What changed in this filing

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Item 1. Financial Statements

2023-08-09 compared with 2023-05-10 · 204 added, 128 removed, 396 unchanged (46% of the section changed)

3 unchanged sentences

(in thousands, except per share amounts)

Three Months Ended

April 1, 2023 March 26, 2022

Three Months Ended Six Months Ended

July 1, 2023 June 25, 2022 July 1, 2023 June 25, 2022

Net sales $ 385,413 $ 399,220 $ 852,174 $ 750,936

1 unchanged sentence

Gross margin 14,628 26,695 52,068 32,622

Selling, general and administrative expenses ( 19,495 ) ( 20,107 )

Selling, general and administrative expense ( 17,996 ) ( 28,029 ) ( 37,491 ) ( 48,137 )

Foreign exchange gain (loss) ( 1,461 ) 1,950 ( 2,134 ) 1,454

Other operating expense, net ( 1,627 ) ( 3,513 ) ( 2,305 ) ( 4,629 )

2 unchanged sentences

Other components of pension and OPEB, excluding service costs (Note 14) 399 ( 109 ) ( 1,335 ) 901

Unrealized gain on GreenFirst equity securities (Note 2) — 8,900

Other income (expense), net 306 ( 513 )

Gain (loss) on GreenFirst equity securities (Note 2) — ( 3,703 ) — 5,197

Other income, net 3,307 3,155 3,613 2,642

Loss from continuing operations before income taxes ( 18,188 ) ( 20,241 ) ( 18,518 ) ( 42,835 )

1 unchanged sentence

Equity in loss of equity method investment ( 683 ) ( 1,046 ) ( 1,332 ) ( 1,436 )

Income (loss) from continuing operations 1,607 ( 24,380 )

Loss from discontinued operations, net of taxes (Note 2) — ( 471 )

Net income (loss) $ 1,607 $ ( 24,851 )

Basic earnings per common share (Note 12)

Income (loss) from continuing operations $ 0.02 $ ( 0.38 )

Loss from discontinued operations — ( 0.01 )

Net income (loss) per common share-basic $ 0.02 $ ( 0.39 )

Diluted earnings per common share (Note 12)

Income (loss) from continuing operations $ 0.02 $ ( 0.38 )

Loss from discontinued operations — ( 0.01 )

Net income (loss) per common share-diluted $ 0.02 $ ( 0.39 )

Loss from continuing operations ( 15,622 ) ( 24,943 ) ( 14,015 ) ( 49,323 )

Income (loss) from discontinued operations, net of taxes (Note 2) ( 1,128 ) 1,676 ( 1,128 ) 1,205

Net loss $ ( 16,750 ) $ ( 23,267 ) $ ( 15,143 ) $ ( 48,118 )

Basic and Diluted earnings per common share (Note 12)

Loss from continuing operations $ ( 0.24 ) $ ( 0.39 ) $ ( 0.22 ) $ ( 0.77 )

Income (loss) from discontinued operations ( 0.02 ) 0.03 ( 0.02 ) 0.02

Net loss per common share $ ( 0.26 ) $ ( 0.36 ) $ ( 0.24 ) $ ( 0.75 )

See Notes to Consolidated Financial Statements.

Rayonier Advanced Materials Inc.

Consolidated Statements of Comprehensive Income (Loss)

Consolidated Statements of Comprehensive Loss

(in thousands)

Three Months Ended

April 1, 2023 March 26, 2022

Net income (loss) $ 1,607 $ ( 24,851 )

Three Months Ended Six Months Ended

July 1, 2023 June 25, 2022 July 1, 2023 June 25, 2022

Net loss $ ( 16,750 ) $ ( 23,267 ) $ ( 15,143 ) $ ( 48,118 )

Other comprehensive income (loss), net of tax (Note 10)

3 unchanged sentences

Total other comprehensive income (loss) ( 2,301 ) ( 7,557 ) 1,839 ( 11,811 )

Comprehensive income (loss) $ 5,747 $ ( 29,105 )

Comprehensive loss $ ( 19,051 ) $ ( 30,824 ) $ ( 13,304 ) $ ( 59,929 )

See Notes to Consolidated Financial Statements.

1 unchanged sentence

Consolidated Balance Sheets

(in thousands, except share amounts)

April 1, 2023 December 31, 2022

(in thousands, except share and par value amounts)

July 1, 2023 December 31, 2022

Current assets

38 unchanged sentences

Shares Par Value

Three months ended April 1, 2023

Three months ended July 1, 2023

Balance at April 1, 2023

65,106,348 $ 651 $ 414,406 $ 476,030 $ ( 59,658 ) $ 831,429

Net loss — — — ( 16,750 ) — ( 16,750 )

Other comprehensive loss, net of tax — — — — ( 2,301 ) ( 2,301 )

Issuance of common stock under incentive stock plans 266,321 3 ( 3 ) — — —

Stock-based compensation — — 1,893 — — 1,893

Repurchase of common stock (a)

( 29,251 ) — ( 254 ) — — ( 254 )

Balance at July 1, 2023

65,343,418 $ 654 $ 416,042 $ 459,280 $ ( 61,959 ) $ 814,017

Three months ended June 25, 2022

Balance at March 26, 2022

63,849,150 $ 638 $ 410,788 $ 464,491 $ ( 88,724 ) $ 787,193

Net loss — — — ( 23,267 ) — ( 23,267 )

Other comprehensive loss, net of tax — — — — ( 7,557 ) ( 7,557 )

Issuance of common stock under incentive stock plans 122,016 1 ( 1 ) — — —

Stock-based compensation — — 4,470 — — 4,470

Balance at June 25, 2022

63,971,166 $ 639 $ 415,257 $ 441,224 $ ( 96,281 ) $ 760,839

Six months ended July 1, 2023

Balance at December 31, 2022

64,020,761 $ 640 $ 418,048 $ 474,423 $ ( 63,798 ) $ 829,313

Net income — — — 1,607 — 1,607

Net loss — — ( 15,143 ) — ( 15,143 )

Other comprehensive income, net of tax — — — 1,839 1,839

3 unchanged sentences

( 644,158 ) ( 6 ) ( 5,357 ) — — ( 5,363 )

Balance at April 1, 2023

Balance at July 1, 2023

65,343,418 $ 654 $ 416,042 $ 459,280 $ ( 61,959 ) $ 814,017

Three months ended March 26, 2022

Six months ended June 25, 2022

Balance at December 31, 2021

6 unchanged sentences

( 62,179 ) ( 1 ) ( 302 ) — — ( 303 )

Balance at March 26, 2022

Balance at June 25, 2022

63,971,166 $ 639 $ 415,257 $ 441,224 $ ( 96,281 ) $ 760,839

5 unchanged sentences

(in thousands)

Three Months Ended

April 1, 2023 March 26, 2022

Six Months Ended

July 1, 2023 June 25, 2022

Operating activities

Net income (loss) $ 1,607 $ ( 24,851 )

Loss from discontinued operations — 471

Adjustments to reconcile net income (loss) to cash provided by operating activities:

Net loss $ ( 15,143 ) $ ( 48,118 )

Adjustments to reconcile net loss to cash provided by (used in) operating activities:

(Income) loss from discontinued operations 1,128 ( 1,205 )

Depreciation and amortization 67,689 61,144

Stock-based compensation expense 3,371 6,728

Deferred income tax benefit ( 76 ) ( 697 )

Unrealized gain on GreenFirst equity securities — ( 8,900 )

Deferred income tax expense (benefit) ( 2,312 ) 1,536

Gain on GreenFirst equity securities — ( 5,197 )

Net periodic benefit cost of pension and other postretirement plans 2,045 2,972

Unrealized loss on foreign currency 267 1,533

Unrealized (gain) loss on foreign currency 1,669 ( 2,729 )

(Gain) loss on disposal of property, plant and equipment ( 1,376 ) 2,756

Other 2,927 3,645

6 unchanged sentences

Contributions to pension and other postretirement plans ( 6,717 ) ( 3,659 )

Cash provided by (used in) operating activities-continuing operations 51,389 ( 22,885 )

Cash (used in) operating activities-discontinued operations — ( 635 )

Cash provided by (used in) operating activities 83,860 ( 36,282 )

2 unchanged sentences

Investment in equity method investment ( 169 ) —

Cash used in investing activities-continuing operations ( 54,323 ) ( 86,589 )

Cash provided by investing activities-discontinued operations — 43,288

Cash used in investing activities ( 54,323 ) ( 43,301 )

21 unchanged sentences

These statements and notes should be read in conjunction with the consolidated financial statements and supplementary data included in the Company’s 2022 Form 10-K.

As a result of the sale of its lumber and newsprint assets in August 2021 to GreenFirst, the Company presents the results for those operations as discontinued operations.

As a result of the sale of its lumber and newsprint assets in August 2021, the Company presents the results for those operations and any associated impacts as discontinued operations.

Unless otherwise stated, information in these notes to consolidated financial statements relates to continuing operations.

3 unchanged sentences

Subsequent Events

In April 2023, the Company repurchased $ 10 million of Senior Secured Notes through open-market transactions and retired the notes for cash of $ 9 million.

Duties on Canadian Softwood Lumber Sold to the U.S.

On July 26, 2023, the USDOC completed its fourth administrative review of duties applied to Canadian softwood lumber exports to the U.S.

during 2021 and reduced rates applicable to the Company to a combined 8.0 percent.

In connection with this development, in the third quarter the Company will record a pre-tax gain of approximately $ 2 million in “income (loss) from discontinued operations, net of taxes” and increase the long-term receivable related to the USDOC administrative reviews to approximately $ 40 million.

On July 20, 2023, the Company secured term loan financing of $ 250 million in aggregate principal amount and received net proceeds of $ 243 million after original issue discount, which will be used, together with cash on hand, to redeem the remaining $ 318 million in aggregate principal balance of the 2024 Notes and pay fees and expenses related to the transaction.

The Company will record a loss on debt extinguishment of approximately $ 1 million in the third quarter related to the redemption.

The 2027 Term Loan matures in July 2027, bears interest at a rate per annum equal to three-month Term SOFR (or, if greater, 3.00 percent) plus 8.00 percent and requires quarterly principal payments of 0.50 percent of the initial principal amount commencing in the fourth quarter of 2023.

The Company may voluntarily make prepayments at any time, subject to customary breakage costs and, if within the first three anniversaries of closing, an additional make-whole premium.

The agreement governing the 2027 Term Loan contains various customary covenants that limit the ability of the Company and its restricted subsidiaries, as defined by the term loan agreement and in particular the Company’s French subsidiaries, to take certain specified actions, subject to certain exceptions, including:

incurring debt or liens, making investments, entering into mergers, consolidations, and acquisitions, paying dividends and making other restricted payments.

Additionally, the 2027 Term Loan contains customary affirmative covenants and customary events of default (subject, in certain cases, to customary grace or cure periods), including, without limitation, late payment, breach of covenant, bankruptcy, judgment and defaults under certain other indebtedness and changes in control.

Discontinued Operations

3 unchanged sentences

The shares sale agreement contains a purchase price protection clause whereby the Company is entitled to participate in further share price appreciation under certain circumstances until December 2023.

Rayonier Advanced Materials Inc.

Notes to Consolidated Financial Statements (Unaudited)

(in thousands unless otherwise stated)

As part of the sale of the lumber assets, the Company retained all rights and obligations to softwood duties generated or incurred through the closing date of the sale.

In total, the Company paid $ 112 million in softwood lumber duties from 2017 through August 2021, and expects to receive all or the vast majority of these duties upon final resolution of the dispute.

As of April 1, 2023, the Company had a $ 38 million long-term receivable related to USDOC administrative reviews completed to date.

In total, the Company paid $ 112 million in softwood lumber duties from 2017 through August 2021, and expects to receive all or the vast majority of these duties upon final resolution of the dispute between the USDOC and Canada.

As of July 1, 2023, the Company had a $ 38 million long-term receivable related to USDOC administrative reviews completed to date.

During the three and six months ended July 1, 2023, the Company incurred $ 2 million related to the settlement of a claim pursuant to the representations and warranties in the asset purchase agreement.

Income (loss) from discontinued operations was comprised of the following:

Three Months Ended Six Months Ended

July 1, 2023 June 25, 2022 July 1, 2023 June 25, 2022

Cost of sales $ — $ 326 $ — $ 153

Gross margin — 326 — 153

Selling, general and administrative and other operating income (expense) ( 1,533 ) 1,953 ( 1,533 ) 1,495

Operating income (loss) ( 1,533 ) 2,279 ( 1,533 ) 1,648

Other non-operating expense — ( 4 ) — ( 9 )

Income (loss) from discontinued operations before income taxes ( 1,533 ) 2,275 ( 1,533 ) 1,639

Income tax (expense) benefit 405 ( 599 ) 405 ( 434 )

Income (loss) from discontinued operations, net of taxes $ ( 1,128 ) $ 1,676 $ ( 1,128 ) $ 1,205

Accounts Receivable, Net

Accounts receivable, net included the following:

April 1, 2023 December 31, 2022

July 1, 2023 December 31, 2022

Accounts receivable, trade $ 145,045 $ 171,144

1 unchanged sentence

32,927 41,446

Allowance for credit losses ( 521 ) ( 1,064 )

Allowance for credit loss ( 507 ) ( 1,064 )

Accounts receivable, net $ 177,465 $ 211,526

1 unchanged sentence

(a) Consists primarily of value-added/consumption taxes, grants receivable and accrued billings due from government agencies.

Rayonier Advanced Materials Inc.

Notes to Consolidated Financial Statements (Unaudited)

(in thousands unless otherwise stated)

Inventory included the following:

April 1, 2023 December 31, 2022

July 1, 2023 December 31, 2022

Finished goods $ 156,469 $ 198,931

3 unchanged sentences

Inventory $ 219,313 $ 265,334

Rayonier Advanced Materials Inc.

Notes to Consolidated Financial Statements (Unaudited)

(in thousands unless otherwise stated)

The Company’s operating and finance leases are primarily for corporate offices, warehouse space, rail cars and equipment.

As of April 1, 2023, the Company’s leases have remaining lease terms of less than one year to 13.6 years with standard renewal and termination options available at the Company’s discretion.

As of July 1, 2023, the Company’s leases have remaining lease terms of less than one year to 13.3 years with standard renewal and termination options available at the Company’s discretion.

Certain equipment leases have purchase options at the end of the term of the lease, which are not included in the ROU assets, as it is not reasonably certain that the Company will exercise such options.

2 unchanged sentences

Financial and other information related to the Company’s operating and finance leases follow:

Three Months Ended

April 1, 2023 March 26, 2022

Three Months Ended Six Months Ended

July 1, 2023 June 25, 2022 July 1, 2023 June 25, 2022

Operating lease cost $ 1,791 $ 1,917 $ 3,485 $ 3,848

3 unchanged sentences

Total lease cost $ 1,920 $ 2,046 $ 3,743 $ 4,105

Balance Sheet Classification April 1, 2023 December 31, 2022

Balance Sheet Classification July 1, 2023 December 31, 2022

Operating leases

5 unchanged sentences

Lease liabilities Long-term debt 1,561 1,760

Three Months Ended

April 1, 2023 March 26, 2022

Six Months Ended

July 1, 2023 June 25, 2022

Operating cash flows - cash paid for amounts included in the measurement of operating lease liabilities $ 1,701 $ 1,879

Operating lease ROU assets obtained in exchange for lease liabilities 1,946 59

Finance lease cash flows were immaterial during each of the three months ended April 1, 2023 and March 26, 2022.

Rayonier Advanced Materials Inc.

Notes to Consolidated Financial Statements (Unaudited)

(in thousands unless otherwise stated)

April 1, 2023 December 31, 2022

Finance lease cash flows were immaterial during each of the three and six months ended July 1, 2023 and June 25, 2022.

July 1, 2023 December 31, 2022

Operating leases

4 unchanged sentences

Weighted average discount rate 7.0 % 7.0 %

Rayonier Advanced Materials Inc.

Notes to Consolidated Financial Statements (Unaudited)

(in thousands unless otherwise stated)

Accrued and Other Current Liabilities

Accrued and other current liabilities included the following:

April 1, 2023 December 31, 2022

July 1, 2023 December 31, 2022

Accrued customer incentives $ 26,063 $ 28,702

9 unchanged sentences

——————————————

(a) Included at both April 1, 2023 and December 31, 2022 was CAD $ 25 million (USD $ 18 million) associated with funds received in 2021 for CEWS.

(a) Included at both July 1, 2023 and December 31, 2022 was CAD $ 25 million (USD $ 19 million) associated with funds received in 2021 for CEWS.

All CEWS claims are subject to mandatory audit.

The Company will recognize amounts from these claims in income at the time there is sufficient evidence that it will not be required to repay such amounts.

(b) Included at April 1, 2023 and December 31, 2022 was $ 16 million and $ 30 million, respectively, of energy-related payables associated with Tartas facility operations.

(b) Included at July 1, 2023 and December 31, 2022 was $ 17 million and $ 30 million, respectively, of energy-related payables associated with Tartas facility operations.

Debt and Finance Leases

Debt and finance leases included the following:

April 1, 2023 December 31, 2022

July 1, 2023 December 31, 2022

ABL Credit Facility due 2025:

$ 100 million available, bearing interest of 6.98 % ( 4.73 % adjusted SOFR plus 2.25 % margin) at April 1, 2023

$ 109 million available, bearing interest of 7.42 % ( 5.17 % adjusted SOFR plus 2.25 % margin) at July 1, 2023

7.625 % Senior Secured Notes due 2026

15 unchanged sentences

(a) Consist of loans for energy and bioethanol projects in France.

In March 2023, the Company repurchased $ 5 million of Senior Unsecured Notes through open-market transactions and retired the notes for cash of $ 5 million.

An immaterial gain on extinguishment for the repurchase was recorded to “other income (expense), net” in the consolidated statements of operations.

In April 2023, the Company repurchased $ 10 million of its 2026 Notes through open-market transactions and retired the notes for cash of $ 9 million.

A gain on extinguishment of $ 1 million for the repurchase was recorded to “other income, net” in the consolidated statements of operations.

In March 2023, the Company repurchased $ 5 million of its 2024 Notes through open-market transactions and retired the notes for cash of $ 5 million.

An immaterial gain on extinguishment for the repurchase was recorded to “other income, net” in the consolidated statements of operations.

Rayonier Advanced Materials Inc.

1 unchanged sentence

(in thousands unless otherwise stated)

As of April 1, 2023, the Company’s debt principal payments, excluding finance lease obligations, were due as follows:

Remainder of 2023 $ 10,488

As of July 1, 2023, the Company’s debt principal payments, excluding finance lease obligations, were due as follows:

Remainder of 2023 (a)

Thereafter 5,701

Total debt principal payments $ 837,699

——————————————

(a) Includes $ 68 million of the $ 318 million in aggregate principal balance of the 2024 Notes, which will be redeemed with cash on hand in the third quarter of 2023 in accordance with the 2027 Term Loan financing agreement.

(b) Includes the remaining $ 250 million principal balance of the 2024 Notes, which will be redeemed with the proceeds of the 2027 Term Loan in the third quarter of 2023.

The 2027 Term Loan will mature in 2027.

See Note 1—Basis of Presentation for further information on the refinancing of the 2024 Notes.

Environmental Liabilities

The Company’s environmental liabilities balance changed as follows during the three months ended April 1, 2023:

The Company’s environmental liabilities balance changed as follows during the six months ended July 1, 2023:

Balance at December 31, 2022

2 unchanged sentences

Foreign currency adjustments 157

Balance at April 1, 2023

Balance at July 1, 2023

current portion ( 10,754 )

3 unchanged sentences

developments in remediation technologies;

increases in the cost of remediation, operation, maintenance and monitoring of its environmental liability;

increases in the cost of remediation, operation, maintenance and monitoring of its environmental liability sites;

changes in the volume, nature or extent of contamination to be remediated or monitoring to be undertaken;

1 unchanged sentence

and changes in accounting rules or interpretations.

Based on information available as of April 1, 2023, the Company estimates this exposure could range up to approximately $ 85 million, although no assurances can be given that this amount will not be exceeded given the factors described above.

Based on information available as of July 1, 2023, the Company estimates this exposure could range up to approximately $ 85 million, although no assurances can be given that this amount will not be exceeded given the factors described above.

These potential additional costs are attributable to several sites and other applicable liabilities.

7 unchanged sentences

The following table presents the carrying amount, estimated fair values and categorization under the fair value hierarchy for financial instruments held by the Company, using market information and what management believes to be appropriate valuation methodologies:

April 1, 2023 December 31, 2022

July 1, 2023 December 31, 2022

Amount Fair Value Carrying

17 unchanged sentences

Accumulated Other Comprehensive Loss

Three Months Ended

April 1, 2023 March 26, 2022

Six Months Ended

July 1, 2023 June 25, 2022

Unrecognized components of employee benefit plans, net of tax

Balance, beginning of period $ ( 43,694 ) $ ( 76,849 )

Other comprehensive loss before reclassifications ( 3,034 ) —

Income tax on other comprehensive loss 804 —

Reclassifications to earnings (a)

19 unchanged sentences

See Note 14—Employee Benefit Plans for further information.

(b) Reclassifications of foreign currency exchange contracts are recorded in “cost of sales,” “other operating expense, net” or “other income (expense), net,” as appropriate.

(b) Reclassifications of foreign currency exchange contracts are recorded in “cost of sales,” “other operating expense, net” or “other income, net,” as appropriate.

(c) Foreign currency translation is net of tax effects of $ 0 for all periods presented, as the French operations are taxed on the foreign functional currency, not the translated reporting currency.

9 unchanged sentences

The following table provides the inputs to the calculations of basic and diluted earnings per common share (share amounts not in thousands):

Three Months Ended

April 1, 2023 March 26, 2022

Income (loss) from continuing operations $ 1,607 $ ( 24,380 )

Loss from discontinued operations — ( 471 )

Net income (loss) available for common stockholders $ 1,607 $ ( 24,851 )

Three Months Ended Six Months Ended

July 1, 2023 June 25, 2022 July 1, 2023 June 25, 2022

Loss from continuing operations $ ( 15,622 ) $ ( 24,943 ) $ ( 14,015 ) $ ( 49,323 )

Income (loss) from discontinued operations ( 1,128 ) 1,676 ( 1,128 ) 1,205

Net loss available for common stockholders $ ( 16,750 ) $ ( 23,267 ) $ ( 15,143 ) $ ( 48,118 )

Shares used for determining basic earnings per share of common stock 65,226,344 63,898,761 64,865,272 63,837,292

64,504,200 63,771,484

Dilutive effect of:

2 unchanged sentences

Shares used for determining diluted earnings per share of common stock 65,226,344 63,898,761 64,865,272 63,837,292

66,596,653 63,771,484

Anti-dilutive instruments excluded from the computation of diluted earnings per share (not in thousands):

Three Months Ended

April 1, 2023 March 26, 2022

Anti-dilutive instruments excluded from the computation of diluted earnings per share included (not in thousands):

Three Months Ended Six Months Ended

July 1, 2023 June 25, 2022 July 1, 2023 June 25, 2022

Stock options 46,882 78,660 46,882 78,660

2 unchanged sentences

Incentive Stock Plans

Stock-based compensation expense for the three months ended April 1, 2023 and March 26, 2022 was $ 1 million and $ 2 million, respectively.

The Company made new grants of restricted stock units, performance-based stock units and performance-based cash units during the first quarter of 2023.

Stock-based compensation expense was as follows:

Three Months Ended Six Months Ended

July 1, 2023 June 25, 2022 July 1, 2023 June 25, 2022

Stock-based compensation expense

$ 1,893 $ 4,470 $ 3,371 $ 6,728

The Company made new grants of restricted stock units, performance-based stock units and performance-based cash awards during the first and second quarters of 2023.

The 2023 restricted stock unit awards cliff vest after three years .

2 unchanged sentences

Performance below the threshold for the TSR would result in zero payout for the TSR metric.

The performance-based cash unit award is measured using the same objectives as the performance-based stock unit award, but is paid and accounted for separately.

Performance-based cash unit awards are classified as a liability and remeasured to fair value at the end of each reporting period until settlement.

The performance-based cash award is measured using the same objectives as the performance-based stock unit award but is paid and accounted for separately.

Performance-based cash awards are classified as a liability and remeasured to fair value at the end of each reporting period until settlement.

In March 2023, the performance-based stock units granted in 2020 were settled with the issuance of 1,257,015 shares of common stock, including incremental shares of 370,366 , based on performance results.

Rayonier Advanced Materials Inc.

Notes to Consolidated Financial Statements (Unaudited)

(in thousands unless otherwise stated)

The following table summarizes the 2023 activity of the Company’s incentive stock awards:

7 unchanged sentences

Expired or cancelled ( 30,885 ) 43.35 — — — —

Outstanding at April 1, 2023

Outstanding at July 1, 2023

46,882 $ 37.76 1,931,731 $ 6.03 1,370,601 $ 7.83

Rayonier Advanced Materials Inc.

Notes to Consolidated Financial Statements (Unaudited)

(in thousands unless otherwise stated)

Employee Benefit Plans

4 unchanged sentences

These estimates are based on historical information and certain assumptions about future events.

During the three months ended April 1, 2023, the Company recorded a $ 2 million loss related to the final asset surplus distribution to the plan participants of certain Canadian pension plans previously wound up.

The settlement was recognized in “other components of pension and OPEB, excluding service costs” in the Company’s consolidated statements of operations.

The following table presents the components of net periodic benefit costs from these plans:

During the three and six months ended June 25, 2022, the Company recorded a $ 1 million loss related to the final asset surplus distribution to the plan participants of certain wound-up Canadian pension plans.

During the six months ended July 1, 2023, the Company recorded a $ 2 million loss related to the final asset surplus distribution to the plan participants of certain other wound-up Canadian pension plans.

The settlements were recognized in “other components of pension and OPEB, excluding service costs” in the Company’s consolidated statements of operations.

The following table presents the components of net periodic benefit costs of these plans:

Pension Postretirement

Three Months Ended Three Months Ended

April 1, 2023 March 26, 2022 April 1, 2023 March 26, 2022

July 1, 2023 June 25, 2022 July 1, 2023 June 25, 2022

Service cost $ 1,224 $ 2,171 $ 299 $ 352

5 unchanged sentences

Net periodic benefit cost $ 556 $ 2,080 $ 568 $ 552

Service cost is included in “cost of sales” or “selling, general and administrative expenses” in the consolidated statements of operations, as appropriate.

Interest cost, expected return on plan assets, amortization of prior service cost and amortization of losses are included in “other components of pension and OPEB, excluding service costs” in the consolidated statements of operations.

Pension Postretirement

Six Months Ended Six Months Ended

July 1, 2023 June 25, 2022 July 1, 2023 June 25, 2022

Service cost $ 2,441 $ 4,347 $ 586 $ 705

Interest cost 14,382 9,203 705 431

Expected return on plan assets ( 15,887 ) ( 16,707 ) — —

Amortization of prior service cost 221 78 ( 49 ) ( 61 )

Amortization of (gain) loss ( 246 ) 4,946 ( 108 ) 30

Pension settlement loss 2,317 1,179 — —

Net periodic benefit cost $ 3,228 $ 3,046 $ 1,134 $ 1,105

Rayonier Advanced Materials Inc.

Notes to Consolidated Financial Statements (Unaudited)

(in thousands unless otherwise stated)

Service cost is included in “cost of sales” or “selling, general and administrative expense” in the consolidated statements of operations, as appropriate.

Interest cost, expected return on plan assets, amortization of prior service cost and amortization of (gain) loss are included in “other components of pension and OPEB, excluding service costs” in the consolidated statements of operations.

Effective Tax Rate

The effective tax rate for the three months ended April 1, 2023 is not meaningful due to near break-even pretax income for the period, which results in any discrete tax adjustments significantly impacting the rate.

The largest adjustments creating a difference between the effective tax rate and the statutory rate of 21 percent were an excess tax benefit on vested stock compensation and return-to-accrual adjustments related to previously filed tax returns.

The effective tax rate on the loss from continuing operations for the three months ended March 26, 2022 was an expense of 6 percent.

The 2022 effective tax rate differed from the federal statutory rate of 21 percent primarily due to disallowed interest deductions in the U.S.

The Company utilized the discrete effective rate method for the six months ended July 1, 2023, as allowed by ASC 740-270-30-18 Income Tax—Interim Reporting.

The discrete method is applied when the application of the estimated AETR is impractical because it is not possible to reliably estimate the AETR.

The discrete method treats the year-to-date period as if it was the annual period and calculates the income tax expense or benefit on a discrete basis, rather than forecasting the full year AETR and applying it against current period book earnings.

The Company believes the use of the discrete method represents the best estimate of its AETR in the current period.

The effective tax rate on the loss from continuing operations for the three and six months ended July 1, 2023 was a benefit of 18 percent and 32 percent, respectively.

The 2023 effective tax rates differed from the federal statutory rate of 21 percent primarily due to disallowed interest deductions in the U.S.

and nondeductible executive compensation, offset by U.S.

tax credits, return-to-accrual adjustments related to previously filed tax returns and an excess tax benefit on vested stock compensation.

The effective tax rate on the loss from continuing operations for the three and six months ended June 25, 2022 was an expense of 18 percent and 12 percent, respectively.

The 2022 effective tax rates differed from the federal statutory rate of 21 percent primarily due to disallowed interest deductions in the U.S.

and nondeductible executive compensation, partially offset by U.S.

1 unchanged sentence

Deferred Taxes

The Company’s net DTA includes $ 17 million of disallowed U.S.

As of July 1, 2023 and December 31, 2022, the Company’s net DTA included $ 18 million and $ 17 million, respectively, of disallowed U.S.

interest deductions that the Company does not believe will be realized.

This asset did not materially change in the three months ended April 1, 2023.

In strict compliance with the American Institute of Certified Public Accountants’ Technical Questions and Answers 3300.01-02, which asserts that certain material evidence regarding the realizability of disallowed U.S.

interest deductions should be ignored when assessing the need for a valuation allowance, the Company has not recognized a valuation allowance on this portion of the net DTA generated from disallowed interest.

Rayonier Advanced Materials Inc.

Notes to Consolidated Financial Statements (Unaudited)

(in thousands unless otherwise stated)

The Company operates in the following business segments:

5 unchanged sentences

Intersegment sales prices are at rates that approximate market for the respective operating area.

Rayonier Advanced Materials Inc.

Notes to Consolidated Financial Statements (Unaudited)

(in thousands unless otherwise stated)

Net sales, disaggregated by product line, was comprised of the following:

Three Months Ended

April 1, 2023 March 26, 2022

Three Months Ended Six Months Ended

July 1, 2023 June 25, 2022 July 1, 2023 June 25, 2022

High Purity Cellulose

11 unchanged sentences

Operating income (loss) by segment was comprised of the following:

Three Months Ended

April 1, 2023 March 26, 2022

Three Months Ended Six Months Ended

July 1, 2023 June 25, 2022 July 1, 2023 June 25, 2022

High Purity Cellulose $ ( 422 ) $ 6,489 $ 12,512 $ ( 1,315 )

4 unchanged sentences

Identifiable assets by segment were as follows:

April 1, 2023 December 31, 2022

July 1, 2023 December 31, 2022

High Purity Cellulose $ 1,570,974 $ 1,654,214

4 unchanged sentences

Commitments and Contingencies

The Company had no material changes to the purchase obligations presented in its 2022 Form 10-K that were outside the normal course of business during the three months ended April 1, 2023.

The Company had no material changes to the purchase obligations presented in its 2022 Form 10-K that were outside the normal course of business during the six months ended July 1, 2023.

The Company’s purchase obligations continue to primarily consist of commitments for the purchase of natural gas, steam energy and wood chips.

The Company leases certain buildings, machinery and equipment under various operating leases.

See Note 5—Leases for further information.

Rayonier Advanced Materials Inc.

1 unchanged sentence

(in thousands unless otherwise stated)

The Company leases certain buildings, machinery and equipment under various operating leases.

See Note 5—Leases for further information.

Litigation and Contingencies

2 unchanged sentences

from Canada .

In connection with these exports, the Company paid approximately $ 112 million in softwood lumber duties through August 28, 2021, recorded as expense in the periods incurred.

In connection with these exports, the Company paid approximately $ 112 million for softwood lumber duties between 2017 and August 28, 2021, including $ 1 million of ancillary fees, which were recorded as expense in the periods incurred.

As part of the sale of its lumber assets, the Company retained all rights and obligations to softwood duties generated or incurred through the closing date of the transaction.

As of April 1, 2023 , the Company had a $ 38 million long-term receivable associated with the USDOC’s December 2020, December 2021 and August 2022 determinations of the revised rates for the 2017, 2018, 2019 and 2020 periods.

Preliminary results of th e USDOC’s fourth administrative review were released in January 2023, with final results expected later in 2023.

Cash is not expected to return to the Company until final resolution of the softwood lumber dispute, which remains subject to legal challenges and to USDOC administrative review of the remaining 2021 period.

As of July 1, 2023 , the Company had a $ 38 million long-term receivable associated with the USDOC’s determinations of the revised rates for the 2017, 2018, 2019 and 2020 periods.

This amount does not include interest, which will be due on any amounts refunded.

The Company estimates interest earned on the total amount of softwood lumber duties paid to be approximately $ 6 million.

On July 26, 2023, the USDOC completed its fourth administrative review of duties applied to Canadian softwood lumber exports to the U.S.

during 2021 and reduced rates applicable to the Company to a combined 8.0 percent.

Cash is not expected to return to the Company until final resolution of the softwood lumber dispute, which remains subject to legal challenges.

In addition to the above, the Company is engaged in various legal and regulatory actions and proceedings and has been named as a defendant in various lawsuits and claims arising in the ordinary course of business.

3 unchanged sentences

The Company provides financial guarantees as required by creditors, insurance programs and various governmental agencies.

As of April 1, 2023, the Company had net exposure of $ 36 million from various standby letters of credit, primarily for financial assurance relating to environmental remediation, credit support for natural gas and electricity purchases and guarantees related to foreign retirement plan obligations.

As of July 1, 2023, the Company had net exposure of $ 34 million from various standby letters of credit, primarily for financial assurance relating to environmental remediation, credit support for natural gas and electricity purchases and guarantees related to foreign retirement plan obligations.

These standby letters of credit represent a contingent liability;

1 unchanged sentence

The standby letters of credit have various expiration dates and are expected to be renewed as required.

The Company had surety bonds of $ 86 million as of April 1, 2023, primarily to comply with financial assurance requirements relating to environmental remediation and post closure care, to provide collateral for the Company’s workers’ compensation program and to guarantee taxes and duties for products shipped internationally.

The Company had surety bonds of $ 86 million as of July 1, 2023, primarily to comply with financial assurance requirements relating to environmental remediation and post closure care, to provide collateral for the Company’s workers’ compensation program and to guarantee taxes and duties for products shipped internationally.

These surety bonds expire at various dates and are expected to be renewed annually as required.

1 unchanged sentence

The Company is a guarantor of LTF’s financing agreements and, in the event of default, expects it would only be liable for its proportional share of any repayment under the agreements.

The Company proportion of the LTF financing agreement guarantee was $ 32 million at April 1, 2023.

The Company’s proportion of the LTF financing agreement guarantee was $ 31 million at July 1, 2023.

The Company has not recorded any liabilities for these financial guarantees in its consolidated balance sheets, either because the Company has recorded the underlying liability associated with the guarantee or the guarantee is dependent on the Company’s own performance and, therefore, is not subject to the measurement requirements or because the Company has calculated the estimated fair value of the guarantee and determined it to be immaterial based upon the current facts and circumstances that would trigger a payment obligation.

It is not possible to determine the maximum potential amount of liability under these potential obligations due to the unique set of facts and circumstances likely to be involved with each provision.

As of December 31, 2022, a collective bargaining agreement covering approximately 575 unionized employees was expired.

The employees have continued to work under the terms of the expired contract while negotiations continue.

While there can be no assurances, the Company expects to reach agreements with the union.

However, a work stoppage could have a material adverse effect on the Company’s business, financial condition and results of operations.

Rayonier Advanced Materials Inc.

1 unchanged sentence

(in thousands unless otherwise stated)

As of December 31, 2022, a collective bargaining agreement covering approximately 575 unionized employees was expired.

The employees continued to work under the terms of the expired contract until negotiations concluded in the second quarter of 2023 and final agreement with the union was reached.

All other of the Company’s collective bargaining agreements covering its unionized employees were current as of the date of this filing.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements