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 March 30, 2024 April 1, 2023 Net sales $ 387,656 $ 466,761 Cost of sales ( 350,895 ) ( 429,321 ) Gross margin 36,761 37,440 Selling, general and administrative expense ( 21,075 ) ( 19,495 ) Foreign exchange gain (loss) 2,911 ( 673 ) Other operating expense, net ( 1,522 ) ( 678 ) Operating income 17,075 16,594 Interest expense ( 20,855 ) ( 15,496 ) Components of pension and OPEB, excluding service costs (Note 12) 920 ( 1,734 ) Other income, net 1,270 306 Loss before income taxes ( 1,590 ) ( 330 ) Income tax benefit (Note 13) 472 2,586 Equity in loss of equity method investment ( 452 ) ( 649 ) Net income (loss) $ ( 1,570 ) $ 1,607 Basic and Diluted earnings per common share (Note 10) Net income (loss) per common share $ ( 0.02 ) $ 0.02 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 March 30, 2024 April 1, 2023 Net income (loss) $ ( 1,570 ) $ 1,607 Other comprehensive income (loss), net of tax (Note 9) Foreign currency translation adjustment ( 4,481 ) 4,212 Unrealized gain on derivative instruments 41 55 Net loss on employee benefit plans ( 14 ) ( 127 ) Total other comprehensive income (loss) ( 4,454 ) 4,140 Comprehensive income (loss) $ ( 6,024 ) $ 5,747 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) March 30, 2024 December 31, 2023 Assets Current assets Cash and cash equivalents $ 54,608 $ 75,768 Accounts receivable, net (Note 2) 183,049 197,457 Inventory (Note 3) 228,050 207,474 Income tax receivable 18,698 19,455 Prepaid and other current assets 61,152 74,904 Total current assets 545,557 575,058 Property, plant and equipment (net of accumulated depreciation of $ 1,824,097 and $ 1,797,529 , respectively) 1,057,893 1,075,105 Deferred tax assets 344,631 345,181 Intangible assets, net 15,661 17,414 Other assets 171,304 169,942 Total assets $ 2,135,046 $ 2,182,700 Liabilities and Stockholders’ Equity Current liabilities Accounts payable $ 157,697 $ 186,226 Accrued and other current liabilities (Note 5) 141,908 154,488 Debt due within one year (Note 6) 23,056 25,283 Current environmental liabilities (Note 7) 9,829 9,833 Total current liabilities 332,490 375,830 Long-term debt (Note 6) 755,626 752,174 Non-current environmental liabilities (Note 7) 160,211 160,458 Pension and other postretirement benefits (Note 12) 99,207 101,493 Deferred tax liabilities 14,367 15,190 Other liabilities 31,395 31,108 Commitments and contingencies (Note 15) Stockholders’ Equity Common stock: 140,000,000 shares authorized at $ 0.01 par value, 65,554,837 and 65,393,014 issued and outstanding, respectively 655 654 Additional paid-in capital 420,448 419,122 Retained earnings 371,018 372,588 Accumulated other comprehensive loss (Note 9) ( 50,371 ) ( 45,917 ) Total stockholders’ equity 741,750 746,447 Total liabilities and stockholders’ equity $ 2,135,046 $ 2,182,700 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 March 30, 2024 Balance at December 31, 2023 65,393,014 $ 654 $ 419,122 $ 372,588 $ ( 45,917 ) $ 746,447 Net loss — — — ( 1,570 ) — ( 1,570 ) Other comprehensive loss, net of tax — — — — ( 4,454 ) ( 4,454 ) Issuance of common stock under incentive stock plans 243,533 2 ( 2 ) — — — Stock-based compensation — — 1,780 — — 1,780 Repurchase of common stock (a) ( 81,710 ) ( 1 ) ( 452 ) — — ( 453 ) Balance at March 30, 2024 65,554,837 $ 655 $ 420,448 $ 371,018 $ ( 50,371 ) $ 741,750 Three months ended April 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 Other comprehensive income, net of tax — — — — 4,140 4,140 Issuance of common stock under incentive stock plans 1,700,494 17 ( 17 ) — — — Stock-based compensation — — 1,478 — — 1,478 Repurchase of common stock (a) ( 614,907 ) ( 6 ) ( 5,103 ) — — ( 5,109 ) Balance at April 1, 2023 65,106,348 $ 651 $ 414,406 $ 476,030 $ ( 59,658 ) $ 831,429 (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) Three Months Ended March 30, 2024 April 1, 2023 Operating activities Net income (loss) $ ( 1,570 ) $ 1,607 Adjustments to reconcile net income (loss) to cash provided by operating activities: Depreciation and amortization 33,283 35,257 Stock-based compensation expense 1,780 1,478 Net periodic benefit cost of pension and other postretirement plans 755 921 Unrealized (gain) loss on foreign currency ( 1,899 ) 267 Other 3,062 2,152 Changes in operating assets and liabilities: Accounts receivable 12,792 9,242 Inventories ( 21,231 ) 28,600 Accounts payable ( 14,320 ) ( 6,971 ) Accrued liabilities ( 12,476 ) ( 26,406 ) Other 13,353 9,929 Contributions to pension and other postretirement plans ( 2,264 ) ( 4,687 ) Cash provided by operating activities 11,265 51,389 Investing activities Capital expenditures, net of proceeds ( 32,561 ) ( 21,180 ) Investment in equity method investment — ( 168 ) Cash used in investing activities ( 32,561 ) ( 21,348 ) Financing activities Borrowings of long-term debt 132,825 536 Repayments of long-term debt ( 127,861 ) ( 8,369 ) Short-term financing, net ( 1,709 ) ( 647 ) Debt issuance costs ( 1,875 ) — Repurchase of common stock ( 453 ) ( 5,109 ) Cash provided by (used in) financing activities 927 ( 13,589 ) Net increase (decrease) in cash and cash equivalents ( 20,369 ) 16,452 Net effect of foreign exchange on cash and cash equivalents ( 791 ) 1,147 Balance, beginning of period 75,768 151,803 Balance, end of period $ 54,608 $ 169,402 Supplemental cash flow information: Interest paid $ ( 34,036 ) $ ( 18,841 ) Income taxes refunded (paid), net 1,587 ( 3,029 ) Capital assets purchased on account 23,495 30,041 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 RYAM is a global leader of specialty cellulose materials with a broad offering of high purity cellulose specialties, a natural polymer used in the production of a variety of specialty chemical products, including liquid crystal displays, filters, textiles and performance additives for pharmaceutical, food and other industrial applications. The Company’s specialized assets are also used to produce biofuels, bioelectricity and other biomaterials such as bioethanol and tall oils. The Company also produces a unique, lightweight multi-ply paperboard product, which is used for production in the commercial printing, lottery ticket and high-end packaging sectors, and a bulky, high-yield pulp product that is used by paperboard producers, as well as in traditional printing, writing and specialty paper manufacturing. 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 2023 Form 10-K. Recent Accounting Developments Change in Accounting Policy On January 1, 2024, the Company changed the method of valuation of its finished goods, work-in-process and raw materials inventories from first-in first-out to average cost. The Company believes the average cost method is preferable because it provides better matching of revenue and expense trends and is a better reflection of periodic income from operations. This change was not retrospectively applied to prior periods presented, as the overall effect of the change is not deemed material to the Company’s consolidated financial statements. Accounting Pronouncements There have been no new or recently adopted accounting pronouncements impacting the Company’s consolidated interim financial statements. The Company continues to evaluate the impacts of ASU 2023-05 “Business Combinations—Joint Venture Formations (Subtopic 805-60): Recognition and Initial Measurement,” ASU 2023-07 “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” and ASU 2023-09 “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” as previously disclosed in its 2023 Form 10-K. Subsequent Events Indefinite Suspension of Operations of Temiscaming High Purity Cellulose Plant On April 29, 2024, the Company announced that it will suspend operations at its Temiscaming High Purity Cellulose plant, effective July 2, 2024, for an indefinite period. The decision does not affect the Temiscaming paperboard and high-yield pulp plants that support the Company’s High-Yield Pulp and Paperboard operating segments, which will continue to operate at full capacity while remaining part of an ongoing, previously announced, sales process. The effective date was determined as the latest possible date allowing enough lead time for the Company to properly execute the shutdown prior to the arrival of winter in the region. The High Purity Cellulose plant will be idled in a safe and environmentally sound manner. The Company will assess on an annual basis the possibility of restarting the Temiscaming High Purity Cellulose plant. The indefinite suspension of operations will result in approximately 275 layoffs. In connection with the suspension of operations, the Company expects to incur one-time operating charges in 2024 of approximately $ 30 million, including mothball, severance and other employee costs. Further, the Company also expects to incur non-cash charges in 2024 related to impairments, the amounts of which will be assessed. While most 2024 cash costs associated with the suspension of operations will be incurred and paid in the third and fourth quarters, severance and other restructuring costs are expected to be paid over a period of time. From 2021 through 2023, average maintenance capital expenditures for the Temiscaming High Purity Cellulose plant was $ 15 million. In 2023, the High Purity Cellulose plant incurred an operating loss of $ 60 million, including a non-cash asset impairment of $ 25 million. Working capital for the High Purity Cellulose plant was $ 31 million at the end of 2023. 6 Table of Contents Rayonier Advanced Materials Inc. Notes to Consolidated Financial Statements (Unaudited) (in thousands unless otherwise stated) Sale of Softwood Lumber Duty Rights In August 2021, the Company completed the sale of its lumber and newsprint facilities. As part of the sale, the Company retained all refund rights, including interest, to softwood lumber duties paid by the Company from 2017 through 2021, and has accumulated a $ 40 million receivable as a result of USDOC administrative reviews. On May 6, 2024, the Company announced the sale of these rights, including all accrued interest, for $ 39 million, with the opportunity for additional sale proceeds in the future contingent upon the timing and terms of the ultimate outcome of the trade dispute between the USDOC and Canada. 2. Accounts Receivable, Net Accounts receivable, net included the following: March 30, 2024 December 31, 2023 Accounts receivable, trade $ 152,938 $ 166,137 Accounts receivable, other (a) 30,847 31,973 Allowance for credit loss ( 736 ) ( 653 ) Accounts receivable, net $ 183,049 $ 197,457 (a) Consists primarily of value-added/consumption taxes, grants receivable and accrued billings due from government agencies. 3. Inventory Inventory included the following: March 30, 2024 December 31, 2023 Finished goods $ 170,222 $ 147,930 Work-in-progress 5,157 6,987 Raw materials 47,014 46,120 Manufacturing and maintenance supplies 5,657 6,437 Inventory $ 228,050 $ 207,474 4. Leases The Company’s operating and finance leases are primarily for corporate offices, warehouse space, rail cars and equipment. As of March 30, 2024, the Company’s leases have remaining lease terms of less than one year to 12.6 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. Financial and other information related to the Company’s operating and finance leases follow: Three Months Ended March 30, 2024 April 1, 2023 Operating lease cost $ 1,710 $ 1,694 Finance lease cost Amortization of ROU assets 106 99 Interest 23 30 Total lease cost $ 1,839 $ 1,823 7 Table of Contents Rayonier Advanced Materials Inc. Notes to Consolidated Financial Statements (Unaudited) (in thousands unless otherwise stated) Balance Sheet Location March 30, 2024 December 31, 2023 Operating leases ROU assets Other assets $ 17,271 $ 17,475 Lease liabilities, current Accrued and other current liabilities 4,793 4,499 Lease liabilities, non-current Other liabilities 14,161 14,666 Finance leases ROU assets Property, plant and equipment, net 986 1,078 Lease liabilities Long-term debt 1,250 1,355 Three Months Ended March 30, 2024 April 1, 2023 Operating cash flows - cash paid for amounts included in the measurement of operating lease liabilities $ 1,675 $ 1,581 Operating lease ROU assets obtained in exchange for lease liabilities 1,194 ( 80 ) Finance lease cash flows were immaterial during each of the three months ended March 30, 2024 and April 1, 2023. March 30, 2024 December 31, 2023 Operating leases Weighted average remaining lease term (in years) 5.3 5.5 Weighted average discount rate 8.3 % 8.3 % Finance leases Weighted average remaining lease term (in years) 2.6 2.8 Weighted average discount rate 7.0 % 7.0 % Operating lease maturities as of March 30, 2024 were as follows: Remainder of 2024 $ 4,619 2025 5,509 2026 4,397 2027 3,305 2028 2,064 Thereafter 4,094 Total minimum lease payments 23,988 Less: imputed interest ( 5,034 ) Present value of future minimum lease payments $ 18,954 8 Table of Contents Rayonier Advanced Materials Inc. Notes to Consolidated Financial Statements (Unaudited) (in thousands unless otherwise stated) 5. Accrued and Other Current Liabilities Accrued and other current liabilities included the following: March 30, 2024 December 31, 2023 Accrued customer incentives $ 33,792 $ 30,036 Accrued payroll and benefits 16,778 13,552 Accrued interest 16,491 32,256 Accrued income taxes 4,595 4,605 Accrued property and other taxes 4,596 2,547 Deferred revenue (a) 23,781 24,061 Other current liabilities (b) 41,875 47,431 Accrued and other current liabilities $ 141,908 $ 154,488 (a) Included at March 30, 2024 and December 31, 2023 was CAD $ 25 million (USD $ 18 million and $ 19 million, respectively) 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 March 30, 2024 and December 31, 2023 were $ 14 million and $ 13 million, respectively, of energy-related payables associated with Tartas facility operations. 6. Debt and Finance Leases Debt and finance leases included the following: March 30, 2024 December 31, 2023 ABL Credit Facility due December 2025: $ 131 million net availability, bearing interest of 7.42 % ( 5.42 % adjusted SOFR plus 2.00 % margin) at March 30, 2024 $ — $ — Term Loan due July 2027: bearing interest of 13.30 % ( 5.30 % three-month Term SOFR plus 8.00 % margin) at March 30, 2024 248,750 250,000 7.625 % Senior Secured Notes due January 2026 464,640 464,640 5.50 % CAD-based term loan due April 2028 28,074 30,479 Other loans (a) 51,783 44,754 Short-term factoring facility 3,493 5,292 Finance lease obligations 1,250 1,355 Total principal payments due 797,990 796,520 Less: unamortized premium, discount and issuance costs ( 19,308 ) ( 19,063 ) Total debt 778,682 777,457 Less: debt due within one year ( 23,056 ) ( 25,283 ) Long-term debt $ 755,626 $ 752,174 (a) Consist of loans for energy projects and other loans intended for use in biomaterials projects in France. Term Loan In January 2024, the Company amended the 2027 Term Loan to increase the maximum consolidated secured net leverage ratio that it must maintain in the fourth quarter of 2023 and through its 2024 fiscal year (see below). In addition, should the Company exceed the 4.50 to 1.00 maximum ratio established by the original agreement in any of these quarters, it will incur a fee of 0.25 % of the principal balance outstanding at the end of the applicable quarter. The Company incurred total fees of $ 3 million related to this amendment, including $ 1 million in legal and advisory fees recorded to “selling, general and administrative expense” in the consolidated statements of operations in the fourth quarter of 2023, and $ 2 million in lender fees recorded as deferred financing costs in the first quarter of 2024 that will be amortized to “interest expense” over the remaining term of the loan. 9 Table of Contents Rayonier Advanced Materials Inc. Notes to Consolidated Financial Statements (Unaudited) (in thousands unless otherwise stated) The Company is required to maintain various financial covenants, including a consolidated secured net leverage ratio, based on covenant EBITDA, as follows: • 5.25 to 1.00 for the fourth quarter of 2023 through the second quarter of 2024; • 5.00 to 1.00 for the third fiscal quarter of 2024; • 4.75 to 1.00 for the fourth fiscal quarter of 2024; and • 4.50 to 1.00 for each fiscal quarter thereafter. At March 30, 2024, the Company was in compliance with all covenants under its debt agreements. As of March 30, 2024, the Company’s debt principal payments, excluding finance lease obligations, were due as follows: Remainder of 2024 $ 18,713 2025 19,003 2026 483,691 2027 245,664 2028 9,967 Thereafter 19,702 Total debt principal payments $ 796,740 7. Environmental Liabilities The Company’s environmental liabilities balance changed as follows during the three months ended March 30, 2024: Balance at December 31, 2023 $ 170,291 Increase in liabilities 653 Payments ( 796 ) Foreign currency adjustments ( 108 ) Balance at March 30, 2024 170,040 Less: current portion ( 9,829 ) Non-current environmental liabilities $ 160,211 In addition to these estimated liabilities, the Company is subject to the risk of reasonably possible additional liabilities in excess of the established liabilities 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 March 30, 2024, 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 assurance is 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. 8. Fair Value Measurements The carrying amounts of the Company’s cash, receivables and payables approximate fair value due to the short-term nature of those instruments. The carrying amount of borrowings outstanding under the ABL Credit Facility, 2027 Term Loan and short-term factoring facility approximate fair value due to their variable interest rates. 10 Table of Contents Rayonier Advanced Materials Inc. Notes to Consolidated Financial Statements (Unaudited) (in thousands unless otherwise stated) The fair value of the Company’s fixed rate debt is estimated using quoted market prices for debt with similar terms and maturities, which are Level 2 inputs, and was as follows: March 30, 2024 December 31, 2023 Carrying amount of fixed rate debt (a) $ 541,455 $ 536,393 Fair value of fixed rate debt 501,587 497,563 (a) Excludes finance lease obligations. 9. Accumulated Other Comprehensive Loss Three Months Ended March 30, 2024 April 1, 2023 Unrecognized components of employee benefit plans, net of tax Balance, beginning of period $ ( 33,537 ) $ ( 43,694 ) Reclassifications to earnings (a) Amortization of gain ( 196 ) ( 176 ) Amortization of prior service cost 181 13 Income tax on reclassifications 1 36 Net comprehensive loss on employee benefit plans, net of tax ( 14 ) ( 127 ) Balance, end of period ( 33,551 ) ( 43,821 ) Unrealized loss on derivative instruments, net of tax Balance, beginning of period ( 373 ) ( 567 ) Reclassifications to earnings - foreign currency exchange contracts (b) 47 63 Income tax on reclassifications ( 6 ) ( 8 ) Net comprehensive gain on derivative instruments, net of tax 41 55 Balance, end of period ( 332 ) ( 512 ) Foreign currency translation Balance, beginning of period ( 12,007 ) ( 19,537 ) Foreign currency translation adjustment, net of tax (c) ( 4,481 ) 4,212 Balance, end of period ( 16,488 ) ( 15,325 ) Accumulated other comprehensive loss, end of period $ ( 50,371 ) $ ( 59,658 ) (a) The AOCI components for defined benefit pension and post-retirement plans are included in the computation of net periodic benefit cost. See Note 12—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 Table of Contents Rayonier Advanced Materials Inc. Notes to Consolidated Financial Statements (Unaudited) (in thousands unless otherwise stated) 10. 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 March 30, 2024 April 1, 2023 Net income (loss) available for common stockholders $ ( 1,570 ) $ 1,607 Shares used for determining basic earnings per share of common stock 65,447,454 64,504,200 Dilutive effect of: Stock options — 531 Performance and restricted stock — 2,091,922 Shares used for determining diluted earnings per share of common stock 65,447,454 66,596,653 Anti-dilutive instruments excluded from the computation of diluted earnings per share included (not in thousands): Three Months Ended March 30, 2024 April 1, 2023 Stock options — 162,171 Performance and restricted stock 3,635,379 96,769 Total anti-dilutive instruments 3,635,379 258,940 11. Incentive Stock Plans Stock-based compensation expense was as follows: Three Months Ended March 30, 2024 April 1, 2023 Stock-based compensation expense $ 1,780 $ 1,478 The Company made new grants of restricted stock units, performance-based stock units and performance-based cash awards during the first quarter of 2024. The 2024 restricted stock unit awards cliff vest after three years . The 2024 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 percent and 200 percent of the target award for each of the TSR and adjusted EBITDA metrics. Performance below threshold for each metric would result in zero payout. The performance-based cash award is paid in cash and is classified as a liability and remeasured to fair value at the end of each reporting period until settlement. In March 2024, the performance-based awards granted in 2021 vested without meeting the performance thresholds, resulting in no stock units or cash being awarded. The following table summarizes the 2024 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, 2023 46,798 $ 37.77 1,886,694 $ 6.01 1,370,601 $ 7.83 Granted — — 389,799 3.79 568,812 4.50 Forfeited — — ( 41,348 ) 5.17 ( 293,790 ) 11.41 Exercised or settled — — ( 245,389 ) 10.52 — — Expired or cancelled ( 46,798 ) 29.52 — — — — Outstanding at March 30, 2024 — $ — 1,989,756 $ 5.04 1,645,623 $ 6.12 12 Table of Contents Rayonier Advanced Materials Inc. Notes to Consolidated Financial Statements (Unaudited) (in thousands unless otherwise stated) 12. 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 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 wound-up Canadian pension plans. The settlement was recognized in “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 March 30, 2024 April 1, 2023 March 30, 2024 April 1, 2023 Service cost $ 1,537 $ 1,217 $ 138 $ 287 Interest cost 6,923 7,145 248 357 Expected return on plan assets ( 8,076 ) ( 7,922 ) — — Amortization of prior service cost (credit) 205 37 ( 24 ) ( 24 ) Amortization of gain ( 11 ) ( 122 ) ( 185 ) ( 54 ) Pension settlement loss — 2,317 — — Net periodic benefit cost $ 578 $ 2,672 $ 177 $ 566 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 are included in “components of pension and OPEB, excluding service costs” in the consolidated statements of operations. 13. Income Taxes Effective Tax Rate The Company’s effective tax rates were as follows: Three Months Ended March 30, 2024 April 1, 2023 Loss before income taxes $ ( 1,590 ) $ ( 330 ) Effective tax rate 29.7 % 783.6 % The effective tax rate for the three months ended March 30, 2024 differed from the federal statutory rate of 21 percent primarily due to the release of certain tax reserves, partially offset by return-to-accrual adjustments, excess deficit on vested stock compensation and changes in the valuation allowance on disallowed interest deductions. The effective tax rate for the three months ended April 1, 2023 was 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 federal 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. 13 Table of Contents Rayonier Advanced Materials Inc. Notes to Consolidated Financial Statements (Unaudited) (in thousands unless otherwise stated) Deferred Taxes As of March 30, 2024 and December 31, 2023, the Company’s net DTA included $ 14 million and $ 15 million, respectively, 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. 14. 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. Net sales, disaggregated by product line, was comprised of the following: Three Months Ended March 30, 2024 April 1, 2023 High Purity Cellulose Cellulose Specialties $ 194,423 $ 226,665 Commodity Products 90,001 124,040 Other sales (a) 22,384 23,489 Total High Purity Cellulose 306,808 374,194 Paperboard 52,960 58,994 High-Yield Pulp 34,326 41,860 Eliminations ( 6,438 ) ( 8,287 ) Net sales $ 387,656 $ 466,761 (a) Included sales of bioelectricity, lignosulfonates and other by-products to third parties. Operating income (loss) by segment was comprised of the following: Three Months Ended March 30, 2024 April 1, 2023 High Purity Cellulose $ 20,741 $ 12,934 Paperboard 7,909 9,734 High-Yield Pulp ( 671 ) 7,256 Corporate ( 10,904 ) ( 13,330 ) Operating income (loss) $ 17,075 $ 16,594 Identifiable assets by segment were as follows: March 30, 2024 December 31, 2023 High Purity Cellulose $ 1,485,599 $ 1,510,076 Paperboard 101,873 105,804 High-Yield Pulp 48,028 43,811 Corporate 499,546 523,009 Total assets $ 2,135,046 $ 2,182,700 14 Table of Contents Rayonier Advanced Materials Inc. Notes to Consolidated Financial Statements (Unaudited) (in thousands unless otherwise stated) 15. Commitments and Contingencies Commitments The Company had no material changes to the purchase obligations presented in its 2023 Form 10-K that were outside the normal course of business during the three months ended March 30, 2024. The Company’s purchase obligations primarily consist of commitments for the purchase of natural gas, electricity and wood chips. The Company leases certain buildings, machinery and equipment under various operating and finance leases. See Note 4—Leases for further information. 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 of softwood lumber duties between 2017 and August 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 March 30, 2024 , the Company had a $ 40 million long-term receivable associated with the USDOC’s determinations of the revised duty rates for 2017 through 2021. This amount does not include interest, which will be due on any amounts refunded. The Company estimates that interest earned on the total amount of softwood lumber duties paid will exceed $ 10 million. On May 6, 2024, the Company announced the sale of these rights, including all accrued interest, for $ 39 million, with the opportunity for additional sale proceeds in the future contingent upon the timing and terms of the ultimate outcome of the trade dispute between the USDOC and Canada. 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 business, 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 March 30, 2024, 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 $ 89 million as of March 30, 2024, 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 $ 30 million at March 30, 2024. 15 Table of Contents Rayonier Advanced Materials Inc. Notes to Consolidated Financial Statements (Unaudited) (in thousands unless otherwise stated) 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 March 30, 2024, all of the Company’s collective bargaining agreements covering its unionized employees were current. As of the filing of this report, collective bargaining agreements covering approximately 235 unionized employees were expired at the Fernandina plant. The employees have continued to work under the terms of the expired contracts while negotiations continue. While there can be no assurances, the Company expects to reach agreement with the unions. However, a work stoppage could have a material adverse effect on the Company’s business, results of operations and financial condition. 16 Table of Contents