RAYONIER ADVANCED MATERIALS INC. (RYAM) FY 2021 MD&A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

We are a diversified global leader of cellulose-based technologies that operates in the following business segments:

•High Purity Cellulose

•Paperboard

•High-Yield Pulp

Our High Purity Cellulose business has leading positions in the cellulose specialties markets. In addition, our other business segments provide a more diversified earnings stream.

The following significant events occurred in 2021, 2020 and 2019:

•Our businesses were impacted by the coronavirus ("COVID-19") pandemic in 2021 and 2020. However, due to the role we play in producing critical raw materials for pharmaceutical, food, cleaning and other products, our manufacturing facilities in the U.S., Canada and France have operated continuously throughout the pandemic. In order to mitigate the impact of COVID-19 on our financial results and operations, we implemented and have maintained protocols to reduce the potential spread of COVID-19 in our operating facilities and work spaces.

•In December 2021, we settled certain U.S. pension liabilities through the purchase of annuity contracts with an insurance company who assumed responsibility for related future pension benefits. The settlement resulted in the recognition of approximately $6 million in settlement expenses which were recognized in the Other components of net periodic benefit income (expense) line item in the Consolidated Statements of Income and Comprehensive Income. See Note 17 — Employee Benefit Plans of our consolidated financial statements for additional information.

•In October 2021, pursuant to a notice previously provided to the trustee under the indenture governing our 7.625% Senior Secured Notes due 2026 (the “Secured Notes”), we redeemed $25 million of the Secured Notes at a redemption price of 103 percent. In connection with the redemption, we recorded a $1 million loss. The loss is recorded in Gain (loss) on debt extinguishment in the Consolidated Statements of Income and Comprehensive Income.

•During the third quarter of 2021, we repurchased approximately $127 million of our 5.50% Senior Notes due 2024 (the “Unsecured Notes”) through several open-market transactions and retired such Unsecured Notes for approximately $124 million in cash. In connection with the repurchases, we recorded a net gain of $2 million, net of the write-off of $1 million of deferred financing costs associated with the Unsecured Notes. The net gain is recorded in Gain (loss) on debt extinguishment in the Consolidated Statements of Income and Comprehensive Income.

•On August 28, 2021, we completed the sale of our lumber and newsprint facilities and certain related assets (the “Purchased Assets”) located in Ontario and Québec Canada to GreenFirst Forest Products, Inc. (“GreenFirst”). As a result of the sale, the lumber and newsprint assets and operations have been presented as discontinued operations and we have reclassified certain prior year amounts to conform to this presentation. Unless otherwise stated, information in this Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations (“this MD&A”) relates to our continuing operations. We present businesses that represent components as discontinued operations when they meet the criteria for held for sale or are sold, and their disposal represents a strategic shift that has, or will have, a major effect on our operations and financial results. See Note 3 —Discontinued Operations for additional information.

•In December 2020, we issued $500 million in aggregate principal amount of 7.625 percent senior secured notes due 2026 (the “Senior Secured Notes”), at an offering price of 100 percent of the principal amount thereof. We also entered into a five-year senior secured asset-based revolving credit facility with an initial committed amount of $200 million (the “ABL Revolving Credit Facility”). In connection with these transactions, we terminated all commitments and repaid all outstanding obligations under our Senior Secured Credit Facilities and recorded a loss on debt extinguishment of $8 million. See Note 9 — Debt and Finance Leases of our consolidated financial statements for additional information.

•In December 2020, the USDOC reduced from 20 percent to 9 percent the duties we paid in 2017 and 2018 for the importation of softwood lumber into the U.S. from Canada.

•In November 2019, we completed the sale of the Matane Mill for $175 million and used $100 million of the net proceeds to repay borrowings under our prior Senior Secured Credit Facilities. As a result of the sale, the Matane

24

Mill’s operating results have been classified as discontinued operations in our consolidated financial statements and we reorganized our operating and reportable segments to align with our new management reporting structure. Included in discontinued operations is allocated interest expense, due to the required loan payments, and professional fees incurred to sell the operation. See Note 3 — Discontinued Operations of our consolidated financial statements for additional information.

•In October 2019, we settled certain Canadian pension liabilities through the purchase of annuity contracts with an insurance company. The settlement resulted in the recognition of approximately $9 million in settlement expenses which were recognized in “Other components of net periodic benefit costs” in our financial statements. See Note 17 — Employee Benefit Plans of our consolidated financial statements for additional information.

•In September 2019, and again in June 2020, we amended our Senior Secured Credit Facilities. See Note 9 — Debt and Finance Leases of our consolidated financial statements for additional information.

•In September 2019, we announced our Board of Directors determined to suspend the quarterly common stock dividend to improve cash flow.

High Purity Cellulose

We manufacture and market high purity cellulose, which is sold as either cellulose specialties or commodity products. We are the leading global producer of cellulose specialties, which are primarily used in dissolving chemical applications that require a highly purified form of cellulose. Pricing for our cellulose specialties products is typically set by contract for a duration of at least one year based on discussions with customers. Our commodity products primarily consist of commodity viscose and absorbent materials. Commodity viscose is a raw material required for the manufacture of viscose staple fibers which are used in woven and non-woven applications. Absorbent materials, typically referred to as fluff fibers, are used as an absorbent medium in consumer products. Pricing for commodity products is typically referenced to published indexes or based on publicly available spot market prices. Sales of chemicals and energy, a majority of which are by-products, are included in the high purity cellulose segment.

Our four production facilities, located in the U.S., Canada and France, have a combined annual production capacity of approximately 775,000 metric tons of cellulose specialties or commodity products. Additionally, we have dedicated approximately 245,000 metric tons of annual production to commodity products.

Wood fiber, chemicals, and energy represent approximately 27 percent, 15 percent and 6 percent, respectively, of our per metric ton cost of sales. Labor, manufacturing and maintenance supplies, depreciation, manufacturing overhead and transportation costs represent our remaining cost of sales.

Paperboard

We manufacture and market paperboard that is used for printing documents, brochures, promotional materials, packaging, paperback book or catalog covers, file folders, tags, and tickets.

Pricing for paperboard is typically referenced to published indices and marketed through our internal sales team. Our production facility located in Canada has the capacity to annually produce 180,000 metric tons of paperboard. Wood pulp, chemicals, and energy represent approximately 67 percent, 15 percent and 5 percent, respectively, of our per metric ton cost of sales. Labor, manufacturing and maintenance supplies, depreciation, manufacturing overhead and transportation costs represent our remaining cost of sales.

High-Yield Pulp

We manufacture and market high-yield pulp which is used by paper manufacturers to produce paperboard, packaging, printing and writing papers and a variety of other paper products. Pricing for high-yield pulp is typically referenced to published indexes marketed through our internal sales team. Our production facility located in Canada has the capacity to annually produce 290,000 metric tons of high-yield pulp.

Wood fiber, chemicals, and energy represent approximately 20 percent, 11 percent and 11 percent, respectively, of our per metric ton cost of sales. Labor, manufacturing and maintenance supplies, depreciation, manufacturing overhead and transportation costs represent our remaining cost of sales.

25

Market Assessment

This market assessment represents our best current estimate of each of our business segments in this environment.

High Purity Cellulose

Amid strong demand for cellulose specialties, sales prices are expected to increase double digit percent for 2022, while sales volumes are also expected to increase. Demand for commodity products also remains solid. Commodity prices in the first quarter of 2022 are expected to be slightly higher than fourth quarter levels as fluff price increases are expected to offset slight declines in viscose pulp prices. Total sales volumes will be dependent on managing ongoing supply-chain constraints and production reliability, including extensive planned outages in all four facilities in 2022. We also remain committed to investing in our core business to improve reliability and foster innovation for growth. Overall, we expect to drive incremental Adjusted EBITDA for the segment compared to 2021. However, we expect a slow start to the year as we execute extensive maintenance outages in our Jesup, Fernandina Beach and Temiscaming facilities to addresses reliability on major pieces of equipment within the production process in the first half of 2022. We are also managing production reliability ahead of the outages, along with supply chain disruptions and higher raw material and energy costs.

Paperboard

Paperboard prices continue to increase driven by strong demand in both commercial printing and packaging segments. Demand for renewable packaging continues to grow as consumers and governments drive more sustainable solutions. Our unique Kallima® brand paperboard provides a solution with its greater surface area to weight properties and we continue to look for opportunities to expand the product offerings to meet the rising demand for sustainable packaging. Raw material costs are expected to rise in the first quarter as North American pulp prices remain high driven by industry capacity reductions.

High-Yield Pulp

While High-yield pulp markets have rebounded recently, we expect to realize lower prices in the first quarter of 2022 driven by lower selling prices contracted in the fourth quarter. Supply-chain constraints may also continue to impact sales volumes, while the costs are expected to increase driven by chemical and transportation costs.

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 to disclose contingent assets and liabilities in our consolidated financial statements. 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.

New Accounting Pronouncements

See Note 2 — Summary of Significant Accounting Policies and New Accounting Pronouncements of our consolidated financial statements for a discussion of recently issued accounting pronouncements that may affect our financial results and disclosures in future periods.

Accounting Policies:

Revenue Recognition and Measurement

Revenue is recognized when performance obligations under the terms of a contract with a customer are satisfied. The majority of our contracts have a single performance obligation to transfer products. Accordingly, we recognize revenue when control has been transferred to the customer. Generally, control transfers upon delivery to a location in accordance with terms and conditions of the sale. Changes in customer contract terms and conditions, as well as the timing of orders and shipments, may have an impact on the timing of revenue recognition.

Revenue is measured as the amount of consideration we expect to receive in exchange for transferring our products and is generally based upon contractual arrangements with customers or published indices. We sell our products both directly to customers and through distributors and agents typically under agreements with payment terms less than 90 days.

The nature of our contracts may give rise to variable consideration, which may be constrained, including sales volume-based rebates to customers. We estimate the level of volumes based on anticipated purchases at the beginning of the period and record a rebate accrual for each purchase toward the requisite rebate volume. These estimated rebates are included in the transaction price as a reduction to net sales.

26

These methodologies are consistent with the manner in which we have historically accounted for the recognition of revenue.

Property, Plant & Equipment

Depreciation expense is computed using the units-of-production method for our High Purity Cellulose, Paperboard, High-Yield Pulp plant and equipment and the straight-line method for all other property, plant and equipment over the useful economic lives of the assets involved. The total units of production used to calculate depreciation expense is determined by factoring annual production days, based on normal production conditions, by the economic useful life of the asset involved. The physical life of equipment, however, may be shortened by economic obsolescence caused by environmental regulation, competition or other causes. We depreciate our non-production assets, including office, lab, and transportation equipment, using the straight-line depreciation method over 3 to 25 years. Buildings and land improvements are depreciated using the straight-line method over 15 to 35 years and 5 to 30 years, respectively. We believe these depreciation methods are appropriate for us, versus other generally accepted accounting methods, because they most closely match our revenues with expenses.

Gains and losses on the retirement of assets are included in operating income. Long-lived assets are reviewed annually for impairment or whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of assets that are held and used is measured by net undiscounted cash flows expected to be generated by the asset. Property, plant and equipment are grouped for purposes of evaluating recoverability at the combined plant level, the lowest level for which independent cash flows are identifiable. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying value exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

Accounting Estimates:

Environmental liabilities

At December 31, 2021, we had $171 million of accrued liabilities for environmental costs relating to disposed operations. Numerous price, quantity, cost and probability assumptions are used in estimating these obligations. Factors affecting these estimates include changes in the nature or extent of contamination, changes in the content or volume of the material discharged or treated in connection with one or more impacted sites, requirements to perform additional or different assessment or remediation, changes in technology that may lead to additional or different environmental remediation strategies, approaches and work-plans, discovery of additional or unanticipated contaminated soil, groundwater or sediment on or off-site, changes in remedy selection, changes in law or interpretation of existing law and the outcome of negotiations with governmental agencies or non-governmental parties. We periodically review our environmental liabilities and also engage third-party consultants to assess our ongoing remediation of contaminated sites. Quarterly, we review our environmental liabilities related to assessment activities and remediation costs and adjust them as necessary. Liabilities for financial assurance, monitoring and maintenance activities and other activities are assessed annually. A significant change in any of these estimates could have a material effect on our results of operations. See Note 10 — Environmental Liabilities of our consolidated financial statements for more information.

Determining the adequacy of pension and other postretirement benefit assets and liabilities

Our defined benefit pension and postretirement plans for employees in the U.S. and Canada require numerous estimates and assumptions to determine the proper amount of pension and postretirement liabilities and annual expense to record in our financial statements. The key assumptions include discount rate, return on assets, salary increases, health care cost trends, mortality rates, longevity and service lives of employees. Although authoritative guidance on how to select most of these assumptions exists, we exercise some degree of judgment when selecting these assumptions based on input from our actuary and other advisors. Different assumptions, as well as actual versus expected results, would change the periodic benefit cost and funded status of the benefit plans recognized in the financial statements.

Our long-term return plan assets assumption was established based on historical long-term rates of return on broad equity and bond indices, discussions with our actuary and investment advisors and consideration of the actual historical annualized rate of returns. In determining future pension obligations, we select a discount rate based on information supplied by our actuary. The actuarial rates are developed by models which incorporate high-quality (AA rated), long-term corporate bond rates into their calculations. The weighted average discount rate increased from 2.48 percent at December 31, 2020 to 2.82 percent at December 31, 2021.

Our defined pension plans were underfunded by $126 million at December 31, 2021. The underfunded status decreased by $78 million in 2021, primarily due to the settlements of certain Canadian and US pension plans. In 2022, pension expense is expected to decrease due to an decrease in service cost and lower amortization of actuarial losses partly offset by higher interest

27

cost and lower expected return on assets. Future pension expense will be impacted by many factors including actual investment performance, changes in discount rates, timing of contributions and other employee related matters. See Note 17 — Employee Benefit Plans of our consolidated financial statements for more information.

As required under Accounting Standards Codification (“ASC”) 715 Compensation-Retirement Benefits, we have recorded the impact of settlements and de-recognition of projected benefit obligations in connection with the wind up of certain plans and the purchase of annuity contracts from third party insurance companies who have assumed responsibility for related future pension benefits. In 2021, we purchased annuity contracts from a third-party insurance company who assumed responsibility for future pension benefits for certain participants in our U.S. defined benefit plan and recorded a loss of $6 million on the settlement and de-recognition of the projected benefit obligation. Additionally, during 2021 and 2020, we started the process of winding up certain Canadian pension plans and as a result recorded a settlement loss of $2 million and a gain of $2 million, respectively. In 2019, we purchased annuity contracts from a third-party insurance company who assumed responsibility for future pension benefits for certain participants in our Canadian defined benefit plans and recorded a loss of $9 million on the settlement and de-recognition of the projected benefit obligation.

In 2021, we made mandatory contributions and benefit payments to plan participants of approximately $9 million. During 2022, we expect to make mandatory and discretionary benefit payments to plan participants of approximately $9 million. Future mandatory contribution requirements will vary depending on actual investment performance, changes in valuation assumptions, interest rates and legal requirements to maintain a certain funding status.

The sensitivity of pension expense and projected benefit obligation related to our pension plans to changes in economic assumptions is highlighted below:

Realizability of both recorded and unrecorded tax assets and tax liabilities

We have recorded certain deferred tax assets we believe will be realized in future periods. The recognition of these tax assets is based on our analysis of both positive and negative evidence about the future realization of the tax benefit of each existing deductible temporary difference or carryforward. Future realization is based on the existence of sufficient taxable income of the appropriate character, within the appropriate taxing jurisdiction (for example country, state or province), and within the carryback and carryforward periods available under the applicable tax laws. The strongest form of positive evidence is the evaluation of historical earnings, which should be considered with future earnings projections within the applicable carryforward periods. This evidence supports the realizability of most recorded deferred tax assets. Tax assets are reviewed periodically for realizability. This review requires management to make assumptions and estimates about future profitability affecting the realization of these tax assets. If the review indicates the realizability may be less than likely, a valuation allowance is recorded.

Our income tax returns are subject to examination by U.S. federal and state taxing authorities as well as foreign jurisdictions, including Canada and France. In evaluating the tax benefits associated with various tax filing positions, we record a tax benefit for an uncertain tax position if it is more-likely-than-not to be realized upon ultimate settlement of the issue. We record a liability for an uncertain tax position that does not meet this criterion. The liabilities for unrecognized tax benefits are adjusted in the period in which it is determined the issue is settled with the taxing authorities, the statute of limitations expires for the relevant taxing authority to examine the tax position or when new facts or information become available. See Note 19 — Income Taxes of our consolidated financial statements for more information.

28

Results of Operations

Summary of our results of operations for each of the following years ended December 31:

Results of Operations, Year Ended December 31, 2021 versus December 31, 2020

Net sales by segment were as follows:

Net sales increased $64 million or 5 percent, in 2021 compared to 2020, driven by higher sales prices across all three of our segments. For a further assessment of changes in net sales, see the discussion of “Operating Results by Segment” for 2021 compared to 2020 discussion below in this MD&A.

29

Operating income by segment was as follows:

Operating loss for 2021 improved by $20 million when compared to the prior year. The improvement was primarily driven by higher High Purity Cellulose commodity prices and cellulose specialties sales volumes, as well as higher High-Yield Pulp and Paperboard sales prices, partly offset by higher input costs, shipping constraints and equipment reliability issues resulting in lower production. For a further assessment of changes of operating income, see the “Operating Results by Segment” for 2021 compared to 2020 discussion below in this MD&A.

Non-operating Expenses

Interest expense for 2021 increased $10 million, primarily driven by the higher interest rate and additional amortization of debt issuance costs related to the December 23, 2020 refinancing of our prior Senior Secured Credit Facilities.

In 2021, we repurchased approximately $127 million of our Unsecured Notes and redeemed $25 million of the Secured Notes. In connection with these transactions, we recorded a net gain on extinguishment of long-term debt of $1 million. During 2020, the refinancing of the Senior Secured Notes resulted a loss from extinguishment of long-term debt of $8 million, primarily from writing off unamortized deferred financing fees. For additional information, see Note 9 — Debt and Finance Leases.

Included in 2021 is a $4 million unrealized loss associated with shares of GreenFirst received in connection with the sale of lumber and newsprint assets. See Note 3 — Discontinued Operations.

Other components of net periodic benefit (expense) changed by $7 million to a $4 million expense primarily as a result of $8 million related to pension settlement losses recorded during 2021. See Note 17 — Employee Benefit Plans.

Income Taxes

The effective tax rate for 2021 was a benefit of 42 percent. The 2021 effective tax rate differs from the statutory rate of 21 percent primarily due to a tax benefit recognized by remeasuring the Canadian deferred tax assets at a higher blended statutory tax rate in Canada. The statutory tax rate is higher as a result of changing the allocation of income between the Canadian provinces due to the sale of lumber and newsprint assets. The 2020 effective tax rate from continuing operations was a benefit of 62 percent. See Note 19 — Income Taxes of our consolidated financial statements for additional information.

30

Discontinued Operations

Sale of lumber and newsprint assets

On August 28, 2021, we completed the sale of our lumber and newsprint facilities and certain related assets (the “Purchased Assets”) located in Ontario and Québec, Canada to GreenFirst for $232 million. At closing, we received $193 million in cash, 28.7 million shares of GreenFirst’s common stock with a deemed fair value of $42 million and a credit note issued to us by GreenFirst in the amount of CAD $8 million (approximately USD $5 million after present value discount). The credit note may be offset against amounts owed to GreenFirst in the future for wood chip purchases, equally over the next 5 years. The GreenFirst shares will be held for a minimum of six months. The cash received at closing was preliminary and subject to final purchase price adjustments. Driven primarily by lower inventory balances, we previously estimated the cash portion of the purchase price to be reduced by $8 million, to $185 million. Further, after inclusion of other adjustments resulting from events related to the sale, we estimated to ultimately incur a total net cash outflow of approximately $3 to $4 million. Pursuant to the terms of the asset purchase agreement, together with GreenFirst, we have engaged a third party to assist in finalizing certain adjustments related to the inventory valuation, in the amount of $6 million, which remain unresolved. In connection with the sale, we recorded a preliminary gain on sale of $4 million, net of tax, inclusive of currently estimated purchase price adjustments. The preliminary net gain is included in the results of discontinued operations.

The Purchased Assets excluded accounts receivable, accounts payable, certain retained inventory and rights and obligations to softwood lumber duties, generated or incurred through the closing date. Since 2017, we have paid a total of $112 million in duties. We expect a cash tax impact of $1 million as a result of this transaction.

In connection with the transaction, we entered into a 20 year wood chip and residual fiber supply agreement with GreenFirst as well as a transition services agreement. The transition services agreement is expected to end in the second quarter of 2022.

See Note 3 — Discontinued Operations of our consolidated financial statements for additional information.

Operating Results by Segment

High Purity Cellulose

Changes in High Purity Cellulose net sales are as follows:

Total net sales increased $40 million, or 4%, in 2021. Sales prices for cellulose specialties decreased 3 percent during the year ended December 31, 2021 whereas commodity prices increased 37 percent. Cellulose specialties sale volumes increased 7 percent while commodity sales volumes declined 28 percent for the full year compared to 2020, driven by increased demand in cellulose specialties. However, overall sales volumes were impacted by shipping constraints and reliability issues, including a kiln reliability disruption at the Jesup, GA facility which negatively impacted commodity production by approximately 10,000 metric tons in the third quarter of 2021.

31

Changes in High Purity Cellulose operating income are as follows:

Operating income increased by $13 million in 2021 when compared to the prior year primarily due to higher commodity prices, partially offset by increased costs driven by inflation on key material inputs, and higher maintenance and logistics expenses. Offsetting energy costs in 2021 is a $12 million favorable impact related to sales of emission allowances associated with our operations in Tartas, France. Included in SG&A and other costs is our share of the loss of the lignin joint venture of $2 million and $4 million during 2021 and 2020, respectively.

Paperboard

Changes in Paperboard net sales are as follows:

Total net sales increased $18 million, or 9 percent in 2021. Paperboard sales prices increased 8 percent and sales volumes increased 2 percent in 2021. The increased volumes and prices were driven by improved market demand.

Changes in Paperboard operating income are as follows:

Operating income declined $5 million in 2021 due to increased costs from higher raw material pulp input prices partially offset by the increase in sales prices.

32

High-Yield Pulp

Changes in High-Yield Pulp net sales are as follows:

Total net sales increased $11 million, or 9 percent, in 2021. Average pulp sales prices increased 16 percent, driven by market demand improvements. Pulp sales volumes decreased 9 percent impacted by shipping constraints.

Changes in High-Yield Pulp operating income are as follows:

Operating income for High Yield Pulp increased $7 million in 2021, driven by higher sales prices, partially offset by lower sales volumes, driven by logistics constraints, and higher operational costs.

Corporate

The operating loss for Corporate decreased by $5 million to $50 million in 2021, when compared to 2020, primarily due to favorable foreign currency impacts.

33

Results of Operations, Year Ended December 31, 2020 versus December 31, 2019

Net sales decreased $87 million, or 6 percent, in 2020 compared to 2019. The decrease was primarily driven by lower high purity cellulose sales prices. For further assessment of changes in net sales, see “Operating Results by Segment” for 2020 compared to 2019 discussion below in this MD&A.

Operating income by segment was as follows:

Operating income for 2020 improved $22 million when compared to the prior year. The increase was primarily due to lower costs driven by improved operating reliability.

Non-operating Expenses

Interest expense for 2020 increased $4 million driven by the higher interest rate margin from the amendments to our credit facilities held during most of 2020, as well as increased amortization of debt issuance costs. In December 2020, in connection with the early repayment of the Senior Secured Credit Facility, we recorded a loss from extinguishment of long-term debt of $8 million, primarily from writing off unamortized deferred financing fees. For additional information, see Note 9 — Debt and Finance Leases.

Other components of net periodic benefit (expense) changed by $3 million to a $3 million benefit during 2020 as a result of a $2 million pension settlement and curtailment gain recorded during the fourth quarter of 2020. See Note 17 — Employee Benefit Plans.

Income Taxes

The effective tax rate for continuing operations for the year ended December 31, 2020 was 62 percent. The 2020 effective tax rate benefit differs from the federal statutory rate of 21 percent primarily due to benefits from the CARES Act, the release of certain valuation allowances related to nondeductible interest expense, tax return to accrual adjustments, and tax credits, partially offset by increases to uncertain tax position reserves, nondeductible executive compensation, and lower tax deductions on vested stock compensation. The 2019 effective tax rate from continuing operations was a benefit of 20 percent. See Note 19 — Income Taxes of our consolidated financial statements for additional information.

Discontinued Operations

We have presented the operating results for our lumber and newsprint assets sold August 2021, and our Matane operations sold in November 2019, as discontinued operations for the years ended December 31, 2020 and 2019.

Included in discontinued operations for the sale of the above operations is allocated interest expense for debt that was required or expected to be repaid upon completion of the transactions. In addition, legal and administrative costs to sell the operations are included in discontinued operations. Income from discontinued operations during the year ended December 31, 2020 included a $1 million benefit resulting from the final working capital adjustment as required by the Matane sale agreement. See Note 3 — Discontinued Operations of our consolidated financial statements for additional information.

34

Operating Results by Segment

High Purity Cellulose

Changes in High Purity Cellulose net sales are as follows:

Total net sales decreased $76 million, or 7 percent, in 2020. Sales prices for cellulose specialties increased 2 percent during the year ended December 31, 2020 whereas commodity prices declined 17 percent, primarily driven by impacts on demand on the larger commodity pulp and textile markets related to COVID-19 and a China trade dispute. Cellulose specialties sale volumes declined 12 percent primarily due to the impact on demand, driven by COVID-19. Commodity sales volumes increased 21 percent for the full year compared to 2019, driven by the recovery of the textile markets in the second half of 2020.

Changes in High Purity Cellulose operating income are as follows:

Operating income remained essentially flat in 2020 when compared to the prior year. Lower wood and chemical costs, improved reliability and higher commodity volumes were offset by the impact of lower cellulose specialty volumes and commodity sale price declines during 2020. Included in SG&A and other costs is our share of the loss of the lignin joint venture of $4 million and $5 million during 2020 and 2019, respectively.

Paperboard

35

Changes in Paperboard net sales are as follows:

Total net sales declined $10 million, or 5 percent, in 2020. Paperboard sales prices declined 2 percent due to increased competition. Paperboard sales volumes decreased 3 percent.

Changes in Paperboard operating income are as follows:

Operating income increased $14 million in 2020 due to decreased costs from lower pulp raw material prices as well as lower transportation costs.

High-Yield Pulp

Changes in High-Yield Pulp net sales are as follows:

Total net sales declined $3 million, or 2 percent, in 2020. Average pulp sales prices declined 6 percent due to weak market conditions during 2020. Pulp sales volumes increased 5 percent.

36

Changes in High-Yield Pulp operating income are as follows:

Operating income for High-Yield Pulp decreased $3 million during 2020, driven by lower pulp prices, partly offset by higher pulp sales volumes. Costs improved primarily from lower transportation expenses, partially offset by higher energy costs.

Corporate

The operating loss for Corporate decreased by $11 million to $55 million in 2020, when compared to 2019, primarily due to lower environmental reserves charges and reduced spending, partially offset by higher non-cash amortization of technology costs and unfavorable currency impacts in 2021 and the impact of an insurance recovery in 2020.

Liquidity and Capital Resources

Cash flows from operations, primarily driven by operating results, have historically been our primary source of liquidity and capital resources. However, our operating cash flows have been volatile in recent years due to decreases in market prices for our commodity products as well as impacts driven by the COVID-19 pandemic. In response, we have maintained a key focus on cash, managing working capital closely and optimizing the timing and level of our capital expenditures.

During the third quarter of fiscal 2021, we repurchased approximately $127 million of our Unsecured Notes through open-market transactions and retired such Unsecured Notes for approximately $124 million in cash. In October 2021 pursuant to a notice previously provided to the trustee under the indenture governing our Secured Notes, we redeemed $25 million of the Secured Notes at a redemption price of 103 percent.

We amended our prior Senior Secured Credit Facility in 2019 and again in 2020 to provide us with financial flexibility. In December 2020, we terminated our prior Senior Secured Credit Facility, entered into an ABL Credit Facility and completed the refinancing of certain debt. See Note 9 — Debt and Finance Leases of our consolidated financial statements for additional information.

As of December 31, 2021, we are in compliance with all financial and other customary covenants. We continue to 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, although no assurances can be given.

Our non-guarantor subsidiaries had assets of $745 million, year-to-date revenue of $228 million, covenant EBITDA for the last twelve months of $9 million and liabilities of $252 million as of December 31, 2021. For a reconciliation of EBITDA to net income, see the “Performance and Liquidity Indicators” discussion below in this MD&A.

On September 6, 2019, our Board of Directors suspended our quarterly common stock dividend. 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 ABL Credit Facility places limitations on the declaration and payment of future dividends. No dividends were declared in 2020 or 2021.

On January 29, 2018, our Board of Directors authorized a $100 million common stock share buyback program. As of December 31, 2021, the remaining unused authorization under our share buyback program was approximately $60 million. For

37

the years ended December 31, 2021 and 2020, we did not repurchase any common shares under this buyback program. We do not expect to utilize any further authorization in the near future.

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. Information regarding letters of credit, surety bonds and other guarantees as of December 31, 2021 is hereby incorporated by reference to Note 21 — Commitments and Contingencies of our consolidated financial statements.

Our purchase obligations payments are expected to be made on natural gas, steam energy and wood chips purchase contracts. As of December 31, 2021, the value of our non-cancellable unconditional purchase obligations was $771 million. See Note 21 — Commitments and Contingencies of our consolidated financial statements for additional information regarding our purchase obligations. We lease certain buildings, machinery and equipment under various operating leases. As of December 31, 2021, future payments to be made under these operating leases are $24 million. See Note 4 —Leases for additional information.

A summary of liquidity and capital resources is shown below (in millions of dollars):

(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. At December 31, 2021, we had $143 million of gross availability and net available borrowings of $103 million after taking into account standby letters of credit of approximately $40 million. In addition to the availability under the ABL Credit Facility, we have $14 million available under an accounts receivable factoring line of credit in France. See Note 21 — Commitments and Contingencies of our consolidated financial statements for additional information.

(c)    In December 2020, all outstanding liabilities under the Senior Secured Credit Facility were paid in full and the related Revolving Credit Facility was terminated.

(d)    See Note 9 — Debt and Finance Leases of our consolidated financial statements for more information.

Cash Flows (in millions of dollars)

The following table summarizes our cash flows from operating, investing and financing activities for each of the following years ended December 31:

38

Cash Provided by Operating Activities

Cash flows provided by operating activities of continuing operations increased $20 million during the year ended December 31, 2021, to $74 million, compared to the same prior year period. The increase was driven by higher sales prices across all three of our segments, partially offset by higher costs, the impact of shipping constraints and lower production. In addition, during 2021 we received $35 million in net tax cash refunds and $20 million of Canada Emergency Wage Subsidy (“CEWS”) claims. The year ended December 31, 2020 included a $33 million increase to the U.S. income tax receivable from the passage of the CARES Act in March of 2020.

Cash provided by operating activities of discontinued operations during the year ended 2021 improved by $89 million when compared to the same prior year period, primarily driven by the increase in lumber sales prices.

Cash provided by operating activities of continuing operations decreased $4 million during the year ended December 31, 2020, to $54 million, compared to the same prior year. The decrease was primarily due to lower high purity cellulose sales primarily driven by the impacts of COVID-19. The decrease was partly offset by an increase in income tax receivables later refunded during 2021.

Cash provided by operating activities of discontinued operations during the year ended 2020 improved by $87 million, compared to the same prior year period, primarily driven by higher lumber prices and lower costs from improved reliability

Cash Provided by (Used for) Investing Activities

Cash used for investing activities of continuing operations increased $31 million during the year ended December 31, 2021, compared to the same prior year period primarily from increased custodial capital expenditures. The increase also includes our $4 million investment in Anomera, Inc.

Cash provided by investing activities of discontinued operations increased $195 million, to $183 million, during the year ended December 31, 2021 compared to cash used for investing activities of $12 million in the same prior year period ended. The increase was driven by net cash received in connection with the sale of the lumber and newsprint assets which was completed on August 28, 2021, partially offset by capital expenditures of $9 million in 2021.

Cash used for investing activities of continuing operations during the year ended December 31, 2020 decreased $22 million to $66 million compared to the same prior year period. Capital expenditures from continuing operations decreased $27 million during the year ended December 31, 2020, when compared to the same prior year period. The current year included proceeds of $1 million from the sale of assets and $4 million of contributions for our investment in Anomera. See Note 2 — Summary of Significant Accounting Policies and New Accounting Pronouncements for additional information on the investment.

Cash used in investing activities for discontinued operations during the year ended December 31, 2020 was $12 million compared to cash provided by investing activities of $140 million during the same prior year period. Included in investing activities for December 30, 2019 was proceeds from discontinued operations of $158 million that were received from the November 2019 sale of the Matane mill and $3 million of discontinued operations capital spending.

39

Cash Provided by (Used for) Financing Activities

Cash used for financing activities increased by $138 million during the year ended December 31, 2021, to $157 million, when compared to the same prior year period. The increase was primarily driven by the open-market purchases of a portion of our Unsecured Notes during the third quarter of 2021, as well as the redemption of $25 million of Secured Notes during the fourth quarter of 2021. Additionally, cash used to repurchase common stock in lieu of income taxes from the vesting of incentive stock grants was $1 million higher during the 2021 period. The year ended December 31, 2020 had $23 million of higher debt issuance costs when compared to the 2021 period. See Note 9 — Debt and Finance Leases and Note 13 — Stockholders' Equity, to our consolidated financial statements for additional information.

Cash used for financing activities decreased $119 million during the year ended December 31, 2020, primarily due a decrease of $109 million in our net long-term debt payments during 2020, compared to the year ended December 31, 2019. In addition, the year ended December 31, 2020 included $5 million of short term borrowings from the France factoring line. Common stock dividends paid decreased by $9 million due to the suspension of the quarterly $0.07 dividend starting in the third quarter of 2019. In addition, the preferred stock dividend payments declined by $10 million in 2020 as the preferred stock automatically converted to common stock in August 2019. During 2020, we incurred $24 million of debt issuance costs primarily from the Senior Secured Notes due 2026 that were issued in December 2020. Common shares repurchased decreased by $6 million during 2020 when compared to the same prior year period due to fewer shares repurchased in lieu of payment of income taxes. See Note 9 — Debt and Finance Leases and Note 13 — Stockholders' Equity 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 by U.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 “Note about Non-GAAP Financial Measures” on page 2 for limitations associated with non-GAAP measures.

EBITDA is defined by SEC rules as earnings from continuing operations before interest, taxes, depreciation and amortization. Adjusted EBITDA is defined by us as EBITDA before pension settlement gain/loss, insurance recoveries, loan amendment costs, non-recurring expenses related to our review of its commodity asset portfolio, severance expense, gain on bargain purchase and loss on debt extinguishment. EBITDA and adjusted EBITDA are not necessarily indicative of results that may be generated in future periods.

40

Below is a reconciliation of Income (Loss) from Continuing Operations to EBITDA and Adjusted EBITDA for each of the years ended December 31 (in millions of dollars):

(a) Non-recurring expenses are related to the review of our commodity asset portfolio.

EBITDA and Adjusted EBITDA for 2021 increased compared to 2020, primarily due to higher sales prices across the segments, partially offset by higher costs, the impact of shipping constraints and lower production. EBITDA increased for 2020 compared to 2019, due to lower costs, primarily driven by improved reliability and lower environmental and pension costs, partially offset by the loss on debt extinguishment. Adjusted EBITDA decreased slightly for 2020 compared to 2019. For additional information regarding operating results see “Results of Operations” for 2021 compared to 2020 and for 2020 compared to 2019 discussions above in this MD&A.

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 us, is a non-GAAP measure of cash generated during a period which is available for debt reduction, strategic capital expenditures, acquisitions and repurchase of our 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 to adjusted free cash flows for each of the following years ended December 31 (in millions of dollars):

(a)    Capital expenditures, net of proceeds from sale of assets, excludes strategic capital expenditures which we deem discretionary. Strategic capital expenditures for the years ended December 31, 2021, 2020, and 2019 were $16 million, $17 million, and $20 million, respectively.

Adjusted free cash flows from continuing operations in 2021 decreased compared to 2020, primarily due to higher costs, the impact of shipping constraints and lower production as well as higher capital expenditures.

Adjusted free cash flows from continuing operations in 2020 increased compared to 2019, primarily due to lower costs driven by improved reliability and lower capital expenditures.

Environmental Regulation

We are subject to stringent environmental laws and regulations concerning air emissions, wastewater discharges, waste handling and disposal, and assessment and remediation of environmental contamination, which impact both our current ongoing operations and about 20 former operating facilities or third party-owned sites classified as disposed operations. These include

41

the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act of 1980 and similar state laws and regulations impacting U.S. facilities, as well as requirements relating to ancillary matters such as financial assurance of our legal obligations for facility closure and post-closure care. Similar laws and legal requirements also impact current and former operating sites in Canada and France, respectively. Management closely monitors our environmental responsibilities and believes we are in material compliance with current requirements. In addition to ongoing compliance with laws and regulations, our facilities operate in accordance with various permits, which are issued by state and federal environmental agencies. Many of these permits impose operating conditions on us which require significant expenditures to ensure compliance. Upon renewal and renegotiation of these permits, the issuing agencies often seek to impose new or additional conditions in response to new environmental laws and regulations, or more stringent interpretations of existing laws and regulations. In addition, under many federal environmental laws, private citizens and organizations, such as environmental advocacy groups, have the right to legally challenge permitting and other decisions made by regulatory agencies.

Our operations are subject to constantly changing environmental requirements, and interpretations of existing requirements, which are often impacted by new policy initiatives, new and amended legislation and regulation, negotiations involving state and federal governmental agencies and various other stakeholders, as well as, at times, litigation. For additional information, see Item 1A — Risk Factors for a discussion of the potential impact of environmental risks on our business, and Item 3 — Legal Proceedings, for a discussion of any environmental-related litigation.

Our future spending requirements in the area of environmental compliance could change significantly based on the passage of new environmental laws and regulations.

Environmental Liabilities

For information and details relating to our estimated environmental liabilities, see Item 1A — Risk Factors and Note 10 — Environmental Liabilities of our consolidated financial statements for more information.

42