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 Six Months Ended June 29, 2024 July 1, 2023 June 29, 2024 July 1, 2023 Net sales $ 419,045 $ 385,413 $ 806,701 $ 852,174 Cost of sales ( 370,736 ) ( 370,785 ) ( 721,631 ) ( 800,106 ) Gross margin 48,309 14,628 85,070 52,068 Selling, general and administrative expense ( 21,809 ) ( 17,996 ) ( 42,884 ) ( 37,491 ) Foreign exchange gain (loss) 558 ( 1,461 ) 3,469 ( 2,134 ) Indefinite suspension charges (Note 2) ( 6,626 ) — ( 6,626 ) — Other operating income (expense), net 7,765 ( 1,627 ) 6,243 ( 2,305 ) Operating income (loss) 28,197 ( 6,456 ) 45,272 10,138 Interest expense ( 21,270 ) ( 15,438 ) ( 42,125 ) ( 30,934 ) Components of pension and OPEB, excluding service costs (Note 14) 197 399 1,117 ( 1,335 ) Other income, net 651 3,307 1,921 3,613 Income (loss) from continuing operations before income tax 7,775 ( 18,188 ) 6,185 ( 18,518 ) Income tax benefit (Note 15) 849 3,249 1,321 5,835 Equity in loss of equity method investment ( 451 ) ( 683 ) ( 903 ) ( 1,332 ) Income (loss) from continuing operations 8,173 ( 15,622 ) 6,603 ( 14,015 ) Income (loss) from discontinued operations, net of tax (Note 3) 3,217 ( 1,128 ) 3,217 ( 1,128 ) Net income (loss) $ 11,390 $ ( 16,750 ) $ 9,820 $ ( 15,143 ) Basic and Diluted earnings per common share (Note 12) Income (loss) from continuing operations $ 0.12 $ ( 0.24 ) $ 0.10 $ ( 0.22 ) Income (loss) from discontinued operations 0.05 ( 0.02 ) 0.05 ( 0.02 ) Net income (loss) $ 0.17 $ ( 0.26 ) $ 0.15 $ ( 0.24 ) 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 Six Months Ended June 29, 2024 July 1, 2023 June 29, 2024 July 1, 2023 Net income (loss) $ 11,390 $ ( 16,750 ) $ 9,820 $ ( 15,143 ) Other comprehensive income (loss), net of tax (Note 11) Foreign currency translation adjustment ( 2,007 ) ( 109 ) ( 6,488 ) 4,103 Unrealized gain on derivative instruments 39 48 80 103 Net gain (loss) on employee benefit plans 2,462 ( 2,240 ) 2,448 ( 2,367 ) Total other comprehensive income (loss) 494 ( 2,301 ) ( 3,960 ) 1,839 Comprehensive income (loss) $ 11,884 $ ( 19,051 ) $ 5,860 $ ( 13,304 ) 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) June 29, 2024 December 31, 2023 Assets Current assets Cash and cash equivalents $ 114,146 $ 75,768 Accounts receivable, net (Note 4) 203,541 197,457 Inventory (Note 5) 225,474 207,474 Income tax receivable 17,435 19,455 Prepaid and other current assets 74,357 74,904 Total current assets 634,953 575,058 Property, plant and equipment (net of accumulated depreciation of $ 1,846,547 and $ 1,797,529 , respectively) 1,056,945 1,075,105 Deferred tax assets 343,223 345,181 Intangible assets, net 13,909 17,414 Other assets 147,942 169,942 Total assets $ 2,196,972 $ 2,182,700 Liabilities and Stockholders’ Equity Current liabilities Accounts payable $ 186,009 $ 186,226 Accrued and other current liabilities (Note 7) 155,764 154,488 Debt due within one year (Note 8) 25,002 25,283 Current environmental liabilities (Note 9) 9,825 9,833 Total current liabilities 376,600 375,830 Long-term debt (Note 8) 752,751 752,174 Non-current environmental liabilities (Note 9) 159,971 160,458 Pension and other postretirement benefits (Note 14) 94,693 101,493 Deferred tax liabilities 13,869 15,190 Other liabilities 43,954 31,108 Commitments and contingencies (Note 17) Stockholders’ Equity Common stock: 140,000,000 shares authorized at $ 0.01 par value, 65,890,093 and 65,393,014 issued and outstanding, respectively 659 654 Additional paid-in capital 421,944 419,122 Retained earnings 382,408 372,588 Accumulated other comprehensive loss (Note 11) ( 49,877 ) ( 45,917 ) Total stockholders’ equity 755,134 746,447 Total liabilities and stockholders’ equity $ 2,196,972 $ 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 June 29, 2024 Balance at March 30, 2024 65,554,837 $ 655 $ 420,448 $ 371,018 $ ( 50,371 ) $ 741,750 Net income — — — 11,390 — 11,390 Other comprehensive income, net of tax — — — — 494 494 Issuance of common stock under incentive stock plans 378,301 4 ( 4 ) — — — Stock-based compensation — — 1,690 — — 1,690 Repurchase of common stock (a) ( 43,045 ) — ( 190 ) — — ( 190 ) Balance at June 29, 2024 65,890,093 $ 659 $ 421,944 $ 382,408 $ ( 49,877 ) $ 755,134 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 Six months ended June 29, 2024 Balance at December 31, 2023 65,393,014 $ 654 $ 419,122 $ 372,588 $ ( 45,917 ) $ 746,447 Net income — — — 9,820 — 9,820 Other comprehensive loss, net of tax — — — — ( 3,960 ) ( 3,960 ) Issuance of common stock under incentive stock plans 621,834 6 ( 6 ) — — — Stock-based compensation — — 3,470 — — 3,470 Repurchase of common stock (a) ( 124,755 ) ( 1 ) ( 642 ) — — ( 643 ) Balance at June 29, 2024 65,890,093 $ 659 $ 421,944 $ 382,408 $ ( 49,877 ) $ 755,134 Six months ended July 1, 2023 Balance at December 31, 2022 64,020,761 $ 640 $ 418,048 $ 474,423 $ ( 63,798 ) $ 829,313 Net loss — — — ( 15,143 ) — ( 15,143 ) Other comprehensive income, net of tax — — — — 1,839 1,839 Issuance of common stock under incentive stock plans 1,966,815 20 ( 20 ) — — — Stock-based compensation — — 3,371 — — 3,371 Repurchase of common stock (a) ( 644,158 ) ( 6 ) ( 5,357 ) — — ( 5,363 ) Balance at July 1, 2023 65,343,418 $ 654 $ 416,042 $ 459,280 $ ( 61,959 ) $ 814,017 (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) Six Months Ended June 29, 2024 July 1, 2023 Operating activities Net income (loss) $ 9,820 $ ( 15,143 ) Adjustments to reconcile net income (loss) to cash provided by operating activities: (Income) loss from discontinued operations ( 3,217 ) 1,128 Depreciation and amortization 66,794 67,689 Stock-based compensation expense 3,470 3,371 Deferred income tax benefit ( 955 ) ( 2,312 ) Net periodic benefit cost of pension and other postretirement plans 2,223 2,045 Unrealized (gain) loss on foreign currency ( 2,669 ) 1,669 (Gain) loss on disposal of property, plant and equipment 1,637 ( 1,376 ) Other 6,128 2,927 Changes in operating assets and liabilities: Accounts receivable ( 9,708 ) 36,139 Inventories ( 18,914 ) 46,680 Accounts payable 3,934 3,181 Accrued liabilities 4,721 ( 27,981 ) Duty refund rights 40,111 ( 2,072 ) Other 89 ( 25,368 ) Contributions to pension and other postretirement plans ( 4,606 ) ( 6,717 ) Cash provided by operating activities 98,858 83,860 Investing activities Capital expenditures, net of proceeds ( 58,020 ) ( 54,154 ) Investment in equity method investment — ( 169 ) Cash used in investing activities ( 58,020 ) ( 54,323 ) Financing activities Borrowings of long-term debt 222,178 1,509 Repayments of long-term debt ( 220,235 ) ( 20,305 ) Short-term financing, net ( 532 ) ( 1,479 ) Debt issuance costs ( 1,875 ) — Repurchase of common stock ( 643 ) ( 5,363 ) Cash used in financing activities ( 1,107 ) ( 25,638 ) Net increase in cash and cash equivalents 39,731 3,899 Net effect of foreign exchange on cash and cash equivalents ( 1,353 ) 1,158 Balance, beginning of period 75,768 151,803 Balance, end of period $ 114,146 $ 156,860 Supplemental cash flow information: Interest paid $ ( 43,793 ) $ ( 28,404 ) Income taxes refunded (paid), net 4,760 ( 7,090 ) Capital assets purchased on account 33,804 41,846 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. As a result of the sale of its lumber and newsprint assets in August 2021, the Company presents the historical results for those operations, and any subsequent directly associated impacts, as discontinued operations. Unless otherwise stated, information in these notes to consolidated financial statements relates to continuing operations. See Note 3—Discontinued Operations for further information on the sale. 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 Events and transactions subsequent to the consolidated balance sheets date have been evaluated for potential recognition and disclosure through the date of issuance of these consolidated financial statements. No subsequent events were identified. 2. Indefinite Suspension of Operations As previously announced, the Company began its indefinite suspension of operations at its Temiscaming High Purity Cellulose plant in July 2024. The suspension 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 sales process. The suspension of operations timeline allows 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. 6 Table of Contents Rayonier Advanced Materials Inc. Notes to Consolidated Financial Statements (Unaudited) (in thousands unless otherwise stated) In connection with the suspension of operations, the Company expects to incur, all in 2024, total charges in the range of $ 25 million to $ 30 million, including mothballing costs of $ 5 million to $ 10 million and severance and other employee costs of $ 15 million to $ 20 million. 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 suspension costs are expected to be paid over a period of time. Non-cash asset impairment charges are expected in the third quarter of 2024, the amounts of which are currently being assessed. The suspension of operations began on July 16, 2024 and is expected to conclude in the fourth quarter of 2024. The following table presents the accrued liability balance activity related to the suspension during the six months ended June 29, 2024: Mothballing Costs Severance and Other Employee Costs Total Balance at December 31, 2023 $ — $ — $ — Charges incurred (a) 420 5,476 5,896 Payments ( 420 ) — ( 420 ) Balance at June 29, 2024 $ — $ 5,476 $ 5,476 (a) Excludes non-cash items, including a $ 1 million loss on pension curtailment charges associated with early retirements driven by the indefinite suspension of operations. See Note 14—Employee Benefit Plans for further information. The following table presents total suspension charges incurred by cost type: Three and Six Months Ended June 29, 2024 Severance and other employee costs $ 6,206 Mothballing costs 420 Indefinite suspension charges $ 6,626 The mothballing and severance and other employee costs incurred were charged to the High Purity Cellulose segment in “indefinite suspension charges” in the consolidated statements of operations. 3. Discontinued Operations In August 2021, the Company completed the sale of its lumber and newsprint facilities and certain related assets located in Canada. As part of the sale of the lumber assets, the Company retained all refund rights and obligations, including interest, 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 2021, and as of December 31, 2023, the Company had a $ 40 million long-term receivable related to USDOC administrative reviews completed to date. In June 2024, the Company executed on the sale of these rights (inclusive of the receivable), 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. The Company recorded a $ 1 million loss on the sale, included in pre-tax income from discontinued operations. During the quarter and six months ended June 29, 2024, the Company recognized $ 5 million in pre-tax income from discontinued operations related to CEWS benefit claims deferred since 2021. See Note 7—Accrued and Other Current Liabilities for further information. During the quarter 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. 7 Table of Contents Rayonier Advanced Materials Inc. Notes to Consolidated Financial Statements (Unaudited) (in thousands unless otherwise stated) Income (loss) from discontinued operations was comprised of the following: Three Months Ended Six Months Ended June 29, 2024 July 1, 2023 June 29, 2024 July 1, 2023 Loss on sale of duty refund rights $ ( 890 ) $ — $ ( 890 ) $ — Selling, general and administrative and other operating income (expense) 5,267 ( 1,533 ) 5,267 ( 1,533 ) Operating income (loss) 4,377 ( 1,533 ) 4,377 ( 1,533 ) Income (loss) from discontinued operations before income taxes 4,377 ( 1,533 ) 4,377 ( 1,533 ) Income tax (expense) benefit ( 1,160 ) 405 ( 1,160 ) 405 Income (loss) from discontinued operations, net of taxes $ 3,217 $ ( 1,128 ) $ 3,217 $ ( 1,128 ) 4. Accounts Receivable, Net Accounts receivable, net included the following: June 29, 2024 December 31, 2023 Accounts receivable, trade $ 182,525 $ 166,137 Accounts receivable, other (a) 21,733 31,973 Allowance for credit loss ( 717 ) ( 653 ) Accounts receivable, net $ 203,541 $ 197,457 (a) Consists primarily of value-added/consumption taxes, grants receivable and accrued billings due from government agencies. 5. Inventory Inventory included the following: June 29, 2024 December 31, 2023 Finished goods $ 167,039 $ 147,930 Work-in-progress 6,371 6,987 Raw materials 46,351 46,120 Manufacturing and maintenance supplies 5,713 6,437 Inventory $ 225,474 $ 207,474 6. Leases The Company’s operating and finance leases are primarily for corporate offices, warehouse space, rail cars and equipment. As of June 29, 2024, the Company’s leases have remaining lease terms of less than one year to 12.3 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. 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. 8 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 Six Months Ended June 29, 2024 July 1, 2023 June 29, 2024 July 1, 2023 Operating lease cost $ 2,136 $ 1,791 $ 3,802 $ 3,485 Finance lease cost Amortization of ROU assets 107 100 213 199 Interest 22 29 45 59 Total lease cost $ 2,265 $ 1,920 $ 4,060 $ 3,743 Balance Sheet Location June 29, 2024 December 31, 2023 Operating leases (a) ROU assets Other assets $ 32,634 $ 17,475 Lease liabilities, current Accrued and other current liabilities 7,089 4,499 Lease liabilities, non-current Other liabilities 27,089 14,666 Finance leases ROU assets Property, plant and equipment, net 893 1,078 Lease liabilities Long-term debt 1,142 1,355 (a) During the second quarter of 2024, the Company recorded an ROU asset and corresponding lease liability of $ 14 million related to a new warehouse lease agreement in Canada. Six Months Ended June 29, 2024 July 1, 2023 Operating cash flows - cash paid for amounts included in the measurement of operating lease liabilities $ 3,799 $ 1,701 Operating lease ROU assets obtained in exchange for lease liabilities 18,092 1,946 Finance lease cash flows were immaterial during each of the six months ended June 29, 2024 and July 1, 2023. June 29, 2024 December 31, 2023 Operating leases Weighted average remaining lease term (in years) 5.1 5.5 Weighted average discount rate 8.2 % 8.3 % Finance leases Weighted average remaining lease term (in years) 2.3 2.8 Weighted average discount rate 7.0 % 7.0 % 9 Table of Contents Rayonier Advanced Materials Inc. Notes to Consolidated Financial Statements (Unaudited) (in thousands unless otherwise stated) Operating lease maturities as of June 29, 2024 were as follows: Remainder of 2024 $ 4,795 2025 9,415 2026 8,643 2027 7,488 2028 6,262 Thereafter 5,756 Total minimum lease payments 42,359 Less: imputed interest ( 8,181 ) Present value of future minimum lease payments $ 34,178 7. Accrued and Other Current Liabilities Accrued and other current liabilities included the following: June 29, 2024 December 31, 2023 Accrued customer incentives $ 39,667 $ 30,036 Accrued payroll and benefits 20,216 13,552 Accrued interest 25,207 32,256 Accrued income taxes 4,168 4,605 Accrued property and other taxes 6,250 2,547 Deferred revenue (a) 9,089 24,061 Other current liabilities (b) 51,167 47,431 Accrued and other current liabilities $ 155,764 $ 154,488 (a) Included at June 29, 2024 and December 31, 2023 was CAD $ 5 million and $ 25 million, respectively (USD $ 4 million and $ 19 million, respectively), associated with funds received in 2021 for CEWS. In the second quarter of 2024, the Company recognized in income $ 15 million of this amount, including $ 10 million in “other operating income (expense), net” and $ 5 million in “income (loss) from discontinued operations, net of taxes.” The remaining amount will be recognized at the earlier of the conclusion of the final outstanding audit and the expiration of the statute of limitations in July 2025. (b) Included at June 29, 2024 and December 31, 2023 were $ 17 million and $ 13 million, respectively, of energy-related payables associated with Tartas facility operations. 8. Debt and Finance Leases Debt and finance leases included the following: June 29, 2024 December 31, 2023 ABL Credit Facility due December 2025: $ 135 million net availability, bearing interest of 7.44 % ( 5.44 % adjusted SOFR plus 2.00 % margin) at June 29, 2024 $ — $ — Term Loan due July 2027: bearing interest of 13.32 % ( 5.32 % three-month Term SOFR plus 8.00 % margin) at June 29, 2024 247,500 250,000 7.625 % Senior Secured Notes due January 2026 464,640 464,640 5.50 % CAD-based term loan due April 2028 26,135 30,479 Other loans (a) 51,287 44,754 Short-term factoring facility 4,636 5,292 Finance lease obligations 1,142 1,355 Total principal payments due 795,340 796,520 Less: unamortized premium, discount and issuance costs ( 17,587 ) ( 19,063 ) Total debt 777,753 777,457 Less: debt due within one year ( 25,002 ) ( 25,283 ) Long-term debt $ 752,751 $ 752,174 (a) Consist of low-interest green loans for energy projects and other loans intended for use in biomaterials projects in France. 10 Table of Contents Rayonier Advanced Materials Inc. Notes to Consolidated Financial Statements (Unaudited) (in thousands unless otherwise stated) 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. 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. Senior Notes In April 2023, the Company repurchased $ 10 million of its 2026 Notes through open-market transactions and recorded a gain on extinguishment of $ 1 million to “other income, net” in the consolidated statements of operations. Covenants and Debt Maturity As of June 29, 2024, the Company was in compliance with all covenants under its debt agreements. As of June 29, 2024, the Company’s debt principal payments, excluding finance lease obligations, were due as follows: Remainder of 2024 $ 15,905 2025 19,014 2026 483,720 2027 245,734 2028 10,076 Thereafter 19,749 Total debt principal payments $ 794,198 9. Environmental Liabilities The Company’s environmental liabilities balance changed as follows during the six months ended June 29, 2024: Balance at December 31, 2023 $ 170,291 Increase in liabilities 1,784 Payments ( 2,072 ) Foreign currency adjustments ( 207 ) Balance at June 29, 2024 169,796 Less: current portion ( 9,825 ) Non-current environmental liabilities $ 159,971 11 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 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 June 29, 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. 10. 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. 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: June 29, 2024 December 31, 2023 Carrying amount of fixed rate debt (a) $ 539,467 $ 536,393 Fair value of fixed rate debt 511,254 497,563 (a) Excludes finance lease obligations. 12 Table of Contents Rayonier Advanced Materials Inc. Notes to Consolidated Financial Statements (Unaudited) (in thousands unless otherwise stated) 11. Accumulated Other Comprehensive Loss Six Months Ended June 29, 2024 July 1, 2023 Unrecognized components of employee benefit plans, net of tax Balance, beginning of period $ ( 33,537 ) $ ( 43,694 ) Other comprehensive income (loss) before reclassifications 3,371 ( 3,034 ) Income tax on other comprehensive gain (loss) ( 901 ) 804 Reclassifications to earnings (a) Amortization of gain ( 391 ) ( 354 ) Amortization of prior service cost 359 172 Income tax on reclassifications 10 45 Net comprehensive income (loss) on employee benefit plans, net of tax 2,448 ( 2,367 ) Balance, end of period ( 31,089 ) ( 46,061 ) Unrealized loss on derivative instruments, net of tax Balance, beginning of period ( 373 ) ( 567 ) Reclassifications to earnings - foreign currency exchange contracts (b) 92 119 Income tax on reclassifications ( 12 ) ( 16 ) Net comprehensive gain on derivative instruments, net of tax 80 103 Balance, end of period ( 293 ) ( 464 ) Foreign currency translation Balance, beginning of period ( 12,007 ) ( 19,537 ) Foreign currency translation adjustment, net of tax (c) ( 6,488 ) 4,103 Balance, end of period ( 18,495 ) ( 15,434 ) Accumulated other comprehensive loss, end of period $ ( 49,877 ) $ ( 61,959 ) (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 income (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. 13 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 Six Months Ended June 29, 2024 July 1, 2023 June 29, 2024 July 1, 2023 Income (loss) from continuing operations $ 8,173 $ ( 15,622 ) $ 6,603 $ ( 14,015 ) Income (loss) from discontinued operations 3,217 ( 1,128 ) 3,217 ( 1,128 ) Net income (loss) available for common stockholders $ 11,390 $ ( 16,750 ) $ 9,820 $ ( 15,143 ) Weighted average shares used for determining basic earnings per share of common stock 65,716,362 65,226,344 65,582,651 64,865,272 Dilutive effect of: Stock options — — 3 — Performance and restricted stock 3,073,949 — 2,423,674 — Weighted average shares used for determining diluted earnings per share of common stock 68,790,311 65,226,344 68,006,328 64,865,272 Anti-dilutive instruments excluded from the computation of diluted earnings per share included (not in thousands): Three Months Ended Six Months Ended June 29, 2024 July 1, 2023 June 29, 2024 July 1, 2023 Stock options — 46,882 1,497 46,882 Performance and restricted stock 421 3,302,332 6,376 3,302,332 Total anti-dilutive instruments 421 3,349,214 7,873 3,349,214 13. Incentive Stock Plans Stock-based compensation expense was as follows: Three Months Ended Six Months Ended June 29, 2024 July 1, 2023 June 29, 2024 July 1, 2023 Stock-based compensation expense $ 1,690 $ 1,893 $ 3,470 $ 3,371 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 2024. The 2024 restricted stock unit awards cliff vest after three years , except for director awards, which vest after one year . 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. 14 Table of Contents Rayonier Advanced Materials Inc. Notes to Consolidated Financial Statements (Unaudited) (in thousands unless otherwise stated) 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 — — 622,957 4.05 582,442 4.52 Forfeited — — ( 58,241 ) 5.27 ( 316,467 ) 11.12 Exercised or settled — — ( 616,485 ) 6.81 ( 5,000 ) 2.41 Expired or cancelled ( 46,798 ) 29.52 — — — — Outstanding at June 29, 2024 — $ — 1,834,925 $ 5.10 1,631,576 $ 6.11 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 quarter and six months ended June 29, 2024, the Company recorded a $ 1 million loss on pension curtailment charges associated with early retirements driven by the indefinite suspension of operations at the Temiscaming High Purity Cellulose plant. The loss on curtailment was recognized in “indefinite suspension charges” in the Company’s consolidated statements of operations. Additionally, the Company decreased its pension liability by $ 3 million. See Note 2—Indefinite Suspension of Operations for further information. 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 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 tables present the components of net periodic benefit costs of these plans: Pension Postretirement Three Months Ended Three Months Ended June 29, 2024 July 1, 2023 June 29, 2024 July 1, 2023 Service cost $ 1,527 $ 1,224 $ 138 $ 299 Interest cost 6,889 7,237 247 348 Expected return on plan assets ( 8,052 ) ( 7,965 ) — — Amortization of prior service cost (credit) 203 184 ( 25 ) ( 25 ) Amortization of gain ( 11 ) ( 124 ) ( 184 ) ( 54 ) Curtailment 736 — — — Net periodic benefit cost $ 1,292 $ 556 $ 176 $ 568 15 Table of Contents Rayonier Advanced Materials Inc. Notes to Consolidated Financial Statements (Unaudited) (in thousands unless otherwise stated) Pension Postretirement Six Months Ended Six Months Ended June 29, 2024 July 1, 2023 June 29, 2024 July 1, 2023 Service cost $ 3,064 $ 2,441 $ 276 $ 586 Interest cost 13,812 14,382 495 705 Expected return on plan assets ( 16,128 ) ( 15,887 ) — — Amortization of prior service cost (credit) 408 221 ( 49 ) ( 49 ) Amortization of gain ( 22 ) ( 246 ) ( 369 ) ( 108 ) Pension settlement loss — 2,317 — — Curtailment 736 — — — Net periodic benefit cost $ 1,870 $ 3,228 $ 353 $ 1,134 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 “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 Six Months Ended June 29, 2024 July 1, 2023 June 29, 2024 July 1, 2023 Income (loss) from continuing operations before income taxes $ 7,775 $ ( 18,188 ) $ 6,185 $ ( 18,518 ) Effective tax rate ( 10.9 ) % 17.9 % ( 21.4 ) % 31.5 % The effective tax rates for the quarter and six months ended June 29, 2024 differed from the federal statutory rate of 21 percent primarily due to the release of certain tax reserves, return-to-accrual adjustments, excess deficit on vested stock compensation and changes in the valuation allowance on disallowed interest deductions. The effective tax rates for the quarter and six months ended July 1, 2023 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. Deferred Taxes As of both June 29, 2024 and December 31, 2023, the Company’s net DTA included $ 15 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. 16 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 Six Months Ended June 29, 2024 July 1, 2023 June 29, 2024 July 1, 2023 High Purity Cellulose Cellulose Specialties $ 223,139 $ 179,265 $ 417,562 $ 405,930 Commodity Products 85,553 98,674 175,554 222,714 Other sales (a) 23,860 21,430 46,244 44,919 Total High Purity Cellulose 332,552 299,369 639,360 673,563 Paperboard 60,299 48,094 113,259 107,088 High-Yield Pulp 32,833 44,144 67,159 86,004 Eliminations ( 6,639 ) ( 6,194 ) ( 13,077 ) ( 14,481 ) Net sales $ 419,045 $ 385,413 $ 806,701 $ 852,174 (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 Six Months Ended June 29, 2024 July 1, 2023 June 29, 2024 July 1, 2023 High Purity Cellulose $ 30,162 $ ( 422 ) $ 50,903 $ 12,512 Paperboard 12,200 5,858 20,109 15,592 High-Yield Pulp 813 836 142 8,092 Corporate ( 14,978 ) ( 12,728 ) ( 25,882 ) ( 26,058 ) Operating income (loss) $ 28,197 $ ( 6,456 ) $ 45,272 $ 10,138 Identifiable assets by segment were as follows: June 29, 2024 December 31, 2023 High Purity Cellulose $ 1,535,111 $ 1,510,076 Paperboard 103,094 105,804 High-Yield Pulp 48,310 43,811 Corporate (a) 510,457 523,009 Total assets $ 2,196,972 $ 2,182,700 (a) Includes ERP and certain lease assets shared across segments. 17. Commitments and Contingencies Commitments The Company had no material changes to the purchase obligations presented in its 2023 Form 10-K during the six months ended June 29, 2024. The Company’s purchase obligations primarily consist of commitments for the purchase of natural gas, electricity and wood chips. The Company remains subject to purchase obligations under the 20-year wood chip and residual fiber supply agreement with GreenFirst, under which total required purchase volumes of wood chips and residual fiber are dependent on sawmill production. In connection with the indefinite suspension of operations at the Temiscaming High Purity Cellulose plant, GreenFirst and the Company have agreed that the Company will purchase the required volumes at market value and sell them to third parties at the same amount for an expected neutral impact. The Company leases certain buildings, machinery and equipment under various operating and finance leases. See Note 6—Leases for further information. 17 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 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 in 2021, the Company retained all refund rights and obligations to softwood duties generated or incurred through the closing date of the sale. As of December 31, 2023 , the Company had a $ 40 million long-term receivable associated with USDOC determinations of the revised duty rates for 2017 through 2021. In June 2024, the Company executed on the sale of these rights (inclusive of the receivable), 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 June 29, 2024, the Company had net exposure of $ 33 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 June 29, 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 $ 29 million at June 29, 2024. 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 June 29, 2024, collective bargaining agreements covering approximately 225 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. 18 Table of Contents