RAYONIER ADVANCED MATERIALS INC. 10-Q

Item 1. Financial Statements Rayonier Advanced Materials Inc. Consolidated Statements of Operations (Unaudited) (in thousands, except per share amounts) Three Months Ended Nine Months Ended September 30, 2023 September 24, 2022 September 30, 2023 September 24, 2022 Net sales $ 368,670 $ 466,346 $ 1,220,844 $ 1,217,282 Cost of sales ( 359,938 ) ( 419,804 ) ( 1,160,044 ) ( 1,138,118 ) Gross margin 8,732 46,542 60,800 79,164 Selling, general and administrative expense ( 21,162 ) ( 19,905 ) ( 58,653 ) ( 68,041 ) Foreign exchange gain (loss) 624 3,025 ( 1,510 ) 4,480 Other operating expense, net ( 2,634 ) ( 1,133 ) ( 4,939 ) ( 5,764 ) Operating income (loss) ( 14,440 ) 28,529 ( 4,302 ) 9,839 Interest expense ( 21,015 ) ( 16,433 ) ( 51,949 ) ( 49,318 ) Other components of pension and OPEB, excluding service costs (Note 14) 501 1,009 ( 834 ) 1,910 Gain on GreenFirst equity securities (Note 2) — — — 5,197 Other income, net 3,281 4,117 6,894 6,760 Income (loss) from continuing operations before income taxes ( 31,673 ) 17,222 ( 50,191 ) ( 25,612 ) Income tax (expense) benefit (Note 15) 5,392 1,824 11,227 ( 3,230 ) Equity in loss of equity method investment ( 259 ) ( 691 ) ( 1,591 ) ( 2,127 ) Income (loss) from continuing operations ( 26,540 ) 18,355 ( 40,555 ) ( 30,969 ) Income from discontinued operations, net of taxes (Note 2) 1,440 11,252 312 12,458 Net income (loss) $ ( 25,100 ) $ 29,607 $ ( 40,243 ) $ ( 18,511 ) Basic earnings per common share (Note 12) Income (loss) from continuing operations $ ( 0.41 ) $ 0.29 $ ( 0.62 ) $ ( 0.48 ) Income from discontinued operations 0.02 0.18 — 0.20 Net income (loss) per common share-basic $ ( 0.39 ) $ 0.47 $ ( 0.62 ) $ ( 0.28 ) Diluted earnings per common share (Note 12) Income (loss) from continuing operations $ ( 0.41 ) $ 0.28 $ ( 0.62 ) $ ( 0.48 ) Income from discontinued operations 0.02 0.17 — 0.20 Net income (loss) per common share-diluted $ ( 0.39 ) $ 0.45 $ ( 0.62 ) $ ( 0.28 ) See Notes to Consolidated Financial Statements. 1 Table of Contents Rayonier Advanced Materials Inc. Consolidated Statements of Comprehensive Income (Loss) (Unaudited) (in thousands) Three Months Ended Nine Months Ended September 30, 2023 September 24, 2022 September 30, 2023 September 24, 2022 Net income (loss) $ ( 25,100 ) $ 29,607 $ ( 40,243 ) $ ( 18,511 ) Other comprehensive loss, net of tax (Note 10) Foreign currency translation adjustment ( 5,212 ) ( 14,697 ) ( 1,109 ) ( 30,561 ) Unrealized gain on derivative instruments 47 67 150 224 Net gain (loss) on employee benefit plans ( 65 ) 1,948 ( 2,432 ) 5,844 Total other comprehensive loss ( 5,230 ) ( 12,682 ) ( 3,391 ) ( 24,493 ) Comprehensive income (loss) $ ( 30,330 ) $ 16,925 $ ( 43,634 ) $ ( 43,004 ) See Notes to Consolidated Financial Statements. 2 Table of Contents Rayonier Advanced Materials Inc. Consolidated Balance Sheets (Unaudited) (in thousands, except share and par value amounts) September 30, 2023 December 31, 2022 Assets Current assets Cash and cash equivalents $ 27,127 $ 151,803 Accounts receivable, net (Note 3) 175,814 211,526 Inventory (Note 4) 242,691 265,334 Prepaid and other current assets 72,696 60,867 Total current assets 518,328 689,530 Property, plant and equipment (net of accumulated depreciation of $ 1,792,607 and $ 1,721,898 , respectively) 1,132,469 1,151,268 Deferred tax assets 329,084 322,164 Intangible assets, net 19,166 24,423 Other assets 176,619 160,143 Total assets $ 2,175,666 $ 2,347,528 Liabilities and Stockholders’ Equity Current liabilities Accounts payable $ 171,333 $ 163,962 Accrued and other current liabilities (Note 6) 133,716 164,369 Debt due within one year (Note 7) 18,621 14,617 Current environmental liabilities (Note 8) 10,740 10,732 Total current liabilities 334,410 353,680 Long-term debt (Note 7) 730,453 838,508 Non-current environmental liabilities (Note 8) 158,854 159,949 Pension and other postretirement benefits (Note 14) 119,737 119,571 Deferred tax liabilities 14,972 17,021 Other liabilities 31,563 29,486 Commitments and contingencies (Note 17) Stockholders’ Equity Common stock: 140,000,000 shares authorized at $ 0.01 par value, 65,343,418 and 64,020,761 issued and outstanding, respectively 654 640 Additional paid-in capital 418,032 418,048 Retained earnings 434,180 474,423 Accumulated other comprehensive loss (Note 10) ( 67,189 ) ( 63,798 ) Total stockholders’ equity 785,677 829,313 Total liabilities and stockholders’ equity $ 2,175,666 $ 2,347,528 See Notes to Consolidated Financial Statements. 3 Table of Contents Rayonier Advanced Materials Inc. Consolidated Statements of Stockholders’ Equity (Unaudited) (in thousands, except share data) Common Stock Additional Paid in Capital Retained Earnings Accumulated Other Comprehensive Loss Total Stockholders’ Equity Shares Par Value Three months ended September 30, 2023 Balance at July 1, 2023 65,343,418 $ 654 $ 416,042 $ 459,280 $ ( 61,959 ) $ 814,017 Net loss — — — ( 25,100 ) — ( 25,100 ) Other comprehensive loss, net of tax — — — — ( 5,230 ) ( 5,230 ) Stock-based compensation — — 1,990 — — 1,990 Balance at September 30, 2023 65,343,418 $ 654 $ 418,032 $ 434,180 $ ( 67,189 ) $ 785,677 Three months ended September 24, 2022 Balance at June 25, 2022 63,971,166 $ 639 $ 415,257 $ 441,224 $ ( 96,281 ) $ 760,839 Net income — — — 29,607 — 29,607 Other comprehensive loss, net of tax — — — — ( 12,682 ) ( 12,682 ) Stock-based compensation — — 1,959 — — 1,959 Balance at September 24, 2022 63,971,166 $ 639 $ 417,216 $ 470,831 $ ( 108,963 ) $ 779,723 Nine months ended September 30, 2023 Balance at December 31, 2022 64,020,761 $ 640 $ 418,048 $ 474,423 $ ( 63,798 ) $ 829,313 Net loss — — ( 40,243 ) — ( 40,243 ) Other comprehensive loss, net of tax — — — ( 3,391 ) ( 3,391 ) Issuance of common stock under incentive stock plans 1,966,815 20 ( 20 ) — — — Stock-based compensation — — 5,361 — — 5,361 Repurchase of common stock (a) ( 644,158 ) ( 6 ) ( 5,357 ) — — ( 5,363 ) Balance at September 30, 2023 65,343,418 $ 654 $ 418,032 $ 434,180 $ ( 67,189 ) $ 785,677 Nine months ended September 24, 2022 Balance at December 31, 2021 63,738,409 $ 637 $ 408,834 $ 489,342 $ ( 84,470 ) $ 814,343 Net loss — — — ( 18,511 ) — ( 18,511 ) Other comprehensive loss, net of tax — — — — ( 24,493 ) ( 24,493 ) Issuance of common stock under incentive stock plans 294,936 3 ( 3 ) — — — Stock-based compensation — — 8,687 — — 8,687 Repurchase of common stock (a) ( 62,179 ) ( 1 ) ( 302 ) — — ( 303 ) Balance at September 24, 2022 63,971,166 $ 639 $ 417,216 $ 470,831 $ ( 108,963 ) $ 779,723 (a) Repurchased to satisfy tax withholding requirements related to the issuance of stock under the Company’s incentive stock plans. See Notes to Consolidated Financial Statements. 4 Table of Contents Rayonier Advanced Materials Inc. Consolidated Statements of Cash Flows (Unaudited) (in thousands) Nine Months Ended September 30, 2023 September 24, 2022 Operating activities Net loss $ ( 40,243 ) $ ( 18,511 ) Adjustments to reconcile net loss to cash provided by operating activities: Income from discontinued operations ( 312 ) ( 12,458 ) Depreciation and amortization 104,073 96,294 Stock-based compensation expense 5,361 8,687 Deferred income tax expense (benefit) ( 8,130 ) 372 Gain on GreenFirst equity securities — ( 5,197 ) Net periodic benefit cost of pension and other postretirement plans 3,060 4,489 Unrealized (gain) loss on foreign currency 564 ( 6,853 ) (Gain) loss on disposal of property, plant and equipment ( 1,085 ) 2,917 Other 6,133 5,389 Changes in operating assets and liabilities: Accounts receivable 42,865 ( 41,599 ) Inventories 22,301 ( 41,504 ) Accounts payable 5,545 ( 2,393 ) Accrued liabilities ( 31,732 ) 23,620 Other ( 17,493 ) ( 338 ) Contributions to pension and other postretirement plans ( 8,768 ) ( 5,467 ) Cash provided by operating activities 82,139 7,448 Investing activities Capital expenditures, net ( 95,203 ) ( 114,159 ) Investment in equity method investment ( 415 ) — Cash used in investing activities-continuing operations ( 95,618 ) ( 114,159 ) Cash provided by investing activities-discontinued operations — 44,428 Cash used in investing activities ( 95,618 ) ( 69,731 ) Financing activities Borrowings of long-term debt 303,217 5,721 Repayments of long-term debt ( 397,087 ) ( 51,410 ) Short-term financing, net ( 2,457 ) ( 4,990 ) Debt issuance costs ( 10,082 ) — Repurchase of common stock ( 5,363 ) ( 303 ) Cash used in financing activities ( 111,772 ) ( 50,982 ) Net decrease in cash and cash equivalents ( 125,251 ) ( 113,265 ) Net effect of foreign exchange on cash and cash equivalents 575 ( 8,369 ) Balance, beginning of period 151,803 253,307 Balance, end of period $ 27,127 $ 131,673 Supplemental cash flow information: Interest paid $ ( 50,306 ) $ ( 48,384 ) Income taxes refunded (paid), net ( 7,215 ) 16,484 Capital assets purchased on account 31,706 16,316 See Notes to Consolidated Financial Statements. 5 Table of Contents Rayonier Advanced Materials Inc. Notes to Consolidated Financial Statements (Unaudited) (in thousands unless otherwise stated) 1. Basis of Presentation The unaudited consolidated financial statements and notes thereto of the Company have been prepared in accordance with GAAP for interim financial information and in accordance with the rules and regulations of the SEC. In the opinion of management, these consolidated financial statements and notes reflect all adjustments, including all normal recurring adjustments, necessary for a fair presentation of the results of operations, financial position and cash flows for the periods presented. 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, 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. See Note 2—Discontinued Operations for further information on the sale. Recent Accounting Developments There have been no new or recently adopted accounting pronouncements impacting the Company’s consolidated interim financial statements. Subsequent Events The Company recently began plans towards a realignment of its High Purity Cellulose assets to optimize production mix, including a consolidation of its commodity products production into the Temiscaming plant. The Company is currently evaluating the potential impact of this realignment on its consolidated financial statements and disclosures. 2. Discontinued Operations In August 2021, the Company completed the sale of its lumber and newsprint facilities and certain related assets located in Canada to GreenFirst for $ 232 million, which included 28.7 million shares of GreenFirst common stock with a deemed fair value of $ 42 million. In the second quarter of 2022, the Company sold the GreenFirst common shares for $ 43 million. Prior to the sale of shares, the GreenFirst common shares were accounted for at fair value, with changes in fair value recorded in the consolidated statements of operations. 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. 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 between the USDOC and Canada. During the third quarter of 2023, the USDOC completed its fourth administrative review of duties applied to Canada softwood lumber exports to the U.S. during 2021 and reduced rates applicable to the Company to a combined 8.05 percent. In connection with this development, the Company recorded a pre-tax gain of $ 2 million in “income from discontinued operations, net of taxes” and increased the long-term receivable related to USDOC administrative reviews to $ 40 million. During the third quarter of 2022, the USDOC completed its third administrative review of duties applied to Canada softwood lumber exports during 2020 and reduced applicable rates to a combined 8.6 percent, for which the Company recorded a pre-tax gain of $ 16 million. During the nine months ended September 30, 2023, the Company incurred a $ 2 million loss related to the settlement of a claim pursuant to the representations and warranties in the asset purchase agreement. 6 Table of Contents Rayonier Advanced Materials Inc. Notes to Consolidated Financial Statements (Unaudited) (in thousands unless otherwise stated) Income from discontinued operations was comprised of the following: Three Months Ended Nine Months Ended September 30, 2023 September 24, 2022 September 30, 2023 September 24, 2022 Cost of sales $ — $ — $ — $ 155 Gross margin — — — 155 Selling, general and administrative expense and other operating income, net 1,957 15,313 424 16,808 Operating income 1,957 15,313 424 16,963 Non-operating expense — ( 4 ) — ( 13 ) Income from discontinued operations before income taxes 1,957 15,309 424 16,950 Income tax expense ( 517 ) ( 4,057 ) ( 112 ) ( 4,492 ) Income from discontinued operations, net of taxes $ 1,440 $ 11,252 $ 312 $ 12,458 3. Accounts Receivable, Net Accounts receivable, net included the following: September 30, 2023 December 31, 2022 Accounts receivable, trade $ 141,998 $ 171,144 Accounts receivable, other (a) 34,501 41,446 Allowance for credit loss ( 685 ) ( 1,064 ) Accounts receivable, net $ 175,814 $ 211,526 (a) Consists primarily of value-added/consumption taxes, grants receivable and accrued billings due from government agencies. 4. Inventory Inventory included the following: September 30, 2023 December 31, 2022 Finished goods $ 182,209 $ 198,931 Work-in-progress 5,816 5,230 Raw materials 47,421 52,967 Manufacturing and maintenance supplies 7,245 8,206 Inventory $ 242,691 $ 265,334 5. Leases The Company’s operating and finance leases are primarily for corporate offices, warehouse space, rail cars and equipment. As of September 30, 2023, the Company’s leases have remaining lease terms of less than one year to 13.1 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. The Company’s lease agreements do not contain any material residual value guarantees or restrictive covenants. The Company uses its incremental borrowing rate in determining the present value of lease payments unless the lease provides an implicit or explicit interest rate. 7 Table of Contents Rayonier Advanced Materials Inc. Notes to Consolidated Financial Statements (Unaudited) (in thousands unless otherwise stated) Financial and other information related to the Company’s operating and finance leases follow: Three Months Ended Nine Months Ended September 30, 2023 September 24, 2022 September 30, 2023 September 24, 2022 Operating lease cost $ 1,858 $ 1,973 $ 5,464 $ 5,821 Finance lease cost Amortization of ROU assets 102 95 301 281 Interest 26 34 85 106 Total lease cost $ 1,986 $ 2,102 $ 5,850 $ 6,208 Balance Sheet Classification September 30, 2023 December 31, 2022 Operating leases ROU assets Other assets $ 17,600 $ 15,623 Lease liabilities, current Accrued and other current liabilities 4,235 4,741 Lease liabilities, non-current Other liabilities 14,220 11,399 Finance leases ROU assets Property, plant and equipment, net 1,171 1,448 Lease liabilities Long-term debt 1,459 1,760 Nine Months Ended September 30, 2023 September 24, 2022 Operating cash flows - cash paid for amounts included in the measurement of operating lease liabilities $ 5,182 $ 1,770 Operating lease ROU assets obtained in exchange for lease liabilities 5,650 2,975 Finance lease cash flows were immaterial during each of the three and nine months ended September 30, 2023 and September 24, 2022. September 30, 2023 December 31, 2022 Operating leases Weighted average remaining lease term (in years) 5.7 5.8 Weighted average discount rate 8.4 % 8.9 % Finance leases Weighted average remaining lease term (in years) 3.1 3.8 Weighted average discount rate 7.0 % 7.0 % 8 Table of Contents Rayonier Advanced Materials Inc. Notes to Consolidated Financial Statements (Unaudited) (in thousands unless otherwise stated) 6. Accrued and Other Current Liabilities Accrued and other current liabilities included the following: September 30, 2023 December 31, 2022 Accrued customer incentives $ 22,815 $ 28,702 Accrued payroll and benefits 14,974 13,763 Accrued interest 14,012 18,877 Accrued income taxes 2,854 9,321 Accrued property and other taxes 8,111 3,065 Deferred revenue (a) 20,459 21,645 Other current liabilities (b) 50,491 68,996 Accrued and other current liabilities $ 133,716 $ 164,369 (a) Included at both September 30, 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 September 30, 2023 and December 31, 2022 was $ 17 million and $ 30 million, respectively, of energy-related payables associated with Tartas facility operations. 7. Debt and Finance Leases Debt and finance leases included the following: September 30, 2023 December 31, 2022 ABL Credit Facility due 2025: $ 112 million available, bearing interest of 7.42 % ( 5.42 % adjusted SOFR plus 2.00 % margin) at September 30, 2023 $ — $ — Term Loan due 2027: bearing interest of 13.33 % ( 5.33 % three-month Term SOFR plus 8.00 % margin) at September 30, 2023 250,000 — 7.625 % Senior Secured Notes due 2026 464,640 475,000 5.50 % Senior Unsecured Notes due 2024 — 322,675 5.50 % CAD-based term loan due 2028 31,776 36,585 Other loans (a) 20,507 19,598 Short-term factoring facility-France 1,292 3,773 Finance lease obligations 1,459 1,760 Total principal payments due 769,674 859,391 Less: unamortized debt premium, discount and issuance costs ( 20,600 ) ( 6,266 ) Total debt 749,074 853,125 Less: debt due within one year ( 18,621 ) ( 14,617 ) Long-term debt $ 730,453 $ 838,508 (a) Consist of loans for energy and bioethanol projects in France. Term Loan In July 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. In addition, the Company incurred issuance costs of $ 10 million, which, together with the original issue discount, were recorded in “long-term debt” in the consolidated balance sheets and will be amortized to “interest expense” in the consolidated statements of operations over the term of the loan. The net proceeds, together with cash on hand, were used to redeem the 2024 Notes and pay transaction costs. The 2027 Term Loan matures in July 2027, bears interest at an annual rate equal to three-month Term SOFR (or, if greater, 3.00 percent) plus 8.00 percent and requires quarterly principal payments of $ 1.25 million. 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. 9 Table of Contents Rayonier Advanced Materials Inc. Notes to Consolidated Financial Statements (Unaudited) (in thousands unless otherwise stated) 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 stated exceptions, including: incurring debt or liens, making investments, entering into mergers, consolidations, and acquisitions, paying dividends and making other restricted payments. The Company will be required to maintain a consolidated secured net leverage ratio, based on covenant EBITDA, of no greater than 4.50 to 1.00. 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. Senior Notes 2026 Notes 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. 2024 Notes In August 2023, the Company redeemed the $ 318 million principal balance and accrued interest of $ 4 million of the 2024 Notes. A loss on extinguishment of $ 1 million related to the redemption was recorded to “other income, net” in the consolidated statements of operations. Prior to the full redemption of its 2024 Notes, in March 2023, the Company repurchased $ 5 million of the 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. As of September 30, 2023, the Company’s debt principal payments, excluding finance lease obligations, were due as follows: Remainder of 2023 $ 5,597 2024 16,345 2025 16,392 2026 480,320 2027 243,071 Thereafter 6,490 Total debt principal payments $ 768,215 8. Environmental Liabilities The Company’s environmental liabilities balance changed as follows during the nine months ended September 30, 2023: Balance at December 31, 2022 $ 170,681 Increase in liabilities 2,462 Payments ( 3,634 ) Foreign currency adjustments 85 Balance at September 30, 2023 169,594 Less: current portion ( 10,740 ) Non-current environmental liabilities $ 158,854 10 Table of Contents Rayonier Advanced Materials Inc. Notes to Consolidated Financial Statements (Unaudited) (in thousands unless otherwise stated) In addition to these estimated liabilities, the Company is subject to the risk of reasonably possible additional liabilities in excess of the established reserves due to potential changes in circumstances and future events, including, without limitation, changes to current laws and regulations; changes in governmental agency personnel, direction, philosophy or enforcement policies; developments in remediation technologies; 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; the outcome of negotiations with governmental agencies or non-governmental parties; and changes in accounting rules or interpretations. Based on information available as of September 30, 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. This estimate excludes liabilities that would otherwise be considered reasonably possible but for the fact that they are not currently estimable, primarily due to the factors discussed above. Subject to the previous paragraph, the Company believes its estimates of liabilities are sufficient for probable costs expected to be incurred over the next 20 years with respect to its environmental liabilities. However, no assurances are given that these estimates will be sufficient for the reasons described above and additional liabilities could have a material adverse effect on the Company’s financial position, results of operations and cash flows. 9. Fair Value Measurements 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: September 30, 2023 December 31, 2022 Carrying Amount Fair Value Carrying Amount Fair Value Level 1 Level 2 Level 1 Level 2 Assets Cash and cash equivalents Cash $ 17,484 $ 17,484 $ — $ 127,288 $ 127,288 $ — Money market and similar funds 9,643 9,643 — 24,515 24,515 — Liabilities Fixed-rate long-term debt (a) $ 513,004 $ — $ 439,787 $ 847,591 $ — $ 838,502 (a) Excludes finance lease obligations. The Company uses the following methods and assumptions in estimating the fair value of its financial instruments: Cash and cash equivalents — Cash and cash equivalents are highly liquid investments purchased with an original or remaining maturity of three months or less at the date of purchase and the carrying amount is equal to fair market value. The Company measures its investments in money market and similar funds using level 1 inputs. Debt — The fair value of fixed rate debt is based upon quoted market prices for debt with similar terms and maturities. Variable rate debt adjusts with changes in the market rate and so carrying value approximates fair value. 11 Table of Contents Rayonier Advanced Materials Inc. Notes to Consolidated Financial Statements (Unaudited) (in thousands unless otherwise stated) 10. Accumulated Other Comprehensive Loss Nine Months Ended September 30, 2023 September 24, 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) Amortization of (gain) loss ( 531 ) 7,466 Amortization of prior service cost 259 24 Income tax on reclassifications 70 ( 1,646 ) Net comprehensive gain (loss) on employee benefit plans, net of tax ( 2,432 ) 5,844 Balance, end of period ( 46,126 ) ( 71,005 ) Unrealized gain (loss) on derivative instruments, net of tax Balance, beginning of period ( 567 ) ( 847 ) Reclassifications to earnings - foreign currency exchange contracts (b) 173 258 Income tax on reclassifications ( 23 ) ( 34 ) Net comprehensive gain on derivative instruments, net of tax 150 224 Balance, end of period ( 417 ) ( 623 ) Foreign currency translation Balance, beginning of period ( 19,537 ) ( 6,774 ) Foreign currency translation adjustment, net of tax (c) ( 1,109 ) ( 30,561 ) Balance, end of period ( 20,646 ) ( 37,335 ) Accumulated other comprehensive loss, end of period $ ( 67,189 ) $ ( 108,963 ) (a) The AOCI components for defined benefit pension and post-retirement plans are included in the computation of net periodic benefit cost. 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, 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. 11. Stockholders’ Equity Stockholder Rights Plan In March 2022, the Company adopted a stockholder rights plan whereby a significant penalty is imposed upon any person or group which acquires beneficial ownership of 10 % or more of the Company’s common stock without the approval of the Board of Directors. On the same date, the Board of Directors declared a dividend of one preferred share Purchase Right for each outstanding share of common stock of the Company, par value $ 0.01 per share, which was paid to Company stockholders of record as of March 31, 2022. On March 20, 2023, the Purchase Rights expired. 12 Table of Contents Rayonier Advanced Materials Inc. Notes to Consolidated Financial Statements (Unaudited) (in thousands unless otherwise stated) 12. Earnings Per Common Share 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 Nine Months Ended September 30, 2023 September 24, 2022 September 30, 2023 September 24, 2022 Income (loss) from continuing operations $ ( 26,540 ) $ 18,355 $ ( 40,555 ) $ ( 30,969 ) Income from discontinued operations 1,440 11,252 312 12,458 Net income (loss) available for common stockholders $ ( 25,100 ) $ 29,607 $ ( 40,243 ) $ ( 18,511 ) Shares used for determining basic earnings per share of common stock 65,343,418 63,971,166 65,024,654 63,882,920 Dilutive effect of: Performance and restricted stock — 1,548,941 — — Shares used for determining diluted earnings per share of common stock 65,343,418 65,520,107 65,024,654 63,882,920 Anti-dilutive instruments excluded from the computation of diluted earnings per share included (not in thousands): Three Months Ended Nine Months Ended September 30, 2023 September 24, 2022 September 30, 2023 September 24, 2022 Stock options 46,798 78,660 46,798 78,660 Performance and restricted stock 3,302,332 1,517,135 3,302,332 3,726,090 Total anti-dilutive instruments 3,349,130 1,595,795 3,349,130 3,804,750 13. Incentive Stock Plans Stock-based compensation expense was as follows: Three Months Ended Nine Months Ended September 30, 2023 September 24, 2022 September 30, 2023 September 24, 2022 Stock-based compensation expense $ 1,990 $ 1,959 $ 5,361 $ 8,687 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 . The 2023 performance-based awards cliff vest after three years and are based equally on TSR relative to peers and three-year cumulative adjusted EBITDA. Participants can earn between 0 and 200 percent of the target award. Performance below the threshold for the TSR would result in zero payout for the TSR metric. 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. 13 Table of Contents 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: Stock Options Restricted Stock Units Performance-Based Stock Units Options Weighted Average Exercise Price Awards Weighted Average Grant Date Fair Value Awards Weighted Average Grant Date Fair Value Outstanding at December 31, 2022 77,767 $ 39.98 1,697,587 $ 6.21 1,956,919 $ 6.79 Granted — — 972,307 5.32 305,764 9.09 Forfeited — — ( 28,363 ) 5.95 ( 5,433 ) 4.73 Exercised or settled — — ( 709,800 ) 5.49 ( 886,649 ) 5.95 Expired or cancelled ( 30,969 ) 43.32 — — — — Outstanding at September 30, 2023 46,798 $ 37.77 1,931,731 $ 6.03 1,370,601 $ 7.83 14. Employee Benefit Plans Defined Benefit Plans The Company has defined benefit pension and other long-term and postretirement benefit plans covering certain union and non-union employees, primarily in the U.S. and Canada. The defined benefit pension plans are closed to new participants. The liabilities for these plans are calculated using actuarial estimates and management assumptions. These estimates are based on historical information and certain assumptions about future events. During the nine months ended September 24, 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 nine months ended September 30, 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 tables present the components of net periodic benefit costs of these plans: Pension Postretirement Three Months Ended Three Months Ended September 30, 2023 September 24, 2022 September 30, 2023 September 24, 2022 Service cost $ 1,223 $ 2,150 $ 293 $ 352 Interest cost 7,204 4,561 352 215 Expected return on plan assets ( 7,967 ) ( 8,258 ) — — Amortization of prior service cost (credit) 111 38 ( 24 ) ( 31 ) Amortization of (gain) loss ( 123 ) 2,473 ( 54 ) 17 Pension settlement loss — ( 25 ) — — Net periodic benefit cost $ 448 $ 939 $ 567 $ 553 Pension Postretirement Nine Months Ended Nine Months Ended September 30, 2023 September 24, 2022 September 30, 2023 September 24, 2022 Service cost $ 3,664 $ 6,497 $ 879 $ 1,057 Interest cost 21,586 13,764 1,057 646 Expected return on plan assets ( 23,854 ) ( 24,965 ) — — Amortization of prior service cost (credit) 332 116 ( 73 ) ( 92 ) Amortization of (gain) loss ( 369 ) 7,419 ( 162 ) 47 Pension settlement loss 2,317 1,154 — — Net periodic benefit cost $ 3,676 $ 3,985 $ 1,701 $ 1,658 14 Table of Contents 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 (credit) and amortization of (gain) loss are included in “other components of pension and OPEB, excluding service costs” in the consolidated statements of operations. 15. Income Taxes Effective Tax Rate The Company’s effective tax rates were as follows: Three Months Ended Nine Months Ended September 30, 2023 September 24, 2022 September 30, 2023 September 24, 2022 Income (loss) from continuing operations $ ( 26,540 ) $ 18,355 $ ( 40,555 ) $ ( 30,969 ) Effective tax rate 17.0 % ( 10.6 ) % 22.4 % ( 12.6 ) % 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, changes in the valuation allowance on disallowed interest deductions and interest received on overpayments of tax from prior years . The effective tax rate for the nine-month period was also impa cted by an excess tax benefit on vested stock compensation. The effective tax rate for the three months ended September 24, 2022 differed from the federal statutory rate of 21 percent primarily due to changes in the valuation allowance on disallowed interest deductions in the U.S. and interest received on overpayments of tax from prior years, partially offset by unfavorable tax return-to-accrual adjustments. The effective tax rate for the nine months ended September 24, 2022 differed from the federal statutory rate primarily due to changes in the valuation allowance on disallowed interest deductions in the U.S. and nondeductible executive compensation, partially offset by interest received on overpayments of tax from prior years, U.S. tax credits and favorable tax return-to-accrual adjustments. Deferred Taxes As of both September 30, 2023 and December 31, 2022, the Company’s net DTA included $ 17 million of disallowed U.S. interest deductions that the Company does not believe will be realized. 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. 16. Segments The Company operates in the following business segments: High Purity Cellulose, Paperboard and High-Yield Pulp. Corporate consists primarily of senior management, accounting, information systems, human resources, treasury, tax and legal administrative functions that provide support services to the operating business units. The Company allocates a portion of the cost of maintaining these support functions to its operating units. The Company evaluates the performance of its segments based on operating income (loss). Intersegment sales consist primarily of High-Yield Pulp sales to Paperboard. Intersegment sales prices are at rates that approximate market for the respective operating area. 15 Table of Contents 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 Nine Months Ended September 30, 2023 September 24, 2022 September 30, 2023 September 24, 2022 High Purity Cellulose Cellulose Specialties $ 164,654 $ 243,175 $ 570,584 $ 645,169 Commodity Products 98,834 92,638 321,548 223,151 Other sales (a) 28,528 33,080 73,447 84,059 Total High Purity Cellulose 292,016 368,893 965,579 952,379 Paperboard 57,212 65,039 164,300 182,512 High-Yield Pulp 25,393 39,564 111,397 101,992 Eliminations ( 5,951 ) ( 7,150 ) ( 20,432 ) ( 19,601 ) Net sales $ 368,670 $ 466,346 $ 1,220,844 $ 1,217,282 (a) Include sales of bioelectricity, lignosulfonates and other by-products to third parties. Operating income (loss) by segment was comprised of the following: Three Months Ended Nine Months Ended September 30, 2023 September 24, 2022 September 30, 2023 September 24, 2022 High Purity Cellulose $ ( 5,547 ) $ 22,536 $ 6,965 $ 21,221 Paperboard 13,088 11,293 28,680 27,579 High-Yield Pulp ( 6,062 ) 5,646 2,030 3,910 Corporate ( 15,919 ) ( 10,946 ) ( 41,977 ) ( 42,871 ) Operating income (loss) $ ( 14,440 ) $ 28,529 $ ( 4,302 ) $ 9,839 Identifiable assets by segment were as follows: September 30, 2023 December 31, 2022 High Purity Cellulose $ 1,544,041 $ 1,654,214 Paperboard 115,851 112,757 High-Yield Pulp 36,276 50,947 Corporate 479,498 529,610 Total assets $ 2,175,666 $ 2,347,528 17. Commitments and Contingencies Commitments 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 nine months ended September 30, 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 and finance leases. See Note 5—Leases for further information. 16 Table of Contents Rayonier Advanced Materials Inc. Notes to Consolidated Financial Statements (Unaudited) (in thousands unless otherwise stated) Litigation and Contingencies Duties on Canadian Softwood Lumber Sold to the U.S. The Company previously operated six softwood lumber mills in Ontario and Quebec, Canada, and exported softwood lumber into the U.S. from Canada . 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 sale. As of September 30, 2023 , the Company had a $ 40 million long-term receivable associated with the USDOC’s determinations of the revised rates for the 2017, 2018, 2019, 2020 and 2021 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. Cash is not expected to return to the Company until final resolution of the softwood lumber dispute, which remains subject to legal challenges. Other 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. While the Company has procured reasonable and customary insurance covering risks normally occurring in connection with its businesses, the Company has, in certain cases, retained some risk through the operation of self-insurance, primarily in the areas of workers’ compensation, property insurance, business interruption and general liability. These other lawsuits and claims, either individually or in the aggregate, are not expected to have a material adverse effect on the Company’s financial position, results of operations or cash flows. Guarantees and Other The Company provides financial guarantees as required by creditors, insurance programs and various governmental agencies. As of September 30, 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; the Company would only be liable upon its default on the related payment obligations. The standby letters of credit have various expiration dates and are expected to be renewed as required. The Company had surety bonds of $ 90 million as of September 30, 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. LTF is a venture in which the Company owns 45 percent and its partner, Borregaard ASA, owns 55 percent. 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’s proportion of the LTF financing agreement guarantee was $ 29 million at September 30, 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 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. As of September 30, 2023, all of the Company’s collective bargaining agreements covering its unionized employees were current. 17 Table of Contents