduced demand[78][79] - The company operates in highly competitive and cyclical markets, with demand fluctuations and increased competitor capacity potentially leading to lower sales prices, particularly for cellulose specialties and high-purity commodity products[80] - Raw material and energy costs are significant and volatile, susceptible to rapid increases due to factors like weather, political unrest, and supply/demand, with limited ability to pass on these costs in some contracts[85][86] - International sales accounted for 67% of revenue in 2023, exposing the company to risks from foreign laws, trade protection measures (eg, China tariffs, Canadian softwood lumber duties), and currency exchange rate fluctuations[87][89][91][92] Business and Operational Risks - The top ten customers represented approximately 40% of 2023 revenue, making the company vulnerable to significant revenue loss or unfavorable contract changes[94] - Material disruptions at manufacturing facilities (eg, unscheduled outages, raw material interruptions, natural disasters, labor issues, cybersecurity incidents) could prevent meeting demand and increase costs[96] - Unfavorable changes in wood fiber availability and prices, influenced by regulatory developments, environmental litigation, and natural conditions, could materially increase costs[98][99][101][102] - The company's capital-intensive business requires substantial investment for maintenance, repair, and replacement of facilities, with potential for significant costs and downtime[103] - A non-cash impairment of $62 million was recorded in Q4 2023 related to certain assets at the Temiscaming and Jesup facilities due to asset optimization and realignment[105] - Dependence on third-party transportation services and potential failures in R&D or intellectual property protection also pose significant business risks[106][110] - Cybersecurity incidents could lead to loss of intellectual property, sensitive data, or disruption of manufacturing operations, despite established policies and controls[111] Regulatory and Environmental Risks - Extensive environmental laws and regulations, which are constantly changing and becoming more restrictive, may require significant capital expenditures and limit operations[112][113] - Environmental groups and Indigenous communities may intervene in regulatory processes or file lawsuits, causing delays, restrictions, and increased costs[114] - The company faces substantial environmental remediation liabilities at current and former operating sites, with accrued liabilities of $170 million at December 31, 2023, and reasonably possible additional liabilities up to $85 million[115][286][410][418] - Climate-related risks, including regulatory measures (eg, carbon pricing, new disclosure requirements like the EU's Corporate Sustainability Reporting Directive), transition risks to a low-carbon economy, and physical risks from extreme weather, could materially impact business and financial results[116][117][118][119][120][122][123] Financial Risks - The company may need to make significant additional cash contributions to retirement benefit plans if investment returns are lower than expected or interest rates decline[124] - Total indebtedness was $777 million as of December 31, 2023, which could require a substantial portion of cash flows for interest payments, increase vulnerability to adverse economic conditions, and limit financial flexibility[125] - Debt agreements contain covenants that limit actions like incurring debt, making investments, or paying dividends, and a breach could accelerate debt repayment[126][127] - In January 2024, the 2027 Term Loan agreement was amended to increase the maximum consolidated secured net leverage ratio through fiscal year 2024 to address potential non-compliance[128] - Challenges in commercial and credit environments may adversely affect future access to capital, and additional financing, if required, may not be available on favorable terms or could be dilutive to stockholders[129][130] Common Stock and Certain Corporate Matters Risks - Future equity issuances for acquisitions, capital market transactions, or employee awards could dilute stockholders' ownership interest and adversely affect earnings per share[131] - Provisions in the company's certificate of incorporation and bylaws, and Delaware law, could prevent or delay an acquisition, potentially decreasing the common stock price[132] Item 1B. Unresolved Staff Comments The company reported no unresolved staff comments from the SEC - There are no unresolved staff comments[133] Item 1C. Cybersecurity The company integrates cybersecurity risk management into its overall risk framework, with oversight provided by the Audit Committee - Cybersecurity risk management is integrated into the company's overall risk management system, with risks identified and addressed through internal teams and external consultants[134] - The company utilizes proactive cybersecurity reviews, annual risk assessments, tabletop exercises, and infiltration testing to safeguard against, detect, and manage cyber threats[135] - The Audit Committee, which includes a member with significant cybersecurity consulting experience, is responsible for oversight of cybersecurity risks, receiving quarterly reports from senior management[137] - A CEO-chaired Enterprise Risk Management team and a Cybersecurity Governance Committee assess and mitigate risks, ensuring effective strategy execution and cyber readiness[138] Item 2. Properties The company's material properties include owned manufacturing facilities in the US, Canada, and France, with ongoing capital investments and asset realignment Material Properties and Annual Production Capacity (as of Dec 31, 2023) | Location by Segment | Annual Production Capacity | Owned/Leased | | :--- | :--- | :--- | | High Purity Cellulose Facilities | | | | Jesup, Georgia, United States | 330,000 MTs (cellulose specialties/commodity) | Owned | | | 270,000 MTs (commodity products) | | | Fernandina Beach, Florida, United States | 155,000 MTs (cellulose specialties/commodity) | Owned | | Temiscaming, Quebec, Canada | 150,000 MTs (cellulose specialties/commodity) | Owned | | Tartas, France | 140,000 MTs (cellulose specialties/commodity) | Owned | | Paperboard Facilities | | | | Temiscaming, Quebec, Canada | 180,000 MTs of paperboard | Owned | | High-Yield Pulp Facilities | | | | Temiscaming, Quebec, Canada | 290,000 MTs of high-yield pulp | Owned | | Corporate and Other | | | | Jacksonville, Florida, United States | Corporate Headquarters | Leased | - The company is undertaking a realignment of its High Purity Cellulose assets to optimize production mix, consolidating commodity viscose production into the Temiscaming plant and fluff production into the Jesup plant's C Line[140] Item 3. Legal Proceedings The company is involved in various legal proceedings, with details incorporated by reference from its Financial Statements - Information regarding legal proceedings is incorporated by reference from Note 21—Commitments and Contingencies to the Financial Statements[141] Part II Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's stock trades on the NYSE under RYAM; dividends were suspended in 2019, and no shares were repurchased under the authorized buyback program in 2023 - The company's common stock is traded on the New York Stock Exchange under the symbol 'RYAM', with 3,116 record holders as of February 27, 2024[143] - Quarterly common stock dividends were suspended in September 2019, and no dividends have been declared since, with future payments dependent on financial condition and debt facility limitations[144] - As of December 31, 2023, $60 million remained unused under the $100 million share buyback program authorized in January 2018, with no repurchases under this program in 2023, 2022, or 2021[145][189] Issuer Purchases of Equity Securities (Q4 2023) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs | | :--- | :--- | :--- | :--- | :--- | | October 1 to November 4 | — | $— | — | $60,294,000 | | November 5 to December 2 | — | $— | — | $60,294,000 | | December 3 to December 31 | 15,964 | $348 | — | $60,294,000 | | Total | 15,964 | | — | | Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The company experienced a decline in net sales and operating income in 2023 due to lower commodity prices, reduced volumes, and a significant asset impairment, though strategic initiatives are progressing - In January 2024, the 2027 Term Loan agreement was amended to increase the maximum consolidated secured net leverage ratio through fiscal year 2024, providing operational flexibility[164] - A $62 million non-cash asset impairment was recorded in Q4 2023 due to the optimization and realignment of High Purity Cellulose assets, aimed at reducing commodity exposure and earnings volatility[164] - The company secured $250 million in term loan financing in July 2023, using the proceeds to redeem the $318 million principal balance of the 2024 Notes[164] Consolidated Financial Summary (2023 vs 2022) | Metric | 2023 (Millions USD) | 2022 (Millions USD) | Change (Millions USD) | | :--- | :--- | :--- | :--- | | Net sales | $1,643 | $1,717 | $(74) | | Cost of sales | $(1,555) | $(1,594) | $39 | | Gross margin | $88 | $123 | $(35) | | Operating income (loss) | $(65) | $26 | $(91) | | Net loss | $(102) | $(15) | $(87) | | Gross margin % | 54% | 72% | (18)% | | Operating margin % | (40)% | 15% | (55)% | | Effective tax rate | 244% (benefit) | (38)% (expense) | 282% | Adjusted EBITDA and Adjusted Free Cash Flows (2023 vs 2022) | Metric | 2023 (Millions USD) | 2022 (Millions USD) | Change (Millions USD) | | :--- | :--- | :--- | :--- | | EBITDA-continuing operations | $75 | $173 | $(98) | | Adjusted EBITDA-continuing operations | $139 | $177 | $(38) | | Adjusted free cash flows-continuing operations | $53 | $(35) | $88 | Overview of Operations - The company operates in three business segments: High Purity Cellulose, Paperboard, and High-Yield Pulp[151] - High Purity Cellulose is the leading global producer of cellulose specialties, with 1,045,000 MTs combined annual capacity, and 50% of cost of sales from wood fiber, chemicals, and energy[151][152][153] - Paperboard has an annual capacity of 180,000 MTs, with 80% of cost of sales from wood pulp, chemicals, and energy[155] - High-Yield Pulp has an annual capacity of 290,000 MTs, with 40% of cost of sales from wood fiber, chemicals, and energy[156][157] Recent Business Developments - In January 2024, the 2027 Term Loan agreement was amended to increase the maximum consolidated secured net leverage ratio through fiscal year 2024, incurring a 025% fee if the original ratio is exceeded[164] - A $62 million non-cash asset impairment was recorded in Q4 2023 at the Temiscaming and Jesup plants due to the optimization and realignment of High Purity Cellulose assets[164] - The company secured $250 million in term loan financing in July 2023, using the proceeds to redeem the $318 million principal balance of the 2024 Notes in August 2023[164] - Debt repurchases in 2023 included $10 million of 2026 Notes for $9 million cash in April and $5 million of 2024 Notes for $5 million cash in March[164] 2024 Outlook - The company is exploring the potential sale of its Paperboard and High-Yield Pulp assets at Temiscaming to align with long-term growth and reduce debt[160] - For High Purity Cellulose, average sales prices are expected to increase by a low single-digit percentage in 2024, with flat sales volumes and improving commodity prices from Q4 2023 levels[162] - The Tartas bioethanol facility is expected to be commissioned in Q1 2024, projected to deliver $4 million EBITDA in 2024, growing to $8-10 million by 2025[162] - Paperboard prices are expected to decrease slightly, but sales volumes should improve, while High-Yield Pulp prices and volumes are expected to increase, leading to positive EBITDA for the segment[163][164] - Corporate costs are expected to remain flat or increase slightly in 2024 due to the final year of ERP implementation, which is anticipated to drive efficiencies from 2025[165] Biomaterials Strategy - The company is investing in new products targeting green energy and products markets, with a goal of generating $42 million in annual EBITDA from these products by 2027[166] - The commissioning of the bioethanol facility is a significant milestone in this strategy[166] Results of Operations: Year Ended December 31, 2023 versus December 31, 2022 - Net sales decreased by $74 million in 2023, driven by lower sales prices in commodity products and High-Yield Pulp, and reduced sales volumes in cellulose specialties, Paperboard, and High-Yield Pulp[169] - Operating results declined by $91 million, primarily due to a $62 million non-cash asset impairment in High Purity Cellulose and decreased net sales across all segments[170] - Interest expense increased by $8 million due to a higher average effective interest rate, partially offset by a decrease in average outstanding debt balance[171] - The effective tax rate for continuing operations was a benefit of 24% in 2023, compared to an expense of 4% in 2022, influenced by foreign statutory rates, US tax credits, and valuation allowance changes[174][175] - Discontinued operations recorded a pre-tax gain of $2 million in 2023 related to reduced Canadian softwood lumber export duties, compared to $16 million in 2022[177][178] Consolidated Statements of Operations (2023 vs 2022) | Metric | 2023 (Millions USD) | 2022 (Millions USD) | Change (Millions USD) | | :--- | :--- | :--- | :--- | | Net sales | $1,643 | $1,717 | $(74) | | Cost of sales | $(1,555) | $(1,594) | $39 | | Gross margin | $88 | $123 | $(35) | | Selling, general and administrative expenses | $(76) | $(91) | $15 | | Foreign exchange gain (loss) | $(3) | $4 | $(7) | | Asset impairment | $(62) | — | $(62) | | Other operating expense, net | $(12) | $(10) | $(2) | | Operating income (loss) | $(65) | $26 | $(91) | | Interest expense | $(74) | $(66) | $(8) | | Components of pension and OPEB, excluding service costs | $0 | $5 | $(5) | | Gain on GreenFirst equity securities | — | $5 | $(5) | | Other income, net | $7 | $6 | $1 | | Loss from continuing operations before income tax | $(132) | $(24) | $(108) | | Income tax (expense) benefit | $32 | $(1) | $33 | | Equity in loss of equity method investment | $(2) | $(2) | $0 | | Loss from continuing operations | $(102) | $(27) | $(75) | | Income from discontinued operations, net of tax | $0 | $12 | $(12) | | Net loss | $(102) | $(15) | $(87) | | Gross margin % | 54% | 72% | (18)% | | Operating margin % | (40)% | 15% | (55)% | | Effective tax rate | 244% | (38)% | 282% | Operating Results by Segment - High Purity Cellulose net sales decreased $23 million, with an 11% increase in cellulose specialties prices offset by a 13% decrease in commodity prices; sales volumes increased 4% due to a 39% rise in commodity volumes, partially offset by an 18% drop in cellulose specialties volumes[180] - Operating results for High Purity Cellulose declined $73 million, primarily due to the $62 million non-cash asset impairment, lower cellulose specialties volumes, and higher labor costs, partially offset by higher cellulose specialties prices and commodity volumes[181] - Paperboard net sales decreased $31 million due to a 13% decrease in sales volumes from customer destocking, while operating income remained flat due to lower costs offsetting reduced volumes[182][183] - High-Yield Pulp net sales decreased $24 million, driven by 12% lower sales prices and 5% lower sales volumes due to reduced demand, resulting in a $19 million decline in operating results[184][185] - Corporate operating loss decreased $1 million in 2023, primarily due to lower variable compensation and one-time severance costs in 2022, partially offset by unfavorable foreign exchange rates and higher ERP transformation project expenditures[186] High Purity Cellulose Segment Performance (2023 vs 2022) | Metric | 2023 (Millions USD) | 2022 (Millions USD) | Change (Millions USD) | | :--- | :--- | :--- | :--- | | Net sales | $1,313 | $1,336 | $(23) | | Operating income (loss) | $(42) | $31 | $(73) | | Average sales prices ($/MT) | $1,273 | $1,330 | $(57) | | Sales volumes (thousands MTs) | 955 | 918 | 37 | Paperboard Segment Performance (2023 vs 2022) | Metric | 2023 (Millions USD) | 2022 (Millions USD) | Change (Millions USD) | | :--- | :--- | :--- | :--- | | Net sales | $219 | $250 | $(31) | | Operating income | $37 | $37 | $0 | | Average sales prices ($/MT) | $1,491 | $1,478 | $13 | | Sales volumes (thousands MTs) | 147 | 169 | (22) | High-Yield Pulp Segment Performance (2023 vs 2022) | Metric | 2023 (Millions USD) | 2022 (Millions USD) | Change (Millions USD) | | :--- | :--- | :--- | :--- | | Net sales | $136 | $160 | $(24) | | Operating income (loss) | $(3) | $16 | $(19) | | Average sales prices ($/MT) | $606 | $685 | $(79) | | Sales volumes (thousands MTs) | 182 | 191 | (9) | Liquidity and Capital Resources - Cash flows from operations are the primary source of liquidity, with the company believing future cash flows, ABL Credit Facility availability, and capital market access will be adequate[187][190] - The 2027 Term Loan was amended in January 2024 to increase the maximum consolidated secured net leverage ratio, providing operational flexibility[191] - Total noncancellable unconditional purchase obligations amounted to $728 million as of December 31, 2023, primarily for natural gas, steam energy, and wood chips[194][491] Liquidity and Capital Resources Summary (as of Dec 31) | Metric | 2023 (Millions USD) | 2022 (Millions USD) | | :--- | :--- | :--- | | Cash and cash equivalents | $76 | $152 | | Availability under the ABL Credit Facility | $118 | $130 | | Total debt | $777 | $853 | | Stockholders' equity | $747 | $829 | | Total capitalization | $1,524 | $1,682 | | Debt to capital ratio | 51% | 51% | Cash Flows (2023 vs 2022) | Activity | 2023 (Millions USD) | 2022 (Millions USD) | Change (Millions USD) | | :--- | :--- | :--- | :--- | | Cash provided by operating activities | $136 | $69 | $67 | | Cash used in investing activities-continuing operations | $(128) | $(138) | $10 | | Cash used in financing activities | $(87) | $(73) | $(14) | Performance and Liquidity Indicators - EBITDA from continuing operations decreased by $98 million in 2023, primarily due to the $62 million non-cash asset impairment, lower net sales, and increased labor/wood costs[205] - Adjusted free cash flows from continuing operations increased by $88 million, driven by changes in working capital and lower capital expenditures[207] EBITDA and Adjusted EBITDA (2023 vs 2022) | Metric | 2023 (Millions USD) | 2022 (Millions USD) | | :--- | :--- | :--- | | Loss from continuing operations | $(102) | $(27) | | Depreciation and amortization | $140 | $135 | | Interest expense, net | $69 | $64 | | Income tax expense (benefit) | $(32) | $1 | | EBITDA-continuing operations | $75 | $173 | | Asset impairment | $62 | — | | Pension settlement loss | $2 | $1 | | Severance | — | $4 | | Gain on debt extinguishment | — | $(1) | | Adjusted EBITDA-continuing operations | $139 | $177 | Adjusted Free Cash Flows (2023 vs 2022) | Metric | 2023 (Millions USD) | 2022 (Millions USD) | | :--- | :--- | :--- | | Cash provided by operating activities-continuing operations | $136 | $69 | | Capital expenditures, net | $(83) | $(104) | | Adjusted free cash flows-continuing operations | $53 | $(35) | Critical Accounting Estimates - Revenue is recognized when performance obligations are satisfied, typically upon delivery, and measured based on contractual arrangements or published indices, with variable consideration like sales volume-based rebates estimated and recorded[209][210][211] - Property, plant, and equipment depreciation uses the units-of-production method for manufacturing assets and straight-line for others, with useful lives and salvage values based on historical experience and future expectations[212] - Long-lived assets are reviewed annually for impairment, with recoverability measured by net undiscounted cash flows; a $62 million non-cash impairment was recognized in Q4 2023 due to High Purity Cellulose asset realignment[213][214][215] - Environmental liabilities, totaling $170 million at December 31, 2023, are estimated based on current laws, specialist advice, and management experience, with potential for reasonably possible additional liabilities up to $85 million[216][410][418] - Defined benefit pension and postretirement plans require numerous estimates and assumptions (discount rate, return on assets, salary increases) to determine liabilities and annual expense, with the weighted average discount rate decreasing from 495% in 2022 to 471% in 2023[217][218] - Income tax expense, deferred tax assets/liabilities, and unrecognized tax benefits involve significant judgments and estimates, particularly regarding the realizability of deferred tax assets (mostly in Canada) and the impact of the Tax Cuts and Jobs Act on US cash taxes[222][223][224][228][484] Item 7A. Quantitative and Qualitative Disclosures about Market Risk The company is exposed to market risks from interest rates, foreign currency, and commodity prices, with policies in place to minimize their impact - The company is exposed to market risks from changes in interest rates, foreign currency, and commodity prices, and may use derivatives to minimize their economic impact[229][230] - Prices, sales volumes, and margins of commodity products (High Purity Cellulose, High-Yield Pulp) are cyclically affected by economic shifts, capacity fluctuations, and currency exchange rates[231] - Key input costs like wood fiber, chemicals, and energy are subject to significant price fluctuations, which the company may mitigate through commodity forward contracts[232] - As of December 31, 2023, the company had $255 million of variable rate debt, where a hypothetical one percent change in interest rates would result in a $2 million annual change in interest expense[233] Fixed Rate Debt Fair Value (as of Dec 31) | Metric | 2023 (Millions USD) | 2022 (Millions USD) | | :--- | :--- | :--- | | Carrying amount of fixed rate debt | $536,393 | $847,591 | | Fair value of fixed rate debt | $497,563 | $838,502 | Item 8. Financial Statements and Supplementary Data This section incorporates the company's financial statements and supplementary data by reference from Part IV Item 15 - The required financial statements and supplementary data, including reports of the independent registered accounting firm, are incorporated by reference from Part IV Item 15[235] Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reported no changes in or disagreements with accountants on accounting and financial disclosure - There were no changes in or disagreements with accountants on accounting and financial disclosure[236] Item 9A. Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2023 - Management concluded that the design and operation of the company's disclosure controls and procedures were effective as of December 31, 2023[239] - The company's internal control over financial reporting was assessed as effective as of December 31, 2023, based on the COSO framework, and received an unqualified opinion from Grant Thornton LLP[240][277][278][294] - No changes in internal control over financial reporting occurred during the quarter ended December 31, 2023, that would materially affect it[241] Item 9B. Other Information The company reported no adoption, modification, or termination of Rule 10b5-1 or non-Rule 10b5-1 trading arrangements by any director or officer - No director or officer adopted, modified, or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the quarter ended December 31, 2023[242] Item 9C. Disclosure regarding Foreign Jurisdictions that Prevent Inspections The company stated that this item is not applicable - This item is not applicable[243] Part III Item 10. Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's Proxy Statement - Information on directors, executive officers, and corporate governance is incorporated by reference from the Proxy Statement, including details on corporate governance best practices and audit committee financial experts[246] - The company's Standard of Ethics and Code of Corporate Conduct, applicable to principal executive, financial, and accounting officers, is available on its website[247] Item 11. Executive Compensation Details on executive compensation are incorporated by reference from the company's Proxy Statement - Information on executive compensation is incorporated by reference from the Proxy Statement, covering compensation discussion and analysis, committee reports, and director compensation[248] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information concerning security ownership and equity compensation plans is incorporated by reference from the company's Proxy Statement - Details on security ownership of beneficial owners and management, as well as equity compensation plan information, are incorporated by reference from the Proxy Statement[249] Item 13. Certain Relationships and Related Transactions, and Director Independence Information regarding related person transactions and director independence is incorporated by reference from the company's Proxy Statement - Information on certain relationships, related person transactions, and director independence is incorporated by reference from the Proxy Statement[250] Item 14. Principal Accounting Fees and Services Information concerning principal accounting fees and services is incorporated by reference from the company's Proxy Statement - Information on principal accounting fees and services is incorporated by reference from the Proxy Statement[251] Part IV Item 15. Exhibits, Financial Statement Schedules This section lists all financial statements, schedules, and exhibits filed as part of the 2023 Form 10-K - The section includes a list of financial statements and financial statement schedules, as detailed on page F-1 of the 2023 Form 10-K[253][254] - Numerous exhibits are filed, including the Separation and Distribution Agreement, Arrangement Agreement, Amended and Restated Certificate of Incorporation and Bylaws, and various incentive stock plans[255][256][257][258][259] - Key financial agreements such as the Revolving Credit Agreement, Term Loan Credit Agreement, and related amendments are also listed as exhibits[258] - Certifications from the Chief Executive Officer and Chief Financial Officer (pursuant to Rule 13a-14(a)/15d-14(a) and Section 302 of Sarbanes-Oxley Act) and a Certification of Periodic Financial Reports Under Section 906 are included[259] Signatures Officer and Director Signatures This section contains the duly authorized signatures of the company's officers and Board of Directors, affirming their responsibility for the 2023 Form 10-K - The report is signed by Marcus J Moeltner (Chief Financial Officer), De Lyle W Bloomquist (Chief Executive Officer, President, and Director), and Gabriela Garcia (Chief Accounting Officer) on February 29, 2024[264][265] - The Board of Directors, including Lisa M Palumbo (Chair) and other directors, also signed the report on various dates in January 2024[269] - A Power of Attorney grants Marcus J Moeltner and R Colby Slaughter authority to sign and file the Annual Report on Form 10-K and any amendments[267] Index to Financial Statements Financial Statements and Schedules This index provides a comprehensive list of the financial statements and schedules included in the 2023 Form 10-K - The index lists Management's Report on Internal Control over Financial Reporting, Reports of Independent Registered Public Accounting Firm, Consolidated Statements of Operations, Comprehensive Income (Loss), Balance Sheets, Stockholders' Equity, and Cash Flows[271] - It also includes the Notes to Financial Statements and Schedule II—Valuation and Qualifying Accounts[271][273] Management's Report on Internal Control over Financial Reporting Effectiveness of Internal Controls Management concluded that the company's internal control over financial reporting was effective as of December 31, 2023, based on the COSO framework - Management is responsible for establishing and maintaining adequate internal control over financial reporting, designed to provide reasonable assurance regarding financial reporting reliability[275] - As of December 31, 2023, management concluded that the company's internal control over financial reporting was effective, based on the 2013 Internal Control—Integrated Framework issued by COSO[277] - Grant Thornton LLP, the independent registered public accounting firm, audited and issued an unqualified report on the effectiveness of the company's internal control over financial reporting as of December 31, 2023[278][282][294] Reports of Independent Registered Public Accounting Firm Opinion on Financial Statements and Internal Control Grant Thornton LLP issued an unqualified opinion on the company's financial statements and internal controls, highlighting critical audit matters related to environmental liabilities and asset impairment - Grant Thornton LLP issued an unqualified opinion on the company's consolidated financial statements as of December 31, 2023 and 2022, and for the three years ended December 31, 2023, in conformity with GAAP[281] - An unqualified opinion was also expressed on the company's internal control over financial reporting as of December 31, 2023, based on the COSO framework[282][294] - Critical audit matters identified include accruals for environmental liabilities (totaling $170 million at December 31, 2023) due to significant estimates and specialized knowledge required[285][286][287] - Another critical audit matter is the impairment of long-lived assets, specifically a $25 million charge related to High Purity Cellulose assets at Temiscaming, which involved significant management judgment in estimating fair value[289][290] Consolidated Statements of Operations Financial Performance Overview The company reported a net loss of $1018 million in 2023, a significant increase from $149 million in 2022, driven by a $623 million asset impairment and lower gross margin - Net sales decreased by $74 million from $1,7173 million in 2022 to $1,6433 million in 2023[302] - The company reported a gross margin of $882 million in 2023, down from $1231 million in 2022[302] - Operating income shifted from a gain of $261 million in 2022 to a loss of $653 million in 2023, largely due to a $623 million asset impairment[302] - The net loss for 2023 was $1018 million, compared to a net loss of $149 million in 2022[302] Consolidated Statements of Operations (in thousands, except per share amounts) | Metric | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Net sales | $1,643,330 | $1,717,267 | $1,407,558 | | Cost of sales | $(1,555,176) | $(1,594,184) | $(1,332,836) | | Gross margin | $88,154 | $123,083 | $74,722 | | Selling, general and administrative expense | $(75,712) | $(91,475) | $(75,789) | | Foreign exchange gain (loss) | $(2,999) | $4,726 | $875 | | Asset impairment | $(62,300) | — | — | | Other operating expense, net | $(12,407) | $(10,199) | $(10,253) | | Operating income (loss) | $(65,264) | $26,135 | $(10,445) | | Interest expense | $(73,810) | $(66,183) | $(66,394) | | Components of pension and OPEB, excluding service costs | $98 | $4,960 | $(4,337) | | Gain (loss) on GreenFirst equity securities | — | $5,197 | $(3,597) | | Other income, net | $6,502 | $6,069 | $1,901 | | Loss from continuing operations before income tax | $(132,474) | $(23,822) | $(82,872) | | Income tax (expense) benefit | $32,311 | $(902) | $34,688 | | Equity in loss of equity method investment | $(1,984) | $(2,653) | $(1,585) | | Loss from continuing operations | $(102,147) | $(27,377) | $(49,769) | | Income from discontinued operations, net of tax | $312 | $12,458 | $116,183 | | Net income (loss) | $(101,835) | $(14,919) | $66,414 | | Basic and Diluted earnings per common share: | | | | | Loss from continuing operations | $(157) | $(042) | $(078) | | Income from discontinued operations | — | $019 | $183 | | Net income (loss) | $(157) | $(023) | $105 | Consolidated Statements of Comprehensive Income (Loss) Comprehensive Income (Loss) Analysis The company reported a comprehensive loss of $839 million in 2023, an improvement from the net loss due to positive other comprehensive income components - The company reported a net loss of $1018 million in 2023, which was partially offset by total other comprehensive income of $179 million, resulting in a comprehensive loss of $839 million[305] - Other comprehensive income in 2023 included a $75 million foreign currency translation adjustment gain and a $102 million net gain on employee benefit plans[305] Consolidated Statements of Comprehensive Income (Loss) (in thousands) | Metric | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Net income (loss) | $(101,835) | $(14,919) | $66,414 | | Other comprehensive income (loss), net of tax: | | | | | Foreign currency translation adjustment | $7,530 | $(12,763) | $(17,919) | | Unrealized gain (loss) on derivative instruments | $194 | $280 | $(2,681) | | Net gain on employee benefit plans | $10,157 | $33,155 | $69,765 | | Total other comprehensive income (loss) | $17,881 | $20,672 | $49,165 | | Comprehensive income (loss) | $(83,954) | $5,753 | $115,579 | Consolidated Balance Sheets Financial Position Overview Total assets decreased to $2,1827 million in 2023, primarily due to reductions in cash, accounts receivable, and inventory, while total liabilities also decreased - Total assets decreased by $1648 million, from $2,3475 million in 2022 to $2,1827 million in 2023[308] - Cash and cash equivalents decreased by $76 million, from $1518 million in 2022 to $758 million in 2023[308] - Property, plant and equipment, net, decreased by $762 million, from $1,1513 million in 2022 to $1,0751 million in 2023[308] - Total debt (current and long-term) decreased by $757 million, from $8531 million in 2022 to $7775 million in 2023[308] - Total stockholders' equity decreased by $829 million, from $8293 million in 2022 to $7464 million in 2023[308] Consolidated Balance Sheets (in thousands, except share amounts) | Asset/Liability/Equity Category | December 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $75,768 | $151,803 | | Accounts receivable, net | $197,457 | $211,526 | | Inventory | $207,474 | $265,334 | | Total current assets | $575,058 | $689,530 | | Property, plant and equipment, net | $1,075,105 | $1,151,268 | | Deferred tax assets | $345,181 | $322,164 | | Total assets | $2,182,700 | $2,347,528 | | Liabilities | | | | Accounts payable | $186,226 | $163,962 | | Accrued and other current liabilities | $154,488 | $164,369 | | Debt due within one year | $25,283 | $14,617 | | Total current liabilities | $375,830 | $353,680 | | Long-term debt | $752,174 | $838,508 | | Non-current environmental liabilities | $160,458 | $159,949 | | Total liabilities and stockholders' equity | $2,182,700 | $2,347,528 | | Stockholders' Equity | | | | Total stockholders' equity | $746,447 | $829,313 | Consolidated Statements of Stockholders' Equity Stockholders' Equity Changes Total stockholders' equity decreased to $7464 million at year-end 2023, primarily driven by a net loss and common stock repurchases - Total stockholders' equity decreased by $829 million, from $8293 million at December 31, 2022, to $7464 million at December 31, 2023[310] - The net loss of $1018 million and common stock repurchases of $54 million were the primary drivers of the decrease in equity[310] - Other comprehensive income, net of tax, contributed $179 million, and stock-based compensation added $65 million to equity in 2023[310] Consolidated Statements of Stockholders' Equity (in thousands, except share data) | Metric | December 31, 2023 | December 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | :--- | | Balance at beginning of year | $829,313 | $814,343 | $695,087 | | Net income (loss) | $(101,835) | $(14,919) | $66,414 | | Other comprehensive income, net of tax | $17,881 | $20,672 | $49,165 | | Issuance of common stock under incentive stock plans | — | — | — | | Stock-based compensation | $6,507 | $9,650 | $5,099 | | Repurchase of common stock | $(5,419) | $(433) | $(1,422) | | Balance at end of year | $746,447 | $829,313 | $814,343 | Consolidated Statements of Cash Flows Cash Flow Analysis Cash from operations increased significantly in 2023 due to improved working capital, while cash used in financing increased due to debt repayments - Cash provided by operating activities increased significantly by $675 million, from $688 million in 2022 to $1363 million in 2023, primarily due to increased cash inflows from working capital[198][312] - Cash used in investing activities of continuing operations decreased by $101 million, from $1386 million in 2022 to $1285 million in 2023, mainly due to lower capital spending[199][312] - Cash used in financing activities increased by $138 million, from $731 million in 2022 to $869 million in 2023, driven by debt redemptions and issuance costs, partially offset by new term loan proceeds[200][312] - The cash and cash equivalents balance at the end of 2023 was $758 million, down from $1518 million in 2022[312] Consolidated Statements of Cash Flows (in thousands) | Activity | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Net income (loss) | $(101,835) | $(14,919) | $66,414 | | Cash provided by operating activities-continuing operations | $136,274 | $68,813 | $73,686 | | Cash provided by operating activities-discontinued operations | — | — | $159,538 | | Cash provided by operating activities | $136,274 | $68,813 | $233,224 | | Cash used in investing activities-continuing operations | $(128,450) | $(138,602) | $(97,359) | | Cash provided by investing activities-discontinued operations | $1,169 | $44,428 | $182,750 | | Cash provided by (used in) investing activities | $(127,281) | $(94,174) | $85,391 | | Cash used in financing activities | $(86,947) | $(73,115) | $(156,662) | | Net increase (decrease) in cash and cash equivalents | $(77,954) | $(98,476) | $161,953 | | Balance, end of period | $75,768 | $151,803 | $253,307 | Notes to Financial Statements 1. Nature of Operations and Basis of Presentation The company operates in three business segments, with financial statements prepared under GAAP and reflecting discontinued operations - The company operates in three business segments: High Purity Cellulose, Paperboard, and High-Yield Pulp[316] - High Purity Cellulose manufactures cellulose specialties and commodity products (absorbent materials, viscose pulp) across four facilities in the US, Canada, and France[317] - Paperboard and High-Yield Pulp are manufactured at a Canadian facility, serving packaging, printing, and other paper product markets[318][319] - Financial statements are prepared in accordance with GAAP, requiring management to make estimates and assumptions, and present the results of lumber and newsprint operations as discontinued[321][323] - A subsequent event in January 2024 involved an amendment to the 2027 Term Loan to increase the maximum consolidated secured net leverage ratio[325] 2. Significant Accounting Policies and Recent Accounting Developments This note details significant accounting policies for foreign currency, revenue recognition, and asset valuation, and discusses recent accounting standard updates - Assets and liabilities of foreign subsidiaries are translated using balance sheet date exchange rates, while revenues and expenses use average rates, with translation gains/losses reported in AOCI[326] - Property, plant, and equipment are depreciated using the units-of-production method for manufacturing assets and straight-line for others; a $62 million non-cash impairment was recorded in Q4 2023 related to High Purity Cellulose assets[330][333] - The company capitalizes certain software costs, amortizing them over 5 years, and defers major maintenance shutdown costs, amortizing them over the period benefited (12-18 months)[335][336] - Revenue is recognized when performance obligations are satisfied, typically u