INVESTING IN THE (BIO)FUTURE
A CULTURE OF SUSTAINABLE INNOVATION
2 0 2 0 | A N N U A L R E P O R T
Letter to Our Stockholders
April 2, 2021
Dear Fellow Stockholders:
We are proud of what our team accomplished during what turned out to be an exceptionally challenging year for not only our Company, but also for
our employees, customers, suppliers, communities, and other critical partners. We believe that because we successfully dealt with these difficulties, we
strengthened our business and further solidified our status as a global leader in converting renewable resources into remarkable materials.
Coming into 2020, our financial commitment to you, our stockholders, was to focus on reducing operating and corporate costs, lowering capital
expenditures, and improving working capital in order to improve cash flow as we managed through a very low trough of many of our markets.
Then came COVID-19. Our team responded with decisive action to meet the added pandemic-driven challenges head-on, including:
•
•
•
Establishing a COVID-19 task force to help us effectively navigate the pandemic and its varied and ever-changing impacts on, and
disruptions to, our global business and operations.
Securing “essential operations” status for each of our manufacturing facilities in the U.S., Canada and France.
Instituting strict social distancing, sanitization, and other new safety protocols into our manufacturing operations and processes, and
shifting our office workforce to home office environments in order to protect the health of employees and their families.
• Adapting quickly to significant shifts in demand for many of our products, including taking downtime in facilities where price and demand
were insufficient to meet our goals.
• Driving working capital improvements and reducing capital expenditures to the bare essentials as we waited for the full impact of the
pandemic to come into better focus.
These actions provided the necessary time for our markets and business to survive the initial shock of the pandemic and, by year end, positioned
our Company to excel when the market conditions began to recover. A couple cases in point: by the end of the year our Forest Products
business had more than recovered, and many of our pulp markets were beginning to show signs of recovery. Once again, we adapted, adjusting
our production to capitalize on these favorable shifts, and through it all, we never lost sight of, and ultimately delivered on, our financial
commitments. Net Income turned positive and Adjusted EBITDA more than doubled to $153 million. We generated $73 million of Free Cash
Flow and reduced Adjusted Net Debt by $23 million.
The Company has also taken significant action to position itself for success in 2021 and beyond. In December 2020, seizing on an opportunity
presented by favorable markets, we refinanced our secured debt. This extended our nearest significant debt maturity to 2024, eliminated many
covenants and maintained solid liquidity to allow the Company to continue to aggressively pursue value-creation opportunities to the benefit of
our stockholders.
We continued our high levels of investor engagement begun in 2019 into 2020. During the course of the year, we reached out to 60% of our
largest and most influential stockholders and held more than 300 meetings with investors. We listen carefully to our stockholders and have
acted in areas that we believe will enhance your experience. For example, in May 2020, we completed several changes to our governance
structure, including the refreshment of two director seats, the addition of a Finance and Strategic Planning Committee, the separation of our
Chair and Chief Executive Officer roles and an increase in the diversity of our Board.
We also worked to enhance the nature of our disclosures with respect to Environmental, Social and Governance (ESG) matters. For example, we
track and will publish the five leading safety metrics to achieve our aim of “every employee going home safe every day.” We have also recently
updated our disclosures on greenhouse gas emissions, and published metrics for wood fiber sourcing, air quality and water usage that are in line
with Sustainability Accounting Standards Board (SASB) disclosure recommendations for our industry. Additionally, in furtherance of our Core
Values and commitments to our employees and communities, the Company has recently commissioned a Diversity and Inclusion Advisory
Group, comprised of approximately a dozen employees representing a diverse cross-section of the organization, to assist the Company in
building and improving upon its culture of inclusion and diversity.
We look forward to realizing in the near future the opportunities we have created for ourselves. Pulp markets have started to recover – in particular,
viscose prices have increased from decade lows experienced in 2020, and fluff and high-yield pulp markets have started a resurgence of strength in
2021. Demand for our key cellulose specialties products is relatively stable, and the near-term outlook for the Company’s lumber business remains
strong. The Company is working to realize significant one-time cash flows such as anticipated tax refunds. We believe that the debt refinancing coupled
with expected strong cash flow will allow the Company to repay debt, invest in the growth of our businesses and achieve its full potential.
Our vision is to further enhance and leverage a very sustainable business model – taking natural, renewable materials and turning them into
remarkable products for our customers. In our high purity cellulose business, we achieve this vision via our four bio-refineries. The Company is
working hard to optimize these assets to meet the increasing consumer demand for a more sustainable world. As such, you should expect to see
increased investment in the reliability and efficiency of these bio-refineries and further innovation into our “biofuture.”
We will continue to invest in non-petroleum cellulose polymer technologies as well as further leverage our bio-refineries to create biofuels,
bioenergy and other biomaterials. We recently commissioned the final phase of the bioenergy plant at our France facility, and we are currently
deploying significant resources on TEMSILK™, a product we developed in our Temiscaming facility to service the growing Lyocell textile market. By
providing quality pulp to exacting specifications, we enable our customers to produce a fine textile with fewer chemicals and lower cost,
benefiting both investors and the environment. We have also invested in Anomera, an early-stage company based in Montreal with patented
break-through nano-cellulose technology aimed at displacing plastics in the cosmetics and skin care markets and serving as an eco-friendly
ingredient in industrial and other applications. We believe these innovation projects have the potential to yield substantial returns and leverage
our core competencies in cellulose.
The journey we took together in 2020 has served as an important reminder to the organization that as we remain focused on our Core Values of
Integrity, Quality, Accountability and People and our Cultural Cornerstones of Safety, Innovation, Customer-focused and Continuous
Improvement, we will achieve sustained success for this business. We look forward to a successful 2021.
Sincerely,
Sincerely,
DE LYLE W. BLOOMQUIST
Chair of the Board
PAUL G. BOYNTON
President and Chief Executive Officer
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒
☐
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
Commission File Number 001-36285
RAYONIER ADVANCED MATERIALS INC.
Incorporated in the State of Delaware
I.R.S. Employer Identification No. 46-4559529
1301 RIVERPLACE BOULEVARD, SUITE 2300
JACKSONVILLE, FL 32207
(Principal Executive Office)
Telephone Number: (904) 357-4600
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common stock, par value $0.01 per share
Trading Symbol(s)
RYAM
Name of exchange on which registered
New York Stock Exchange
Securities to be registered pursuant to Section 12(g) of the Act: None
No ☒
No ☒
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ☐
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes ☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging
growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the
Exchange Act.
No ☐
No ☐
Large accelerated filer
Non-accelerated filer
☐
☐
Accelerated filer
Smaller reporting company
Emerging growth company
☒
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over
financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES ☐
NO ☒
The aggregate market value of the Common Stock of the registrant held by non-affiliates at the close of business on June 27, 2020 was $142,511,707 based on the
closing sale price as reported on the New York Stock Exchange.
The registrant had 63,359,836 shares of Common Stock, $.01 par value per share, outstanding as of February 24, 2021.
Portions of the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission in connection with the 2021 annual meeting of the
stockholders are incorporated by reference in Part III hereof. Such proxy statement will be filed with the Securities and Exchange Commission within 120 days of the
registrant’s fiscal year ended December 31, 2020.
Table of Contents
Part I
Business....................................................................................................................................................
Risk Factors..............................................................................................................................................
Unresolved Staff Comments.....................................................................................................................
Properties..................................................................................................................................................
Legal Proceedings....................................................................................................................................
Mine Safety Disclosures...........................................................................................................................
Part II
Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities.......................................................................................................................................
Selected Financial Data............................................................................................................................
Management’s Discussion and Analysis of Financial Condition and Results of Operations..................
Quantitative and Qualitative Disclosures about Market Risk..................................................................
Financial Statements and Supplementary Data........................................................................................
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..................
Controls and Procedures...........................................................................................................................
Other Information.....................................................................................................................................
Part III
Information about our Directors, Executive Officers and Corporate Governance...................................
Executive Compensation..........................................................................................................................
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence.........................................
Principal Accounting Fees and Services..................................................................................................
Exhibits, Financial Statement Schedules..................................................................................................
Form 10-K Summary................................................................................................................................
Part IV
Item
1.
1A.
1B.
2.
3.
4.
5.
6.
7.
7A.
8.
9.
9A.
9B.
10.
11.
12.
13.
14.
15.
16.
Page
3
9
21
21
21
22
23
25
26
46
47
47
47
48
49
49
49
49
49
50
54
i
When we refer to “we,” “us,” “our,” “the Company,” or “Rayonier Advanced Materials” we mean Rayonier Advanced
Materials Inc. and its consolidated subsidiaries. References herein to “Notes to Financial Statements” refer to the Notes to the
Consolidated Financial Statements of Rayonier Advanced Materials Inc. included in Item 8 of this Report.
Amounts contained in this Report may not always add due to rounding.
Note About Forward-Looking Statements
Certain statements in this Annual Report on Form 10-K (this “Report”) regarding anticipated financial, business, legal or
other outcomes including business and market conditions, outlook and other similar statements relating to Rayonier Advanced
Materials’ (“the Company” ) future events, developments, or financial or operational performance or results, are “forward-
looking statements” made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and
other federal securities laws. These forward-looking statements are identified by the use of words such as “may,” “will,”
“should,” “expect,” “estimate,” “believe,” “intend,” “forecast,” “anticipate” “guidance” and other similar language. However,
the absence of these or similar words or expressions does not mean a statement is not forward-looking. While we believe these
forward-looking statements are reasonable when made, forward-looking statements are not guarantees of future performance or
events and undue reliance should not be placed on these statements. Although we believe the expectations reflected in any
forward-looking statements are based on reasonable assumptions, we can give no assurance these expectations will be attained,
and it is possible actual results may differ materially from those indicated by these forward-looking statements due to a variety
of risks and uncertainties. The following risk factors and those contained in Item 1A — Risk Factors, among others, could
cause actual results or events to differ materially from the Company’s historical experience and those expressed in forward-
looking statements made in this document.
Part I
Epidemics and Pandemic Risks
• We are subject to risks associated with epidemics and pandemics, including the COVID-19 pandemic and related impacts.
The nature and extent of ongoing and future impacts of the pandemic are highly uncertain and unpredictable.
Macroeconomic and Industry Risks
•
The businesses we operate are highly competitive and many of them are cyclical, which may result in fluctuations in
pricing and volume that can adversely impact our business, financial condition and results of operations.
Changes in raw material and energy availability and prices could affect our business, financial condition and results of
operations.
•
• We are subject to risks associated with doing business outside of the United States.
•
•
Currency fluctuations may have a negative impact on our business, financial condition and results of operations.
Restrictions on trade through tariffs, countervailing and anti-dumping duties, quotas and other trade barriers, in the United
States and internationally, could adversely affect our ability to access certain markets.
Business and Operating Risks
• Our ten largest customers represent approximately 31 percent of our 2020 sales, and the loss of all or a substantial portion
•
•
of our revenue from these large customers could have a material adverse effect on our business.
A material disruption at one of our major manufacturing facilities could prevent us from meeting customer demand, reduce
our sales and profitability, increase our cost of production and capital needs, or otherwise adversely affect our business,
financial condition and results of operation.
The availability of, and prices for, wood fiber could materially impact our business, results of operations and financial
condition.
Our operations require substantial capital.
•
• We depend on third parties for transportation services and increases in costs and the availability of transportation could
adversely affect our business.
1
Our failure to maintain satisfactory labor relations could have a material adverse effect on our business.
•
• We are dependent upon attracting and retaining key personnel, the loss of whom could adversely affect our business.
•
Failure to develop new products or discover new applications for our existing products, or our inability to protect the
intellectual property underlying such new products or applications, could have a negative impact on our business.
The risk of loss of the Company’s intellectual property and sensitive business information, or disruption of its
manufacturing operations,
in each case due to cyberattacks or cybersecurity breaches, could adversely impact the
Company.
•
Regulatory Risks
•
Our business is subject to extensive environmental laws, regulations and permits that may restrict or adversely affect our
financial results and how we conduct business.
The potential longer-term impacts of climate related risks remain uncertain at this time.
•
Financial Risks
• We may need to make significant additional cash contributions to our retirement benefit plans if investment returns on
pension assets are lower than expected or interest rates decline, and/or due to changes to regulatory, accounting and
actuarial requirements.
• We have significant debt obligations that could adversely affect our business and our ability to meet our obligations.
•
The phase-out of the London Inter Bank Office Rate (“LIBOR”) as an interest rate benchmark in 2023 may impact our
borrowing costs.
Challenges in the commercial and credit environments may materially adversely affect our future access to capital.
•
• We may need additional financing in the future to meet our capital needs or to make acquisitions, and such financing may
not be available on favorable terms, if at all, and may be dilutive to existing stockholders.
Company’s Common Stock and Certain Corporate Matters Risks
•
•
Your percentage of ownership in the Company may be diluted in the future.
Certain provisions in our amended and restated certificate of incorporation and bylaws, and of Delaware law, could prevent
or delay an acquisition of the Company, which could decrease the price of our common stock.
Forward-looking statements are only as of the date they are made, and the Company undertakes no duty to update its
forward-looking statements except as required by law. You are advised, however, to review any further disclosures we have
made or may make in our filings and other submissions to the U.S. Securities and Exchange Commission (the “SEC”),
including those on Forms 10-Q, 10-K, 8-K and other reports. Details on each of the above risk factors are more specifically
described in Item 1A - Risk Factors.
Note About Non-GAAP Financial Measures
A “non-GAAP financial measure” is generally defined as a numerical measure of a company’s historical or future
performance that excludes or includes amounts, or is subject to adjustments, so as to be different from the most directly
comparable measure calculated and presented in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”).
This Report contains certain non-GAAP financial measures, including Earnings Before Interest, Taxes, Depreciation and
Amortization (“EBITDA”), adjusted EBITDA, and adjusted free cash flows. These non-GAAP measures are reconciled to each
of their respective most directly comparable GAAP financial measures in Item 7 — Management’s Discussion and Analysis of
Financial Condition and Results of Operations.
We believe these non-GAAP measures provide useful information to our Board of Directors, management and investors
regarding certain trends relating to our financial condition and results of operations. Our management uses these non-GAAP
measures to compare our performance to that of prior periods for trend analyses, purposes of determining management
incentive compensation and budgeting, forecasting and planning purposes.
We do not consider non-GAAP measures an alternative to financial measures determined in accordance with GAAP. The
principal limitation of these non-GAAP financial measures is they may exclude significant expense and income items that are
required by GAAP to be recognized in our consolidated financial statements.
In addition, they reflect the exercise of
management’s judgment about which expense and income items are excluded or included in determining these non-GAAP
financial measures. In order to compensate for these limitations, reconciliations of the non-GAAP financial measures we use to
their most directly comparable GAAP measures are provided. Non-GAAP financial measures should not be relied upon, in
whole or part, in evaluating the financial condition, results of operations or future prospects of the Company.
2
Item 1. Business
We are a global leader of cellulose-based technologies, which comprise a broad offering of high purity cellulose
specialties, a natural polymer commonly used in the production of specialty chemicals and polymers for use in producing LCD
displays, filters, fibers, performance additives for pharmaceutical, food and other industrial applications. Starting from a tree
and building upon more than 90 years of experience in cellulose chemistry, we provide high quality high-purity cellulose pulp
products that make up the essential building blocks for our customers’ products while providing exceptional service and value.
In addition, we produce lumber, paperboard, newsprint and high-yield pulp for use in consumer products.
Prior to June 27, 2014, we consisted of Rayonier Inc.’s (“Rayonier’s”) wholly-owned performance fibers business which
was engaged primarily in the production of cellulose specialties. On that date, we separated from Rayonier and started our
business as an independent, publicly traded company.
In November 2017, we completed the acquisition of Tembec Inc. (the “Acquisition”) which manufactured cellulose
specialties, as well as lumber, paperboard, newsprint and high-yield pulp. The Acquisition created a combined company with
leading positions across the cellulose specialties product spectrum, including acetate, ethers, high-strength viscose, filtration
and other cellulose specialties, as well as adding complementary assets in the forest products, paperboard, high-yield pulp and
newsprint businesses.
In November 2019, we sold the Matane pulp mill (the “Matane Mill”), which was acquired in the Acquisition, to Sappi
Limited, a global diversified wood fiber company. As a result of the sale, we have reclassified the Matane Mill’s operating
results and assets and liabilities for prior periods as discontinued operations. See Note 3 — Discontinued Operations of our
consolidated financial statements for additional information.
Following the sale of the Matane Mill, we report the following business segments:
•
•
•
•
High Purity Cellulose
Forest Products
Paperboard
Pulp & Newsprint
All prior period disclosures have been conformed to the above segment structure. See Note 21 — Segment and Geographical
Information of our consolidated financial statements for more information.
High Purity Cellulose
The High Purity Cellulose segment, and in particular the cellulose specialties product line, is the primary driver of our
profitability. Cellulose specialties are natural polymers, used as raw materials to manufacture a broad range of consumer-
oriented products such as liquid crystal displays, impact-resistant plastics, thickeners for food products, pharmaceuticals,
cosmetics, cigarette filters, high-tenacity rayon yarn for tires and industrial hoses, food casings, paints and lacquers. We
manufacture products tailored to the precise and demanding chemical and physical specifications of our customers, achieving
industry-leading purity and product functionality. Our ability to consistently manufacture high-quality cellulose specialties
products is the result of our proprietary production processes, intellectual property, and more than 90 years of technical
expertise and knowledge of cellulosic chemistry.
Additionally, a significant portion of our production capacity is dedicated to manufacturing high-purity commodity
products for viscose and absorbent materials applications. Commodity viscose is a raw material required for the manufacture of
viscose staple fibers which are used in woven applications such as rayon textiles for clothing and other fabrics, and in non-
woven applications such as baby wipes, cosmetic and personal wipes, industrial wipes and mattress ticking. Absorbent
materials, typically referred to as fluff fibers, are used as an absorbent medium in products such as disposable baby diapers,
feminine hygiene products, incontinence pads, convalescent bed pads, industrial towels and wipes and non-woven fabrics.
Cellulose specialties typically contain over 95 percent cellulose, while commodity products typically contain less than 95
percent cellulose.
3
Products
Cellulose Specialties
Cellulose specialties are a natural polymer primarily derived from either wood or cotton and are used as a principal raw
material to manufacture a broad range of products. Cellulose specialties generally command a price premium and earn higher
margins relative to other commodity wood pulp products. Cellulose specialties are a dissolving wood pulp product which target
a combination of high purity and high viscosity. Unlike other wood pulps used for their physical properties, cellulose
specialties are sought after for the unique chemical properties and reactivity they impart on downstream products.
Derived from wood, our cellulose specialties require high levels of purity, consistency and process knowledge. Our
products play a significant role in our customers’ manufacturing processes, which require cellulose specialties of high purity
and uniformity for efficient production. Therefore, our customers demand products of the highest quality. As a result, our
products are custom-engineered and manufactured to each customers’ unique specifications and require a stringent qualification
process; our quality and consistency allow our customers to operate more efficiently and cost-effectively.
One of our key competitive advantages is our unique ability to leverage our global manufacturing asset base to provide our
customers greater supply chain security for cellulose specialties fibers. With our four facilities and five manufacturing lines
capable of producing cellulose specialties, we are the only cellulose specialties producer in the world with flexibility to use both
hardwood and softwood fibers, kraft and sulfite cooking processes, and a variety of proprietary chemical treatments to provide
customized product functionality. Additionally, we possess significant process knowledge: the understanding of wood fiber
properties and their modification under a sequence of chemical processes, accumulated and developed over 90 years of practical
application to satisfy a variety of customer needs. This process knowledge, combined with our manufacturing scale and
flexibility and knowledge of customers’ applications and specifications, makes us the industry’s most adaptable modifier of
cellulose fibers.
Commodity Products
We can shift our High Purity Cellulose segment manufacturing assets between commodity viscose and absorbent materials
production. Historically we have opted to participate in both markets and fluctuate production to take advantage of market
conditions and generate the most attractive margins.
Commodity viscose is primarily sold to producers of viscose staple fibers which in turn are used to manufacture rayon
fibers which are widely used in the clothing and textile industries. Shifts in fashion styles and textile fiber blending have
increased demand for viscose staple fibers. Additionally, variability in cotton linter supply and increasing environmental
concerns about cotton production have resulted in viscose staple producers shifting volume away from cotton linter pulp to
wood-based dissolving pulp.
Absorbent materials, or fluff fibers, are typically used in consumer products such as baby diapers. These fibers provide a
medium for fluid acquisition, distribution and retention in the products in which they are incorporated. Pricing for commodity
products is typically referenced to published indexes or based on publicly available spot market prices.
Competition
Cellulose Specialties
Significant
intellectual property, capital
investment and technical expertise are needed to design and manufacture
customized cellulose specialties fibers to exacting customer specifications. The product must be formulated to achieve the
desired characteristics including parameters for purity, viscosity, brightness, reactivity and other physical properties. Product
qualification time can be lengthy, extending six to twenty-four months. Resulting customer relationships are typically long-term
and are based on an understanding of our customers’ production processes and technical expertise which we utilize to help
solve our customers’ production challenges and support new product development. Further, establishing a production line and
obtaining the necessary production technologies requires substantial capital and ongoing maintenance expenditures.
Product performance, technical service and price are principal methods of competition in cellulose specialties. Product
performance is primarily determined by the chemical attributes of the pulp, including purity, viscosity and uniformity of the
cellulose specialties. Our processes, which are a key element of our intellectual property, are capable of generating cellulose
specialties purity levels in excess of 98 percent as well as the highest levels of viscosity derived from wood pulp. Typically,
product pricing is set annually in the fourth quarter for the following year based on discussions with customers and the terms of
contractual arrangements.
4
We compete with both domestic and foreign producers in cellulose specialties. Competitors include GP Cellulose,
Borregaard, Bracell, Sappi, Nippon, Cosmo Specialty Fibers and Aditya Birla Group. Some competitors use both wood and
cotton linter fibers, as a source of cellulose fibers. Our multiple manufacturing lines, processes and intellectual property allow
us to compete in more segments of the cellulose specialties market than any of our competitors.
Commodity Products
The principal method of competition in commodity products is price, as purity and uniformity are less critical
differentiators. We compete with both domestic and foreign producers of commodity products.
For commodity viscose, many competitors derive their commodity viscose from either wood or cotton. Although cellulose
specialties can generally be sold to meet commodity viscose demand, the reverse is not typically true. However, in recent years
commodity viscose has continued to supplant cotton as the preferred raw material input for viscose staple fiber production. For
commodity viscose, major competitors include Sappi, Austrocell and Bracell.
For absorbent materials, major competitors include GP Cellulose, Domtar and International Paper.
Forest Products
We manufacture and market high-quality, construction-grade softwood lumber, both stud and random lengths, in North
America through our six sawmills located in Canada.
In 2020, approximately 67 percent of our lumber sales were exported from Canada to the U.S. On December 28, 2017, the
United States Department of Commerce (“USDOC” issued a determination for countervailing and anti-dumping duties
(collectively, the “Duties” of approximately 20 percent on imports of softwood lumber from Canada. On January 3, 2018, the
USDOC issued orders to the United States Customs and Border Protection to collect the Duties on softwood lumber imports
from Canada. Through year-end 2020, the Company has paid approximately $91 million of duties.
In December 2020,
following its administrative review of the period of April 28, 2017 through December 31, 2018 (“First Administrative
Review”, the USDOC determined revised rates for the Duties, with the Company now being subject to an anti-dumping duty
rate of approximately nine percent.
Products
We manufacture finished dimensional lumber (2 by 4’s, 2 by 8’s, etc. made of spruce, pine, or fir, used in the construction
of residential and multi-family homes, light industrial and commercial facilities, and the home repair and remodel markets.
Wood chips, a by-product of the lumber manufacturing process, are used as raw materials in our High Purity Cellulose, Pulp
and Newsprint facilities in Canada. Additionally, bark and sawdust are used for fuel in several of our operations.
Competition
The principal method of competition in the Forest Products segment is price, which is based on individual sawmill
efficiency, the availability of competitively-priced raw materials, demand for wood products used in the construction of
residential and multi-family homes as well as demand from the repair and remodel of existing homes. Residential and multi-
family home construction is influenced by demographic factors such as population growth, employment, consumer confidence,
consumer income, availability of financing and interest rate levels, and the supply and pricing of existing homes on the market.
Repair and remodel activity is affected by the size and age of existing housing inventory and access to home equity financing
and other credit.
Our significant competitors include West Fraser Timber Ltd., Resolute Forest Products, Weyerhaeuser, Georgia Pacific,
Interfor, Canfor, Eacom and other producers of softwood lumber in North America.
Paperboard
We manufacture paperboard in the Temiscaming plant in Quebec. Paperboard is used for printing documents, brochures,
promotional materials, packaging, paperback book or catalog covers, file folders, tags, and tickets. Pricing for paperboard is
typically referenced to published indices and marketed through our internal sales team. Our production facility has the capacity
to annually produce 180,000 metric tons of paperboard.
Products
Products
packaging,
materials, paperback book or catalog covers, file folders, tags and tickets.
Paperboard
business
include
the
in
printing
documents,
brochures,
promotional
5
Competition
The principal method of competition in the Paperboard segment is price and product performance. Price is impacted by the
balance between supply and demand as affected by global economic conditions, changes in consumption and capacity, the level
of customer and producer inventories, and fluctuations in currency exchange rates. Product performance is determined based on
the physical attributes of our products in our customers manufacturing processes. To a lesser extent, quality and service are also
considered competitive determinants.
For paperboard, our significant competitors include Westrock, Metsa, Clearwater, and Sappi.
Pulp & Newsprint
We manufacture and market high-yield pulp and newsprint. High-yield pulp, produced in the Temiscaming plant in
Quebec, is used by paper manufacturers to produce paperboard, packaging, printing and writing papers and a variety of other
paper products. Newsprint, produced in the Kapuskasing plant in Ontario, is a paper grade product used for newspapers,
advertising materials and other publications.
Pricing for high-yield pulp and newsprint is typically referenced to published indices marketed through our internal sales
team. Our production facilities located in Canada have the capacity to annually produce 300,000 metric tons of high-yield pulp
and 205,000 metric tons of newsprint.
Products
We produce high-yield pulp at our Temiscaming plant in Quebec, primarily from hardwood aspen and maple species.
These pulps are used by paper manufacturers to produce paperboard products, printing and writing papers and a variety of other
paper products. Annually, approximately 65,000 metric tons are used internally for production of Paperboard.
Newsprint, produced in the Kapuskasing plant in Ontario, is a paper grade used for newspapers, advertising materials and
other publications. Newsprint pricing is typically referenced to published indices and marketed through our internal sales team.
Competition
The principal method of competition in the Pulp & Newsprint segment is price. Price is impacted by the balance between
supply and demand as affected by global economic conditions, changes in consumption and capacity, the level of customer and
producer inventories, and fluctuations in currency exchange rates. To a lesser extent, quality and service are also considered
competitive determinants.
Significant Pulp competitors include Millar Western, West Fraser, Paper Excellence, Estonia Cell, Sappi and Winstone.
Significant Newsprint competitors include Resolute Forest Products, White Birch Paper and Kruger.
Raw Materials and Input Costs
All our manufacturing operations require significant amounts of wood fiber, in the form of logs or wood chips, as a raw
material and energy to produce our products. Additionally, our High Purity Cellulose and Pulp & Newsprint segments’
manufacturing processes require significant amounts of chemicals. These raw materials and input costs are subject to significant
changes in prices as a result of weather conditions, supply and demand. To control cost, we continually pursue reductions in
usage and costs of key supplies, services and raw materials. We do not foresee any material constraints in the near term from
pricing or availability.
Wood
Our Canadian Forest Products operations rely on the consistent supply of substantial quantities of logs. Substantially all
timberlands in Canada are government-owned and the right to harvest timber is acquired through provincially-granted licenses.
Licenses grant the holder the right to harvest, for a fee, up to a specified quantity of timber annually. Government objectives in
granting licenses include responsible management of timber, soils, wildlife, water and fish resources and the preservation of
biodiversity and the protection of cultural values. The objectives also include achieving the fullest possible economic utilization
of the forest resources and employment in local communities. In addition, license holders are required to replant the trees
harvested to ensure re-establishment of the forest after harvesting. Reforestation projects are planned and supervised by our
forest resource management staff and subject to approval by relevant government authorities. Our timber harvesting operations
are performed directly or carried out by independent contractors under our forest resource management supervision.
In Canada, the High Purity Cellulose and Pulp & Newsprint plants are supplied with wood chips produced as a by-product
from the lumber manufacturing process.
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In the U.S. and France, we supply wood chips to our High Purity Cellulose plants through the purchase of chips from
lumber producers or produce chips through our wood chipping facilities.
Chemicals
Chemicals, which include caustic soda (sodium hydroxide), sulfuric acid, ammonia, sodium chlorate and various specialty
chemicals, are purchased under negotiated supply agreements with third parties. The prices for these products are impacted by
various factors including supply and demand, environmental regulation, energy prices and overall economic conditions.
Energy
Our energy is primarily produced through the burning of lignin and other residual biomass in recovery and power boilers
located at our plants. However, our manufacturing facilities still utilize significant amounts of fuel oil, natural gas and
purchased electricity to supplement their energy requirements. In addition, energy prices impact our transportation costs for
delivery of raw materials to our manufacturing facilities and delivery of our finished products to customers.
Intellectual Property
Substantially all of our intellectual property relates to our High Purity Cellulose segment. We own patents, trademarks and
trade secrets, and have developed significant know-how, particularly in the production of high purity cellulose, which we deem
important to our operations. We intend to protect our intellectual property, including, when appropriate, filing patent
applications for inventions that we deem important to our business and operations. Our U.S. patents generally have a duration
of 20 years from the date of filing. We also require key employees to enter into non-compete agreements as appropriate.
Seasonality
Our operating results are not significantly affected by seasonal changes. However, working capital is affected by the
Canadian wood harvest which occurs primarily in the winter months.
Customers
No single customer accounted for more than 10 percent of our consolidated net sales during the year ended December 31,
2020.
Research and Development
Research and development capabilities and activities are focused on the High Purity Cellulose segment. The quality and
consistency of our cellulose specialties and research and development capabilities create a significant competitive advantage;
they are important factors in achieving an optimal value for our cellulose specialties products. Our research and development
efforts are primarily directed at further developing products and technologies, improving the quality of cellulose fiber grades,
improving manufacturing efficiency and environmental controls and reducing fossil fuel consumption. We continue to focus
our research and development activities to develop and market additional new products and applications.
We spent $7 million, $6 million and $6 million on research and development for the years ended December 31, 2020, 2019
and 2018, respectively.
Environmental Matters
Our manufacturing operations are subject to significant federal, state, provincial and local environmental regulations. For a
more detailed discussion, see Item 1A — Risk Factors, Item 3 — Legal Proceedings, Item 7 — Management’s Discussion and
Analysis of Financial Condition and Results of Operations — Environmental Regulation. Additionally, see Note 11 —
Environmental Liabilities and Note 22 — Commitments and Contingencies of our consolidated financial statements for more
information.
Human Capital
Code of Conduct
Within the framework of our core values of Integrity, Accountability, Quality, and People, the Rayonier Advanced
Materials Standard of Ethics and Code of Corporate Conduct is our guide to the lawful and ethical performance of our duties.
Adherence to the Code is intended to ensure that we:
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· Fulfill our obligation to observe the law both in letter and spirit in all countries in which we do business; and
· Deal fairly with shareholders, employees, customers, suppliers, regulators and communities.
We publish and communicate these expectations and values for all employees several times throughout the year as well as
include these statements in new hire materials.
Employee Demographics
Rayonier Advanced Materials has production facilities in the United States, Canada, and France with sales offices in the
United States, Canada, France, United Kingdom, Japan, and China. Of our approximately 4000 employees, 75 percent are
unionized, as all of our manufacturing sites are represented by various local and national unions. We have strong and open
relationships with these employee representatives. See Note 22 — Commitments and Contingencies of our consolidated
financial statements for more information.
Diversity
Respect for people is one of Rayonier Advanced Materials core values. To better explain this core value to our external
stakeholders, we have published a Human Rights Policy found on our website. We specifically and publicly state that inclusion
and diversity are not just words at Rayonier Advanced Materials, they are ideals ingrained in our company values and projected
through our business practices and human resources programs. Our diversity allows us to learn and build solutions from
different perspectives.
As a means of listening to our employees to ensure we have an appropriate perspective of what we do well and how to
improve, we have commissioned a Diversity and Inclusion Advisory Group which is made up of employees across all our major
locations, including union leadership. The focus of this group is expanding the recruiting network to ensure more diverse
candidates are included in the pipeline.
Safety
Rayonier Advanced Materials has a vision of every employee coming to work and going home injury free. While we have
not achieved this vision, we continue to make progress each year with the 2020 company wide injury rate decreasing by 8
percent versus 2019. The organization’s vision of injury free operations is achieved through five leading metrics: housekeeping,
leadership engagement, corrective action closure, gas emissions, and life safety programs. We track the progress against these
metrics monthly with an annual goal of improvement. In addition, there are subcommittees of leaders across the company that
are accountable for one of the leading metrics with these teams reporting to a steering team chaired by our CEO.
Availability of Reports and Other Information
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements
and amendments to those reports filed or furnished pursuant to Sections 13(a) or 14 of the Securities Exchange Act of
1934 are made available to the public free of charge in the Investor Relations section of our website www.rayonieram.com,
shortly after we electronically file such material with, or furnish them to, the SEC. All reports we file with or furnish to the
SEC are also available free of charge on the SEC’s website, https://www.sec.gov. Our corporate governance guidelines and
charters of all committees of our board of directors are also available on our website.
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Item 1A. Risk Factors
Our business, financial condition, results of operations, cash flows and equity are subject to a number of risks and
potential material adverse events including, but not limited to, those listed below. When considering an investment in our
securities, you should carefully read and consider these risks, together with all other information in this Report and our
other filings and submissions to the SEC.
If any of the events described in the following risk factors actually occur, our
business, financial condition or operating results, as well as the market price of our securities, could be materially adversely
affected.
Epidemic and Pandemic Risks
We are subject to risks associated with epidemics and pandemics, including the COVID-19 pandemic and related
impacts. The nature and extent of ongoing and future impacts of the pandemic are highly uncertain and
unpredictable.
Our global operations expose us to risks associated with public health crises, including epidemics and pandemics, such
as the COVID-19 pandemic which has generated, and may continue to generate, significant volatility, uncertainty and
economic disruption across the globe including in many markets in which we or our customers do business. Over the past
year, COVID-19 has adversely impacted our business and financial condition in various ways, including impacts associated
with preventive and precautionary measures that we, other businesses, governments and individual consumers have taken
and are continuing to take to limit the spread of the virus. Examples of such impacts have included: increased operating
costs due to social distancing and other strict health and safety protocols implemented at our facilities to protect employees
and contractors; reductions and/or unpredictable fluctuations in demand necessitating production adaptations such as the
4-8 weeks of production downtime taken at our Canadian sawmills in early 2020; sharp declines in newsprint volumes
driven by the pandemic’s impact on the hospitality and travel sectors; and reduced supply chain reliability due to
international shipping congestion associated with global demand surges and fluctuations and empty container imbalances.
Impacts could be magnified if the pandemic severity increases or duration persists over an extended period of time. While
the full extent of the COVID-19 pandemic’s ongoing and future impacts on our business cannot currently be predicted with
certainty, we continue to promote the health and safety of our employees, contractors, suppliers and customers and to
closely monitor the pandemic's impacts on our liquidity, access to capital markets, reliability, customers and suppliers, and
the macroeconomic conditions relevant to our business, including general economic uncertainty, unemployment rates and
recessionary pressures.
Specific risks associated with COVID-19 include, but are not limited to, the following:
•
Significant and unpredictable reductions and other fluctuations in demand for certain of our products due to
pandemic-driven factors such as end-market weakness and customer security-of-supply concerns.
•
• Adverse effects on our suppliers, vendors and other global supply chain partners which have impaired and could
continue to impair our ability to timely and efficiently move our products through the various steps in the global
supply chain process to our end customers.
Possible workforce disruption to the extent our operational, management or other personnel are impacted in
significant numbers by COVID-19 and are not available to perform their duties and tasks, which could create
reductions or suspensions of our manufacturing operations and other support functions.
Restricted access to capital, increased financing costs and/or adverse effects on our liquidity and perceptions of
our creditworthiness due to the ongoing adverse impacts of COVID-19 on the global economy and capital markets
worldwide.
Possible heightening of other risks described in the “Risk Factors” section in this Report to the extent that
COVID-19 continues to adversely affect our business, financial condition or results of operations.
•
•
Macroeconomic and Industry Risks
The businesses we operate are highly competitive and many of them are cyclical, which may result in fluctuations
in pricing and volume that can adversely affect our business, financial condition and results of operations.
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Competition, demand fluctuations and cyclicality are the most significant drivers of sales volumes and pricing for our
products. We face significant competition from domestic and foreign producers in virtually all of our businesses. For
example, in our cellulose specialties product line, increased cellulose specialties production capacity from our competitors,
some of whom have lower raw material, wood and production costs than us, combined with demand weakness, have
collectively contributed to substantially lower cellulose specialties sales prices over the past several years. Likewise,
volumes have declined meaningfully in recent years due to these factors. The COVID-19 pandemic has exacerbated these
dynamics and may continue to do so. Our high-purity commodity products for viscose and absorbent materials applications
are also highly cyclical, and in 2019-2020 were at extremely low pricing levels. While these levels began to slowly
rebound during the latter part of 2020, there can be no assurance as to the extent of such rebound or that elevated levels will
be sustained over a significant period of time.
With respect to demand for cellulose specialties, and in particular our acetate grades, the majority of these acetate
grades are used to manufacture acetate tow, which is used to make the filter component of a cigarette. Significant
increases in cigarette costs and potential actions taken by the United States and other countries to discourage smoking, such
as tax increases on tobacco products, policy changes and future legislation, may have a material adverse effect on the
demand for tobacco products. Additionally, increased use of e-cigarettes, electronically heated tobacco products and
smokeless tobacco products, by way of example, may affect demand for traditional cigarettes.
In addition, some of the industries in which our end-use customers participate, such as construction, home building,
publishing, packaging, automotive and textiles, are cyclical in nature, thus posing risks to us which are beyond our control.
These industries are highly competitive and may experience overcapacity and reductions in end-use demand, each of which
may affect demand for and pricing of our products. The consequences of this could include the reduction, delay or
cancellation of customer orders.
Our lumber, paper, high yield pulp and paper-related commodity businesses are highly cyclical and influenced by a
variety of factors. These include periods of excess product supply due to industry capacity increases, periods of decreased
demand due to reduced economic activity or market conditions, inventory de-stocking by customers and fluctuations in
currency exchange rates. These factors may cause significant price changes over a short period, such as fluctuations
experienced over the past year during the COVID-19 pandemic. To address these factors, we have in the past, and may in
the future, elect to schedule production curtailments and shutdowns to address, for example, unfavorable economic
conditions, reduced demand for our products or the end products of our customers, lack of economically viable fiber in
Canada, reduced market prices and other factors. In particular, our lumber, newsprint and high yield pulp businesses have
each been the subject of temporary curtailments at given points over the past two years in reaction to market conditions.
In sum, continued competitive pressures and demand weakness, as well as the cyclicality of our commodity
businesses, may have a material adverse impact on our future sales prices and volumes and, therefore, our business,
financial condition and results of operations.
Changes in raw material and energy availability and prices could have a material adverse effect on our business,
results of operations and financial condition.
Raw material costs and energy, such as chemicals, oil and natural gas and electricity are a significant operating
expense. The cost of these inputs can be volatile and are susceptible to rapid and substantial increases due to factors
beyond our control, such as lack of availability, changing economic and weather conditions, political, civil or other unrest
or instability in energy-producing nations, and supply and demand considerations. For example, caustic soda, a key
manufacturing input in our high purity cellulose business, has historically had significant price volatility. Similarly, the
price of oil and natural gas (including its pipeline transportation element) is subject to fluctuations based on market demand
and other factors. In contracts for certain of our products, pricing is set annually or otherwise not subject to change for a
contractually-agreed period of time; so in some cases we may have limited ability to pass along fluctuations in these input
costs once the contract price for the relevant period has been established. In addition, industrial and other policies of the
governments and governmental agencies having jurisdiction over suppliers of raw materials to our facilities may change,
due to changes in political leadership or otherwise, which also could adversely impact the cost of energy and its
transportation. While we often use various strategies to mitigate the potential impact of this pricing volatility, such as long
term contracting and the purchase of derivative commodity contracts, the impact of raw material and energy pricing
increases could materially adversely affect our business, financial condition and results of operations.
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We are subject to material risks associated with doing business outside of the United States.
We have large manufacturing operations in Canada and France, and a significant portion of our sales are to customers
and customer locations outside of the United States, including Canada, China, Japan, South Korea, the European Union and
other international markets. Sales to customers outside of the United States made up approximately 61% of our revenue in
2020. The manufacture and sale of our products in non-U.S. markets results in risks that are inherent in conducting
business under international laws, regulations and customs. We expect international sales will continue to contribute
significantly to our financial condition and future growth. The risks associated with our business outside the United States
include:
• maintaining and governing international subsidiaries and managing international operations;
•
complying with changes in and reinterpretations of the laws, regulations and enforcement priorities of the
countries in which we manufacture and sell our products;
complying with anti-bribery laws such as the U.S. Foreign Corrupt Practices Act and similar anti-bribery laws in
other jurisdictions;
trade protection laws, policies and measures and other regulatory requirements affecting trade and investment,
including loss or modification of exemptions for taxes and tariffs, imposition of new tariffs and duties and import
and export licensing requirements, as discussed below in more detail;
complying with data privacy laws such as the European Union’s General Data Privacy Regulation (GDPR);
repatriating cash from foreign countries to the United States;
changes in tax laws and their interpretations in the countries in which we do business, including the potential
impact on the value of recorded or future deferred tax assets and liabilities;
product damage or losses incurred during shipping;
political instability and actual or anticipated military or political conflicts;
economic instability, inflation, recessions and interest rate and currency exchange rate fluctuations, as discussed
below in more detail;
uncertainties regarding non-U.S. judicial systems, rules and procedures; and
•
• minimal or limited protection of intellectual property in some countries.
•
•
•
•
•
•
•
•
These and other risks of doing business outside of the United States could adversely affect our business, financial
condition and results of operations.
Currency fluctuations may have a material negative impact on our business, financial condition and results of
operations.
We have manufacturing operations in the United States, Canada and France. We also sell our products all over the
world, in either U.S. dollars, Canadian dollars or Euros. As a result, we are exposed to movements in foreign currency
exchange rates, and our earnings are affected by increases or decreases in the value of the U.S. dollar and in the value of
the Canadian dollar and Euro relative to the U.S. dollar. For example, a strengthening U.S. dollar or a weakening home
currency of the countries in which certain of our international competitors manufacture products can adversely impact our
In addition to ordinary course currency fluctuations, specific events have
competitive position versus these competitors.
had, and could in the future have, an impact on currency valuation. Our risk management policy allows management, with
oversight from the Audit Committee of its Board of Directors, to hedge a significant portion of its exposure to fluctuations
in foreign currency exchange rates, though no hedges are currently in place. To accomplish this, we have used, and may in
the future continue to use, derivative instruments, such as currency options and foreign exchange forward contracts, to
mitigate our exposure to fluctuations in foreign currency exchange rates, but there can be no assurance that we will be
protected against substantial foreign currency fluctuations or that such fluctuations will not have a material adverse impact
on our business, financial condition and results of operations.
Restrictions on trade through tariffs, countervailing and anti-dumping duties, quotas and other trade barriers, in
the United States and internationally, could materially adversely affect our ability to access certain markets.
We manufacture our products in the United States, Canada and France, and sell them into more than 40 countries. Our
financial results are highly dependent on our ability to sell our products globally. Trade barriers such as tariffs,
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countervailing and anti-dumping duties, quotas and similar restrictions on trade have in the past, and could in the future,
result in materially reduced revenues and profitability. Examples of the effects of such restrictions on trade and tariffs on
our business in China and Canada are set forth below.
China
In 2020, the we had total sales of $357 million of products shipped to customers in China and, of this amount, $256
million were of products manufactured in the United States. Trade tensions and trade-related actions, such as tariffs and
duties, between China and the U.S. have impacted our business and our customers’ businesses and could do so in the
future. Failure of the U.S. and Chinese governments to reach acceptable agreements regarding trade, as well as continued
trade volatility and additional trade-related actions by the Chinese government, could have a material adverse impact on
our business, financial condition and results of operations.
Canada
We operate six softwood lumber mills in Ontario and Quebec, Canada, and, in 2020, sold approximately $224 million
of softwood lumber into the United States from Canada. The United States and Canada have a history dating to the early
1980s of trade disputes relating to the export of softwood lumber from Canada into the United States. Each dispute has
been resolved via agreement or litigation, which generally involved some combination of duties and/or quotas as well as a
return of all or most of the duties previously paid by Canadian softwood lumber producers. In October 2015, a ten-year
Softwood Lumber Agreement (the “SLA”) between the United States and Canada, which resolved the 2001-2006 lumber
dispute between the countries, expired. No agreement was reached to extend or renew it, and as a result, after a one-year
cooling-off period the United States commenced a dumping investigation of lumber exports from Canada into the U.S. In
2017, anti-dumping and countervailing duties were assessed by the USDOC on lumber exported into the United States, we
were assigned an anti-dumping duty rate of 6 percent and a countervailing duty rate of 14 percent. These duties are being
legally challenged by Canada under both the North American Free Trade Agreement (“NAFTA”) and World Trade
Organization (“WTO”) dispute resolution processes. In December 2020, following its administrative review of the period
of April 28, 2017 through December 31, 2018, USDOC determined revised rates for antidumping and countervailing
duties, and we are now subject to an anti-dumping duty rate of 1.57 percent and a countervailing duty rate of 7.42 percent.
Canada has filed an appeal under Chapter 10 of the United States-Mexico-Canada Agreement on Trade (“USMCA”) to
contest these revised duties. We have paid approximately $91 million in lumber duties to date, but expect to eventually
receive most of these duties back in the event of a favorable ruling under the NAFTA or WTO process or a settlement of
the dispute. No assurances can be given that the duties will be overturned or repaid through the legal process or a
negotiated settlement, or that lumber pricing will be sufficient to substantially offset their impact.
Business and Operational Risks
Our ten largest customers represent approximately 31 percent of our 2020 revenue, and the loss of all or a
substantial portion of our revenue from these large customers could have a material adverse effect on our business.
While we are not dependent on any single customer or group of customers, our ten largest customers accounted for
approximately 31 percent of revenue in 2020. Due to the highly competitive nature of our businesses, we regularly bid for
new business and to retain/renew existing business and, as such, we are subject to the potential for meaningful revenue and
volume gains and losses.
We are also subject to credit risk associated with these customers. If one or more of our ten largest customers were to
become bankrupt, insolvent or otherwise were unable to pay for our products, we may incur significant write-offs of
accounts that may have a material adverse effect on our business, financial condition and results of operations.
Although we continue to strive to broaden and diversify our customer base, a significant portion of our revenue is
derived from these ten customers, and the loss of all or a substantial portion of sales to any of these customers, or
significant, unfavorable changes to pricing or terms contained in contracts with them, could materially affect our business,
financial condition or results of operations. See Note 21 — Segment and Geographical Information of our consolidated
financial statements for more information on our major customers.
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A material disruption at one of our major manufacturing facilities could prevent us from meeting customer
demand, reduce our sales and profitability, increase our cost of production and capital needs, or otherwise
materially adversely affect our business, financial condition and results of operation.
Any of our major manufacturing facilities, or a significant portion of any of these facilities, could cease operations
unexpectedly or suffer a material disruption to all or a portion of its operations due to a number of material adverse events,
including:
•
unscheduled outages or downtime due to the need for unexpected maintenance or equipment failure, such as for
portions of our facilities that produce steam and electricity (such as boilers and turbines), pollution control
equipment, and equipment directly used to manufacture our products, such as reliability issues during the first
quarter of 2019 at the Temiscaming, Quebec plant;
prolonged power interruptions or failures;
explosion of boilers or other pressure vessels;
interruptions in the supply of raw materials, including chemicals and wood fiber;
disruptions to or failures of the transportation infrastructure, such as roads, bridges, railroad tracks and tunnels, as
well as lack of availability of rail,
trucking and ocean shipping equipment and service from third party
transportation providers;
interruption or material reduction of water supply;
a chemical spill or release or other event causing impacts to the environment or human health and safety;
information technology system failures and cybersecurity incidents causing systems to be inaccessible or
unusable;
fires, floods, windstorms, earthquakes, hurricanes or other similar catastrophes, such as the hurricanes which
impacted our Jesup, Georgia and Fernandina Beach, Florida plants in 2017;
labor interruptions, such as strikes and short duration walk-outs such as the walk-out in 2019 at our site in Tartas,
France;
terrorism or threats of terrorism; and
other operational problems resulting from these and other risks.
•
•
•
•
•
•
•
•
•
•
•
Some of these matters are discussed in more detail in other sections of this Item 1A-Risk Factors. Depending on the
nature, extent and length of any operational interruption, the event could materially affect our business, financial condition
and results of operations.
The availability of, and prices for, wood fiber may have a material adverse impact on our business, results of
operations and financial condition.
Wood fiber is the single largest raw material in the manufacturing process for virtually all of our products. Many
factors can impact its availability and pricing: One key factor is whether the land on which the timber is grown is owned by
private parties or governmental entities. For example, fiber for our U.S. and French facilities is primarily harvested from
privately-held lands, while fiber for our Canadian facilities is primarily harvested from lands owned or controlled by the
governments of the provinces of Ontario and Quebec, referred to as “Crown lands”. In 2020, approximately 90 percent of
the Company’s fiber requirements in Canada were sourced from Crown lands. The Company’s current agreements with
provincial authorities grant timber “tenures” for terms varying from five to 20 years and may be subject to renewals every
five years. In Canada, the Company currently manages approximately 25 million acres (ten million hectares) of Crown
lands for timber production. The price and availability of this Canadian fiber depends, in large part, on the Company’s
ability to replace or renew these agreements on acceptable terms or enter into acceptable alternative fiber supply
arrangements with provincial authorities. The terms of any replacement, renewal or alternative arrangement are based on
legislative and regulatory provisions as well as governmental policy. Therefore, changes in legislation, regulatory regimes
or policy in the provinces in which we operate may reduce the availability of fiber and increase costs through the
imposition of additional and more stringent harvesting, rehabilitation and silvicultural standards or the alteration of fee
structures. Although we expect these agreements to be extended in the ordinary course as they come up for renewal, there
can be no assurance that they will be renewed, extended or replaced in the future on acceptable terms, or at all, or that the
amount of timber that the Company is permitted to harvest will not decrease.
Also, Aboriginal communities in Canada, often referred to as “First Nations”, have Aboriginal or treaty rights on most
timberlands in Canada. Canadian courts have recognized that Aboriginal people may possess rights in respect of land used
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or occupied by their ancestors and have encouraged the federal and provincial governments and Aboriginal people to
resolve rights claims through the negotiation of treaties. We operate in territories in which a spectrum of non-treaty and
treaty rights exist. To mitigate risks and accommodate the traditional activities of these communities during forestry
planning and operations, the Company has concluded agreements, and is currently negotiating other agreements, with
many First Nations communities to achieve Aboriginal community acceptance for our forestry operations plans. These
agreements support an approach of active engagement with Aboriginal communities that serves to ensure the identification
of issues and facilitates constructive problem-solving.
Regulatory developments and environmental litigation also have caused, and may cause in the future, significant
reductions in the amount of timber available for commercial harvest from non-Crown lands in Canada and privately-owned
lands in the U.S. and France, thereby increasing prices for these sources of wood fiber. In Canada, for example, future
legislation and policy changes, litigation advanced by environmental groups and Aboriginal communities concerning rights
and limitations on harvesting and use of timberlands, the protection of endangered species, the promotion of forest
diversity, control over insect and disease infestations, and the response to and prevention of wildfires could also affect
wood fiber supply, pricing and availability.
In addition, much of the wood fiber we use is sourced by or from third party contractors who harvest, chip and/or truck
the fiber to our manufacturing facilities, either as logs for lumber and chipping or as chips. Another key factor in fiber
supply and pricing is the availability of experienced logging and fiber transportation contractors in the areas in which our
manufacturing facilities are located. Sourcing fiber from greater distances from our facilities due to unavailability of more
proximately located fiber sources could also impact pricing due to additional transportation cost. Significant reduction in
the availability of contractors experienced in harvesting and transporting logs could also impact wood fiber supply, pricing
and availability.
Finally, natural conditions, such as weather, timber growth cycles and restrictions on access to timberlands for
harvesting (for example, due to prolonged wet or cold conditions) may also limit the availability, and increase the price, of
wood, as may other factors, including damage by fire, insect infestation, disease, prolonged drought and natural disasters
such as wind storms and hurricanes. For example, in the recent past we have seen more frequent wet weather in the
Southeastern U.S. region from which we source our fiber supplied to our Jesup and Fernandina facilities, which can result
in reduced availability of supply and higher prices, especially for hardwoods. It is unclear whether these conditions will
persist into the future.
In sum, any sustained decrease in harvestable lands or wood supply, or increase in fiber prices, whether sourced from
Crown lands in Canada or from private parties in Canada, the U.S. or France, changes in the logging and transportation
supply base, or significant changes to historically customary natural conditions, could materially increase our costs and
thereby materially impact our business, financial condition and results of operations.
Our operations require substantial capital.
We operate capital
intensive businesses and require substantial capital for ongoing maintenance, repair and
replacement of existing facilities and equipment. Although we endeavor to maintain our production equipment with
regular scheduled maintenance, key pieces of equipment and systems, some of which are large in scale, may need to be
repaired or replaced periodically. The costs of repairing or replacing such equipment and the associated downtime of the
In addition, new or
affected production line could adversely affect our financial condition and results of operations.
existing environmental regulations at times require additional capital expenditures for compliance. We believe our capital
resources are currently adequate to meet our current projected operating needs, capital expenditures and other cash
requirements. However, if for any reason we are unable to provide for our operating needs, capital expenditures and other
cash requirements on reasonable economic terms, we could experience a material adverse effect on our business, financial
condition and results of operations.
We depend on third parties for transportation services and increases in costs and the availability of transportation
could materially adversely affect our business.
Our business depends on transportation services provided by third parties, both domestically and internationally. We
rely on these providers for transportation of the products we manufacture as well as delivery of raw materials to our
manufacturing facilities. A significant portion of the products we manufacture and raw materials we use are transported by
railroad or trucks, and by ship.
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If any of our transportation providers were to fail to deliver the goods we manufacture in a timely manner, or damaged
them during transport, we may be unable to sell those products at full value, or at all. Similarly, if any of these providers
were to fail to deliver raw materials to us in a timely manner, we may be unable to timely manufacture our products in
response to customer demand.
In addition, the cost of energy, and specifically fuel, may adversely impact the cost of
transporting our products. Finally, if any of the ports we commonly use for international shipping, or the port system
generally, were to suffer work stoppages, slowdowns or strikes, our business could be materially adversely impacted.
Our failure to maintain satisfactory labor relations could have a material adverse effect on our business.
As of December 31, 2020, approximately 75 percent of our global work force is unionized. As a result, we are
required to negotiate the wages, benefits and other terms of employment with these employees collectively. Our financial
results could be materially adversely affected if labor negotiations resulted in substantially higher compensation costs or
materially restricted how we run our operations.
In addition, our inability to negotiate acceptable contracts with any of
these labor unions as existing agreements expire could result in strikes or work stoppages by the affected workers. While
we do not expect any labor interruptions of significant duration, if our unionized employees were to engage in a strike or
other work stoppage (such as the short-duration walk-out in 2019 at our site in Tartas, France) at one or more of our major
facilities, we could experience a significant disruption of our operations, which could materially affect our business,
financial condition and results of operations.
We are dependent upon attracting and retaining key personnel, the loss of whom could materially adversely affect
our business.
We believe our success depends, to a significant extent, upon our ability to attract and retain key senior management
and operations management personnel. Changing demographics and labor work force trends may result in the loss of
knowledge and skills as experienced workers retire. Furthermore, some of our facilities are in relatively remote locations,
which can adversely impact our ability to recruit and retain employees. Our failure to develop and retain key personnel and
recruit and develop qualified replacements for retiring or other departing employees could materially adversely affect our
business, financial condition or results of operations.
Failure to develop new products or discover new applications for our existing products, or our inability to protect
the intellectual property underlying such new products or applications, could have a material negative impact on
our business.
We have an active research and development program to develop new products and new applications for our existing
products. However, there can be no assurance this program will be successful, either from a product development or
commercialization perspective, or that any particular invention, product or development, or the program as a whole, will
lead to significant revenue or profit generation. Moreover, some of our new products and new applications may not
contain intellectual property that can be protected under intellectual property laws. Failure to generate meaningful revenue
and profit from our research and product development efforts could materially adversely affect our business, financial
condition and results of operations in the future.
The risk of loss of the Company’s intellectual property and sensitive data, or disruption of its manufacturing
operations, in each case due to cyberattacks or cybersecurity breaches, could materially adversely impact the
Company.
Like most companies, the Company has been, and expects in the future to continue to be, subject to attempted
cyberattacks. Such attacks could include, for example, the increasingly prevalent practice of cyber extortion through the
deployment of ransomware. Cyberattacks or cybersecurity breaches could compromise the Company’s intellectual property
and confidential business information, cause a disruption to the Company’s operations, or harm the Company’s reputation.
Moreover, the recent pandemic-driven increase in remote working and virtual interactions has only served to expand the
Company’s “attack surface”. The Company’s information technology systems, some of which are dependent on services
provided by third parties, serve an important role in the efficient operation of its business. This role includes ordering and
managing equipment, parts and raw materials from suppliers, managing inventory, managing the processes we use to
produce finished products, facilitating order entry and fulfillment and processing of transactions, summarizing and
reporting financial results, facilitating internal and external communications, administering human resources functions,
retaining certain personal information and providing other processes necessary to manage our business. While the
15
Company has implemented and maintains what it believes to be appropriate cybersecurity policies, programs, controls and
systems, there can be no assurance a cyberattack would not be successful, or that such a cybersecurity breach will not
occur. Such an event could have a material adverse impact on the Company’s results of operations and financial condition.
Regulatory Risks
Our business is subject to extensive environmental laws, regulations and permits that may materially restrict or
adversely affect how we conduct business and our financial results.
Our plants are subject to environmental laws, regulations and permits that may require significant capital to enable
our compliance, or which could limit our operations and production. Many of our operations are subject to environmental
laws, regulations and permits that contain stringent conditions governing how we operate our facilities including how much
and, in some cases, what types of products we can produce. These laws, regulations and permits, now and in the future,
may materially adversely restrict our current production, limit our ability to increase production and impose significant
It is expected that, overall, compliance-related capital
costs on our operations with respect to environmental compliance.
and operating costs will likely increase over time as environmental laws, regulations and permit conditions become stricter,
and as the expectations of the communities in which we operate become more demanding.
Environmental laws, regulations and permits are constantly changing and are generally becoming more restrictive.
Laws, regulations, permits and related judicial decisions and administrative interpretations affecting our business are
subject to change, and new laws and regulations are frequently enacted. These laws and regulations may limit, prohibit or
affect, among other things, air emissions, wastewater discharges, receiving water quality, water withdrawal, remedial
standards for contaminated property and groundwater, and the type of chemicals we use in our manufacturing processes.
Over time,
the complexity and restrictions imposed by these laws and regulations have increased and regulatory
enforcement efforts have intensified. Environmental regulatory authorities have pursued a number of initiatives which, if
implemented, could impose additional operational and pollution control obligations on industrial facilities like ours,
especially in the area of air emissions, wastewater and storm water control. See Item 7 - Management’s Discussion and
Analysis of Financial Condition and Results of Operations - Environmental Regulation of this Report for further
information. Environmental laws and regulations will likely continue to become more restrictive and over time could
materially adversely affect our business, financial condition and results of operations.
Environmental groups, Aboriginal communities (in Canada) and interested individuals may seek to delay or prevent a
variety of our operations. We expect that environmental groups, Aboriginal communities and interested individuals will
intervene with increasing frequency in the regulatory processes in areas where we operate plants and manage and operate
timberlands. External engagement with these groups and communities is a requirement of our licenses to manage and
operate timberlands in Quebec and Ontario. Consultation with indigenous communities may also be required during the
environmental permitting process for renewal of existing permits and expansions or modifications of our manufacturing
operations in these provinces. Delays, restrictions and increased cost caused by the intervention of these groups or
In addition to intervention in regulatory proceedings,
interested individuals could adversely affect our operating results.
interested groups and individuals may file or threaten to file lawsuits that seek to prevent us from obtaining permits,
implementing capital improvements or pursuing operating plans. For example, in March 2014, litigation was commenced
in federal court by the Altamaha Riverkeeper (“ARK”) alleging violations of federal and state environmental laws relating
to permitted wastewater discharges from our Jesup plant (although it was dismissed by the court on summary judgment in
2015), and in January of 2016 the same group brought an action in the Georgia Office of Administrative Hearings against
the Georgia Environmental Protection Division of the Natural Resources (“EPD”) in opposition to the issuance by EPD of
a renewed wastewater treatment permit for our Jesup plant. While these proceedings have been decided, to date, largely in
our favor, we expect continuing attempts at legal intervention by ARK and others.
We currently own or may acquire properties that require environmental remediation or otherwise are subject to
environmental and other liabilities. We currently own, or may acquire in the future, properties which are subject to
environmental liabilities, such as remediation of soil, sediment and groundwater contamination and other liabilities, and we
may have such liabilities at properties, such as formerly operated manufacturing facilities, that we do not currently own.
The cost of assessment and remediation of contaminated properties could be substantial and materially adversely affect
financial results. These costs could include, without limitation, costs of investigation and assessment, corrective measures,
installation of pollution control equipment and other remediation and closure costs, as well as resolution of third-party
16
laws and regulations. Although we believe we currently have adequate liabilities recorded,
injury as a result of alleged violations of, or liabilities arising out of,
claims for property damage and personal
environmental
legal
requirements relating to assessment and remediation of contaminated properties continue to become more stringent and
there can be no assurance that actual expenditures will not exceed current liabilities and forecasts, or that other presently
unknown liabilities will not be discovered in the future. See Item 7 - Management’s Discussion and Analysis of Financial
Condition and Results of Operations - Environmental Regulation of this Report and Note 11 — Environmental Liabilities
of our consolidated financial statements.
The potential longer-term impacts of climate-related risks remain uncertain at this time.
In 2020, focus and attention to climate-related risks and opportunities continued to increase in importance to our
customers, investors and other stakeholders. Certain investors have expressed a desire for issuers to improve their climate-
related disclosures and have advocated for use of a disclosure framework created by the Task Force on Climate-Related
Financial Disclosures (TCFD). The Company is working to incorporate a focus on climate-related risks and opportunities
into its business processes, and to that end has begun to track and publish (on its Company website) meaningful and
actionable information including Sustainable Accounting Standards Board (SASB)-aligned metrics for “greenhouse
gas” (“GHG”) emissions, air quality, water management and supply chain management. At this time, the Company does
not expect climate-related issues to have a material adverse impact on its business, financial condition or results of
operations in the near term.
The Company considers and evaluates climate-related risks in three general categories; Regulatory, Transition to a
low-carbon economy, and Physical risks related to climate-change.
Regulatory. There are numerous international, federal and state-level initiatives and proposals to address domestic and
global climate issues. Within the United States, Canada and France, where the Company has operations, most of these
initiatives and proposals would or currently regulate and/or tax, in one fashion or another, the production of carbon dioxide
and other GHGs to facilitate the reduction of carbon compound emissions into the atmosphere, and provide tax and other
incentives to produce and use more “clean energy.” Initiatives that could materially impact purchased electricity prices
could increase our manufacturing costs, especially in our Canadian operations, because our operations in Canada use more
purchased electricity (on a percentage basis) than those in our U.S. facilities, which generate most of the electricity needed
to operate. In addition, the federal government of Canada has indicated its intent to regulate priority air pollutants and
GHGs under the Clean Air Act and the Canadian Environmental Protection Act. Under the proposed regulatory targets, the
Company’s Canadian pulp and paper mills may be required to reduce air pollutants, such as particulate matter (“PM”),
sulphur oxides (“SOx”) emissions, nitrogen oxides (“NOx”) and GHGs. While industry consultations are ongoing with the
federal government, the cost of making any such reductions is currently unknown; however, the requirements associated
with PM, SOx and NOx are not expected to be material to the Company given its current operations and pollution control
systems.
The federal government of Canada adopted the Greenhouse Gas Pollution Pricing Act which implements the federal
carbon pollution pricing system. Under the provisions of the Greenhouse Gas Pollution Pricing Act, the provinces, who
have implemented their own carbon pollution price or a “cap-and-trade” system, will not be subject to the federal program
provided their program meets the minimum federal pricing and emissions reduction targets. Quebec implemented a “cap-
and-trade” program for GHGs which meets the said minimum criteria and, at this time. Only the Company’s Temiscaming
site in Québec was a net purchaser of credits under these programs in 2020. On the other hand, Ontario is subjected to the
federal program. The Greenhouse Gas Pollution Pricing Act is being challenged by various provincial governments,
including the government of Ontario. To date, the cost of GHG credits under cap and trade programs purchased by our
business and incorporated into the overall cost of our purchased wood fiber has not been material, though no assurances
can be given that they will not substantially increase in the future, and especially in Canada after 2022 (when the current
programs expire) because the future state of the law and cost of GHG credits after such date is currently not known.
Transition. The transition to a low carbon economy, as predicted by many investors and other stakeholders, poses
both risks and opportunities for the Company that are, as yet, not quantified. Similar to other manufacturers in our sector,
we use biomass, natural gas, liquid fossil fuels and purchased electricity to power our plants. Changes in policy, regulation
or technology related to fuels that we use, or our electricity providers use, could materially increase our costs.
17
At the same time, our main product lines (cellulose specialties and viscose grade commodity dissolving wood pulps) as
well as all of our other products, are made from wood as their primary raw material, which is a renewable, natural raw
material. In addition, our cellulose specialty products are natural polymers that potentially can be used as an effective, more
these
climate-friendly substitute for certain applications which currently use fossil fuel-based products. However,
opportunities, as well as their attendant risks, are not fully known or understood at this time.
Physical. The potential impacts of extreme weather which could result from the impacts of climate change, such as
hurricanes, blizzards, and heavy rain, are factored into our enterprise risk assessment process and the mitigation measures
we currently take to protect our assets and business. It is not clear whether increased frequency of these or similar events
would materially change our risk profile, analyses or mitigation measures, but there can be no assurance that they would
not require additional expenditures which could be material.
In sum, additional business and regulatory initiatives may be implemented to address GHG emissions and other
climate-change-related concerns. If such initiatives are implemented, we may be required to incur additional capital
expenditures, increased operating costs for wood fiber or raw materials, and/or mitigating expenses, such as carbon taxes or
other charges, to address and comply with any such initiatives. No assurance can be given that the increased costs
associated with compliance of future GHG-related requirements will not have a material adverse effect on our business,
financial condition and results of operations.
Financial Risks
We may need to make significant additional cash contributions to our retirement benefit plans if investment returns
on pension assets are lower than expected or interest rates decline, and/or due to changes to regulatory, accounting
and actuarial requirements.
We have a qualified non-contributory defined benefit pension plan, which covers many of our salaried and hourly
employees in the United States. The Federal Pension Protection Act of 2006 requires certain capitalization levels be
maintained in each of these benefit plans. Our non-U.S. pension plans, while currently adequately funded, will also require
periodic contributions to ensure that applicable legal requirements are met. Because it is unknown what the investment
return on pension assets will be in future years or what interest rates may be at any point in time, no assurances can be
given that applicable law will not require us to make future material plan contributions.
In addition, it is possible new or
additional accounting rules and changes to actuarial requirements (for example, if life expectancy assumptions for
participants are increased) may also result in the need for additional contributions to the plans. Any such contributions
could materially adversely affect our financial condition. See Item 7 - Management’s Discussion and Analysis of Financial
Condition and Results of Operations - Critical Accounting Policies and Use of Estimates of this Report for additional
information about these plans, including funding status.
We have debt obligations that could materially adversely affect our business and our ability to meet our obligations.
As of December 31, 2020, our total combined indebtedness was approximately $1.1 billion. This significant amount of
debt could have material adverse consequences to us and our investors, including:
requiring a substantial portion of our cash flows from operations to make interest payments on this debt;
•
• making it more difficult to satisfy debt service and other obligations;
•
increasing the risk of a future credit ratings downgrade of our debt, which could increase future debt costs and
limit the future availability of debt financing;
increasing our vulnerability to general adverse economic and industry conditions;
reducing the cash flows available to fund capital expenditures and other corporate purposes and to grow our
business;
limiting our flexibility in planning for, or reacting to, market or other changes in our businesses and industry;
placing us at a competitive disadvantage to our competitors that may not be as highly leveraged with debt;
limiting our ability to borrow additional funds as needed or take advantage of business opportunities as they arise,
pay cash dividends or repurchase common stock; and
limiting access to liquidity, including through our variable asset-based revolving credit facility.
•
•
•
•
•
•
18
To the extent we incur additional indebtedness, the risks described above could increase.
In addition, our actual cash
requirements in the future may be greater than expected. Our cash flows from operations may not be sufficient to repay all
of the outstanding debt as it becomes due, and we may not be able to borrow money, sell assets or otherwise raise funds on
acceptable terms, or at all, to refinance our debt.
The phase-out of LIBOR as an interest rate benchmark in 2023 may impact our borrowing costs.
The reporting of financial information used to determine LIBOR is scheduled to be phased out beginning in 2023. As
of December 31, 2020, we had no indebtedness outstanding with interest payment terms based on LIBOR. However, under
the terms of the recently closed asset-based revolving credit facility, loans are subject to LIBOR or a comparable or
successor widely-published alternative rate designated by the administrative agent. We have not yet been advised by the
administrative agent of its selected alternative rate, and although the Secured Overnight Financing Rate (“SOFR”) is
expected to be the alternative rate that replaces LIBOR, we cannot predict what margin adjustments and related terms
would be negotiated with our loan counterparties. As a result, our interest expense could increase. While we do not believe
that a change from LIBOR to an alternative rate will have a material impact on our borrowing costs or ability to access
capital, no assurances relating to the potential impact can be provided at this time.
Challenges in the commercial and credit environments may materially adversely affect our future access to capital.
Our ability to issue debt or equity or enter into other financing arrangements on acceptable terms could be materially
adversely affected if there continues to be a material decline in the pricing or sales volume for our products, or if
significantly unfavorable changes in economic conditions occur. Volatility in the world financial markets could increase
borrowing or other costs of capital or affect our ability to gain access to the capital markets, which could have a material
adverse effect on our competitive position, business, financial condition, results of operations and cash flows.
We may need additional financing in the future to meet our capital needs or to make acquisitions, and such
financing may not be available on favorable terms, if at all, and may be dilutive to existing stockholders.
We may need to seek additional financing for general corporate purposes. For example, we may need to increase our
investment in research and development activities, make strategic investments in our facilities or require funding to invest
in joint ventures or make acquisitions. We may be unable to obtain desired additional financing on terms favorable to us,
if at all. For example, during periods of volatile credit markets, there is a risk that lenders, even those with strong balance
sheets and sound lending practices, could fail or refuse to honor their credit commitments and obligations, including but
not limited to extending credit up to the maximum permitted by a credit facility and otherwise accessing capital and/or
honoring loan commitments. If our lenders are unable to fund borrowings under their loan commitments or we are unable
to borrow, it could be difficult to replace such loan commitments on similar terms or at all.
If adequate funds are not
available on acceptable terms, we may be unable to fund growth opportunities, successfully develop or enhance products or
If we raise additional funds through
respond to competitive pressures, any of which could negatively affect our business.
If we raise
the issuance of equity securities, our stockholders will experience dilution of their ownership interest.
additional funds by issuing debt, the terms of such debt may subject us to limitations on our operations and ability to pay
dividends due to restrictive covenants in addition to those that are expected to be in place pursuant to our existing
indebtedness.
Company’s Common Stock and Certain Corporate Matters Risks
Your percentage of ownership in the Company may be diluted in the future.
In the future, your percentage ownership in the Company may be diluted because of equity issuances for acquisitions,
capital market transactions or other corporate purposes, including equity awards we will grant to our directors, officers and
employees. Our employees have options to purchase shares of our common stock, and we anticipate our compensation
committee will grant additional stock options or other stock-based awards to our employees. Such awards will have a
dilutive effect on our earnings per share, which could adversely affect the market price of our common stock. From time
to time, we will issue additional options or other stock-based awards to our employees under our employee benefits plans.
Certain provisions in our amended and restated certificate of incorporation and bylaws, and of Delaware law, could
prevent or delay an acquisition of the Company, which could decrease the price of our common stock.
19
Our amended and restated certificate of incorporation authorizes us to issue, without the approval of our stockholders,
one or more classes or series of preferred stock having such designation, powers, preferences and relative, participating,
optional and other special rights, including preferences over our common stock respecting dividends and distributions, as
our board of directors generally may determine. The terms of one or more classes or series of preferred stock could dilute
the voting power or reduce the value of our common stock. For example, we could issue preferred stock and grant the
holders thereof the right to elect some number of our directors in all events or on the happening of specified events or the
right to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences we could
assign to holders of preferred stock could affect the residual value of the common stock.
20
Item 1B. Unresolved Staff Comments
None.
Item 2.
Properties
The following table details the material properties we owned or leased at December 31, 2020:
Segment/Location
Annual Production Capacity
Owned/Leased
High Purity Cellulose Facilities (a):
Jesup, Georgia, United States
Fernandina Beach, Florida, United States
Temiscaming, Quebec, Canada
Tartas, France
Forest Products Facilities (b):
La Sarre, Quebec, Canada
Bearn, Quebec, Canada
Chapleau, Ontario, Canada
Cochrane, Ontario, Canada
Hearst, Ontario, Canada
330,000 metric tons of cellulose specialties or
commodity products
245,000 metric tons of commodity products
155,000 metric tons of cellulose specialties or
commodity products
150,000 metric tons of cellulose specialties or
commodity products
140,000 metric tons of cellulose specialties or
commodity products
135,000 thousand board feet of lumber
110,000 thousand board feet of lumber
135,000 thousand board feet of lumber
160,000 thousand board feet of lumber
110,000 thousand board feet of lumber
Kapuskasing, Ontario, Canada
105,000 thousand board feet of lumber
Paperboard Facilities (a):
Temiscaming, Quebec, Canada
Pulp & Newsprint Facilities (a):
180,000 metric tons of paperboard
Kapuskasing, Ontario, Canada
205,000 metric tons of newspaper
Temiscaming, Quebec, Canada
300,000 metric tons of high-yield pulp
Corporate and Other:
Jacksonville, Florida, United States
Corporate Headquarters
Montreal, Quebec, Canada
Toronto, Ontario, Canada
Corporate Office
Corporate Office
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Owned
Leased
Leased
Leased
(a) Capacity is based on historic average production and is not adjusted for potential market related downtime and/or reliability
issues. Due to reduced demand from the COVID-19 pandemic, the newsprint facility operated at 50 percent capacity in
2020.
In October 2020, the Huntsville facility in Ontario, Canada, which has a production capacity of 15,000 thousand
board feet of lumber, was sold.
(b) Capacity represents targeted production for these facilities. On average, these facilities produce at approximately 80
percent of capacity due to economic conditions, wood availability, and downtime.
Our manufacturing facilities are maintained through ongoing capital investments, regular maintenance and equipment
upgrades. As a result, production capacities may vary from the amounts listed above.
Item 3.
Legal Proceedings
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 its 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,
21
business interruption and general liability. While there can be no assurance, the ultimate outcome of these actions, either
individually or in the aggregate, is not expected to have a material adverse effect on the Company’s financial position, results of
operations or cash flows, except as may be noted below.
IESO Investigation of the Kapuskasing Facility
Since 2014, the Market Assessment and Compliance Division (“MACD”) branch of the Independent Electricity System
Operator (“IESO”), the governmental agency responsible for operating the wholesale electricity market and directing the
operation of the bulk electrical system in the province of Ontario, Canada, has been engaged in reviewing the Company's
compliance with the published rules that govern the operation of the wholesale electricity market in Ontario, Canada. MACD
has been specifically reviewing issues relating to payments made by IESO to the Company’s facility in Kapuskasing, Ontario.
The inquiry has focused primarily on payments made by IESO between 2010 and 2019 under market rules in connection with
multiple planned, extended and unplanned forced outages that caused extensive downtime in respect of parts or the entire
Kapuskasing facility.
In May 2020, MACD finalized two of its four investigations into the Company’s electricity management practices at its
Kapuskasing facility, and orders claiming penalties of CAD $25 million in connection therewith were issued by the IESO.
More particularly, the orders would require the Company to pay penalties of CAD $3 million immediately and CAD $12
million over a 10-year period, with the remaining CAD $10 million to be deferred and ultimately forgiven assuming the
Company otherwise complied with the remaining terms of the orders. The Company believes it has complied in all material
respects with the published rules and is vigorously contesting IESO’s orders, including filing of proceedings with the divisional
Court (Superior Court of Justice) of Ontario seeking invalidation of the orders. The Company does not believe the ultimate
outcome of this dispute will be material to its business or financial condition, although no assurances can be given.
Item 4.
Mine Safety Disclosures
Not applicable.
22
Part II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Market Information
Our common stock is traded on the New York Stock Exchange under the trading symbol “RYAM”.
Holders
The number of record holders of our common stock at February 24, 2021 was 4,022.
Dividends
On September 6, 2019, our Board of Directors suspended our quarterly common stock dividend to use the cash flow to pay
down debt and fund capital investments as well as working capital needs. The declaration and payment of future common stock
dividends, if any, will be at the discretion of the Board of Directors and will be dependent upon our financial condition, results
of operations, capital requirements and other factors the Board of Directors deem relevant. In addition, our debt facilities place
limitations on the declaration and payment of future dividends. No dividends were declared in 2020.
Dividends per share data can be found in Item 6 — Selected Financial Data and Note 14 — Stockholders' Equity of our
consolidated financial statements.
Issuer Purchases of Equity Securities
The following table provides information regarding our purchases of Rayonier Advanced Materials common stock during
the quarter ended December 31, 2020:
Period
Total
Number of
Shares
Purchased (b)
Average
Price Paid
per Share
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
Approximate Dollar
Value of Shares That
May Yet Be
Purchased Under the
Plans or Programs (a)
September 27 to October 31....................
November 1 to November 28...................
November 29 to December 31.................
— $
156
931
$
$
—
3.43
6.25
Total.....................................................
1,087
— $
— $
— $
—
60,294,000
60,294,000
60,294,000
(a) As of December 31, 2020, approximately $60 million of share repurchase authorization remains under the authorization
declared by the Board of Directors on January 29, 2018. Refer to Note 14 — Stockholders' Equity for additional
information.
(b) Repurchased to satisfy the tax withholding requirements related to the issuance of stock under the Rayonier Advanced
Materials Incentive Stock Plan.
Securities Authorized for Issuance under Equity Compensation Plans
See Part III, Item 12 of this report for information relating to our equity compensation plans.
23
Stock Performance Graph
The following graph compares the performance of Rayonier Advanced Material’s common stock (assuming reinvestment
of dividends) with a broad-based market index, Standard & Poor’s (“S&P”) Small Cap 600, and an industry-specific index, the
S&P 500 Materials Index. The table and related information shall not be deemed to be “soliciting material” or to be “filed” with
the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or
Securities Exchange Act of 1934, each as amended, except to the extent that we specifically incorporate it by reference into
such filing.
The graph tracks the performance of a $100 investment in our common stock and in each index (with the reinvestment of
all dividends) from December 31, 2015 to December 31, 2020.
The data in the following table was used to create the previous graph:
12/31/2015
12/31/2016
12/31/2017
12/31/2018
12/31/2019
12/31/2020
Rayonier Advanced Materials... $
S&P Small Cap 600..................
$
S&P 500 Materials Index.......... $
100
100
100
$
$
$
162
126
117
$
$
$
218
143
145
$
$
$
115
131
123
$
$
$
42
161
154
$
$
$
72
179
185
Recent Sales of Unregistered Securities
During 2020, we did not issue or sell any unregistered equity securities.
24
Item 6.
Selected Financial Data
The following financial data should be read in conjunction with our consolidated financial statements. Amounts presented
for the years ended December 31, 2019, 2018 and 2017 exclude the Matane Mill which was sold in November 2019. The
Matane Mill was initially acquired as part of the November 2017 acquisition of Tembec.
(millions of dollars except per share amounts)
2020
2019
2018
2017 (c)
2016
Statement of Income Data:
Net Sales.................................................................. $
1,739
$
1,775
$
1,957
$
Gross margin............................................................
Operating income (loss)...........................................
Income (loss) from continuing operations ..............
Diluted income (loss) from continuing operations
per share of common stock (a)................................. $
Dividends declared per share of common stock...... $
138
27
—
— $
— $
Balance Sheet Data:
Total assets............................................................... $
2,530
$
Property, plant and equipment, net..........................
Total debt.................................................................
Stockholders’ equity.................................................
1,275
1,084
695
Statement of Cash Flows Data:
Cash provided by operating activities...................... $
124
$
Cash provided by (used for) investing activities......
Cash provided by (used in) financing activities.......
Capital expenditures (d)...........................................
Non-GAAP Measures (b):
EBITDA .................................................................. $
Adjusted EBITDA.................................................... $
Adjusted Free Cash Flows....................................... $
(78)
(19)
(77)
169
153
73
$
$
$
54
(83)
(119)
(2.33) $
$
$
0.14
2,480
1,316
1,082
683
42
53
(138)
(105)
291
148
99
1.52
0.28
2,679
1,364
1,188
707
$
$
$
$
$
$
$
940
141
59
323
5.78
0.28
2,643
1,391
1,241
694
$
247
$
130
$
(116)
(116)
(129)
(277)
(84)
(75)
65
76
$
$
(53) $
327
311
130
$
$
$
477
209
62
$
$
$
869
186
143
73
1.55
0.28
1,422
801
783
212
232
(87)
80
(89)
235
226
147
(a) For the years ended December 31, 2019, 2018, 2017 and 2016, basic and diluted earnings per share include the impact of
the Company’s Preferred Stock. See Note 14 — Stockholders' Equity of our consolidated financial statements for more
information.
(b) EBITDA, adjusted EBITDA and adjusted free cash flows are non-GAAP measures. See “Note about Non-GAAP
Financial Measures” on page 2 for limitations associated with non-GAAP measures. Also see Item 7 — Management’s
Discussion and Analysis of Financial Condition and Results of Operations — Performance and Liquidity Indicators for
definitions of these non-GAAP measures as well as a reconciliation of EBITDA, adjusted EBITDA and adjusted free cash
flows to their most directly comparable GAAP financial measure.
(c) On November 17, 2017, the Company acquired all of the outstanding common shares of Tembec for an aggregate purchase
price of approximately $317 million Canadian dollars cash and 8.4 million shares of the Company’s common stock, par
value $0.01 per share.
(d) Capital expenditures for the years ended December 31, 2019, 2018 and 2017 exclude the capital spending of the Matane
Mill, which was sold in November 2019.
25
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
We are a diversified forest products business that operates in the following business segments:
•
•
•
•
High Purity Cellulose
Forest Products
Paperboard
Pulp & Newsprint
Our High Purity Cellulose business has leading positions in the acetate and ethers high purity cellulose end-use markets. In
addition, our other business segments provide a more diversified earnings stream.
The following significant events occurred in 2020, 2019 and 2018:
•
•
•
•
•
•
•
Our businesses have been significantly impacted by the coronavirus ("COVID-19") pandemic in 2020. However, due
to the role they play in producing critical raw materials for pharmaceutical, food, cleaning and other products, our
manufacturing facilities in the U.S., Canada and France have remained operating. In order to mitigate the impact of
COVID-19 on our financial results and operations, we have taken the following actions:
◦
◦
◦
To ensure the safety of our employees and the continuity of our operations, we have implemented exacting
protocols to reduce the potential spread of COVID-19 in our operating facilities and work spaces.
To control costs and minimize pandemic driven losses, we have curtailed operations as necessary to match
production with market demand.
Due to the financial impacts of COVID-19, we are actively monitoring the recoverability of the carrying value of
our long-term assets. During the year ended December 31, 2020, we did not recognize any impairment charges
related to long-lived assets held for use. We will continue to evaluate the recoverability of these and other assets
as necessary.
In December 2020, we issued $500 million in aggregate principal amount of 7.625 percent senior secured notes due
2026 (the “Senior Secured Notes”), at an offering price of 100 percent of the principal amount thereof. We also
entered into a five-year senior secured asset-based revolving credit facility with an initial committed amount of $200
million (the “ABL Revolving Credit Facility”). In connection with these transactions, we terminated all commitments
and repaid all outstanding obligations under our Senior Secured Credit Facilities and recorded a loss on debt
extinguishment of $8 million. See Note 10 — Debt and Finance Leases of our consolidated financial statements for
additional information.
In December 2020, the USDOC finalized the First Administrative Review and determined a reduction of duties on
softwood lumber imported into the U.S. from 20 percent to 9 percent for the Company for such duties paid during
2017 and 2018.
In November 2019, we completed the sale of the Matane Mill for $175 million and used $100 million of the net
proceeds to repay borrowings under our Senior Secured Credit Facilities. As a result of the sale, the Matane Mill’s
operating results have been classified as discontinued operations and we reorganized our operating and reportable
segments to align with our new management reporting structure.
Included in discontinued operations is allocated
interest expense, due to the required loan payments, and professional fees incurred to sell the operation. See Note
3 — Discontinued Operations of our consolidated financial statements for additional information.
In October 2019, we settled certain Canadian pension liabilities through the purchase of annuity contracts with an
insurance company. The settlement resulted in the recognition of approximately $9 million in settlement expenses
which were recognized in “Other components of net periodic benefit costs” in our financial statements. See Note
18 — Employee Benefit Plans of our consolidated financial statements for additional information.
In September 2019, and again in June 2020, we amended our Senior Secured Credit Facilities. See Note 10 — Debt
and Finance Leases of our consolidated financial statements for additional information.
In September 2019, we announced our Board of Directors determined to suspend the quarterly common stock dividend
to improve cash flow.
26
•
In September 2018, we sold our resins business for $17 million, a non-core asset originally acquired as part of our
acquisition of Tembec. The resulting gain on sale of $7 million was treated as an adjustment to the bargain purchase
gain in 2018.
High Purity Cellulose
We manufacture and market high purity cellulose, which is sold as either cellulose specialties or commodity products. We
are the leading global producer of cellulose specialties, which are primarily used in dissolving chemical applications that
require a highly purified form of cellulose. Pricing for our cellulose specialties products is typically set by contract for a
duration of at least one year based on discussions with customers. Our commodity products primarily consist of commodity
viscose and absorbent materials. Commodity viscose is a raw material required for the manufacture of viscose staple fibers
which are used in woven and non-woven applications. Absorbent materials, typically referred to as fluff fibers, are used as an
absorbent medium in consumer products. Pricing for commodity products is typically referenced to published indexes or based
on publicly available spot market prices. Sales of chemicals and energy, a majority of which are by-products, are included in the
high purity cellulose segment.
Our four production facilities, located in the U.S., Canada and France, have a combined annual production capacity of
approximately 775,000 metric tons of cellulose specialties or commodity products. Additionally, we have dedicated
approximately 250,000 metric tons of annual production to commodity products.
Wood fiber, chemicals, and energy represent approximately 28 percent, 14 percent and 6 percent, respectively, of the per
metric ton cost of sales. Labor, manufacturing and maintenance supplies, depreciation, manufacturing overhead and
transportation costs represent the remaining cost of sales.
Forest Products
We manufacture and market high-quality construction-grade lumber in North America. The lumber, primarily spruce, pine,
or fir, is used in the construction of residential and multi-family homes, light industrial and commercial facilities, and the home
repair and remodel markets. The chips, manufactured as a by-product of the lumber manufacturing process, are used in our
Canadian High Purity Cellulose, Pulp and Newsprint plants. Pricing for lumber is typically referenced to published indexes
marketed through our internal sales team. Our six production facilities located in Canada have a targeted annual production
capacity of approximately 755 million board feet of lumber.
Wood fiber and energy represents approximately 46 percent and 4 percent, respectively, of the per million board feet cost
of sales. Labor, manufacturing and maintenance supplies, depreciation, manufacturing overhead and transportation costs
represent the remaining cost of sales.
Paperboard
We manufacture and market paperboard that
is used for printing documents, brochures, promotional materials,
packaging, paperback book or catalog covers, file folders, tags, and tickets.
Pricing for paperboard is typically referenced to published indices and marketed through our internal sales team. Our
production facility located in Canada has the capacity to annually produce 180,000 metric tons of paperboard. Wood pulp,
chemicals, and energy represent approximately 60 percent, 15 percent and 6 percent, respectively, of the per metric ton cost of
sales. Labor, manufacturing and maintenance supplies, depreciation, manufacturing overhead and transportation costs represent
the remaining cost of sales.
Pulp & Newsprint
Pulp
We manufacture and market high-yield pulp which is used by paper manufacturers to produce paperboard, packaging,
printing and writing papers and a variety of other paper products. Pricing for high-yield pulp is typically referenced to
published indexes marketed through our internal sales team. Our production facility located in Canada has the capacity to
annually produce 300,000 metric tons of high-yield pulp.
Wood fiber, chemicals, and energy represent approximately 22 percent, 12 percent and 11 percent, respectively, of the per
metric ton cost of sales. Labor, manufacturing and maintenance supplies, depreciation, manufacturing overhead and
transportation costs represent the remaining cost of sales.
Newsprint
27
We manufacture newsprint, a paper grade used to print newspapers, advertising materials and other publications. Pricing
for newsprint is typically referenced to published indices and marketed through our internal sales team. Our production facility
located in Canada has the capacity to annually produce 205,000 metric tons of newsprint.
Wood fiber and chemicals represent approximately 13 percent and 4 percent, respectively, of the per metric ton cost of
sales. Labor, energy, manufacturing and maintenance supplies, depreciation, manufacturing overhead and transportation costs
represent the remaining cost of sales.
Market Assessment
The market assessment represents our best current estimate of each business in this environment.
High Purity Cellulose
We are experiencing increased strong demand for our commodity products and stable demand for our high-value cellulose
specialties products. Prices for cellulose specialties are expected to decline slightly relative to 2020 while prices for commodity
products, fluff and viscose pulps, will increase significantly in the first quarter and are forecasted to remain elevated for the
near-term. Overall, we expect increased pricing from 2020 levels while total volumes and mix for 2021 are expected to remain
steady compared to 2020 as increased productivity will be offset by an extended maintenance outage at the Jesup facility in the
second quarter.
Key costs, including wood, energy and commodity chemical prices declined in 2020 from prior year levels due to both market
conditions and our strategic actions. However, certain chemical prices are now trending higher and, overall, future input prices
and availability of these inputs remain difficult to predict due to the current unprecedented economic conditions. We will also
continue to invest in our business to reduce costs, improve reliability and provide new platforms for growth. Our 2020
investment in a green energy project at our Tartas facility will deliver lower costs and improved reliability starting in 2021.
Forest Products
Prices for lumber continue to remain near all-time high levels driven by exceptional demand in the U.S with housing starts in
January 2021 of 1.6 million units, seasonally adjusted, and building permits of 1.9 million, while repair and remodel activity
remains elevated as investment in homes remains attractive. With the absence of market downtime experienced in the first half
of 2020 and new investments to increase productivity, we expect to produce an incremental 40 million board feet, an increase of
7 percent, compared to prior year.
In December 2020, the U.S. Department of Commerce finalized its administrative review of the period of April 28, 2017
through December 31, 2018 and determined a reduction of duties on softwood lumber imported into the U.S from 20 percent to
9 percent for the Company. We will benefit from the reduced amount of duties expense on lumber sold into the U.S; however
there remains no discussion about a full resolution to the softwood lumber dispute which, based on most recent disputes, would
likely result in the U.S. returning all or the vast majority of the duties previously paid. Since 2017, we have paid a total of $91
million in duties.
Paperboard
Paperboard prices are expected to increase slightly in early 2021 given solid demand for packaging grades and announced price
increases from larger competitors in the industry. Overall profitability is expected to remain flat as price and volume benefits
are expected to be offset by increased raw material costs.
Pulp & Newsprint
Pulp and newsprint markets are beginning to recover from lows in 2020 as economies recover from the impacts caused by
COVID-19. Larger competitors in both pulp and newsprint markets have recently announced price increases, and we expect
higher prices for both products in the near-term. Additionally, we continue to manage production of our newsprint facility in
order to minimize costs and improve sales mix. As such, we expect lower newsprint volumes and higher prices in 2021
compared to 2020. Further, we are maintaining focus on the expansion of the Envirosmart™ food service bag, launched in late
third quarter, targeting the quick service restaurant end-market and used for items such as sandwiches and to-go orders, which
have grown and remain strong in the post COVID-19 environment.
28
Reconciliation of Non-GAAP measures
For a reconciliation of EBITDA to net income, see Item 7 — Management’s Discussion and Analysis of Financial
Condition and Results of Operations — Performance and Liquidity Indicators.
Critical Accounting Policies and Use of Estimates
The preparation of financial statements requires us to make estimates, assumptions and judgments that affect our assets,
liabilities, revenues and expenses, and to disclose contingent assets and liabilities in our consolidated financial statements. We
base these estimates and assumptions on historical data and trends, current fact patterns, expectations and other sources of
information we believe are reasonable. Actual results may differ from these estimates.
New Accounting Pronouncements
See Note 2 — Summary of Significant Accounting Policies and New Accounting Pronouncements of our consolidated
financial statements for a discussion of recently issued accounting pronouncements that may affect our financial results and
disclosures in future periods.
Accounting Policies:
Revenue Recognition and Measurement
Revenue is recognized when performance obligations under the terms of a contract with a customer are satisfied. The
majority of our contracts have a single performance obligation to transfer products. Accordingly, we recognize revenue when
control has been transferred to the customer. Generally, control transfers upon delivery to a location in accordance with terms
and conditions of the sale. Changes in customer contract terms and conditions, as well as the timing of orders and shipments,
may have an impact on the timing of revenue recognition.
Revenue is measured as the amount of consideration we expect to receive in exchange for transferring our products and is
generally based upon contractual arrangements with customers or published indices. We sell our products both directly to
customers and through distributors and agents typically under agreements with payment terms less than 90 days.
The nature of our contracts may give rise to variable consideration, which may be constrained, including sales volume-
based rebates to customers. We estimate the level of volumes based on anticipated purchases at the beginning of the period and
record a rebate accrual for each purchase toward the requisite rebate volume. These estimated rebates are included in the
transaction price as a reduction to net sales.
These methodologies are consistent with the manner in which we have historically accounted for the recognition of
revenue.
Property, Plant & Equipment
Depreciation expense is computed using the units-of-production method for our High Purity Cellulose, Paperboard, Pulp &
Newsprint plant and equipment and the straight-line method for all other property, plant and equipment over the useful
economic lives of the assets involved. The total units of production used to calculate depreciation expense is determined by
factoring annual production days, based on normal production conditions, by the economic useful life of the asset involved. The
physical life of equipment, however, may be shortened by economic obsolescence caused by environmental regulation,
competition or other causes. We depreciate our non-production assets, including office, lab, and transportation equipment,
using the straight-line depreciation method over 3 to 25 years. Buildings and land improvements are depreciated using the
straight-line method over 15 to 35 years and 5 to 30 years, respectively. We believe these depreciation methods are the most
appropriate, versus other generally accepted accounting methods, as they most closely match revenues with expenses.
Gains and losses on the retirement of assets are included in operating income. Long-lived assets are reviewed annually for
impairment or whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable.
Recoverability of assets that are held and used is measured by net undiscounted cash flows expected to be generated by the
asset. Property, plant and equipment are grouped for purposes of evaluating recoverability at the combined plant level, the
lowest level for which independent cash flows are identifiable. If such assets are considered to be impaired, the impairment to
be recognized is measured by the amount by which the carrying value exceeds the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to sell.
29
Accounting Estimates:
Environmental liabilities
At December 31, 2020, we had $172 million of accrued liabilities for environmental costs relating to disposed operations.
Numerous price, quantity, cost and probability assumptions are used in estimating these obligations. Factors affecting these
estimates include changes in the nature or extent of contamination, changes in the content or volume of the material discharged
or treated in connection with one or more impacted sites, requirements to perform additional or different assessment or
remediation, changes in technology that may lead to additional or different environmental remediation strategies, approaches
and work-plans, discovery of additional or unanticipated contaminated soil, groundwater or sediment on or off-site, changes in
remedy selection, changes in law or interpretation of existing law and the outcome of negotiations with governmental agencies
or non-governmental parties. We periodically review our environmental liabilities and also engage third-party consultants to
assess our ongoing remediation of contaminated sites. Quarterly, we review our environmental liabilities related to assessment
activities and remediation costs and adjust them as necessary. Liabilities for financial assurance, monitoring and maintenance
activities and other activities are assessed annually. A significant change in any of these estimates could have a material effect
on our results of operations. See Note 11 — Environmental Liabilities of our consolidated financial statements for more
information.
Determining the adequacy of pension and other postretirement benefit assets and liabilities
Our defined benefit pension and postretirement plans for employees in the U.S., Canada and France require numerous
estimates and assumptions to determine the proper amount of pension and postretirement liabilities and annual expense to
record in our financial statements. The key assumptions include discount rate, return on assets, salary increases, health care
cost trends, mortality rates, longevity and service lives of employees. Although authoritative guidance on how to select most of
these assumptions exists, we exercise some degree of judgment when selecting these assumptions based on input from our
actuary and other advisors. Different assumptions, as well as actual versus expected results, would change the periodic benefit
cost and funded status of the benefit plans recognized in the financial statements.
Our long-term return plan assets assumption was established based on historical long-term rates of return on broad equity
and bond indices, discussions with our actuary and investment advisors and consideration of the actual historical annualized
rate of returns. In determining future pension obligations, we select a discount rate based on information supplied by our
actuary. The actuarial rates are developed by models which incorporate high-quality (AA rated, long-term corporate bond
rates into their calculations. The weighted average discount rate decreased from 3.46 percent at December 31, 2019 to 2.48
percent at December 31, 2020.
Our defined pension plans were underfunded by $188 million at December 31, 2020. The underfunded status increased by
$25 million in 2020, primarily due to lower discount rates. In 2021, pension expense is expected to increase due to an increase
in service cost, higher amortization of actuarial losses partly offset by lower interest cost. Future pension expense will be
impacted by many factors including actual investment performance, changes in discount rates, timing of contributions and other
employee related matters. See Note 18 — Employee Benefit Plans of our consolidated financial statements for more
information.
During 2020, we started the process of winding up certain Canadian pension plans and as a result recorded a settlement
gain of $3 million. In 2019, we purchased annuity contracts from a third-party insurance company who has assumed
responsibility for future pension benefits for certain participants in our Canadian defined benefit plans. As required under
Accounting Standards Codification (“ASC” 715 Compensation-Retirement Benefits, a loss of $9 million was recorded in 2019
on the settlement and de-recognition of the projected benefit obligation.
In 2020, we made mandatory contributions and benefit payments to plan participants of approximately $10 million. During
2021, we expect to make mandatory and discretionary benefit payments to plan participants of approximately $8 million. Future
mandatory contribution requirements will vary depending on actual investment performance, changes in valuation assumptions,
interest rates and legal requirements to maintain a certain funding status.
30
The sensitivity of pension expense and projected benefit obligation related to our pension plans to changes in economic
assumptions is highlighted below:
Change in Assumption
50 bp decrease in discount rate
50 bp increase in discount rate
50 bp decrease in long-term return on assets
50 bp increase in long-term return on assets
Impact on (in millions):
Effect on 2021 Pension
Expense
Effect on December 31,
2020 Projected Benefit
Obligation
(Decrease)/Increase
Increase (Decrease)
$4
$(3)
$4
$(4)
$72
$(65)
Realizability of both recorded and unrecorded tax assets and tax liabilities
We have recorded certain deferred tax assets we believe will be realized in future periods. The recognition of these tax
assets is based on our analysis of both positive and negative evidence about the future realization of the tax benefit of each
existing deductible temporary difference or carryforward. Future realization is based on the existence of sufficient taxable
income of the appropriate character, within the appropriate taxing jurisdiction (for example country, state or province), and
within the carryback and carryforward periods available under the applicable tax laws. The strongest form of positive evidence
is the evaluation of adjusted historical earnings and future earnings projections within the applicable carryforward periods. This
evidence supports the realizability of most recorded deferred tax assets. Tax assets are reviewed periodically for realizability.
This review requires management to make assumptions and estimates about future profitability affecting the realization of these
tax assets. If the review indicates the realizability may be less than likely, a valuation allowance is recorded.
Our income tax returns are subject to examination by U.S. federal and state taxing authorities as well as foreign
jurisdictions, including Canada and France. In evaluating the tax benefits associated with various tax filing positions, we record
a tax benefit for an uncertain tax position if it is more-likely-than-not to be realized upon ultimate settlement of the issue. We
record a liability for an uncertain tax position that does not meet this criterion. The liabilities for unrecognized tax benefits are
adjusted in the period in which it is determined the issue is settled with the taxing authorities, the statute of limitations expires
for the relevant taxing authority to examine the tax position or when new facts or information become available. See Note 20
— Income Taxes of our consolidated financial statements for more information.
31
Results of Operations
Summary of our results of operations for each of the following years ended December 31:
Financial Information (in millions, except percentages)
2020
2019
2018
1,739
$
1,775
$
Net Sales............................................................................................. $
Cost of Sales.......................................................................................
Gross Margin.....................................................................................
Selling, general and administrative expenses...................................
Duties (a)..........................................................................................
Other operating expense, net............................................................
Operating Income (Loss)..................................................................
Interest expense................................................................................
Interest income and other, net...........................................................
Other components of net periodic benefit (expense)........................
Gain on bargain purchase.................................................................
Gain (loss) on debt extinguishment..................................................
Income (Loss) from Continuing Operations before Income
Taxes...................................................................................................
Income Tax (Expense) Benefit.........................................................
Equity in income (loss) of equity method investments
(1,601)
138
(85)
(10)
(16)
27
(64)
(7)
6
—
(8)
(46)
47
(1)
Income (Loss) from Continuing Operations .................................. $
— $
Income from discontinued operations, net of taxes
Net Income......................................................................................... $
Gross Margin %...................................................................................
Operating Margin %............................................................................
1
1
$
7.9 %
1.6 %
(1,721)
54
(90)
(22)
(25)
(83)
(60)
—
(5)
—
—
(148)
30
—
(119)
96
(22)
$
$
1,957
(1,666)
291
(105)
(26)
(12)
148
(56)
5
8
20
1
126
(27)
—
99
29
128
3.1 %
(4.7)%
14.9 %
7.6 %
Effective Tax Rate %...........................................................................
(a) The year ended December 31, 2020 includes the $21 million reduction in duties expense. See discussion in the Forest
Products portion of the Results of Operations herein. ....................................................................................................................
(101.3)%
(20.0)%
21.4 %
Results of Operations, Year Ended December 31, 2020 versus December 31, 2019
Net sales by segment were as follows:
Net Sales (in millions)
High Purity Cellulose....................................................................................................... $
Forest Products.................................................................................................................
Paperboard........................................................................................................................
Pulp & Newsprint.............................................................................................................
Eliminations.....................................................................................................................
Total Net Sales................................................................................................................... $
2020
2019
1,051
$
1,127
392
190
172
(66)
299
200
215
(66)
1,739
$
1,775
Net sales decreased $36 million or 2 percent, in 2020 compared to 2019. The decrease was primarily driven by lower high
purity cellulose sales prices and lower newsprint sales prices and volumes, partially offset by strong lumber sales prices. For
further assessment of changes in net sales, see the discussion of operating results by segment.
32
Operating income by segment was as follows:
Operating income (in millions)
High Purity Cellulose.................................................................................................. $
Forest Products...........................................................................................................
Paperboard..................................................................................................................
Pulp & Newsprint.......................................................................................................
Corporate....................................................................................................................
Total Operating Income.............................................................................................. $
2020
2019
$
7
80
18
(25)
(53)
27
$
7
(31)
4
2
(65)
(83)
Operating income for 2020 improved by $110 million when compared to the prior year. The increase was primarily driven
by higher prices for lumber and lower costs driven by improved operating reliability, partly offset by declines in newsprint sales
prices and volumes. In addition, 2020 reflects the $21 million reduction in duties expense resulting from the U.S. Department
of Commerce determination on Canadian softwood lumber imports into the U.S. For further assessment of changes of operating
income, see the discussion of Operating Results by Segment.
Non-operating Expenses
Interest expense for 2020 increased $4 million driven by the higher interest rate margin from the amendments to our credit
facilities held during most of 2020, as well as increased amortization of debt issuance costs. In December 2020, the Company
issued $500 million of 7.625 percent Senior Secured Notes due 2026 (the “Senior Secured Notes” and closed on its five-year,
$200 million senior secured asset-based revolving credit facility (the “ABL Credit Facility”. The Company used the net
proceeds from the sale of the Senior Secured Notes, together with cash on hand, to repay all outstanding obligations under its
previous Senior Secured Credit Facility. In connection with the early repayment of the Senior Secured Credit Facility, we
recorded a loss from extinguishment of long-term debt of $8 million, primarily from writing off unamortized deferred financing
fees. For additional information, see Note 10 — Debt and Finance Leases.
Other components of net periodic benefit (expense changed by $11 million to a $6 million benefit during 2020 as a result
of a $3 million pension settlement and curtailment gain recorded during the fourth quarter of 2020 whereas 2019 included a $9
million pension net settlement loss. See Note 18 — Employee Benefit Plans.
Income Taxes
The effective tax benefit rate for 2020 was a benefit of 101 percent. The 2020 effective tax rate benefit differs from the
federal statutory rate of 21 percent primarily due to benefits from the CARES Act, the release of certain valuation allowances
related to nondeductible interest expense, tax return to accrual adjustments, and tax credits, partially offset by increases to
uncertain tax position reserves, nondeductible executive compensation, and lower tax deductions on vested stock compensation.
The 2019 effective tax rate from continuing operations was a benefit of 20 percent. See Note 20 — Income Taxes of our
consolidated financial statements for additional information.
Discontinued Operations
The Company has presented the operating results for its Matane operations, which were sold in November 2019, as
discontinued operations for the years ended December 31, 2020, 2019 and 2018.
Included in discontinued operations is
allocated interest expense for debt that was required to be repaid upon completion of the sale. In addition, legal and
administrative costs to sell the operations are included in discontinued operations. Income from discontinued operations during
the year ended December 31, 2020 included a $1 million benefit resulting from the final working capital adjustment as required
by the sale agreement. Income from discontinued operations increased $67 million during 2019 compared to 2018 and reflects
the $84 million gain from the sale of the operations. See Note 3 — Discontinued Operations of our consolidated financial
statements for additional information.
33
Operating Results by Segment
High Purity Cellulose
($ in million)
Net Sales
Operating Income
Average Sales Prices ($ per metric ton):
Sales Volumes (thousands of metric tons):
Changes in High Purity Cellulose net sales are as follows:
2020
2019
$
$
$
$
$
$
1,051
7
992
976
Net Sales (in millions)
Changes Attributable to:
2019
Price
Volume/Mix
2020
Cellulose specialties
Commodity products and other
Other sales (a)
Total Net Sales
$
$
$
765
280
82
1,127
$
11
$
(44)
—
(33) $
(91)
$
47
1
(43)
$
(a) Other sales include sales of electricity, lignin and other by-products to third parties.
1,127
7
1,083
964
685
283
83
1,051
Total net sales decreased $76 million, or 7 percent, in 2020. Sales prices for cellulose specialties increased 2 percent
during the year ended December 31, 2020 whereas commodity prices declined 17 percent primarily driven by COVID-19 and
China trade dispute related impacts on demand on the larger commodity pulp and textile markets. Cellulose specialties sale
volumes declined 12 percent primarily due to the impact on demand driven by COVID-19. Commodity sales volumes
increased 21 percent for the full year compared to 2019 driven by the recovery of the textile markets in the second half of 2020.
Changes in High Purity Cellulose operating income are as follows:
Operating Income (in millions)
2019
Gross Margin Changes Attributable to:
Volume/
Sales Mix
(a)
Price
Cost
SG&A and
other
Operating Income
$
7
$
(33)
$
(37)
$
68
$
2
$
Operating Margin %
(a) Volume/Sales Mix computed based on contribution margin.
0.6 %
(3.0)%
(3.6)%
6.5 %
0.2 %
2020
7
0.7 %
Operating income remained essentially flat in 2020 when compared to the prior year. Lower wood and chemical costs,
improved reliability and higher commodity volumes were offset by the impact of lower cellulose specialty volumes and
commodity sale price declines during 2020.
Included in SG&A and other costs is our share of the loss of the lignin joint
venture of $4 million and $5 million during 2020 and 2019, respectively.
Forest Products
(in millions)
2020
2019
Net Sales........................................................................................................................
Operating income.........................................................................................................
Average Sales Prices ($ per thousand board feet):
Lumber .......................................................................................................................
$
$
$
Sales Volumes (millions of board feet):
Lumber........................................................................................................................
$
$
$
392
80
523
611
299
(31)
373
617
34
Changes in Forest Products net sales are as follows:
Net Sales (in millions)
Changes Attributable to:
2019
Price
Vol/Mix/Other (a)
2020
Lumber............................................... $
Other sales (a)....................................
Total Net Sales................................ $
230
69
299
$
$
92
—
92
$
$
(3) $
4
1
$
319
73
392
(a) Other sales include sales of logs, wood chips, and other by-products to third-parties and other segments.
Total net sales increased $93 million, or 31 percent, in 2020. Lumber sales prices improved 40 percent due to strong
demand while lumber sales volumes decreased by 1 percent as a result of market downtime taken in the first half of the year to
address the initial negative impact on demand driven by the COVID-19 pandemic. Other sales were up from higher wood chip
sales during the year ended December 31, 2020.
Changes in Forest Products operating income are as follows:
Operating Income (in millions)
Gross Margin Changes Attributable to:
Operating Income...................... $
(31)
$
92
$
1
$
6
$
12
$
80
2019
Price
Volume/
Sales Mix
(a)
Cost
SG&A and
other
2020
Operating Margin %.................
(a) Volume/Sales Mix computed based on contribution margin.
(10.5)%
26.0 %
0.2 %
1.5 %
3.1 %
20.3 %
Operating income increased $111 million in 2020. The improvement was primarily driven by the 40 percent increase in
lumber sales prices and lower costs driven by the curtailments of production in the early part of 2020. Additionally the
Company reversed $21 million of prior expenses related to import duties as the USDOC announced its final determination in
December 2020 to reduce the duties on Canadian softwood lumber imported into the U.S. from 20 percent to 9 percent for such
duties paid during 2017 and 2018. The years ended December 31, 2020 and 2019 include $10 million and $23 million in
softwood lumber duties, respectively. Duties incurred during 2020 take into account the $21 million reduction previously
discussed.
Paperboard
(in millions)
2020
2019
Net Sales.......................................................................................................................... $
Operating income........................................................................................................... $
Average Sales Prices ($ per metric tons) (a):
190
18
Paperboard..................................................................................................................... $
1,076
$
$
$
Sales Volumes (in thousands of metric tons) (a):
Paperboard.....................................................................................................................
176
200
4
1,103
181
Changes in Paperboard net sales are as follows:
Net Sales (in millions)
2019
Changes Attributable to:
Price
Volume/Mix
2020
Paperboard....................................... $
200
$
(5) $
(5)
$
190
Total net sales declined $10 million, or 5 percent in 2020. Paperboard sales prices declined 2 percent due to increased
competition. Paperboard sales volumes decreased 3 percent.
35
Changes in Paperboard operating income are as follows:
Operating Income (in millions)
2019
Gross Margin Changes Attributable to:
Volume/
Sales Mix (a)
Price
Cost
Operating Income............. $
4
$
(5)
$
(2)
$
21
$
Operating Margin %.........
2.0 %
(2.5)%
(1.1)%
11.1 %
(a) Computed based on contribution margin.
SG&A and
other
2020
— $
— %
18
9.5 %
Operating income increased $14 million in 2020 due to decreased costs from lower pulp raw material prices as well as
lower transportation costs.
Pulp & Newsprint
(in millions)
Net Sales.....................................................................................................................
Operating income......................................................................................................
Average Sales Prices ($ per metric ton):
Pulp.........................................................................................................................
$
$
$
Newsprint................................................................................................................ $
Sales Volumes (in metric tons):
Pulp.........................................................................................................................
Newsprint................................................................................................................
Changes in Pulp & Newsprint net sales are as follows:
2020
2019
172
$
(25) $
470
418
$
$
217
112
215
2
499
524
207
166
Net Sales (in millions)
2019
Changes Attributable to:
Price
Volume/Mix
2020
Pulp................................................... $
Newsprint..........................................
Total Net Sales............................... $
128
87
215
$
$
(8) $
(12)
(20) $
5
(28)
(23)
$
$
125
47
172
(a) Average sales prices and volumes for external sales only. The Pulp segment sold approximately 66,000 metric tons and 66,000 metric
tons of high-yield pulp for $23 million and $25 million to the Paperboard segment for the production of paperboard during 2020 and
2019, respectively.
Total net sales declined $43 million, or 20 percent, in 2020. Average pulp sales prices declined 6 percent due to weak
market conditions during 2020. Pulp sales volumes increased 5 percent. Newsprint sales prices and volumes declined 20
percent and 33 percent, respectively, due to weak demand and market-related downtime resulting from the COVID-19
pandemic.
Changes in Pulp & Newsprint operating income are as follows:
Operating Income (in millions)
Gross Margin Changes Attributable to:
2019
Price
Volume/
Sales Mix (a)
Cost
SG&A and
other
2020
Operating Income.......... $
2
$
(20)
$
(13)
$
5
$
1
$
(25)
Operating Margin %......
0.8 %
(10.2)%
(8.7)%
2.9 %
0.6 %
(14.6)%
(a) Computed based on contribution margin.
Operating income for Pulp & Newsprint decreased $27 million during 2020, driven by lower pulp and newsprint prices and
newsprint volumes, partly offset by higher pulp sales volumes. Costs improved primarily from lower transportation expenses,
partially offset by higher energy costs.
36
Corporate
(in millions)
2020
2019
Operating loss............................................................................................................
$
(53) $
(65)
The operating loss for Corporate decreased by $12 million to $53 million in 2020, when compared to 2019, primarily due
to lower environmental reserves charges and reduced spending, partially offset by higher non-cash amortization of technology
costs and unfavorable currency impacts in the current year and the impact of an insurance recovery in the prior year.
Results of Operations, Year Ended December 31, 2019 versus December 31, 2018
Net Sales (in millions)
High Purity Cellulose.................................................................................................. $
Forest Products............................................................................................................
Paperboard..................................................................................................................
Pulp & Newsprint........................................................................................................
Eliminations................................................................................................................
Total Net Sales.............................................................................................................. $
2019
2018
1,127
$
299
200
215
(66)
1,775
$
1,192
356
197
282
(70)
1,957
Net sales decreased $182 million, or 9 percent, in 2019 compared to 2018. The decrease was primarily driven by lower
cellulose specialties, lumber, high-yield pulp and newsprint sales. For further assessment of changes in net sales, see the
discussion of Operating Results by Segment.
Operating income by segment was as follows:
Operating Income (in millions)
High Purity Cellulose.................................................................................................. $
Forest Products...........................................................................................................
Paperboard..................................................................................................................
Pulp & Newsprint.......................................................................................................
Corporate....................................................................................................................
Total Operating Income.............................................................................................. $
2019
2018
7
$
(31)
4
2
(65)
(83) $
112
25
4
72
(65)
148
Operating income for 2019 decreased $231 million when compared to the prior year. The decrease was primarily driven by
lower sales prices and higher costs. For further assessment of changes of operating income, see the discussion of Operating
Results by Segment.
Non-operating Expenses
Interest expense for 2019 increased $4 million driven by higher debt levels throughout most of 2019, increased interest rate
margin from the amendment to our credit facilities, increased amortization of deferred loan costs from the $100 million pay-
down of our Senior Secured Credit Facilities as a result of the Matane Mill sale, partially offset by lower LIBOR rates. For
additional information, see Note 10 — Debt and Finance Leases.
Interest income and other, net, decreased in 2019 as a result of the reduced impact of foreign exchange on the re-
measurement of certain debt instruments as a result of our hedging programs.
Other components of net periodic benefit (expense changed by $13 million to $5 million of expense in 2019 as a result of
lower expected long term returns on pension assets and the $9 million pension settlement loss recorded during the fourth
quarter of 2019. See Note 18 — Employee Benefit Plans.
We recognized a $20 million gain on bargain purchase during 2018 primarily from tax-related adjustments and the sale of
the resins business as a result of finalizing the purchase price allocation of the Acquisition. See Note 4 — Tembec Acquisition.
37
Income Taxes
The full year 2019 effective tax rate from continuing operations was a benefit of 20 percent compared to an expense of 21
percent for the same period in 2018. The effective tax rate benefit differs from the federal statutory rate of 21 percent primarily
due to nondeductible interest expense in the U.S., tax credits, excess tax deductions on vested stock compensation, U.S. Global
Intangible Low-Taxed Income, and different statutory tax rates of foreign operations. See Note 20 — Income Taxes of our
consolidated financial statements for additional information.
Discontinued Operations
Income from discontinued operations increased $67 million and reflects the $84 million gain from the sale of the Matane
Mill in 2019. Excluding the gain, income from discontinued operations declined $17 million during 2019 principally driven
from lower sales prices and professional fees to sell the operations. See Note 3 — Discontinued Operations of our
consolidated financial statements for additional information.
1,192
112
1,167
922
765
280
82
Operating Results by Segment
High Purity Cellulose
($ in million)
Net Sales
Operating Income
Average Sales Prices ($ per metric ton):
Sales Volumes (thousands of metric tons):
Changes in High Purity Cellulose net sales are as follows:
2019
2018
$
$
$
1,127
7
1,083
$
$
$
964
Net Sales (in millions)
Changes Attributable to:
2018
Price
Volume/Mix
2019
Cellulose specialties
Commodity products and other
Other sales (a)
Total Net Sales
$
$
$
832
244
117
1,192
$
(16) $
(33)
—
(49) $
(51)
$
69
(34)
(16)
$
1,127
(a) Other sales include sales of electricity, resins, lignin and other by-products to third parties. The absence of the resins business in 2019
resulted in the decline of $26 million in Other sales.
Total net sales decreased $65 million, or 5 percent, in 2019. Cellulose specialties sales prices declined in 2019 by 2 percent
primarily due to duties on products sold in China, in line with expectations. Cellulose specialties sales volumes declined by 6
percent due to weakness in the acetate, automotive and construction markets as a result of global trade issues and was partially
offset by the timing of shipments which favorably impacted revenue recognition. Commodity product sales prices decreased 10
percent primarily due to weaker markets a result of global trade issues; however, the decline was more than offset by a 27
percent increase in sales volumes due to lower demand for cellulose specialties, improved commodity product production and
contractual changes to the sales terms and conditions with certain customers. Other sales declined as a result of the sale of the
resin business in September 2018.
38
Changes in High Purity Cellulose operating income are as follows:
Operating Income (in millions)
2018
Gross Margin Changes Attributable to:
Volume/
Sales Mix (a)
Price
Cost
SG&A and
other
2019
Operating Income........................ $
112
$
(49)
$
(29)
$
(31)
$
4
$
7
Operating Margin %....................
(a) Volume/Sales Mix computed based on contribution margin.
9.4 %
(3.9)%
(2.5)%
(2.8)%
0.4 %
0.6 %
Operating income decreased $106 million in 2019. The decrease was driven by lower cellulose specialties sales prices and
volumes and a decline in other sales, partially offset by higher commodity sales volumes. Costs increased by $31 million as
overall higher sales volumes, as well as higher wood and maintenance costs were only partially offset by lower chemical prices,
primarily caustic, and the sale of the resin business. The sale of the resin business negatively impacted operating income $5
million during 2019. Included in SG&A and other costs is our share of the loss of the lignin joint venture of $5 million and $4
million incurred during 2019 and 2018, respectively.
Forest Products
(in millions)
Net Sales........................................................................................................................
Operating income.........................................................................................................
Average Sales Prices ($ per thousand board feet):
Lumber .......................................................................................................................
$
$
$
Sales Volumes (millions of board feet):
2019
2018
299
$
(31) $
373
$
Lumber........................................................................................................................
617
Changes in Forest Products net sales are as follows:
Net Sales (in millions)
Changes Attributable to:
2018
Price
Vol/Mix/Other
(a)
2019
Lumber........................................................ $
Other sales (a)..............................................
Total Net Sales.......................................... $
285
71
356
$
$
$
(60) $
— $
(60) $
5
(2)
3
$
$
(a) Other sales include sales of logs, wood chips, and other by-products to third-parties and other segments.
356
25
471
604
230
69
299
Total net sales declined $57 million, or 16 percent, in 2019. Lumber sales prices declined 21 percent due to weak demand
while lumber sales volumes increased by 2 percent as a result of efforts to reduce inventory levels were partially offset by
market downtime taken at the production facilities.
Changes in Forest Products operating income are as follows:
Operating Income (in millions)
Gross Margin Changes Attributable to:
2018
Price
Volume/
Sales Mix
(a)
Cost
SG&A and
other
2019
Operating Income.............. $
25
$
(60)
$
— $
3
$
1
$
(31)
Operating Margin %..........
7.0 %
(18.8)%
— %
1.0 %
0.3 %
(10.5)%
(a) Volume/Sales Mix computed based on contribution margin.
Operating income decreased $56 million in 2019. The decline was driven by lower lumber sales prices, partially offset by
higher lumber sales volumes. Lower costs were driven by lower wood costs and the reversal of the net realizable inventory
reserve of $6 million, partially offset by higher depreciation, transportation and energy costs. SG&A and other costs improved
39
due to lower softwood lumber duties as a result of lower lumber sales prices. The years ended December 31, 2019 and 2018
included $23 million and $26 million in softwood lumber duties, respectively.
Paperboard
(in millions)
2019
2018
Net Sales.......................................................................................................................... $
Operating income........................................................................................................... $
Average Sales Prices ($ per metric tons) (a):
200
4
Paperboard..................................................................................................................... $
1,103
$
$
$
Sales Volumes (in thousands of metric tons) (a):
Paperboard.....................................................................................................................
181
197
4
1,130
174
Changes in Paperboard net sales are as follows:
Net Sales (in millions)
2018
Changes Attributable to:
Price
Volume/Mix
2019
Paperboard.......................................................... $
197
$
(5) $
8
$
200
Total net sales increased $3 million, or 2 percent in 2019 Paperboard sales prices declined 2 percent due to increased
competition. Paperboard sales volumes increased 4 percent primarily due to efforts to reduce inventories.
Changes in Paperboard operating income are as follows:
Operating Income (in millions)
2018
Gross Margin Changes Attributable to:
Volume/
Sales Mix
(a)
Price
Cost
SG&A and
other
2019
Operating Income........... $
4
$
(5)
$
3
$
2
$
Operating Margin %.......
2.0 %
(2.5)%
1.5 %
1.0 %
— $
— %
4
2.0 %
(a) Computed based on contribution margin.
Operating income was flat in 2019. Paperboard prices declined by 2 percent, partially offset by higher paperboard sales
volumes. Costs decreased due to lower pulp raw material prices partially offset by higher transportation and warehousing costs.
Pulp & Newsprint
(in millions)
Net Sales.....................................................................................................................
Operating income......................................................................................................
Average Sales Prices ($ per metric ton):
Pulp.........................................................................................................................
$
$
$
Newsprint................................................................................................................ $
Sales Volumes (in metric tons):
Pulp.........................................................................................................................
Newsprint................................................................................................................
2019
2018
$
$
$
$
215
2
499
524
207
166
282
72
669
592
214
191
40
Changes in Pulp & Newsprint net sales are as follows:
Net Sales (in millions)
2018
Changes Attributable to:
Price
Volume/Mix
2019
Pulp (a)................................................................ $
Newsprint............................................................
Total Net Sales................................................. $
169
113
282
$
$
(37) $
(11)
(48) $
(4)
(15)
(19)
$
$
128
87
215
(a) Average sales prices and volumes for external sales only. The Pulp segment sold approximately 66,000 metric tons and 65,000
metric tons of high-yield pulp for $25 million and $26 million to the Paperboard segment for the production of paperboard during 2019
and 2018, respectively. .....................................................................................................................................................................................
Total net sales declined $67 million, or 24 percent, in 2019. Average pulp sales prices declined 25 percent due to weak
demand as a result of global trade issues. Pulp sales volumes decreased 3 percent due to market downtime and production
reliability issues at
the Temiscaming mill. Newsprint sales prices and volumes declined 11 percent and 13 percent,
respectively. The decrease in prices are primarily due to the effects of the removal of duties on newsprint imported into the U.S.
and the continued decline in demand. The newsprint volume decline was primarily as a result of reliability issues at the
Kapuskasing mill.
Changes in Pulp & Newsprint operating income are as follows:
Operating Income (in millions)
Gross Margin Changes Attributable to:
2018
Price
Volume/
Sales Mix (a)
Cost
SG&A and
other
2019
Operating Income.................. $
72
$
(48)
$
(11)
$
(10)
$
(1)
$
Operating Margin %..............
25.5 %
(15.3)%
(4.2)%
(4.7)%
(0.5)%
2
0.8 %
(a) Computed based on contribution margin.
Operating income for Pulp & Newsprint decreased $70 million in 2019. This was driven by lower pulp sales prices and
volumes as well as decreases in newsprint sales prices and volumes. Costs increased due to the lower newsprint production
levels, higher maintenance and transportation costs.
Corporate
(in millions)
2019
2018
Operating loss............................................................................................................
$
(65) $
(65)
The operating loss for Corporate remained flat at $65 million in 2019, when compared to 2018, due to lower incentive
compensation expense, higher insurance recoveries and the absence of severance expense that is reflected in 2018, offset by
higher legal and administrative costs incurred from the loan amendment that was finalized during the fourth quarter of 2019,
and unfavorable currency changes. In addition, 2019 had higher environmental expenses from changes to the Port Angeles
remediation project and higher cost assumptions for financial assurance on the environmental projects as a result of the increase
in our perceived credit risk.
Liquidity and Capital Resources
Cash flows from operations, primarily driven by operating results, have historically been our primary source of liquidity
and capital resources. However, our operating cash flows have been volatile in recent years due to decreases in market prices
for our commodity products as well as the impact on demand driven by the COVID-19 pandemic.
In response, we have
maintained a key focus on cash, managing working capital closely and optimizing the timing and level of our capital
expenditures. We amended our previous Credit Agreement in 2019 and again in 2020 to provide us with financial flexibility.
In December 2020, we completed the private placement of $500 million 7.625% Senior Secured Notes due 2026 (the “Senior
Secured Notes” and concurrently entered into a five-year senior secured asset-based revolving credit agreement (the “ABL
Credit Facility” in an initial aggregate principal amount of $200 million. In connection with these transactions, we terminated
all commitments and repaid all outstanding obligations under the existing Credit Agreement.
See Note 10 — Debt and
Finance Leases of our consolidated financial statements for additional information.
41
As of December 31, 2020, we are in compliance with all financial and other customary covenants. We continue to believe
our future cash flows from operations and availability under our ABL Credit Facility, as well as our ability to access the capital
markets, if necessary or desirable, will be adequate to fund our operations and anticipated long-term funding requirements,
including capital expenditures, defined benefit plan contributions, and repayment of debt maturities.
The non-guarantor subsidiaries had assets of $797 million, year-to-date revenue of $204 million, covenant EBITDA for the
last twelve months is a $9 million loss and liabilities of $283 million as of December 31, 2020.
On September 6, 2019, our Board of Directors suspended our quarterly common stock dividend to use the cash flow to pay
down debt and fund capital investments as well as working capital needs. The declaration and payment of future common stock
dividends, if any, will be at the discretion of the Board of Directors and will be dependent upon our financial condition, results
of operations, capital requirements and other factors the Board of Directors deem relevant. In addition, our debt facilities place
limitations on the declaration and payment of future dividends. No dividends were declared in 2020.
On January 29, 2018, our Board of Directors authorized a $100 million common stock share buyback program. For the
years ended December 31, 2020 and 2019, we did not repurchase any common shares under this buyback program. We do not
expect to utilize any further authorization in the near future. During 2018, we repurchased and retired 2,570,449 shares of
common stock under this buyback program at an average price of $15.44 per share, excluding commissions, for an aggregate
purchase price of approximately $40 million.
A summary of liquidity and capital resources is shown below (in millions of dollars):
Cash and cash equivalents (a).......................................................................... $
Availability under the ABL Credit Facility (b)...............................................
Availability under the Revolving Credit Facility (c).......................................
Total debt (d)...................................................................................................
Stockholders’ equity........................................................................................
Total capitalization (total debt plus equity).....................................................
As of December 31,
2020
2019
2018
$
$
94
102
—
1,084
695
1,779
64
—
87
1,082
683
1,765
109
—
217
1,188
707
1,895
Debt to capital ratio.........................................................................................
61 %
61 %
63 %
(a) Cash and cash equivalents consisted of cash, money market deposits and time deposits with original maturities of 90 days
or less.
(b) Amounts available under the ABL Credit Facility fluctuate based on eligible accounts receivable and inventory levels. At
December 31, 2020, we had $146 million of gross availability and net available borrowings of $102 million after taking
into account standby letters of credit of approximately $44 million.
In addition to the availability under the ABL Credit
Facility, we have $19 million available under an accounts receivable factoring line of credit in France. See Note 22 —
Commitments and Contingencies of our consolidated financial statements for additional information.
(c) Amounts available under the Revolving Credit Facility have been reduced by $33 million and $34 million as of December
31, 2019 and 2018, respectively. We were also required to maintain between $80 million and $90 million of availability on
our Revolving Credit Facility, therefore we show this as a reduction to the December 31, 2019 availability.
(d) See Note 10 — Debt and Finance Leases of our consolidated financial statements for more information.
Cash Flows (in millions of dollars)
The following table summarizes our cash flows from operating, investing and financing activities for each of the following
years ended December 31:
Cash Provided by (Used for):
2020
2019
2018
Operating activities.......................................................................................... $
Investing activities........................................................................................... $
Financing activities.......................................................................................... $
124
$
(78) $
(19) $
42
53
$
$
(138) $
247
(116)
(116)
42
Cash Provided by Operating Activities
Cash provided by operating activities during the year ended December 31, 2020 increased $82 million, compared to the
prior year period, due to improvements in our operating results, mostly from higher lumber prices and lower costs from
improved reliability. The increase was partly offset by an increase in income tax receivables that are expected to be refunded
during 2021. Included in cash provided by operating activities for the year ended December 31, 2019 was $20 million of cash
provided by discontinued operations.
Cash provided by operating activities in 2019 decreased $205 million when compared to the prior year ended December
31, 2018, primarily due to a decline in our operating results mostly from lower prices across all segments, partially offset by a
decrease in environmental spending in 2019. Included in cash provided by operating activities for the year ended December 31,
2018 was $25 million of cash provided by discontinued operations.
Cash Provided by (Used for Investing Activities
Cash used for investing activities during the year ended December 31, 2020 was $78 million compared to cash provided by
investing activities of $53 million during the same prior year period. The year ended December 31, 2019 included proceeds
from discontinued operations of $158 million that were received from the November 2019 sale of the Matane mill and $3
million of discontinued operations capital spending. Capital expenditures from continuing operations decreased $28 million
during the year ended December 31, 2020 when compared to the same prior year period. The current year included proceeds of
$4 million from the sale of assets and $4 million of contributions for our investment in Anomera. See Note 2—Summary of
Significant Accounting Policies and New Accounting Pronouncements for additional information on the investment.
Cash used for investing activities of continuing operations during 2019 decreased $10 million when compared to the prior
year from a decrease in capital spending. In addition, the year ended December 31, 2018 included $16 million of proceeds
received from the sale of the resins business. Included in cash provided by investing activities of discontinued operations for
the year ended December 31, 2019 were $155 million of proceeds from the sale of the Matane mill, partly offset by
approximately $3 million of capital spending.
Cash Provided by (Used for Financing Activities
Cash used for financing activities decreased $119 million primarily due a decrease of $109 million in our net long-term
debt payments during 2020 when compared to the year ended December 31, 2019. In addition, the year ended December 31,
2020 included $5 million of short term borrowings from the France factoring line. Common stock dividends paid decreased by
$9 million due to the suspension of the quarterly $0.07 dividend starting in the third quarter of 2019. In addition, the preferred
stock dividend payments declined by $10 million in 2020 as the preferred stock automatically converted to common stock in
August 2019. During 2020, the Company incurred $24 million of debt issuance costs primarily from the Senior Secured Notes
due 2026 that were issued in December 2020. Common shares repurchased decreased by $6 million during 2020 when
compared to the same prior year period due to fewer shares in lieu of income taxes repurchased. See Note 10 — Debt and
Finance Leases and Note 14 — Stockholders' Equity for additional information.
Cash used for financing activities during 2019 increased $22 million when compared to the prior year, primarily due to a
net increase in long-term debt payments of $64 million during the year ended December 31, 2019, partially offset by a $36
million decrease in common stock repurchases due to the absence of the share repurchases under the buyback program that
occurred in 2018. In addition, common stock and preferred stock dividends decreased in total by $10 million during 2019. In
addition, debt issuance costs of $4 million were incurred in 2019.
Performance and Liquidity Indicators
The discussion below is presented to enhance the reader’s understanding of our operating performance, liquidity, ability to
generate cash and satisfy rating agency and creditor requirements. This information includes the following measures of
financial results: EBITDA, adjusted EBITDA and adjusted free cash flows. These measures are not defined by U.S. Generally
Accepted Accounting Principles (“GAAP” and the discussion of EBITDA, adjusted EBITDA and adjusted free cash flows is
not intended to conflict with or change any of the GAAP disclosures described above. Our management uses these non-GAAP
measures to compare our performance to that of prior periods for trend analyses, purposes of determining management
incentive compensation and budgeting, forecasting and planning purposes. Our management considers these measures, in
addition to operating income, to be important to estimate the enterprise and stockholder values of the Company, and for making
strategic and operating decisions.
In addition, analysts, investors and creditors use these measures when analyzing our
operating performance, financial condition and cash generating ability. Our management uses EBITDA and adjusted EBITDA
as performance measures and adjusted free cash flows as a liquidity measure. See “Note about Non-GAAP Financial
Measures” on page 2 for limitations associated with non-GAAP measures.
43
EBITDA is defined by SEC rules as earnings from continuing operations before interest,
taxes, depreciation and
amortization. Adjusted EBITDA is defined by the Company as EBITDA before the pension settlement loss, duties reversal,
insurance recoveries, loan amendment costs, non-recurring expenses related to the Company’s review of its commodity asset
portfolio, severance expense, gain on bargain purchase, acquisition related costs, inventory write-up to fair value, gain on
derivative instrument, gain on debt extinguishment, non-cash impairment, and one-time separation and legal costs. EBITDA
and adjusted EBITDA are not necessarily indicative of results that may be generated in future periods.
Below is a reconciliation of Income (Loss) from Continuing Operations to EBITDA and Adjusted EBITDA for each of the
years ended December 31 (in millions of dollars):
Income (Loss) from Continuing Operations to EBITDA
and Adjusted EBITDA Reconciliations
Income (loss) from continuing operations
Depreciation and amortization
Interest expense, net
Income tax expense (benefit)
EBITDA
Pension settlement (gain) loss
Insurance recovery
Loan amendment costs
Non-recurring expense (a)
Severance expense
Gain on bargain purchase
Acquisition related costs
Inventory write-up to fair value
Gain on derivative instrument
Loss (gain) on debt extinguishment
Duties reversal (b)
Adjusted EBITDA
2020
2019
2018
2017
2016
$
— $
(118) $
99
$
323
$
152
64
(47)
169
(3)
—
—
—
—
—
—
—
—
8
(21)
$
153
$
153
60
(30)
65
9
(4)
4
1
1
—
—
—
—
—
—
76
146
55
27
327
—
—
—
—
4
97
38
19
477
—
—
—
—
—
(20)
(317)
—
—
—
—
—
34
23
(8)
—
—
$
311
$
209
$
226
73
88
35
39
235
—
—
—
—
—
—
—
—
—
(9)
—
(a) Non-recurring expenses are related to the Company’s review of its commodity asset portfolio.
(b) The U.S. Department of Commerce announced its final determination in December 2020 to reduce the Company’s
duties on Canadian softwood lumber imported into the U.S. from 20 percent to 9 percent. As a result the Company reflected a
$21 million reversal of prior period expense during the year ended December 31, 2020.
EBITDA and Adjusted EBITDA for 2020 increased compared to 2019, primarily due to higher earnings from operations as
a result of higher lumber sales prices and lower costs, primarily from improved reliability. EBITDA and Adjusted EBITDA for
2019 decreased compared to 2018, primarily due to lower earnings from operations as a result of lower sales prices on all our
products. For additional information regarding operating results see Results of Operations section of Item 7 — Management
Discussion and Analysis.
Adjusted free cash flows is defined as cash provided by operating activities of continuing operations adjusted for capital
expenditures, net of proceeds from sale of assets, excluding strategic capital expenditures. Adjusted free cash flows, as defined
by the Company, is a non-GAAP measure of cash generated during a period which is available for debt reduction, strategic
capital expenditures and acquisitions and repurchase of the Company’s common stock. Adjusted free cash flows is not
necessarily indicative of the adjusted free cash flows that may be generated in future periods.
44
Below is a reconciliation of cash flows from operations to adjusted free cash flows for each of the following years ended
December 31 (in millions of dollars):
Cash Flows from Operations to Adjusted Free Cash
Flows Reconciliation
2020
2019
2018
2017
2016
Cash provided by operating activities-continuing operations $
Capital expenditures, net (a)..............................................
Adjusted free cash flows........................................................ $
124
(51)
73
$
$
22
$
(75)
(53) $
222
(92)
130
$
$
126
(64)
62
$
$
232
(85)
147
(a) Capital expenditures, net of proceeds from sale of assets, exclude strategic capital expenditures which we deem
discretionary. Strategic capital expenditures for the years ended December 31, 2020, 2019, 2018, 2017 and 2016 were $22
million, $27 million, $37 million, $11 million and $4 million, respectively.
Adjusted free cash flows in 2020 increased compared to 2019 primarily due to strong lumber prices and lower costs driven
by improved reliability, partly offset by lower capital expenditures.
Adjusted free cash flows in 2019 decreased compared to 2018 primarily due lower cash from operating activities driven by
lower earnings as a result of lower sales prices on all our products. This was partially offset by our actions to decrease capital
expenditures to preserve cash flow.
Off Balance Sheet Arrangements
We utilize off-balance sheet arrangements to provide credit support for certain suppliers and vendors in case of their default
on critical obligations, collateral for certain of our self-insurance programs and guarantees for the completion of our
remediation of environmental liabilities. These arrangements consist of standby letters of credit and surety bonds. As part of
our ongoing operations, we also periodically issue guarantees to third parties. Off-balance sheet arrangements are not
considered a source of liquidity or capital resources and do not expose us to material risks or material unfavorable financial
impacts. See Note 22 — Commitments and Contingencies of our consolidated financial statements for more information.
Contractual Financial Obligations
Information regarding the letters of credit, surety bonds and other guarantees as of December 31, 2020 is hereby
incorporated by reference to Note 22 — Commitments and Contingencies of our consolidated financial statements.
The following table aggregates our contractual financial obligations as of December 31, 2020 and anticipated cash
spending by period:
Payments Due by Period
Contractual Financial Obligations (in millions)
Total
2021
2022-2023
2024-2025 Thereafter
Long-term debt, including current maturities..................... $
Interest payments on long-term debt and finance lease
obligations (a).................................................................
Purchase obligations (b).....................................................
Postretirement obligations (c)............................................
Finance lease obligations....................................................
Operating leases (d)............................................................
1,093
$
17
$
40
$
517
$
519
310
342
19
2
21
70
138
2
—
7
138
76
4
1
11
94
35
4
1
2
8
93
9
—
1
Total contractual cash obligations................................. $
1,787
$
234
$
270
$
653
$
630
(a) Projected interest payments were calculated based on outstanding principal amounts and interest rates as of December 31,
2020. See Note 10 — Debt and Finance Leases for additional information.
(b) Purchase obligations primarily consist of payments expected to be made on natural gas, steam energy and wood chip
purchase contracts. Purchase obligations exclude arrangements the Company can cancel without penalty.
(c) Amounts include estimated postretirement benefit payments and do not include pension funding obligations. See Note 18
— Employee Benefit Plans, for additional information on our pension and postretirement benefit plans.
45
(d) See Note 5 —Leases for additional information.
Environmental Regulation
We are subject to stringent environmental laws and regulations concerning air emissions, wastewater discharges, waste
handling and disposal, and assessment and remediation of environmental contamination, which impact both our current ongoing
operations and about 20 former operating facilities or third party-owned sites classified as disposed operations. These include
the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 and similar state laws and regulations impacting U.S. facilities, as well as
requirements relating to ancillary matters such as financial assurance of our legal obligations for facility closure and post-
closure care. Similar laws and legal requirements also impact current and former operating sites in Canada and France,
respectively. Management closely monitors our environmental responsibilities and believes we are in material compliance with
In addition to ongoing compliance with laws and regulations, our facilities operate in accordance with
current requirements.
various permits, which are issued by state and federal environmental agencies. Many of these permits impose operating
conditions on us which require significant expenditures to ensure compliance. Upon renewal and renegotiation of these
permits, the issuing agencies often seek to impose new or additional conditions in response to new environmental laws and
regulations, or more stringent interpretations of existing laws and regulations. In addition, under many federal environmental
laws, private citizens and organizations, such as environmental advocacy groups, have the right to legally challenge permitting
and other decisions made by regulatory agencies.
Our operations are subject to constantly changing environmental requirements, and interpretations of existing requirements,
which are often impacted by new policy initiatives, new and amended legislation and regulation, negotiations involving state
and federal governmental agencies and various other stakeholders, as well as, at times, litigation. For additional information,
see Item 1A — Risk Factors for a discussion of the potential impact of environmental risks on our business, and Item 3 —
Legal Proceedings, for a discussion of any environmental-related litigation.
Our future spending requirements in the area of environmental compliance could change significantly based on the passage
of new environmental laws and regulations.
Environmental Liabilities
For information and details relating to our estimated environmental liabilities, see Item 1A — Risk Factors and Note 11 —
Environmental Liabilities of our consolidated financial statements for more information.
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk
Market and Other Economic Risks
We are exposed to various market risks, primarily changes in interest rates, currency and commodity prices. Our objective
is to minimize the economic impact of these market risks. We may use derivatives in accordance with policies and procedures
approved by the Audit Committee of our Board of Directors. Derivatives are managed by a senior executive committee whose
responsibilities include initiating, managing and monitoring resulting exposures. See Note 12 — Derivative Instruments for
additional information.
We manage our foreign currency exposures by balancing certain assets and liabilities denominated in foreign currencies.
We may also use foreign currency forward contracts to manage these exposures. The principal objective of such contracts is to
minimize the potential volatility and financial impact of changes in foreign currency exchange rates. We do not utilize financial
instruments for trading or other speculative purposes.
The prices, sales volumes and margins of the commodity products of our High Purity Cellulose segment and all the
products of the Forest Products and Pulp & Newsprint segments have historically been cyclically affected by economic and
market shifts, fluctuations in capacity, and changes in foreign currency exchange rates. In general, these products are
commodities that are widely available from other producers; because these products have few distinguishing qualities from
producer to producer, competition is based primarily on price, which is determined by supply relative to demand. The overall
levels of demand for the products we manufacture, and consequently our sales and profitability, reflect fluctuations in end user
demand. Our cellulose specialties product prices are impacted by market supply and demand, raw material and processing costs,
changes in global currencies and other factors. While these prices are not directly correlated to commodity dissolving wood
pulp and paper pulp prices, changes in commodity dissolving wood pulp and paper pulp prices may impact competitors' actions
46
which can lead to an impact in prices for cellulose specialties products.
specialties contracted volumes are under multi-year contracts that expire between 2021 and 2023.
In addition, approximately half of our cellulose
As of December 31, 2020, we had $5 million of variable rate debt which is subject to interest rate risk. At this borrowing
level, a hypothetical one-percentage point increase/decrease in interest rates would result in an immaterial increase/decrease in
interest payments and expense over a 12-month period.
The fair market value of our long-term fixed interest rate debt is also subject to interest rate risk. However, we intend to
hold most of our debt until maturity. The estimated fair value of our fixed-rate debt at December 31, 2020 was $1,050 million
compared to the $1,088 million principal amount. We use quoted market prices to estimate the fair value of our fixed-rate debt.
Generally, the fair market value of fixed-rate debt will increase as interest rates fall and decrease as interest rates rise.
We may periodically enter into commodity forward contracts to fix some of our energy costs that are subject to price
volatility caused by weather, supply conditions, political and economic variables and other unpredictable factors. Such forward
contracts partially mitigate the risk of changes to our gross margins resulting from an increase or decrease in these costs.
Forward contracts which are derivative instruments are reported in the consolidated balance sheets at their fair values, unless
they qualify for the normal purchase normal sale ("NPNS") exception and such exception has been elected. If the NPNS
exception is elected, the fair values of such contracts are not recognized on the balance sheet.
Item 8.
Financial Statements and Supplementary Data
Our consolidated financial statements and related financial statement schedule, together with the report of independent
registered accounting firm, appear at pages F-1 through F-48 of this Annual Report on Form 10-K for the year ended December
31, 2020.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None
Item 9A.
Controls and Procedures
Disclosure Controls and Procedures
Rayonier Advanced Materials management is responsible for establishing and maintaining adequate disclosure controls and
procedures. Disclosure controls and procedures (as defined in Rule 13a-15(e under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”are designed with the objective of ensuring that information required to be disclosed in reports
filed under the Exchange Act, such as this annual report on Form 10-K, is (1 recorded, processed, summarized and reported
within the time periods specified in the SEC’s rules and forms and (2 accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required
disclosure.
Because of the inherent limitations in all control systems, no control evaluation can provide absolute assurance all control
exceptions and instances of fraud have been prevented or detected on a timely basis. Even systems determined to be effective
can provide only reasonable assurance their objectives are achieved.
Based on an evaluation of our disclosure controls and procedures as of the end of the period covered by this annual report
on Form 10-K, our management, including the Chief Executive Officer and Chief Financial Officer, concluded the design and
operation of the disclosure controls and procedures were effective as of December 31, 2020.
Internal Control over Financial Reporting
With regard to our internal control over financial reporting as defined in paragraph (f of Rule 13a-15(f, see
Management’s Report on Internal Control over Financial Reporting on page F-2, followed by the Reports of Independent
Registered Public Accounting Firm on page F-3, included in Item 8 — Financial Statements and Supplementary Data of this
annual report on Form 10-K.
For the quarter ended December 31, 2020, based upon the evaluation required by paragraph (d of Rule 13a-15, there were
no changes in our internal control over financial reporting that would materially affect or are reasonably likely to materially
affect our internal control over financial reporting.
47
Item 9B.
Other Information
None.
48
Certain information required by Part III is incorporated by reference from the Company’s definitive Proxy Statement to be
filed with the SEC in connection with the solicitation of proxies for the Company’s 2021 Annual Meeting of Stockholders (the
“Proxy Statement”. We will make the Proxy Statement available on our website at www.rayonieram.com as soon as it is filed
with the SEC.
Part III
Item 10.
Information about our Directors, Executive Officers and Corporate Governance
The information required by this Item with respect to directors, executive officers and corporate governance is
incorporated by reference from the sections entitled “Commitment to Best Practices in Corporate Governance,” and “Election
of Directors,” and the subsections entitled “Executive Compensation Tables and Related Information-Executive Officers and
Delinquent Section 16(a Reports” and “Ratification of the Appointment of Independent Registered Public Accounting Firm-
Audit Committee Financial Experts” in the Proxy Statement. The information required by this Item with respect to disclosure
of any known late filing or failure by an insider to file a report required by Section 16 of the Exchange Act is incorporated by
reference to the section entitled “Delinquent Section 16(a Reports” in the Proxy Statement.
Our Standard of Ethics and Code of Corporate Conduct, which is applicable to our principal executive officer and
financial and accounting officers, is available on our website, www.rayonieram.com. Any amendments to or waivers of the
Standard of Ethics and Code of Corporate Conduct will also be disclosed on our website.
Item 11.
Executive Compensation
The information called for by Item 11 is incorporated herein by reference from the sections entitled “Compensation
Discussion & Analysis,” “Report of
the Compensation and Management Development Committee” and “Executive
Compensation Tables and Related Information,” and the subsection entitled “Commitment to Best Practices in Corporate
Governance-Director Compensation,” in the Proxy Statement.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information called for by Item 12 is incorporated herein by reference from the subsections entitled “Executive
Compensation Tables and Related Information-Stock Ownership of Directors and Executive Officers, Security Ownership of
Certain Beneficial Owners and Equity Compensation Plan Information” in the Proxy Statement.
Item 13.
Certain Relationships and Related Transactions, and Director Independence
The information called for by Item 13 is incorporated herein by reference from the section entitled “Election of
Directors,” and the subsections entitled “Commitment to Best Practices in Corporate Governance-Corporate Governance
Principles, Director Independence and Related Person Transactions” in the Proxy Statement.
Item 14.
Principal Accounting Fees and Services
The information called for by Item 14 is incorporated herein by reference from the subsection entitled “Ratification of the
Appointment of Independent Registered Public Accounting Firm-Information Regarding Independent Registered Public
Accounting Firm” in the Proxy Statement.
49
Part IV
Item 15.
Exhibits, Financial Statement Schedules
(a)
1. Consolidated Financial Statements.
For a list of the consolidated financial information included herein, see page F-1.
2. Financial Statement Schedules.
All other schedules have been omitted as the required information is not applicable or the information is presented in
the Consolidated Financial Statements or notes thereto under Item 8 herein. The following consolidated financial
statement schedule is included in Item 8:
Schedule II-Valuation and Qualifying Accounts
3. Exhibits.
(b) Exhibits.
See Item 15(a)(3).
(c) Financial Statement Schedule.
See Item 15(a)(2).
Exhibit No. Description
2.1
2.2
2.3
3.1
3.2
3.3
4.1
Separation and Distribution Agreement between
Rayonier Advanced Materials Inc. and Rayonier Inc.,
dated as of May 28, 2014
Arrangement Agreement by and between Tembec Inc.
and Rayonier Advanced Materials Inc. dated as of
May 24, 2017*
Amending Agreement, dated as of July 23, 2017, to
the Arrangement Agreement by and between Tembec
Inc. and Rayonier Advanced Materials Inc. dated as of
May 24, 2017
Location
Incorporated herein by reference to Exhibit 2.1 to the
Registrant’s Amendment No. 4 to the Registration
Statement on Form 10 filed on May 29, 2014
Incorporated herein by reference to Exhibit 2.1 to the
Registrant’s Form 8-K filed on May 25, 2017
Incorporated herein by reference to Exhibit 2.1 to the
Registrant’s Form 8-K filed on July 24, 2017
Amended and Restated Certificate of Incorporation of
Rayonier Advanced Materials Inc.
Incorporated herein by reference to Exhibit 3.1 to the
Registrant’s Form 8-K filed on June 30, 2014
Certificate of Designations of 8.00% Series A
Mandatory Convertible Preferred Stock of Rayonier
Advanced Materials Inc., filed with the Secretary of
State of the State of Delaware and effective August
10, 2016
Incorporated herein by reference to Exhibit 3.1 to the
Registrant’s Form 8-K filed on August 10, 2016
Amended and Restated Bylaws of Rayonier Advanced
Materials Inc.
Incorporated herein by reference to Exhibit 3.2 to the
Registrant’s Form 8-K filed on June 30, 2014
Indenture among Rayonier A.M. Products Inc., the
guarantors party thereto from time to time and Wells
Fargo Bank, National Association, as Trustee, dated as
of May 22, 2014
Incorporated herein by reference to Exhibit 4.1 to the
Registrant’s Amendment No. 4 to Registration
Statement on Form 10 filed on May 29, 2014
4.2
Description of Common Stock
Incorporated herein by reference to Exhibit 4.2 to the
Registrant’s Form 10-K filed on March 2 2020
50
Exhibit No. Description
Indenture, dated as of December 23, 2020, by and
among Rayonier A.M. Products Inc., the Guarantors
party thereto and Wells Fargo Bank, National
Association as trustee and as notes collateral agent
Location
Incorporated herein by reference to Exhibit 4.1 to the
Registrant’s Form 8-K filed on December 23, 2020
4.3
4.4
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
Form of 7.625% Senior Secured Notes due 2026,
included as Exhibit A to the Indenture
Incorporated herein by reference to Exhibit 4.2 to the
Registrant’s Form 8-K filed on December 23, 2020
Transition Services Agreement, dated as of June 27,
2014, by and between Rayonier Inc. and Rayonier
Advanced Materials Inc.
Tax Matters Agreement, dated as of June 27, 2014, by
and among Rayonier Inc., Rayonier Advanced
Materials Inc., Rayonier TRS Holdings Inc. and
Rayonier A.M. Products Inc.
Employee Matters Agreement, dated as of June 27,
2014, by and between Rayonier Inc. and Rayonier
Advanced Materials Inc.
Intellectual Property Agreement, dated as of June 27,
2014, by and between Rayonier Inc. and Rayonier
Advanced Materials Inc.
Incorporated herein by reference to Exhibit 10.1 to the
Registrant’s Form 8-K filed on June 30, 2014
Incorporated herein by reference to Exhibit 10.2 to the
Registrant’s Form 8-K filed on June 30, 2014
Incorporated herein by reference to Exhibit 10.3 to the
Registrant’s Form 8-K filed on June 30, 2014
Incorporated herein by reference to Exhibit 10.4 to the
Registrant’s Form 8-K filed on June 30, 2014
Rayonier Advanced Materials Inc. Incentive Stock
Plan, as amended effective May 23, 2016**
Incorporated herein by reference to Appendix C to the
Registrant’s Proxy Statement filed on April 8, 2016
Rayonier Advanced Materials Inc. 2017 Incentive
Stock Plan, effective May 22, 2017**
Incorporated herein by reference to Appendix B to the
Registrant’s Proxy Statement filed on April 7, 2017
Rayonier Advanced Materials Inc. 2017 Incentive
Stock Plan, effective December 15, 2017**
Incorporated herein by reference to Exhibit 10.10 to
the Registrant’s Form 10-K filed on March 1, 2018
Rayonier Advanced Materials Inc. 2017 Incentive
Stock Plan (as amended effective December 15,
2017)**
First Amendment to the Rayonier Advanced Materials
Inc. 2017 Incentive Stock Plan, effective May 22,
2017**
Form of Rayonier Advanced Materials Inc. Incentive
Stock Plan Restricted Stock Unit Award Agreement,
effective 2017**
Incorporated herein by reference to Appendix A to the
Registrant’s Proxy Statement filed on April 6, 2018
Incorporated herein by reference to Exhibit 10.2 to the
Registrant’s Form 10-Q filed on November 7, 2019
Incorporated herein by reference to Exhibit 10.12 to
the Registrant’s Form 10-K filed on March 1, 2018
Form of Rayonier Advanced Materials Inc. 2021
Restricted Stock Unit Award Agreement**
Filed herewith
Form of Rayonier Advanced Materials Inc. 2021
Performance Share Unit Award Agreement**
Filed herewith
Form of Rayonier Advanced Materials Inc. 2021
Performance Cash Unit Award Agreement**
Filed herewith
Form of Rayonier Advanced Materials Inc. Incentive
Stock Plan Supplemental Terms Applicable to the
2019 Equity Award Grant**
Form of Rayonier Advanced Materials Inc. Incentive
Stock Plan Supplemental Terms Applicable to the
2020 Equity Award Grant**
Incorporated herein by reference to Exhibit 10.16 to
the Registrant’s Form 10-K filed on March 1, 2019
Incorporated herein by reference to Exhibit 10.2 to the
Registrant’s Form 10-Q filed on May 7, 2020
51
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
Exhibit No. Description
Form of Rayonier Advanced Materials Inc. Incentive
Stock Plan Supplemental Terms Applicable to the
2021 Equity Award Grant**
Description of Rayonier Advanced Materials Inc.
2019 Performance Share Award Program**
Location
Filed herewith
Incorporated herein by reference to Exhibit 10.19 to
the Registrant’s Form 10-K filed on March 1, 2019
Description of Rayonier Advanced Materials Inc.
2020 Performance Share Award Program**
Incorporated herein by reference to Exhibit 10.3 to the
Registrant’s Form 10-Q filed on May 7, 2020
Rayonier Advanced Materials Inc. Non-Equity
Incentive Plan, as amended effective May 23, 2016**
Incorporated herein by reference to Appendix B to the
Registrant’s Proxy Statement filed on April 8, 2016
Rayonier Advanced Materials Inc. Executive
Severance Pay Plan, Amended and Restated effective
October 21, 2019**
Incorporated herein by reference to Exhibit 10.3 to the
Registrant’s Form 10-Q filed on November 7, 2019
Rayonier Advanced Materials Inc. Non Change In
Control Executive Severance Plan**
Incorporated herein by reference to Exhibit 10.20 to
the Registrant’s Form 10-K filed on February 26, 2016
First Amendment to the Rayonier Advanced Materials
Inc. Non Change In Control Executive Severance
Plan**
Incorporated herein by reference to Exhibit 10.4 to the
Registrant’s Form 10-Q filed on November 7, 2019
Trust Agreement for Rayonier Advanced Materials
Inc. Legal Resources Trust, dated June 28, 2014, by
and between Rayonier Advanced Materials Inc. and
Wells Fargo Bank, National Association**
Rayonier Advanced Materials Inc. Excess Benefit
Plan, effective June 27, 2014**
Incorporated herein by reference to Exhibit 10.23 to
the Registrant’s Form 10-Q/A filed on September 4,
2014
Incorporated herein by reference to Exhibit 10.24 to
the Registrant’s Form 10-Q/A filed on September 4,
2014
Rayonier Advanced Materials Inc. Excess Savings and
Deferred Compensation Plan, effective June 28,
2014**
Incorporated herein by reference to Exhibit 10.25 to
the Registrant’s Form 10-Q/A filed on September 4,
2014
Form of Rayonier Advanced Materials Inc. Excess
Savings and Deferred Compensation Plan
Agreements, effective June 28, 2014**
Retirement Plan for Salaried Employees of Rayonier
Advanced Materials Inc., effective June 27, 2014 and
Amended and Restated as of October 21, 2019**
Rayonier Advanced Materials Inc. Investment and
Savings Plan for Salaried Employees, effective
January 1, 2015**
Amendment to Rayonier Advanced Materials Inc.
Investment and Savings Plan for Salaried Employees,
effective January 1, 2015**
Amendment to Rayonier Advanced Materials Inc.
Investment and Savings Plan for Salaried Employees,
effective January 1, 2016**
Amendment to Rayonier Advanced Materials Inc.
Investment and Savings Plan for Salaried Employees,
effective January 1, 2016**
Amendment to Rayonier Advanced Materials Inc.
Investment and Savings Plan for Salaried Employees,
effective October 1, 2016**
Amendment to Rayonier Advanced Materials Inc.
Investment and Savings Plan for Salaried Employees,
effective February 13, 2017**
Incorporated herein by reference to Exhibit 10.18 to
the Registrant’s Form 10-K filed on February 27, 2015
Incorporated herein by reference to Exhibit 10.5 to the
Registrant’s Form 10-Q filed on November 7, 2019
Incorporated herein by reference to Exhibit 10.24 to
the Registrant’s Form 10-K filed on February 24, 2017
Incorporated herein by reference to Exhibit 10.25 to
the Registrant’s Form 10-K filed on February 24, 2017
Incorporated herein by reference to Exhibit 10.26 to
the Registrant’s Form 10-K filed on February 24, 2017
Incorporated herein by reference to Exhibit 10.27 to
the Registrant’s Form 10-K filed on February 24, 2017
Incorporated herein by reference to Exhibit 10.28 to
the Registrant’s Form 10-K filed on February 24, 2017
Incorporated herein by reference to Exhibit 10.29 to
the Registrant’s Form 10-K filed on February 24, 2017
52
Location
Incorporated herein by reference to Exhibit 10.5 to the
Registrant’s Amendment No. 4 to the Registration
Statement on Form 10 filed on May 29, 2014
Filed herewith
Incorporated herein by reference to Exhibit 10.1 to the
Registrant’s Form 10-Q filed on August 7, 2019
Incorporated herein by reference to Exhibit 10.1 to the
Registrant’s Form 8-K filed on December 23, 2020
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Filed herewith
Furnished herewith
Filed herewith
Exhibit No. Description
10.34
10.35
10.36
10.37
21
23.1
24
31.1
31.2
32
101
Form of Indemnification Agreement between
Rayonier Advanced Materials Inc. and individual
directors or officers**
Form of Rayonier Advanced Materials Inc. Outside
Directors Compensation Program/Cash Deferral
Option Agreement, effective January 1, 2020**
Asset Purchase Agreement by and between Sappi
Canada Enterprises Inc., as purchaser and Sappi
Papier Holding GmbH, as Purchaser guarantor, on the
one hand, and Rayonier A.M. Canada G.P., Rayonier
A.M. Compagnie de Construction Inc. and Rayonier
A.M. Enterprises Inc., collectively the Seller, and
Rayonier Advanced Materials Inc., as Seller
guarantor, dated as of July 31, 2019***
Revolving Credit Agreement, dated as of December
10, 2020, among Rayonier Advanced Materials Inc.,
Rayonier A.M. Products Inc., the other subsidiaries of
Rayonier Advanced Materials Inc. party thereto, the
lenders party thereto and Bank of America, N.A., as
administrative agent and collateral agent.
Subsidiaries of the registrant
Consent of Grant Thornton LLP
Powers of attorney
Chief Executive Officer’s Certification Pursuant to
Rule 13a-14(a)/15d-14(a) and pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
Chief Financial Officer’s Certification Pursuant to
Rule 13a-14(a)/15d-14-(a) and pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
Certification of Periodic Financial Reports Under
Section 906 of the Sarbanes-Oxley Act of 2002
The following financial information from our Annual
Report on Form 10-K for the fiscal year ended
December 31, 2020, formatted in Extensible Business
Reporting Language (“XBRL”), includes: (i) the
Consolidated Statements of Income and
Comprehensive Income for the Years Ended
December 31, 2020, 2019 and 2018; (ii) the
Consolidated Balance Sheets as of December 31, 2020
and 2019; (iii) the Consolidated Statements of Cash
Flows for the Years Ended December 31, 2020, 2019
and 2018; and (iv) the Notes to the Consolidated
Financial Statements
104
Cover Page Interactive Data File - formatted as Inline
XBRL and contained in Exhibit 101
* The exhibits to the Arrangement Agreement have been omitted from this filing pursuant to Item 601(b(2 of Regulation S-
K. The Company will furnish copies of any such schedules and exhibits to the U.S. Securities and Exchange Commission upon
request.
** Management contract or compensatory plan.
***Certain confidential portions of this exhibit were omitted by means of marking such portions with asterisks because the
identified confidential portions (i) are not material and (ii) would be competitively harmful if publicly disclosed.
53
Item 16.
Form 10-K Summary
None.
54
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
Signatures
Rayonier Advanced Materials Inc.
(Registrant)
By:
/s/ MARCUS J. MOELTNER
Marcus J. Moeltner
Chief Financial Officer and
Senior Vice President, Finance
(Duly Authorized Officer and Principal Financial Officer)
Date: March 1, 2021
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates indicated.
55
Signature
Title
Date
/s/ PAUL G. BOYNTON
Paul G. Boynton
(Principal Executive Officer)
/s/ MARCUS J. MOELTNER
Marcus J. Moeltner
(Principal Financial Officer)
/s/ GABRIELA GARCIA
Gabriela Garcia
(Principal Accounting Officer)
*
DeLyle W. Bloomquist
*
Charles E. Adair
*
Julie A. Dill
*
James F. Kirsch
*
David C. Mariano
*
Thomas I. Morgan
*
Lisa M. Palumbo
*
Ivona Smith
Chief Executive Officer and
President
March 1, 2021
Chief Financial Officer and Senior
Vice President, Finance
March 1, 2021
Chief Accounting Officer and Vice
President, Controller
March 1, 2021
Chairman
Director
Director
Director
Director
Director
Director
Director
*By:
/s/ MARCUS J. MOELTNER
Marcus J. Moeltner
(Attorney-In-Fact)
March 1, 2021
56
Index to Financial Statements
Management’s Report on Internal Control over Financial Reporting............................................................................
Reports of Independent Registered Public Accounting Firm.........................................................................................
Consolidated Statements of Income and Comprehensive Income for the Three Years Ended December 31, 2020......
Consolidated Balance Sheets as of December 31, 2020 and 2019.................................................................................
Consolidated Statements of Cash Flows for the Three Years Ended December 31, 2020.............................................
Notes to Consolidated Financial Statements...................................................................................................................
Index to Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts..........................................................................................................
All other financial statement schedules have been omitted because they are not applicable, the required matter is
not present, or the required information has been otherwise supplied in the financial statements or the notes thereto.
Page
F-2
F-3
F-6
F-7
F-8
F-9
F-47
F-1
Management’s Report on Internal Control over Financial Reporting
The management of Rayonier Advanced Materials Inc. and its subsidiaries is responsible for establishing and maintaining
adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as
amended). Our system of internal controls over financial reporting is designed to provide reasonable assurance to the
Company’s management and Board of Directors regarding the reliability of financial reporting and the preparation of the
financial statements for external purposes in accordance with accounting principles generally accepted in the United States of
America.
Because of the inherent limitations of internal control over financial reporting, misstatements due to error or fraud may not
be prevented or detected on a timely basis. Also, projections of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
Rayonier Advanced Materials Inc.’s management, under the supervision and with the participation of the Chief Executive
Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of
December 31, 2020. In making this assessment, we used the framework included in Internal Control — Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework). Based on our
management’s assessment and the criteria set forth in Internal Control — Integrated Framework, our management concluded
that our internal control over financial reporting was effective as of December 31, 2020.
Grant Thornton LLP, the independent registered public accounting firm that audited the Company’s consolidated financial
statements, has issued an attestation report on the Company’s internal control over financial reporting as of December 31, 2020.
The report on the Company’s internal control over financial reporting as of December 31, 2020, is on page F-5.
F-2
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
Rayonier Advanced Materials Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of Rayonier Advanced Materials Inc. (a Delaware corporation)
and subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of income and
comprehensive income, and cash flows for each of the three years in the period ended December 31, 2020, and the related
notes and financial statement schedule included under Item 15(a) (collectively referred to as the “financial statements”). In our
opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31,
2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31,
2020, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in the
2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway
Commission (“COSO”), and our report dated March 1, 2021 expressed an unqualified opinion.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
the financial
error or fraud. Our audits included performing procedures to assess the risks of material misstatement of
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical audit matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that
were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that
are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and
we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the
accounts or disclosures to which they relate.
Environmental Liabilities
As more fully described in Note 11 to the financial statements, the Company records accruals for environmental liabilities based
laws and regulations when it is probable a liability has been incurred and the
on its current interpretation of environmental
amount of such liability is estimable. Accruals for Environmental Liabilities totaled approximately $172 million at December 31,
2020. These liabilities are established based on projected spending over many years and require significant estimates and
specialized knowledge to determine the proper amount at any point in time.
In addition to the 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. The Company estimates this exposure could range up to approximately $78 million in addition
to the liabilities recorded and has disclosed this exposure in Note 11.
The principal considerations for our determination that the accruals for environmental liabilities is a critical audit matter are that
the length of time over which the obligation will be resolved is significant and the estimate requires specialized knowledge of
environmental engineering. The estimate, which involves assumptions such as the nature and extent of contamination at each
site, the nature and extent of required cleanup efforts, the duration and effectiveness of the chosen remedial strategy and
changes in environmental regulations is subjective in nature and involved our complex and subjective judgment.
Our audit procedures related to the accruals for environmental liabilities included the following procedures, among others. We
evaluated the design and tested the operating effectiveness of relevant controls over the Company’s estimation process and
accounting for the accruals, and the completeness and accuracy of the underlying data used in the reserve estimates. We
performed a public domain search to determine whether the sites being accounted for by the Company is complete and whether
all information from regulators is being considered in the estimation process. We used an environmental reserve specialist to
assist us in evaluating the appropriateness of the Company’s remediation plans and the reasonableness of management’s
estimates in relation to the regulatory requirements and to review the estimated costs used by the Company,
including
consideration of information available from external data from other sources. With the support of our environmental reserve
specialists, we evaluated the competency of the specialists used by the Company in addition to whether the method, models and
assumptions utilized in estimating the reserve balances were appropriate based on testing of engineering studies and historical
experience.
F-3
Realizability of Deferred Tax Assets
As more fully described in Note 20, at December 31, 2020, the Company had gross deferred tax assets of approximately $571
million, reduced by a valuation allowance of approximately $81 million, primarily related to its Canadian operations. Deferred tax
assets must be reduced by a valuation allowance if, based upon the weight of all available evidence, it is more likely than not that
some portion, or all, of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent
upon the generation of future taxable income during the periods in which the deferred tax assets will become realized. The
Company assesses the need for a valuation allowance by evaluating both the positive and negative evidence that may exist.
The principal considerations for our determination that the realizability of the deferred tax assets is a critical audit matter are that
the length of time of the forecast period is significant and the estimate of future taxable income of the Company’s Canadian
operations is an accounting estimate subject to a high level of estimation uncertainty.
Our audit procedures related to the realizability of the deferred tax assets included the following procedures, among others. We
evaluated the design and tested the operating effectiveness of the key controls over the Company’s forecasting process,
evaluation of the realizability of deferred tax assets and establishment of valuation allowances. We assessed the historical
accuracy of management’s forecasted Canadian taxable income and compared the forecasts to historical trends and current
industry and economic trends. Additionally, we performed sensitivity analyses around the assessment. We involved tax
professionals to evaluate the application of jurisdictional tax laws and regulations used in the Company’s assumptions and
calculations.
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2016.
Jacksonville, Florida
March 1, 2021
F-4
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
Rayonier Advanced Materials Inc.
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of Rayonier Advanced Materials Inc. (a Delaware corporation) and
subsidiaries (the “Company”) as of December 31, 2020, based on criteria established in the 2013 Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the
Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based
on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31, 2020, and our
report dated March 1, 2021 expressed an unqualified opinion on those financial statements.
Basis for opinion
is responsible for maintaining effective internal control over financial reporting and for its
The Company’s management
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report
on Internal Control over Financial Reporting (“Management’s Report”). Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and
the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
Definition and limitations of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that
(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of
transactions are recorded as necessary to permit
financial statements in accordance with generally accepted accounting principles, and that receipts and
preparation of
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
the company; (2) provide reasonable assurance that
the assets of
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ GRANT THORNTON LLP
Jacksonville, Florida
March 1, 2021
F-5
Rayonier Advanced Materials Inc.
Consolidated Statements of Income and Comprehensive Income
For the Years Ended December 31,
(Dollars in thousands, except per share amounts)
Net Sales......................................................................................................... $
1,738,899
$
1,775,392
$
1,956,994
Cost of Sales...................................................................................................
(1,601,115)
(1,721,235)
(1,665,847)
Gross Margin.................................................................................................
137,784
54,157
291,147
2020
2019
2018
Selling, general and administrative expenses...............................................
Duties............................................................................................................
Other operating expense, net (Note 19)........................................................
Operating Income (Loss)..............................................................................
Interest expense............................................................................................
Interest income (loss) and other, net.............................................................
Other components of net periodic benefit income (expense).......................
Gain on bargain purchase (Note 4)...............................................................
(Loss) gain on debt extinguishment..............................................................
Income (Loss) from Continuing Operations Before Income Taxes..........
Income tax benefit (expense) (Note 20)........................................................
Equity in income (loss) of equity method investment...................................
Income (Loss) from Continuing Operations ..............................................
Income from discontinued operations (Note 3).............................................
Net Income (Loss) Attributable to the Company.......................................
Mandatory convertible stock dividends.........................................................
Net Income (Loss) Available to Common Stockholders............................ $
(85,193)
(10,304)
(15,213)
27,074
(64,214)
(7,265)
6,216
—
(7,841)
(46,030)
46,607
(730)
(153)
708
555
—
555
(89,644)
(22,634)
(24,997)
(83,118)
(60,267)
(24)
(4,875)
—
—
(148,284)
29,676
—
(118,608)
96,158
(22,450)
(8,582)
(31,032) $
$
Basic Earnings (Loss) Per Share of Common Stock (Note 16)
Income (loss) from continuing operations.................................................... $
— $
(2.33) $
Income from discontinued operations .........................................................
Net income (loss) per common share-basic.................................................. $
0.01
0.01
1.76
$
(0.57) $
Diluted Earnings (Loss) Per Share of Common Stock (Note 16)
Income (loss) from continuing operations ................................................... $
— $
(2.33) $
Income from discontinued operations .........................................................
Net income (loss) per common share-diluted .............................................. $
0.01
0.01
1.76
$
(0.57) $
(104,989)
(25,921)
(12,422)
147,815
(55,923)
5,019
8,345
20,449
786
126,491
(27,040)
—
99,451
28,965
128,416
(13,800)
114,616
1.70
0.57
2.27
1.52
0.44
1.96
Comprehensive Income:
Net Income (Loss).......................................................................................... $
555
$
(22,450) $
128,416
Other Comprehensive Income (Loss), net of tax (Note 15)
Foreign currency translation adjustments.....................................................
Unrealized gain (loss) on derivative instruments.........................................
Net gain (loss) from pension and postretirement plans................................
Total other comprehensive income (loss)................................................
25,024
544
(19,976)
5,592
(5,394)
12,912
8,952
16,470
Comprehensive Income (Loss) .................................................................... $
6,147
$
(5,980) $
(13,353)
(12,241)
(31,527)
(57,121)
71,295
See Notes to Consolidated Financial Statements.
F-6
Rayonier Advanced Materials Inc.
Consolidated Balance Sheets
As of December 31,
(Dollars in thousands, except common share amounts)
Assets
2020
2019
Current Assets
Cash and cash equivalents
Accounts receivable, net (Note 6)
Inventory (Note 7)
Prepaid and other current assets
Income tax receivable (Note 20)
Total current assets
Property, Plant and Equipment, Net (Note 8)
Deferred Tax Assets (Note 20)
Intangible Assets, Net
Other Assets
Total Assets
Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable
Accrued and other current liabilities (Note 9)
Debt due within one year (Note 10)
Current environmental liabilities (Note 11)
Total current liabilities
Long-Term Debt (Note 10)
Non-Current Environmental Liabilities (Note 11)
Pension and Other Postretirement Benefits (Note 18)
Deferred Tax Liabilities (Note 20)
Other Non-Current Liabilities
Commitments and Contingencies (Note 22)
Stockholders’ Equity (Note 14)
Common stock, 140,000,000 shares authorized at $0.01 par value, 63,359,839 and
63,136,129 issued and outstanding, as of December 31, 2020 and 2019, respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income (loss) (Note 15)
Total Stockholders’ Equity
Total Liabilities and Stockholders’ Equity
See Notes to Consolidated Financial Statements.
$
$
$
$
$
$
$
93,653
179,208
233,484
68,570
58,657
633,572
1,274,942
385,459
38,441
197,451
2,529,865
156,721
110,495
17,100
8,684
293,000
1,066,837
162,995
260,708
24,462
26,776
64,025
181,658
251,180
60,846
16,118
573,827
1,316,055
384,513
45,451
160,301
2,480,147
153,181
102,178
19,448
11,339
286,146
1,062,695
160,037
236,625
24,847
26,999
633
405,161
422,928
(133,635)
695,087
2,529,865
$
632
399,020
422,373
(139,227)
682,798
2,480,147
F-7
Rayonier Advanced Materials Inc.
Consolidated Statements of Cash Flows
For the Years Ended December 31, (Dollars in thousands)
2020
2019
2018
Operating Activities
Net income (loss).............................................................................................................. $
Loss (income) from discontinued operations
Adjustments to reconcile net income to cash provided by operating activities:
$
555
(708)
(22,450) $
(96,158)
Depreciation and amortization.......................................................................................
Stock-based incentive compensation expense................................................................
Amortization of capitalized debt costs and debt discount..............................................
Deferred income tax (benefit) expense..........................................................................
Gain on bargain purchase...............................................................................................
Increase in environmental liabilities..............................................................................
Loss (gain) on debt extinguishment...............................................................................
Net periodic benefit cost of pension and postretirement plans......................................
Loss from sale/disposal of property, plant and equipment.............................................
Loss (gain) on foreign currency exchange.....................................................................
Other...............................................................................................................................
Changes in operating assets and liabilities:
Receivables.....................................................................................................................
Inventories......................................................................................................................
Income tax receivables...................................................................................................
Accounts payable...........................................................................................................
Accrued liabilities..........................................................................................................
All other operating activities..........................................................................................
Payments for pension and other postretirement benefit plans...........................................
Expenditures for environmental liabilities........................................................................
Cash provided by operating activities-continuing operations .................................
Cash provided by operating activities-discontinued operations..............................
Cash Provided by Operating Activities
Investing Activities
Capital expenditures..........................................................................................................
Proceeds from sale of resins operations............................................................................
Proceeds from sale of assets..............................................................................................
Investment in equity method investment..........................................................................
Cash used for investing activities-continuing operations ........................................
Cash provided by (used for) investing activities-discontinued operations .............
Cash (Used for) Provided by Investing Activities
Financing Activities
Issuance of long-term debt................................................................................................
Revolving credit facility and other borrowings.................................................................
Repayments of revolving credit facility and other borrowings.........................................
Repayment of debt long-term debt....................................................................................
Short-term financing, net...................................................................................................
Dividends paid on common stock.....................................................................................
Dividends paid on preferred stock....................................................................................
Proceeds from the issuance of common stock .................................................................
Repurchase of common stock...........................................................................................
Debt issuance costs............................................................................................................
Cash (Used for) Provided by Financing Activities....................................................
151,462
6,599
2,682
2,040
—
5,381
7,750
5,588
896
7,894
—
4,539
19,962
(52,568)
(6,055)
8,659
(25,448)
(9,654)
(5,308)
124,266
204
124,470
(77,159)
—
3,764
(4,426)
(77,821)
—
(77,821)
500,000
29,043
(30,328)
(498,875)
5,044
—
—
—
(457)
(23,817)
(19,390)
Change in cash and cash equivalents.............................................................................
Net effect of foreign exchange on cash and cash equivalents...........................................
Balance, beginning of year................................................................................................
Balance, end of year.......................................................................................................... $
27,259
2,369
64,025
93,653
$
See Notes to Consolidated Financial Statements.
F-8
153,275
6,531
2,292
(25,552)
—
16,384
—
16,580
1,295
6,574
(3,332)
14,443
52,347
(6,175)
(26,025)
(20,034)
(29,899)
(11,593)
(6,444)
22,059
19,845
41,904
(105,462)
—
2,655
—
(102,807)
155,309
52,502
—
91,158
(86,000)
(114,331)
—
(8,569)
(10,350)
—
(6,878)
(3,514)
(138,484)
(44,078)
(863)
108,966
64,025
$
128,416
(28,965)
145,957
13,007
835
7,637
(19,071)
7,285
(786)
5,063
3,186
(12,170)
4,176
(31,532)
(21,579)
9,442
30,162
4,864
155
(12,153)
(11,852)
222,077
24,867
246,944
(128,796)
16,233
10
—
(112,553)
(3,413)
(115,966)
—
—
—
(45,270)
—
(15,058)
(13,800)
451
(42,780)
—
(116,457)
14,521
(1,790)
96,235
108,966
Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements
(Dollar amounts in thousands unless otherwise stated)
1.
Nature of Operations and Basis of Presentation
Nature of Operations
Rayonier Advanced Materials Inc. (“the Company”) is a leading manufacturer of high purity cellulose products, lumber,
pulp and paper products. The Company operates in the following business segments:
High Purity Cellulose
The Company,
through its four production facilities located in the United States (“U.S.”), Canada and France,
manufactures and markets high purity cellulose, which is sold as either cellulose specialties or commodity products. Cellulose
specialties are primarily used in dissolving chemical applications that require a highly purified form of cellulose. Commodity
products are used for commodity viscose and absorbent materials applications. Commodity viscose is a raw material required
for the manufacture of viscose staple fibers which are used in woven and non-woven applications. Absorbent materials,
typically referred to as fluff fibers, are used as an absorbent medium in consumer products. Sales of resins, chemicals, and
energy, a majority of which are by-products of the manufacturing process, are included in the high purity cellulose segment.
Forest Products
The Company, through its six sawmills in Canada, manufactures and markets high-quality, construction-grade lumber in
North America. The lumber, primarily spruce, pine, or fir, is used in the construction of residential and multi-family homes,
light industrial and commercial facilities, and the home repair and remodel markets. The wood chips, manufactured as a by-
product of the lumber manufacturing process, are used in the Company’s Canadian High Purity Cellulose, Pulp and Paper
plants.
Paperboard
The Company, through its production facility in Canada, manufactures and markets paperboard products. Paperboard is
used for packaging, printing documents, brochures, promotional materials, paperback book or catalog covers, file folders, tags
and tickets.
Pulp & Newsprint
The Company, through its production facilities in Canada, manufactures and markets high-yield pulp and newsprint. High-
yield is used by paper manufacturers to produce paperboard, packaging, printer and writing papers and a variety of other paper
products. Newsprint is a paper grade used to print newspapers, advertising materials and other publications.
Basis of Presentation
Principles of Consolidation
The consolidated financial statements include the accounts and operations of the Company and its wholly owned, majority
owned and controlled subsidiaries. The Company applies the equity method of accounting for investments in which it has an
ownership interest from 20 percent to 50 percent or exercises significant influence over the related investee’s operations. All
significant intercompany accounts and transactions are eliminated in consolidation.
Discontinued Operations
As a result of the sale of its Matane, Quebec, Canada high-yield pulp mill, the Company has reclassified certain prior year
amounts to conform to the current year’s presentation for discontinued operations. Unless otherwise stated, information in
these notes to consolidated financial statements relates to continuing operations. The Company presents businesses that
represent components as discontinued operations when they meet the criteria for held for sale or are sold, and their disposal
represents a strategic shift that has, or will have, a major effect on our operations and financial results. See Note 3 -
Discontinued Operations for additional information.
Reclassifications
Certain amounts in prior periods have been reclassified to conform with current period presentation.
F-9
Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements (Continued)
Fiscal Year
The Company’s fiscal year end is the last day of the calendar year. For interim reporting periods, the Company uses the last
Saturday of the fiscal quarter.
Coronavirus Pandemic
The Company’s businesses have been significantly impacted by the coronavirus ("COVID-19") pandemic. However, due to
the role they play in producing critical raw materials for pharmaceutical, food, cleaning and other products, the Company’s
manufacturing facilities in the U.S., Canada and France have remained operating. In order to mitigate the impact of COVID-19
on its financial results and operations, the Company has taken the following actions:
•
•
To ensure the safety of our employees and the continuity of our operations, the Company has implemented exacting
protocols to reduce the potential spread of COVID-19 in its operating facilities and work spaces.
To control costs and minimize pandemic driven losses, the Company has curtailed operations as necessary to match
production with market demand.
Due to the financial impacts of COVID-19, the Company is actively monitoring the recoverability of the carrying value of its
long-term assets. During the year ended December 31, 2020, the Company did not recognize any impairment charges related to
long-lived assets held for use. The Company will continue to evaluate the recoverability of these and other assets as necessary.
Subsequent Events
Events and transactions subsequent to the balance sheet date have been evaluated for potential recognition and disclosure
through March 1, 2021, the date these financial statements were available to be issued. The following events were identified for
disclosure:
During 2020, the Canadian government enacted the Canada Emergency Wage Subsidy (“CEWS”) to help Canadian
employers whose businesses were affected by the COVID-19 pandemic. CEWS provides a subsidy to eligible employees’
employment remuneration, subject to certain criteria.
In January 2021, the Company's Canadian subsidiaries applied for the
CEWS in the amount of CAD$25 million. The Company will record the impact of this benefit upon its realization.
2.
Summary of Significant Accounting Policies and New Accounting Pronouncements
Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and to disclose contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses during the reporting period. There are risks
inherent in using estimates and therefore, actual results could differ from those estimates.
Translation of Foreign Currency
Assets and liabilities of consolidated subsidiaries whose functional currency is other than the U.S. dollar are translated into
U.S. dollars using currency exchange rates at the balance sheet date. Revenues and expenses are translated using the average
currency exchange rates during the period. Foreign currency translation gains and losses are reported as a component of
Accumulated Other Comprehensive Income (Loss) (“AOCI”). Gains and losses resulting from foreign currency transactions are
included in operating results as incurred.
Cash and Cash Equivalents
Cash and cash equivalents include time deposits and other investments that are highly liquid with original maturities of
three months or less when purchased.
Accounts Receivable and Allowance for Expected Credit Losses
Trade accounts receivable are stated at the net amount expected to be collected. All customers are granted credit on a
short-term basis and related credit risks are considered minimal. The Company maintains an allowance for expected credit
losses resulting from the inability of its customers to make required payments. The Company's allowance is established based
on historical patterns of accounts receivable collections and expected losses, including consideration of general economic
conditions. Outstanding accounts receivable balances are reviewed quarterly or more frequently when circumstances indicate a
review is warranted, for example if there is a significant change in the aging of the Company’s receivables or a customer’s
F-10
Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements (Continued
financial condition. Write-offs are recorded at the time a customer receivable is deemed uncollectible and collection efforts
have been exhausted.
Inventory
Finished goods, work-in-process and raw materials inventories are valued at the lower of cost, as determined on the first-in,
first-out basis, or net realizable value. Manufacturing and maintenance supplies are valued at average cost.
Inventory costs
include material, labor and manufacturing overhead. The need for a provision for estimated losses from obsolete, excess or
slow-moving inventories is reviewed periodically.
Property, Plant, Equipment and Depreciation
Property, plant and equipment additions are recorded at cost, including applicable freight, interest, construction and
installation costs. The Forest Products segment production related plant and equipment are depreciated using the straight-line
method over 3 to 20 years. High Purity Cellulose, Paperboard and Pulp & Newsprint production related plant and equipment
are depreciated using the units-of-production method. The total units of production used to calculate depreciation expense is
determined by factoring annual production days, based on normal production conditions, by the economic useful life of the
asset involved. Production related assets under finance leases are depreciated using the straight-line method over the related
lease term. The Company depreciates its non-production assets, including office, lab and transportation equipment, using the
straight-line depreciation method over 3 to 25 years. Buildings and land improvements are depreciated using the straight-line
method over 15 to 35 years and 5 to 30 years, respectively. Depreciation expense reflected in cost of sales in the Consolidated
Statements of Income was $136 million, $137 million and $135 million for the years ended December 31, 2020, 2019 and 2018,
respectively.
Gains and losses on the retirement of assets are included in operating income. Long-lived assets are reviewed for
impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable.
Recoverability of assets that are held and used is measured by net undiscounted cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the
carrying value exceeds the fair value of the assets, which is based on a discounted cash flows model. Assets to be disposed of
are reported at the lower of the carrying amount or fair value less cost to sell.
Maintenance Costs
the
The Company performs scheduled inspections, repairs and maintenance of plant machinery and equipment at
Company’s High Purity, Paperboard and Pulp & Newsprint manufacturing facilities during a full plant shutdown. Costs
associated with these planned outage periods are referred to as shutdown costs and are incurred to ensure the long-term
reliability and safety of the manufacturing operations. Shutdown costs are accounted for using the deferral method, under which
expenditures related to shutdown are capitalized in other assets when incurred and amortized to production costs on a straight-
line basis over the period benefited, or the period of time until the next scheduled shutdown which can generally range from one
year to eighteen months. Shutdown costs are classified as working capital in operating activities in the consolidated statements
of cash flows. As of December 31, 2020 and 2019 the Company had $27 million and $19 million, respectively, in shut down
costs capitalized in other current assets.
Intangible Assets
The Company has definite-life intangible assets which it acquired through a business combination. The definite-life
intangible assets consist of customer lists and trade-names and are amortized over their estimated useful lives generally for
periods ranging from 8 to 15 years. The Company evaluates the recovery of its definite-life intangible assets by comparing the
net carrying value of the asset group to the undiscounted net cash flows expected to be generated from the use and eventual
disposition of that asset group when events or changes in circumstances indicate that its carrying amount may not be
recoverable. If the carrying amount of the asset group is not recoverable, the fair value of the asset group is measured, and, if
the carrying amount exceeds the fair value, an impairment loss is recognized.
F-11
Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements (Continued)
The Company’s definite-lived intangible assets are summarized as follows (in thousands):
December 31, 2020
Customer Lists
Trade Names
Total Definite-Lived Intangibles
Customer Lists
Trade Names
Total Definite-Lived Intangibles
Gross Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
Weighted-Average
Remaining Life
51,680 $
8,604
60,284 $
(20,047) $
(1,796)
(21,843) $
31,633
6,808
38,441
4.9 years
11.9 years
6.2 years
December 31, 2019
Gross Carrying
Amount
Accumulated
Amortization
Net Carrying
Amount
Weighted-Average
Remaining Life
51,680 $
8,604
60,284 $
(13,613) $
(1,220)
(14,833) $
38,067
7,384
45,451
5.9 years
12.9 years
7.0 years
$
$
$
$
Total amortization expense related to definite-lived assets was $7 million, $7 million and $7 million for the years ended
December 31, 2020, 2019 and 2018, respectively.
The following table outlines the estimated future amortization expense related to intangible assets held as of December 31,
2020:
2021
2022
2023
2024
2025
Thereafter
Total
Equity Method Investments
Anomera, Inc.
December 31, 2020
$
$
7,009
7,009
7,009
7,009
6,473
3,932
38,441
The Company is an investor in Anomera, Inc. (“Anomera”), a Canadian start-up corporation headquartered in Montreal,
Quebec. Anomera manufactures Carboxylated Cellulose Nanocrystals (CNC), a patented, biodegradable product, with uses in
the cosmetics industry and various other industrial applications, including concrete, inks and pigments, polymer composites,
coatings and adhesives industries. Anomera has a product development lab in Mississauga, Ontario and is constructing a pilot
production facility on the Company’s Temiscaming site.
In exchange for voting and non-voting interests, the Company has
invested a total of $7 million in Anomera through December 31, 2020, and expects to make additional investments at various
times over the next five years. The Company and Anomera have also entered into various service, leasing and supply
agreements to support Anomera’s operations starting in 2021.
The Company has a 44 percent voting interest in Anomera and is able to exercise significant influence, but not control, as it
does not have the ability to direct the decisions that most significantly impact its economic performance. As such, the
Company has determined it is not the primary beneficiary of the investment and therefore accounts for it under the equity
method of accounting. The Company records its share of net earnings and losses on the investment in “Income (loss) from
equity method investee, net of tax” in the Consolidated Statements of Income and Comprehensive Income. During the year
ended December 31, 2020, the Company recorded a loss of $1 million from its equity investment in Anomera.
There are no financing agreements at Anomera for which the Company is liable.
LignoTech Florida LLC
F-12
Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements (Continued)
The Company holds a 45 percent interest in LignoTech Florida LLC (“LTF”), a joint venture accounted for under the
equity method of accounting. Borregaard, a public company in Norway traded on the Oslo Exchange, owns the remaining 55
percent interest. LTF purchases sulfite liquor from the Company’s Fernandina Beach, Florida plant and converts it to purified
lignins and ligno-sulfonates which are used in concrete, textile dyes, pesticides, batteries and other products.
The Company recorded $7 million and $6 million of lignin sales to the LTF joint venture during the years ended
December 31, 2020 and 2019, respectively. The Company records its share of net earnings and losses on the investment within
“Other operating expense, net” in the Consolidated Statements of Income and Comprehensive Income. During each of the
years ended December 31, 2020, 2019 and 2018, the Company recorded losses of $4 million, $5 million and $4 million,
respectively, from its equity investment in LTF. See Note 19 — Other Operating Expense, Net
The Company is liable for certain financing agreements related to the entity. See Note 22 — Commitments and
Contingencies for further discussion.
Fair Value Measurements
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in
the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the
measurement date. A three-level hierarchy that prioritizes the inputs used to measure fair value was established as follows:
Level 1 — Quoted prices in active markets for identical assets or liabilities.
Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and
liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or
other inputs that are observable or can be corroborated by observable market data.
Level 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value
of the assets or liabilities. This includes certain pricing models, discounted cash flows methodologies and similar
techniques that use significant unobservable inputs.
Derivative Instruments
Derivatives are recognized on the consolidated balance sheets at fair value and are classified according to their asset or
liability position and the expected timing of settlement. Changes in the fair values of derivatives are recorded in net earnings or
other comprehensive income based on whether the instrument is designated and effective as a hedge transaction and, if so, the
type of hedge transaction. Gains or losses on derivative instruments reported in AOCI are reclassified to earnings in the period
the hedged item affects earnings. If the underlying hedged transaction ceases to exist, any associated amounts reported in AOCI
are reclassified to earnings at that time. Any ineffectiveness is recognized in earnings in the current period.
Revenue Recognition and Measurement
The Company accounts for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers, which
was adopted on January 1, 2018, using the modified retrospective basis. The core principle of ASC 606 is that a company
should recognize revenue when it transfers control of goods or services to customers for an amount that reflects the
consideration to which the company expects to be entitled to in exchange for those goods or services.
Revenue is recognized when performance obligations under the terms of a contract with a customer are satisfied. The
majority of the Company’s contracts have a single performance obligation to transfer products. Accordingly, it recognizes
revenue when control has been transferred to the customer. Generally, control passes upon delivery to a location in accordance
with terms and conditions of the sale. Changes in customer contract terms and conditions, as well as the timing of orders and
shipments, may have an impact on the timing of revenue recognition.
Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring its
products and is generally based upon contractual arrangements with customers or published indices. The Company sells its
products both directly to customers and through distributors and agents typically under agreements with payment terms less
than 90 days.
The Company elected to account for shipping and handling as activities to fulfill the promise to transfer the goods. As
such, shipping and handling costs incurred are recorded in cost of sales. In addition, the Company has excluded from net sales
any value-add, sales and other taxes which we collect concurrent with its revenue-producing activities.
The nature of the Company’s contracts may give rise to variable consideration, which may be constrained, including sales
volume-based rebates to customers. The Company estimates the level of sales volumes based on anticipated purchases at the
F-13
Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements (Continued
beginning of the period and records a rebate accrual for each purchase toward the requisite rebate volume. These estimated
rebates are included in the transaction price as a reduction to net sales.
We have certain contracts which contain performance obligations which are not significant in the context of the contract
with the customer and have elected not to assess whether these promised goods or services are performance obligations.
Contract liabilities primarily relate to prepayments received from our customers before revenue is recognized and sales
volume rebates payable to customers. These amounts are included in accrued customer incentives and prepayments in the
consolidated balance sheets (see Note 9 — Accrued and Other Current Liabilities). The Company does not have any material
contract assets as of December 31, 2020.
These methodologies are consistent with the manner in which we have historically accounted for the recognition of
revenue.
Environmental Costs
The Company has established liabilities to assess, remediate, maintain and monitor sites related to disposed operations
from which no current or future benefit is discernible. These obligations are established based on projected spending over the
next 20 years and require significant estimates to determine the proper amount at any point in time. The projected period, from
2021 through 2041, reflects the time during which potential future costs are both estimable and probable. As new information
becomes available, these cost estimates are updated and the recorded liabilities are adjusted appropriately. Environmental
liabilities are accounted for on an undiscounted basis and are reflected in current and non-current liabilities for disposed
operations in the consolidated balance sheets.
Employee Benefit Plans
The determination of expense and funding requirements for the Company’s defined benefit pension and postretirement
health care and life insurance plans are largely based on a number of actuarial assumptions. The key assumptions include
discount rate, return on assets, salary increases, health care cost trends, mortality rates, longevity and service lives of
employees.
The components of periodic pension and post retirement costs, other than service costs, are presented separately outside of
operating income in “Other components of net periodic benefit costs” on the consolidated statement of income. The service
cost component of net periodic benefit cost is presented in cost of sales and selling, general and administrative expense, which
correlates with the related employee compensation costs arising from services rendered during the period. Only the service cost
component of the net periodic benefit cost is eligible for capitalization in assets.
Changes in the funded status of the Company’s plans are recorded through comprehensive income in the year in which the
changes occur. Actuarial gains and losses, which occur when actual experience differs from actuarial assumptions, are reflected
If actuarial gains and losses exceed ten percent of the greater of plan assets or plan
in stockholders’ equity, net of taxes.
liabilities, the Company will amortize them over the average future service period of employees.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets
and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial
statement carrying amounts of assets and liabilities and their respective tax bases, operating loss carryforwards and tax credit
carryforwards. Deferred tax assets and liabilities are measured pursuant to tax laws using rates expected to apply to taxable
income in the years in which the temporary differences are expected to be recovered or settled. The Company records a
valuation allowance to reduce the carrying amounts of deferred tax assets if it is more likely than not such deferred tax assets
will not be realized. Interest expense and penalties, if applicable, related to unrecognized tax benefits are recorded in income tax
expense.
The Company’s income tax returns are subject to audit by U.S. federal and state taxing authorities as well as foreign
jurisdictions, including Canada and France.
In evaluating the tax benefits associated with various tax filing positions, the
Company records a tax benefit for an uncertain tax position if it is more-likely-than-not to be realized upon ultimate settlement
of the issue. The Company records a liability for an uncertain tax position that does not meet this criterion. The Company
adjusts its liabilities for unrecognized tax benefits in the period in which it is determined the issue is settled with the taxing
authorities, the statute of limitations expires for the relevant taxing authority to examine the tax position or when new facts or
information becomes available.
F-14
Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements (Continued
New and Recently Adopted Accounting Pronouncements
In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2019-12, Simplifying the Accounting for Income Taxes, which, among other things, eliminates certain exceptions related to the
approach for intraperiod tax allocation, the methodology for calculating taxes during the quarters when a year-to-date loss
exceeds the anticipated loss for the year and the recognition of deferred tax liabilities for outside basis differences. ASU
2019-12 is effective for the Company beginning January 1, 2021 with early adoption permitted. The Company adopted ASU
2019-12 during 2020 with no material impact on the Company’s consolidated financial statements.
The Company adopted ASU 2016-13, Financial Instruments-Credit Losses on Financial Instruments (Topic 326, on
January 1, 2020. The updated guidance replaced the incurred loss impairment approach with a methodology to reflect expected
credit losses by requiring consideration of a broader range of reasonable and supportable information to explain the credit loss
estimates. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.
In March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-04, Reference Rate Reform (Topic
848: Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The amendments provide optional
expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference
rate reform if certain criteria are met. The amendments in ASU 2020-04 apply only to contracts, hedging relationships, and
other transactions that reference London interbank offered rate (“LIBOR”) or another reference rate expected to be discontinued
because of the reference rate reform. In the second quarter of 2020, the Company adopted certain applicable practical
expedients to assist with the transition related to the phaseout of LIBOR. The adoption of these expedients did not have a
material impact on the Company’s consolidated financial statements.
3.
Discontinued Operations
In November 2019, the Company sold its Matane, Quebec pulp mill to Sappi Limited, a global diversified wood fiber
company, for a gross purchase price of approximately $175 million. The mill produces approximately 270,000 metric tons of
high-yield pulp and sells the product globally for use in manufacturing paperboard, packaging, and printing and writing paper.
The Matane mill was acquired by the Company as part of its acquisition of Tembec Inc. (“Tembec”) in November 2017 and
was previously reported as part of the Company’s Pulp segment.
F-15
Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements (Continued)
Income (loss) from discontinued operations is comprised of the following:
Revenues
Cost of sales
Gross margin
Selling, general and administrative expenses and other
Operating income (loss)
Interest expense (a)
Other non-operating income
Income from discontinued operations before income
taxes
Income tax expense
Income from discontinued operations, net of taxes
Gain from sale of discontinued operation, pre-tax
Income tax expense on gain
Gain from sale of discontinued operations, net of tax
December 31,
2020
Year Ended
December 31,
2019
December 31,
2018
$
— $
127,561
$
—
—
—
—
—
—
—
—
—
956
(248)
708
(106,572)
20,989
(1,536)
19,453
(3,957)
321
15,817
(4,096)
11,721
118,888
(34,451)
84,437
177,419
(124,396)
53,023
(3,196)
49,827
(4,485)
377
45,719
(16,754)
28,965
—
—
—
Income from Discontinued Operations
$
708
$
96,158
$
28,965
(a) The Company was required to repay $100 million of debt from proceeds received from the sale of Matane. As such,
interest expense has been allocated to discontinued operations using the weighted-average interest rates in effect for each
period presented based on the proportionate amounts required to be repaid.
Other discontinued operations information is as follows:
Depreciation and amortization
Capital expenditures
4.
Tembec Acquisition
December 31,
2020
Year Ended
December 31,
2019
December 31,
2018
$
$
— $
— $
1,590
2,956
$
$
2,459
3,662
On November 17, 2017, the Company acquired all of the outstanding common shares of Tembec for an aggregate purchase
price of approximately $317 million Canadian dollars cash and 8.4 million shares of the Company’s common stock, par value
$0.01 per share (the “Acquisition”). A preliminary gain on bargain purchase of $317 million was recognized in the year ended
December 31, 2017, primarily associated with the value of certain deferred tax assets. The Company recognized an additional
gain on bargain purchase of $20 million during the year ended December 31, 2018 upon finalizing the valuation.
5.
Leases
The Company’s operating and finance leases are primarily for corporate offices, warehouse space, rail cars and equipment.
As of December 31, 2020, the Company’s leases have remaining lease terms of 1 year to 8.2 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 material 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. The weighted average discount rate used in determining the operating lease ROU
F-16
Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements (Continued)
assets and liabilities as of December 31, 2020 and December 31, 2019 was 6.1 percent and 6.0 percent, respectively. The
weighted average discount rate used in determining the finance lease ROU assets and liabilities as of December 31, 2020 and
December 31, 2019 was 7.0 percent.
The Company’s operating and finance lease cost is as follows:
Operating Leases
Operating lease expense
Finance Leases
Amortization of ROU assets
Interest
Total
Year Ended
December 31, 2020
December 31, 2019
$
$
7,270
$
328
187
7,785
$
6,474
306
209
6,989
As of December 31, 2020, the weighted average remaining lease term is 3.6 years and 5.9 years for operating leases and
financing leases, respectively. As of December 31, 2019, the weighted average remaining lease term is 4.3 years and 6.9 years
for operating leases and finance leases, respectively. Cash provided by operating activities includes approximately $7 million
and $6 million from operating lease payments made during the year ended December 31, 2020 and 2019, respectively.
As of December 31, 2020 and 2019, assets acquired under finance leases of $2 million and $3 million, respectively, are
reflected in Property, Plant and Equipment, net. The Company’s finance leases liabilities are included as debt and the
maturities for the next five years and thereafter are included in Note 10 — Debt and Finance Leases.
The Company’s balance sheet includes the following operating lease assets and liabilities:
Balance Sheet Classification
December 31, 2020
December 31, 2019
Right-of-use assets
Other assets
Lease liabilities, current
Accrued and other current liabilities
Lease liabilities, non-current
Other non-current liabilities
$
$
$
17,566
5,666
13,007
$
$
$
22,406
5,887
17,522
As of December 31, 2020, operating lease maturities for 2021 through 2025 and thereafter are as follows:
2021
2022
2023
2024
2025
Thereafter
Total minimum lease payments
Less: imputed interest
Present value of future minimum lease payments
December 31, 2020
$
$
6,609
6,035
4,960
1,645
788
831
20,868
(2,195)
18,673
F-17
Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements (Continued)
6.
Accounts Receivable
The Company’s accounts receivable included the following for the years ended December 31:
Accounts receivable, trade............................................................................................. $
Accounts receivable, other (a).......................................................................................
Allowance for expected credit losses............................................................................
140,036
$
39,659
(487)
Total accounts receivable, net................................................................................... $
179,208
$
142,181
40,082
(605)
181,658
2020
2019
(a) Accounts receivable, other consists primarily of value added/consumption taxes, government grants receivable and accrued
billings due from government agencies.
7.
Inventory
The Company’s inventory included the following for the years ended December 31:
Finished goods............................................................................................................... $
Work-in-progress...........................................................................................................
Raw materials................................................................................................................
Manufacturing and maintenance supplies......................................................................
$
138,064
17,246
70,009
8,165
Total inventory.......................................................................................................... $
233,484
$
150,259
17,065
73,385
10,471
251,180
2020
2019
8.
Property, Plant and Equipment
The Company’s property, plant and equipment included the following as of December 31,:
2020
2019
Land and land improvements......................................................................................... $
Buildings........................................................................................................................
Machinery and equipment.............................................................................................
Other..............................................................................................................................
Construction in progress................................................................................................
Total property, plant and equipment, gross...............................................................
Accumulated depreciation.............................................................................................
30,247
$
255,381
2,506,764
24,968
68,036
2,885,396
(1,610,454)
Total property, plant and equipment, net.................................................................. $
1,274,942
$
29,912
248,395
2,453,568
20,063
46,378
2,798,316
(1,482,261)
1,316,055
9.
Accrued and Other Current Liabilities
The Company’s accrued and other current liabilities included the following as of December 31,:
2020
2019
Accrued customer incentives and prepayments
Accrued payroll and benefits
Accrued interest
Accrued income taxes
Foreign currency forward contracts
Accrued property taxes
Accrued stumpage
Other current liabilities
$
29,387
$
21,500
3,230
5,052
—
3,995
10,045
37,286
Total accrued and other current liabilities
$
110,495
$
F-18
31,696
23,593
2,785
3,616
995
5,643
1,867
31,983
102,178
Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements (Continued)
10.
Debt and Finance Leases
The Company’s debt and finance leases include the following for the years ended December 31,:
2020
2019
ABL Credit Facility due 2025, $102 million available, bearing interest at 0.25%
LIBOR floor plus 2.75%, interest rate of 3.00% at December 31, 2020
$
— $
Senior Secured Notes due 2026 at a fixed interest rate of 7.625%............................
500,000
U.S. Revolver of $84 million, $39 million available, bearing interest at LIBOR
plus 3.75% at December 31, 2019; debt extinguished in December 2020................
Multi-currency Revolver of $126 million, $48 million available, bearing interest
at LIBOR plus 3.75% at December 31, 2019; debt extinguished in December 2020
Term A-1 Loan Facility borrowings, bearing interest at LIBOR plus 3.75%,
interest rate of 5.54% at December 31, 2019; debt extinguished in December 2020
Term A-2 Loan Facility borrowings bearing interest at LIBOR plus 3.40% (after
consideration of 0.60% patronage benefit), interest rate of 5.19% at December 31,
2019; debt extinguished in December 2020...............................................................
—
—
—
—
Senior Notes due 2024 at a fixed interest rate of 5.50%............................................
495,647
Canadian dollar based, fixed rate term loans with interest rates ranging from
5.50% to 6.86% and maturity dates ranging from July 2022 through April 2028.....
Other loans..................................................................................................................
Short-term factoring facility-France...........................................................................
Finance lease obligations............................................................................................
Total principal payments due........................................................................................
Less: debt premium, original issue discount and issuance costs...............................
Total debt.......................................................................................................................
Less: debt due within one year..................................................................................
73,791
18,193
5,089
2,489
1,095,209
(11,272)
1,083,937
(17,100)
—
—
—
—
133,283
365,592
495,647
83,122
7,285
—
2,818
1,087,747
(5,604)
1,082,143
(19,448)
Long-term debt.............................................................................................................. $
1,066,837
$
1,062,695
Debt and finance lease payments due during the next five years and thereafter are as follows:
2021
2022
2023
2024
2025
Thereafter
Total payments
Finance Lease
Minimum
Lease
Payments
Less:
Interest
Net Present
Value
Debt
Principal
Payments
$
$
515
515
515
515
515
472
$
163
138
110
81
50
16
$
352
377
405
434
465
456
16,748
30,195
10,358
505,923
10,918
518,578
$
3,047
$
558
$
2,489
$ 1,092,720
F-19
Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements (Continued)
Asset Backed Loan due 2025
On December 23, 2020, the Company entered into a 5-year senior secured asset-based revolving credit facility with an
initial committed amount of $200 million (the “ABL Credit Facility”). The outstanding letters of credit issued thereunder were
reissued under the ABL Credit Facility. The ABL Credit Facility is secured by certain U.S. and Canadian assets, including a
first priority lien on inventory, accounts receivable and bank accounts. The ABL Credit Facility also is secured by second
priority lien on certain of the assets securing the Senior Secured Notes.
Availability under the ABL Credit Facility fluctuates based on eligible accounts receivable and inventory levels. As of
December 31, 2020, the Company had $146 million of gross availability under the ABL Credit Facility and net available
borrowings of $102 million of after taking into account $44 million used to secure outstanding letters of credit. Additionally.
the Company is subject to cash dominion if availability falls below a certain threshold, currently $25 million.
The credit agreement governing the ABL Credit Facility does not contain an ongoing financial maintenance covenant.
However, the agreement requires the Company to meet a fixed charge coverage ratio of not less than 1.0 if availability falls
below a certain threshold, currently $25 million. The agreement also contains various customary covenants that limit the
ability of the Company and its restricted subsidiaries, as defined by the ABL Credit Facility, to take certain specified actions,
subject to certain exceptions, including: creating liens; incurring indebtedness; making investments and acquisitions; engaging
including dividends and
in mergers and other fundamental changes; making dispositions; making restricted payments,
distributions; and consummating transactions with affiliates. Additionally, the ABL Credit Facility contains customary
affirmative covenants and customary events of default (subject, in certain cases, to customary grace or cure periods), including,
without limitation, payment defaults, breach of covenant defaults, bankruptcy defaults, judgment defaults, defaults under certain
other indebtedness and changes in control. At December 31, 2020, the Company was in compliance with all covenants under
the ABL Credit Facility.
In connection with entering into this agreement and through December 31, 2020, the Company incurred and capitalized
fees totaling $9 million.
F-20
Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements (Continued
7.625% Senior Secured Notes due 2026
On December 23, 2020, the Company issued $500 million in aggregate principal amount of 7.625 percent senior secured
notes due 2026 (the “Senior Secured Notes”), at an offering price of 100 percent of the principal amount thereof. The Company
used the net proceeds from the sale of the Senior Secured Notes, together with cash on hand, to repay all outstanding
obligations under its previous Senior Secured Credit Facility.
The Senior Secured Notes were issued and sold in a private placement to qualified institutional buyers pursuant to Rule
144A under the U.S. Securities Act of 1933, as amended (the “Securities Act”), and non-U.S. persons pursuant to Regulation S
under the Securities Act.
The lenders under the Senior Secured Notes have a first priority security interest in substantially all of the Company’s
current and future U.S. and Canadian material assets. The ABL Credit Facility is also secured by certain U.S. and Canadian
assets, including a first priority lien on inventory, accounts receivable and bank accounts, while the Senior Secured Notes will
have second priority liens on certain of the assets securing the ABL Credit Facility.
In connection with the early repayment of the outstanding obligations of the previous Senior Secured Credit Facility, the
Company recorded a loss from early extinguishment of long-term debt of $8 million, primarily from writing off unamortized
deferred financing fees.
The indenture governing the Senior Secured Notes contains various customary covenants that limit the ability of the
Company and its restricted subsidiaries, as defined by the Senior Secured, to take certain specified actions, subject to certain
exceptions, including: creating liens; incurring indebtedness; making investments and acquisitions; engaging in mergers and
other fundamental changes; making dispositions; making restricted payments, including dividends and distributions; and
consummating transactions with affiliates. Additionally, the Senior Secured Notes contain customary affirmative covenants
and customary events of default (subject, in certain cases, to customary grace or cure periods), including, without limitation,
payment defaults, breach of covenant defaults, bankruptcy defaults,
judgment defaults, defaults under certain other
indebtedness and changes in control. At December 31, 2020, the Company was in compliance with all covenants under the
Senior Secured Notes.
In connection with this issuance and through December 31, 2020, the Company incurred and capitalized fees totaling
$10 million.
5.50% Senior Notes due 2024
On May 22, 2014, the Company issued $550 million in aggregate principal amount of 5.50 percent senior notes due 2024
(the “Senior Notes”). The Senior Notes were issued and sold in a private placement to qualified institutional buyers pursuant to
Rule 144A under the U.S. Securities Act of 1933, as amended (the “Securities Act”) and non-U.S. persons pursuant to
Regulation S under the Securities Act.
During the fourth quarter of 2018, the Company repurchased in the open market $11 million of the Senior Notes and retired
them for $10 million plus accrued and unpaid interest. In connection with the retirement of these Senior Notes, the Company
recorded a gain in other income of approximately $1 million, which includes the write-off of unamortized debt issuance costs.
There were no open market purchases of these notes during the year ended December 31, 2020.
The indenture governing the Senior Notes contains various customary covenants that limit the ability of the Company and
its restricted subsidiaries, as defined by the Senior Notes, to take certain specified actions, subject to certain exceptions,
incurring indebtedness; making investments and acquisitions; engaging in mergers and other
including: creating liens;
fundamental changes; making dispositions; making restricted payments,
including dividends and distributions; and
consummating transactions with affiliates. Additionally, the Senior Notes contain customary affirmative covenants and
customary events of default (subject, in certain cases, to customary grace or cure periods), including, without limitation,
judgment defaults, defaults under certain other
payment defaults, breach of covenant defaults, bankruptcy defaults,
indebtedness and changes in control. At December 31, 2020, the Company was in compliance with all covenants under the
Senior Notes.
Senior Secured Credit Facility
In December 2020, all outstanding liabilities under the Senior Secured Credit Facility were paid in full and the related
agreements terminated. The Company’s senior secured credit facilities (collectively, the “Credit Facility”) consisted of a $230
million senior secured term loan (the “Term A-1 Loan Facility”), a $450 million senior secured year term loan (the “Term A-2
Loan Facility” and together with the Term A-1 Facility, the “Term Loan Facilities”), a $100 million revolving credit facility
(the “U.S. Revolver”) and a multi-currency revolving credit facility in a U.S. Dollar equivalent amount of $150 million (the
F-21
Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements (Continued
“Multi-currency Revolver” and together with the U.S. Revolver, the “Revolving Credit Facility”). The lenders under the Credit
Facilities had a first priority security interest in substantially all the Company’s current and future U.S. and Canadian material
assets.
In June 2020, the Company entered into a second amendment of its Senior Secured Credit Agreement (the “Second
Amendment”) under which, among other changes, the lenders have agreed to relax the financial covenants through 2022. The
Second Amendment added a 1 percent LIBOR floor and lenders were paid a customary fee as consideration for their consent to
the Second Amendment. The Second Amendment was accounted for as a debt modification and, as such, lender fees of
$3 million were capitalized and third-party fees of $1 million were expensed as incurred.
In September 2019, the Company entered into the first amendment of the Credit Facility (the “Amendment”) under which,
among other changes, the lenders agreed to relax the total net senior first lien secured leverage ratio and interest coverage ratio
tests through 2021. The Amendment also increased the interest rate margin on borrowings to be paid to lenders by a maximum
of 1.25 percent. The Amendment was accounted for as a debt modification and, as such, lender fees of $4 million were
capitalized and third-party fees of $4 million were expensed as incurred.
The loans under the Credit Facility, as amended, bore interest at either (a) a base rate plus an applicable margin ranging
between 2 percent and 3 percent or (b) an adjusted LIBOR rate (or 1 percent LIBOR floor) plus an applicable margin ranging
between 3 percent and 4 percent. The applicable margin for borrowings under the Credit Facility is based on a consolidated
total net leverage-based pricing grid.
Through its termination in December 2020, the Company was in compliance with all covenants under the Credit Facility.
Short-term Factoring Facility-France
The Company’s subsidiary in France entered into a factoring agreement with BNP-Paribas Factor ("BNP") pursuant to
which it submits the value of eligible receivables up to USD $3 million and €24 million for immediate payment. Eligibility of
receivables is based on invoices issued to the Company’s subsidiary from customers previously approved by BNP. Upon
collection of these receivables, on average no longer than 60 days, amounts outstanding under this agreement are paid off. The
Company pays interest on a monthly basis for these borrowings based on the value of factored invoices at Euribor 3-month rate
(with floor at zero) plus 0.55 percent. The weighted-average interest rate on total short-term borrowings associated with this
agreement at December 31, 2020 was 0.55 percent as Euribor 3-month rate was negative for the period.
11.
Environmental Liabilities
The Company’s environmental liabilities relate to sawmills, pulp, paper and wood treating plants which have ceased
operations other than environmental
investigation and remediation activities. The Company owns or has liability for
approximately twenty sites that are subject to various federal, state or provincial statutes, including but not limited to, the
the Comprehensive Environmental Response, Compensation and
Resource Conservation and Recovery Act (“RCRA”),
Liability Act of 1980 (“CERCLA”) and the Environmental Protection Act in the United States, and similar laws in Canada and
France, related to the investigation and remediation of environmentally-impacted sites.
The Company estimates its environmental liabilities based on its current interpretation of environmental laws and
regulations when it is probable a liability has been incurred and the amount of such liability is estimable. The Company
calculates estimates based on a number of factors, including the application and interpretation of current environmental laws,
regulations and other requirements; reports and advice of internal and third-party environmental specialists; and management’s
knowledge and experience with these and similar types of environmental matters. These estimates include potential costs for
investigation, assessment,
remediation, ongoing operation and maintenance (where applicable), and post-remediation
monitoring of the sites, as well as the cost of legally-required financial assurance relating to the Company’s obligations on an
undiscounted basis, generally for a period of 20 years. These environmental liabilities do not include potential third-party
recoveries to which the Company may be entitled unless they are probable and estimable.
F-22
Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements (Continued)
The following table provides detail for specific sites where current estimates exceed 10 percent of the total liabilities for
disposed operations at December 31, 2020, 2019, or 2018. An analysis of the activity of the liabilities for disposed operations
for the years ended December 31, 2020 and 2019 is as follows:
December
31, 2018
Payments
Increase
(Decrease)
to
Liabilities
(a)
December
31, 2019
Liability
Payments
Increase
(Decrease)
to
Liabilities
(a)
December
31, 2020
Liability
Port Angeles, Washington............... $
Augusta, Georgia.............................
Baldwin, Florida..............................
All other sites...................................
Total..............................................
44,799
$
(1,404) $
11,045
$
54,440
$
(1,447) $
1,011
$
20,354
17,244
78,257
(683)
(450)
(3,907)
1,876
383
3,862
21,547
17,177
78,212
(514)
(55)
(3,292)
160,654
$
(6,444) $
17,166
171,376
$
(5,308) $
62
(700)
5,238
5,611
Less: Current portion.......................
(11,310)
Non-Current portion......................... $
149,344
(11,339)
$
160,037
54,004
21,095
16,422
80,158
171,679
(8,684)
$
162,995
(a)
Included in the Increase (Decrease) to Liabilities during the year ended December 31, 2020 and 2019 is a $229 thousand
and a $1 million increase of the liability, respectively, due to foreign currency fluctuations.
A brief description of the above identified sites is as follows:
Port Angeles, Washington — The Company operated a pulp mill at this site from 1930 until 1997. The site and the
adjacent marine areas (a portion of Port Angeles harbor) have been in various stages of the assessment process under the
Washington Model Toxics Control Act (“MTCA”) since 2000, and several voluntary interim soil clean-up actions have been
performed during this time. In addition, the Company may be liable under CERCLA for “natural resource damages” caused by
releases from the site. As a result of an agreed order with the Washington State Department of Ecology (“Ecology”), the
remainder of the MTCA regulatory process will be completed on a set timetable, subject to approval of all reports and studies
by Ecology. Upon completion of all work required under the agreed order and negotiation of an approved remedy, additional
remedial measures for the site and off-site areas may be necessary and, as a result, current cost estimates and the corresponding
liability could change. During 2020, the estimated liability decreased $436 thousand as changes in the remediation costs were
partly offset by an increase in the reserve. During 2019 the liability increased $10 million, due to changes in the Company’s
remediation cost estimates, partly offset by payments made during the year.
Augusta, Georgia — The Company operated a wood treatment plant at this site from 1928 to 1988. This site operates
under a 10-year hazardous waste permit renewed and issued pursuant to RCRA in 2015. Ongoing remediation activities
currently consist primarily of groundwater recovery and treatment. Current cost estimates and the corresponding liability could
vary if recovery or discharge volumes change or if changes to current remediation activities are required in the future. During
2020 and 2019, the Company recorded a $452 thousand decrease and a $1 million increase in the liability, respectively, due to
payments and to the change in the estimated costs related to the site’s operation and maintenance.
Baldwin, Florida — The Company operated a wood treatment plant at this site from 1954 to 1987. This site operates under
a 10-year hazardous waste permit renewed and issued pursuant to RCRA in 2017. Ongoing remediation activities currently
consist primarily of groundwater recovery and treatment. Additional remedial activities may be necessary in the future and,
therefore, current cost estimates and the corresponding liability could change. During 2020, the reserve decreased $1 million
primarily from a favorable change in the estimated costs expected for the site. During 2019, the reserve remained flat as
payments during the year were essentially offset by an increase in the remediation cost estimates.
In addition to the 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 disposed operations sites and providing financial assurance relating thereto; 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
December 31, 2020, the Company estimates this exposure could range up to approximately $78 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 of the above sites and other applicable liabilities. This estimate excludes liabilities which would
F-23
Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements (Continued)
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 disposed operations. However, no assurances are given these
estimates of liabilities 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.
12.
Derivative Instruments
The Company’s earnings and cash flows are subject to fluctuations due to changes in interest rates and foreign currency
exchange rates. The Company allows for the use of derivative financial instruments to manage interest rate and foreign currency
exchange rate exposure but does not allow derivatives to be used for speculative purposes.
All derivative instruments are recognized on the consolidated balance sheets at their fair value and are either (1) designated
as a hedge of a forecasted transaction or (2) undesignated. Changes in the fair value of a derivative designated as a hedge are
recorded in other comprehensive income until earnings are affected by the hedged transaction and are then reported in current
earnings. Changes in the fair value of undesignated derivative instruments and the ineffective portion of designated derivative
instruments are reported in current earnings.
In December 2020, the Company terminated all outstanding derivative instruments, consisting of six foreign exchange
forward contracts. These instruments were previously designated as hedging instruments and had various maturity dates
through 2028. In connection with these terminations, the Company received approximately $3.6 million. Accumulated gains
and losses associated with these instruments are deferred as a component of accumulated other comprehensive income (loss),
totaling a net after-tax gain of $2 million, and will be recognized in earnings as the underlying hedged transactions occur and
affect earnings.
Interest Rate Risk
The Company’s current debt obligations are primarily fixed and therefore not materially exposed to variability in interest
payments due to changes in interest rates. The Company previously entered into interest rate swap agreements to reduce the
volatility of interest expense, achieve a desired proportion of fixed-rate versus floating-rate debt and to hedge the variability in
cash flows attributable to interest rate risks caused by changes in the LIBOR benchmark.
The Company had designated the swaps as cash flow hedges and assesses their effectiveness using the hypothetical
derivative method in conjunction with regression. Effective gains and losses deferred to AOCI are reclassified into earnings
over the life of the associated hedge. Ineffective gains and losses are classified to earnings immediately. There was no hedge
ineffectiveness during 2020 or 2019.
Foreign Currency Exchange Rate Risk
Foreign currency fluctuations affect investments in foreign subsidiaries and foreign currency cash flows related to third
party purchases, product shipments, and foreign-denominated debt. The Company is also exposed to the translation of foreign
currency earnings to the U.S. dollar. Management may use foreign currency forward contracts to selectively hedge its foreign
currency cash flows exposure and manage risk associated with changes in currency exchange rates. The Company’s principal
foreign currency exposure is to the Canadian dollar, and to a lesser extent, the euro.
The notional amounts and maturity dates of outstanding derivative instruments as of December 31, 2020 and 2019 are
presented below.
$
Interest rate swaps (a)................................................................................
Foreign currency contracts (b)................................................................... $
Foreign cross-currency contracts (b).........................................................
$
— $
— $
— $
200,000
343,665
83,126
December 31, 2020
December 31, 2019
(a) Matured December 2020
(b) Terminated in December 2020
F-24
Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements (Continued)
The fair values of derivative instruments included in the consolidated balance sheet as of December 31, 2020 and 2019 are
provided in the below table. See Note 13 — Fair Value Measurements for additional information related to the Company’s
derivatives.
Balance Sheet Location
December 31,
2020
December 31,
2019
Other current assets
$
— $
Assets:
Derivatives designated as hedging instruments:
Interest rate swaps
Interest rate swaps
Foreign exchange forward contracts
Foreign exchange forward contracts
Derivatives not designated as hedging instruments:
Foreign exchange forward contracts
Liabilities:
Derivatives designated as hedging instruments:
Interest rate swaps
Foreign exchange forward contracts
Foreign exchange forward contracts
Other assets
Other current assets
Other assets
Other current assets
Other current liabilities
Other current liabilities
Other non-current liabilities
—
—
—
—
—
—
—
—
—
—
4,857
5
246
(639)
(340)
(759)
(16)
3,354
Derivatives not designated as hedging instruments:
Foreign exchange forward contracts
Other current liabilities
Total derivatives
$
— $
The effects of derivative instruments designated as cash flow hedges, the related changes in AOCI and the gains and losses
in income for the years ended December 31, 2020 and 2019 were as follows:
Derivatives in Cash Flow
Hedging Relationships
Gain (Loss)
Recognized in OCI
on Derivative
(Effective Portion)
Gain (Loss) Reclassified from AOCI
into Income
(Effective Portion)
Gain (Loss) Recognized in Income on
Derivative (Ineffective Portion and
Amount Excluded from Effectiveness
Testing)
Interest rate swaps...............
Foreign currency contracts..
Foreign currency contracts..
Foreign currency contracts..
Interest rate swaps...............
Foreign currency contracts..
Foreign currency contracts..
Foreign currency contracts..
$
$
$
$
$
$
$
$
(2,027)
Interest expense $
(2,666)
December 31, 2020
(13,045)
6,481
(197)
(2,083)
2,382
10,006
2,517
Other operating
expense, net $
Cost of sales $
Interest income and
702
(6,481)
other, net $
(918)
December 31, 2019
Interest expense $
Other operating
expense, net $
688
854
Cost of sales $
(10,006)
Interest income and
other, net $
3,537
$
$
—
—
—
—
—
—
—
—
The effects of derivative instruments not designated as hedging instruments on the statement of income for the years ended
December 31, 2020 and 2019 were as follows:
Derivatives Not Designated as
Hedging Instruments
Location of Gain (Loss) Recognized in
Income on Derivative
December 31, 2020 December 31, 2019
Foreign exchange contracts
Other operating expense, net
$
(703) $
416
F-25
Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements (Continued)
The after-tax amounts of unrealized gains in AOCI related to hedge derivatives at December 31, 2020 and 2019 are
presented below:
Unrealized gains from interest rate cash flow hedges.................................. $
Unrealized gains from foreign currency cash flow hedges..........................
$
— $
$
1,834
(499)
1,789
December 31, 2020
December 31, 2019
13.
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 at December 31, 2020 and 2019, using market information and what
management believes to be appropriate valuation methodologies discussed in further detail below:
December 31, 2020
December 31, 2019
Carrying
Amount
Fair Value (c)
Level 1
Level 2
Carrying
Amount
Fair Value (c)
Level 1
Level 2
Assets:
Cash and cash equivalents............................. $
Foreign currency forward contracts (a).......... $
93,653
$
93,653
$
— $
64,025
— $
— $
— $
5,108
Liabilities (b):
— $
Interest rate swaps (a).................................... $
Foreign currency forward contracts (a).......... $
— $
Fixed-rate long-term debt.............................. $1,076,359 $
Variable-rate long-term debt.......................... $
— $
(a) These items represent derivative instruments.
(b) Liabilities excludes finance lease obligation.
(c) The Company did not have Level 3 assets or liabilities at December 31, 2020 and 2019.
— $
— $
— $
— $
— $
— $1,050,287 $ 585,027
— $ 494,299
639
1,115
$
$
$
$
$
$
64,025
$
—
— $
5,108
— $
— $
639
1,115
— $ 465,449
— $ 498,875
The Company uses the following methods and assumptions in estimating the fair value of its financial instruments:
Cash and cash equivalents — The carrying amount is equal to fair market value.
Derivative instruments — The fair value is calculated based on standard valuation models using quoted prices and
market observable data of similar instruments. The interest rate derivatives are based on the LIBOR swap rate, which is
observable at commonly quoted intervals for the full term of the swap and therefore is considered Level 2. The foreign
currency derivatives are contracts to buy foreign currency at a fixed rate on a specified future date. The foreign
exchange rate is observable for the full term of the swap and is therefore considered Level 2. See Note 12 — Derivative
Instruments for additional information related to the derivative instruments.
Debt — The fair value of fixed rate debt is based upon quoted market prices for debt with similar terms and maturities.
The variable rate debt adjusts with changes in the market rate, therefore the carrying value approximates fair value.
F-26
Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements (Continued)
14.
Stockholders' Equity
An analysis of stockholders’ equity is shown below (share amounts not in thousands):
Common Stock
Preferred Stock
Shares
Par
Value
Shares
Par
Value
Additional
Paid in
Capital
Retained
Earnings
(Accumulated
Deficit)
Accumulated
Other
Comprehensive
Loss
Total
Stockholders’
Equity
$ 392,353
$
377,020
$
(76,151) $
693,756
Balance, December 31, 2017
51,717,142
$ 517
1,725,000
$
Net income
Other comprehensive loss, net of tax
Issuance of common stock under
incentive stock plans
Stock-based compensation
—
—
301,560
—
Repurchase of common stock
(2,727,572)
ASU 2018-02 adoption
Common stock dividends ($0.28 per
share)
Preferred stock dividends ($8.00 per
share)
—
—
—
Balance, December 31, 2018
49,291,130
Net income
Other comprehensive income, net of tax
Preferred stock converted to common
—
—
—
—
3
—
(27)
—
—
—
493
—
—
—
—
—
—
—
—
—
—
1,725,000
—
—
17
—
—
—
—
—
—
—
—
17
—
—
—
—
448
13,007
(6,318)
—
—
—
399,490
—
—
stock
13,361,678
133
(1,725,000)
(17)
(116)
Issuance of common stock under
incentive stock plans
Stock-based compensation
Repurchase of common stock
Common stock dividends ($0.14 per
share)
Preferred stock dividends ($6.00 per
share)
978,091
—
(494,770)
—
—
10
—
(4)
—
—
Balance, December 31, 2019
63,136,129
632
Net income
Other comprehensive income, net of tax
Issuance of common stock under
incentive stock plans
Stock-based compensation
—
—
416,454
—
—
—
4
—
Repurchase of common stock
(192,744)
(3)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(10)
6,531
(6,875)
—
—
399,020
—
—
(4)
6,599
(454)
128,416
—
—
—
(36,435)
22,425
(15,058)
(13,800)
462,568
(22,450)
—
—
—
—
—
(7,395)
(10,350)
422,373
555
—
—
—
—
—
(57,121)
—
—
—
(22,425)
—
—
(155,697)
—
16,470
—
—
—
—
—
—
(139,227)
—
5,592
—
—
—
128,416
(57,121)
451
13,007
(42,780)
—
(15,058)
(13,800)
706,871
(22,450)
16,470
—
—
6,531
(6,879)
(7,395)
(10,350)
682,798
555
5,592
—
6,599
(457)
Balance, December 31, 2020
63,359,839
$ 633
— $ — $ 405,161
$
422,928
$
(133,635) $
695,087
Series A Mandatory Convertible Preferred Stock
On August 4, 2016,
the
Company’s 8.00% Series A Mandatory Convertible Preferred Stock (the “Preferred Stock”), at a public offering price
of $100.00 per share. Net proceeds were $167 million after deducting underwriting discounts, commissions and expenses.
registered public offering of 1,725,000 shares of
the Company completed a
Each share of the Preferred Stock automatically converted into shares of common stock on August 15, 2019. The number
of shares of common stock issuable at conversion was determined based on the volume-weighted average price of the
Company’s common stock over a 20-trading day period immediately prior to the mandatory conversion date (“Applicable
Market Value”). The Applicable Market Value for our common stock was less than $12.91, resulting in a conversion rate per
share of 7.7459. On August 15, 2019, the Company issued approximately 13.4 million shares of common stock at conversion.
Dividends on the Preferred Stock were payable on a cumulative basis when declared by our Board of Directors. Preferred
Stock dividends were paid at an annual rate of 8.00% of the liquidation preference of $100 per share. The final dividend was
paid on August 15, 2019.
F-27
Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements (Continued)
Common Stock Buyback
On January 29, 2018, the Board of Directors authorized a share buyback program pursuant to which the Company may,
from time to time, purchase shares of its common stock with an aggregate purchase price of up to $100 million. During 2018,
the Company repurchased and retired 2,570,449 shares of common stock under this buyback program at an average price
of $15.44 per share, excluding commissions, for an aggregate purchase price of approximately $40 million. No shares were
repurchased during the years ended December 31, 2020 and 2019.
F-28
Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements (Continued)
15.
Accumulated Other Comprehensive Income (Loss)
AOCI was comprised of the following for the three years ended December 31:
2020
2019
2018
Unrecognized components of employee benefit plans, net of tax:
Balance, beginning of year
$
(126,638) $
(135,590) $
Other comprehensive gain (loss) before reclassifications
Income tax on other comprehensive loss
Reclassifications to earnings: (a)
Pension settlement loss (d)
Amortization of losses
Amortization of prior service costs
Amortization of negative plan amendment
Income tax on reclassifications
Net comprehensive gain (loss) on employee benefit plans, net of tax
ASU 2018-02 adoption (c)
Balance, end of year
Unrealized gain on derivative instruments, net of tax:
Balance, beginning of year
Other comprehensive income before reclassifications
Income tax on other comprehensive income
Reclassifications to earnings: (b)
Interest rate contracts
Foreign exchange contracts
Income tax on reclassifications
Net comprehensive gain on derivative instruments, net of tax
Balance, end of year (b)
Foreign currency translation:
Balance, beginning of year
Foreign currency translation, net of tax effects of $0, $0, and $0
Balance, end of year
(37,515)
8,940
(2,548)
12,838
564
—
(2,255)
(19,976)
—
(8,119)
2,413
8,787
9,889
693
—
(4,711)
8,952
—
(81,638)
(53,278)
12,160
—
11,877
572
(153)
(2,705)
(31,527)
(22,425)
(146,614)
(126,638)
(135,590)
1,290
(8,788)
2,171
2,666
6,697
(2,202)
544
1,834
(13,879)
25,024
11,145
(11,622)
12,822
(3,076)
(688)
5,615
(1,761)
12,912
1,290
(8,485)
(5,394)
(13,879)
619
(22,985)
5,372
(64)
6,690
(1,254)
(12,241)
(11,622)
4,868
(13,353)
(8,485)
Accumulated other comprehensive income (loss), end of year
$
(133,635) $
(139,227) $
(155,697)
(a) The AOCI components for defined benefit pension and post-retirement plans are included in the computation of net
periodic pension cost. See Note 18 — Employee Benefit Plans for additional information.
(b) Reclassifications of interest rate contracts are recorded in interest expense. Reclassifications of foreign currency exchange
contracts are recorded in cost of sales, other operating income or non-operating income as appropriate. Additional details
about the reclassifications related to derivative instruments is included in Note 12 —Derivative Instruments. There were
no reclassifications to earnings for derivative instruments during the year ended December 31, 2017.
(c) Represents a reclassification to retained earnings from the adoption of ASU No. 2018-02.
(d) In October 2019, the Company purchased annuity contracts from a third-party insurance company who has assumed
responsibility for future pension benefits for certain participants in our Canadian defined benefit plans. As a result, we
recognized a loss on the settlement and de-recognition of the projected benefit obligation. See Note 18 — Employee
Benefit Plans.
F-29
Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements (Continued)
16.
Earnings per Share of Common Stock
Basic earnings per share (“EPS”) is calculated by dividing net income available for common stockholders by the weighted-
average number of shares of common stock outstanding during the year. Diluted EPS is calculated by dividing net income by
the weighted-average number of shares of common stock outstanding adjusted to include the potentially dilutive effect of
outstanding stock options, performance shares, restricted shares and Preferred Stock.
In connection with the acquisition of Tembec in November 2017, the Company issued 8.4 million shares of common stock
as part of the consideration to Tembec shareholders. These shares were included in the calculation of weighted-average shares
outstanding at December 31, 2017. Refer to Note 4— Tembec Acquisition for more information.
The following table provides details of the calculations of basic and diluted EPS for the three years ended December 31:
2020
2019
2018
Income (loss) from continuing operations
Less: Preferred Stock dividends
Income (loss) from continuing operations attributable to common
stockholders
Income from discontinued operations
Net income (loss) available for common stockholders
$
$
$
(153) $
(118,608) $
—
(8,582)
(153) $
(127,190) $
96,158
708
555
99,451
(13,800)
85,651
28,965
$
(31,032) $
114,616
Shares used for determining basic earnings per share of common stock
63,241,197
54,511,863
50,602,480
Dilutive effect of:
Stock options
Performance and restricted shares
Preferred Stock
—
—
—
—
—
—
Shares used for determining diluted earnings per share of common stock
63,241,197
54,511,863
1,307
1,431,794
13,361,678
65,397,259
Basic earnings per share (not in thousands)
Income (loss) from continuing operations
Income from discontinued operations
Net income (loss)
Diluted earnings per share (not in thousands)
Income (loss) from continuing operations
Income from discontinued operations
Net income (loss)
$
$
$
$
— $
(2.33) $
0.01
0.01
1.76
$
(0.57) $
— $
(2.33) $
0.01
0.01
1.76
$
(0.57) $
1.70
0.57
2.27
1.52
0.44
1.96
Anti-dilutive instruments excluded from the computation of diluted earnings per share for the three years ended December
31, are as follows:
Stock options
Performance and restricted shares
Total
2020
152,281
2,650,357
2,802,638
2019
2018
205,026
494,469
699,495
260,033
398,004
658,037
F-30
Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements (Continued
17.
Incentive Stock Plans
As of December 31, 2020, the Company had two stock-based incentive plans. The Rayonier Advanced Materials Inc.
Incentive Stock Plan (the “Prior Plan”) provided for the grant of incentive stock options, non-qualified stock options, stock
appreciation rights, performance shares, restricted stock, and restricted stock units, subject to certain limitations. The Company
no longer issues shares under the Prior Plan. The Rayonier Advanced Materials Inc. 2017 Incentive Stock Plan (the “2017
Plan”) provides for up to 4.8 million shares to be granted for stock options, non-qualified stock options, stock appreciation
rights, performance shares, restricted stock, and restricted stock units. Under the 2017 Plan, shares available for issuance may
be increased by any shares of common stock subject to awards under the Prior Plan that, in whole or in part, are forfeited,
terminated or expire unexercised, settled in cash in lieu of stock, or released from a reserve for failure to meet the maximum
payout under a program. At December 31, 2020, approximately 2.3 million shares were available for future grants under the
2017 Plan.
During the year ended December 31, 2020, the Company made new grants of restricted stock units and performance-based
stock units to certain employees. The 2020 restricted stock unit awards cliff vest after three years. Prior to the 2020 award, the
restricted stock units vest upon completion of periods ranging from one year to three years . During the year ended December
31, 2020, the Company made new grants of restricted stock units and performance-based stock units to certain employees. The
2020 performance-based stock unit awards will measure total shareholder return (“TSR”) on an absolute basis and relative to
peers coupled with an EBITDA margin metric, with the measurement period ending on December 31, 2022. Participants can
earn between 0 and 200 percent of the target award. Performance below the threshold for the absolute TSR would result in a
zero payout for the TSR metric; however, payouts under the EBITDA margin metric would still be possible.
In March 2020, the performance-based share units granted in 2017 were settled at an average of 76 percent of the
performance-based stock units awarded, resulting in the issuance of 266,154 shares of common stock.
The Company recognizes stock-based compensation expense on a straight-line basis, net of forfeitures, over the service
period of the award. The Company’s total stock-based compensation cost, including allocated amounts, for the years ended
December 31, 2020, 2019 and 2018 was $7 million, $7 million and $13 million, respectively. These amounts may not reflect
the cost of current or future equity awards.
The Company’s employee stock option compensation program generally provides accelerated vesting (i.e., a waiver of the
remaining period of service required to earn an award) for awards held by employees at the time of their retirement. Stock-
based compensation expense for stock option awards is recognized over the shorter of: (1) the service period (i.e., the stated
period of time required to earn the award); or (2) the period beginning at the start of the service period and ending when an
employee first becomes eligible for retirement.
Fair Value Calculations by Award
All restricted stock and performance share awards are presented for Rayonier Advanced Materials stock only. Option
awards include Rayonier Advanced Materials awards held by employees of its former parent Rayonier Inc.
Non-Qualified Employee Stock Option Awards
Stock options are granted with an exercise price equal to the market value of the underlying stock on the grant date. They
generally vest ratably over three years and have a maximum term of 10 years and two days from the grant date.
The fair value of each option grant is estimated on the grant date using the Black-Scholes option-pricing model. The
Company has elected to value each grant in total and recognize the expense for stock options on a straight-line basis over three
years. During the years ended December 31, 2020, 2019 and 2018, no options were granted.
F-31
Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements (Continued)
A summary of the Company’s stock option activity is presented below for the year ended December 31, 2020:
Stock Options
Options
Weighted
Average Exercise
Price
Weighted
Average
Remaining
Contractual
Term (in years)
Aggregate
Intrinsic Value
Outstanding at January 1, 2020................................
205,026
$
36.10
Forfeited...................................................................
Exercised..................................................................
Expired.....................................................................
Outstanding at December 31, 2020..........................
Options vested and expected to vest........................
Options exercisable at December 31, 2020..............
—
—
(52,745)
152,281
152,281
152,281
$
$
$
—
—
29.87
38.26
38.26
38.26
1.9 $
1.9 $
1.9 $
—
—
—
A summary of additional information pertaining to stock options granted to employees is presented below:
Intrinsic value of options exercised............................................................................. $
Fair value of options vested........................................................................................ $
— $
— $
— $
— $
108
—
2020
2019
2018
Restricted Stock and Stock Unit Awards
Restricted stock and stock units granted in connection with the Company’s performance share plan generally vests upon
completion of periods ranging from 1 year to four years. The fair value of each share granted is equal to the share price of the
underlying stock on the date of grant. As of December 31, 2020, there was $2 million of unrecognized compensation cost
related to the Company’s outstanding restricted stock. This cost is expected to be recognized over a weighted average period of
1.1 years.
The following table summarizes the activity of restricted stock and stock units granted to employees for the three years
ended December 31:
Restricted stock and stock units granted......................................................................
Weighted average price of restricted stock or units granted........................................ $
Intrinsic value of restricted stock and units outstanding.............................................. $
Fair value of restricted stock and units vested............................................................. $
2020
2019
2018
426,469
395,260
301,384
3.73
5,405
4,420
$
$
$
11.99
3,201
4,881
$
$
$
19.73
9,767
3,753
A summary of the Company’s restricted stock and stock units activity is presented below for the year ended December 31,
2020:
Restricted Stock and Stock Units
Awards
Weighted
Average Grant
Date Fair Value
Outstanding at January 1, 2020...........................................................................................
833,596
$
Granted................................................................................................................................
Forfeited..............................................................................................................................
Vested..................................................................................................................................
426,469
(65,838)
(365,272)
Outstanding at December 31, 2020.....................................................................................
828,955
$
14.55
3.73
12.71
12.10
10.27
Performance-Based Stock Unit Awards
The Company’s performance-based stock unit awards generally vest upon completion of a three-year period. The 2020
performance-based stock unit award payout is calculated using a combination of Company specific performance metrics and
total shareholder return, which is measured on an absolute basis as well as relative to a peer group of companies. Depending on
F-32
Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements (Continued)
performance against these targets, the awards will pay out in common stock amounts between 0 and 200 percent of the
performance-based stock units awarded.
The performance-based stock unit awards which are measured against a market condition or incorporate market conditions
are valued using a Monte Carlo simulation model. The model generates the fair value of the market-based award or market-
based portion of the award at the grant date. The related expense is then amortized over the award’s vesting period.
As of December 31, 2020, there was $2 million of unrecognized compensation cost related to the Company’s performance-
based stock unit awards. This cost is expected to be recognized over a weighted average period of 1.9 years.
The following table summarizes the activity of the Company’s performance-based stock units awarded to its employees for
the three years ended December 31:
Common shares of stock reserved for performance-based stock units
Weighted average fair value of performance-based
stock units granted
Intrinsic value of outstanding performance-based stock units
2020
2019
2018
2,201,134
980,641
1,115,747
$
$
2.07
11,876
$
$
14.98
4,572
$
$
22.75
4,774
A summary of the Company’s performance-based stock unit award activity is presented below for the year ended
December 31, 2020:
Outstanding at January 1, 2020
Granted
Forfeited
Vested
Outstanding at December 31, 2020
Performance-Based Stock Units
Awards
Weighted Average
Grant Date Fair
Value
1,190,526
$
1,100,567
(65,764)
(403,927)
1,821,402
$
17.77
2.07
17.09
15.68
8.77
The expected volatility is based on representative price returns using the stock price of several peer companies. The risk-
free rate was based on the 3-year U.S. treasury rate on the date of the award. The following chart provides a tabular overview
of the weighted average assumptions used in calculating the fair value of the awards granted for the three years ended
December 31:
Expected volatility.................................................................................................................
Risk-free rate..........................................................................................................................
2020
2019
2018
67.8 %
0.9 %
49.5 %
2.5 %
68.7 %
2.4 %
18.
Employee Benefit Plans
Defined Benefit Plans
The Company has defined benefit pension and other postretirement plans covering certain union and non-union employees,
primarily in the U.S., Canada and France. In connection with the Acquisition, we assumed the obligations of various defined
benefit pension and other postretirement plans that were maintained by Tembec which cover certain employees, primarily in
Canada and France. The defined benefit pension plans are closed to new participants.
During 2020, the Company started the process of winding up certain Canadian pension plans and as a result recorded a
settlement gain of $3 million. During 2019, the Company settled certain Canadian pension liabilities through the purchase of
annuity contracts with an insurance company. The settlement resulted in the recognition of a $9 million loss during the year
ended December 31, 2019. The settlements were recognized in “Other components of net periodic benefit costs” in our
Consolidated Statement of Income and Comprehensive Income for the year ended December 31, 2020 and 2019.
Defined benefit pension and other postretirement plan liabilities are calculated using actuarial estimates and management
assumptions. These estimates are based on historical information, along with certain assumptions about future events. Changes
in assumptions, as well as changes in actual experience, could cause the estimates to change.
F-33
Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements (Continued)
The following tables set forth the changes in the projected benefit obligation and plan assets and reconciles the funded
status and the amounts recognized in the Consolidated Balance Sheets for the defined benefit pension and postretirement plans
for the two years ended December 31:
Change in Projected Benefit Obligation
Projected benefit obligation at beginning of year............... $
Service cost......................................................................
Interest cost......................................................................
Actuarial loss (gain).........................................................
Participant contributions..................................................
Benefits paid.....................................................................
Plan amendment...............................................................
Settlement ........................................................................
Effects of foreign currency exchange rates......................
Projected benefit obligation at end of year......................... $
Change in Plan Assets
Fair value of plan assets at beginning of year..................... $
Actual return on plan assets.............................................
Employer contributions....................................................
Participant contributions..................................................
Benefits paid.....................................................................
Settlement.........................................................................
Effects of foreign currency exchange rates......................
Fair value of plan assets at end of year............................... $
Pension
Postretirement
2020
2019
2020
2019
908,373
$
1,013,541
$
42,571
$
41,243
10,546
25,327
86,137
779
(43,687)
—
(1,495)
9,216
9,857
36,138
101,576
900
(55,801)
1,693
(222,342)
22,811
1,258
1,002
(3,172)
105
(2,104)
—
—
30
1,849
1,432
(39)
130
(2,824)
—
(146)
926
995,196
$
908,373
$
39,690
$
42,571
745,858
$
844,588
$
— $
88,772
7,656
779
(43,688)
—
7,866
148,226
8,899
900
(55,801)
(222,342)
21,388
—
1,999
105
(2,104)
—
—
807,243
$
745,858
$
— $
—
—
2,694
130
(2,824)
—
—
—
Funded Status at end of year:.............................................. $
(187,953) $
(162,515) $
(39,690) $
(42,571)
The projected benefit obligation increased during the year ended December 31, 2020 due to actuarial losses resulting from
a decrease in the discount rate assumed partly offset by lower interest cost and foreign currency exchange impacts.
Amounts recognized in the Consolidated Balance
Sheets consist of:
Non-current assets............................................................... $
Current liabilities................................................................
Non-current liabilities.........................................................
Pension
Postretirement
2020
2019
2020
2019
39,351
$
37,505
$
— $
(4,089)
(223,215)
(3,745)
(196,275)
(2,197)
(37,493)
—
(2,221)
(40,350)
(42,571)
Net amount recognized................................................... $
(187,953) $
(162,515) $
(39,690) $
Net gains (losses) recognized in other comprehensive income for the three years ended December 31 are as follows:
Net gains (losses)............................................. $ (38,178) $
Prior service (costs) gains................................ $
— $
(6,294) $ (55,918) $
(1,728) $
— $
663
$
— $
(97) $
2,640
— $
—
2020
Pension
2019
Postretirement
2018
2020
2019
2018
F-34
Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements (Continued)
Net gains or losses and prior service costs or credits reclassified from other comprehensive income and recognized as a
component of pension and postretirement expense for the three years ended December 31 are as follows:
2020
Pension
2019
Postretirement
2018
2020
2019
2018
Pension settlement (gain) loss (a).................... $
Amortization of losses.....................................
Amortization of prior service (credit) cost......
(2,548) $
8,787
$
— $
— $
— $
13,026
717
10,244
846
11,648
572
(188)
(153)
81
(153)
—
229
(153)
(a) The Company purchased annuity contracts from a third-party insurance company who has assumed responsibility for future pension
benefits for certain participants in our Canadian defined benefit plans. As required under ASC 715 Compensation-Retirement Benefits, we
recognized loss in 2019 on the settlement and de-recognition of the projected benefit obligation. The year ended December 31, 2020 also
includes a gain for Canadian plans in the process of winding-up and expected to be settled in 2021.
Net
losses, prior service costs or credits and plan amendments that have not yet been included in pension and
postretirement expense for the two years ended December 31 which have been recognized as a component of AOCI are as
follows:
Pension
Postretirement
2020
2019
2020
2019
Prior service cost................................................................. $
Net losses............................................................................
Deferred income tax benefit................................................
(2,116) $
(2,842) $
1,032
$
(187,533)
(160,058)
43,731
37,050
(1,820)
90
Accumulated other comprehensive income (loss).......... $
(145,918) $
(125,850) $
(698) $
1,185
(2,266)
293
(788)
For defined benefit pension plans with accumulated benefit obligations in excess of plan assets, the following table sets
forth the projected and accumulated benefit obligations and the fair value of plan assets for the years ended December 31:
Projected benefit obligation........................................................................................................ $
Accumulated benefit obligation.................................................................................................. $
Fair value of plan assets.............................................................................................................. $
2020
2019
995,192
954,043
807,241
$
$
$
907,755
871,291
744,662
The following tables set forth the components of net pension and postretirement benefit cost that have been recognized
during the three years ended December 31:
Components of Net Periodic Benefit Cost
2020
Pension
2019
Postretirement
2018
2020
2019
2018
Service cost...................................................... $ 10,546
25,327
Interest cost......................................................
$
9,857
36,138
$ 11,663
35,499
$
$
1,258
1,002
Expected return on plan assets.........................
(41,308)
(52,343)
(57,438)
Amortization of prior service (credit) cost ......
Amortization of losses.....................................
Pension settlement (gain) loss.........................
Other ...............................................................
717
13,026
(2,548)
—
569
10,363
8,787
—
572
11,648
—
—
—
(153)
(188)
—
(2,091)
$
1,849
1,432
—
(153)
81
—
—
1,716
1,327
—
(153)
229
—
—
Net periodic benefit cost (a)................................. $
5,760
$ 13,371
$
1,944
$
(172) $
3,209
$
3,119
(a) Service cost is included in cost of sales or selling, general and administrative expenses in the statements of income, as
appropriate. Interest cost, expected return on plan assets, amortization of prior service cost, amortization of losses and
amortization of negative plan amendment are included in non-operating income on the consolidated statement of income.
The Company uses the spot rate approach method to determine the service and interest cost components of net periodic
benefit cost. Under this method, individual spot rates along the yield curve that correspond with the timing of each benefit
payment will be used. The Company believes this provides a more precise measurement of service and interest costs by
improving the correlation between projected cash outflows and corresponding spot rates on the yield curve.
F-35
Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements (Continued)
The following table sets forth the weighted average principal assumptions inherent in the determination of benefit
obligations and net periodic benefit cost of the pension and postretirement benefit plans as of December 31:
Assumptions used to determine benefit obligations
at December 31:
Discount rate
Rate of compensation increase
Assumptions used to determine net periodic benefit
cost for years ended December 31:
Discount rate
Expected long-term return on plan assets
Rate of compensation increase
Pension
Postretirement
2020
2019
2018
2020
2019
2018
2.48 %
2.67 %
3.46 %
2.67 %
3.99 %
2.61 %
2.48 %
3.90 %
3.20 %
3.63 %
3.82 %
3.68 %
3.15 %
6.19 %
2.67 %
3.91 %
6.37 %
2.67 %
3.42 %
6.32 %
2.61 %
3.05 %
3.91 %
3.40 %
N/A
N/A
N/A
3.90 %
3.63 %
3.68 %
The estimated return on plan assets is based on historical and expected long-term rates of return on broad equity and bond
indices and consideration of the actual annualized rate of return. The Company, with the assistance of external consultants,
utilizes this information in developing assumptions for returns, risks and correlation of asset classes, which are then used to
establish the asset allocation ranges.
Assumed health care cost trends have a significant effect on the amounts reported for the postretirement benefit plans. The
following table sets forth the assumed health care cost trend rates as of December 31:
Health care cost trend rate assumed for next year...............................
Rate to which the cost trend is assumed to decline (ultimate trend
rate)......................................................................................................
Year that ultimate trend rate is reached...............................................
Investment of Plan Assets
Postretirement
2020
2019
U.S.
6.50 %
5.00 %
2024
Canada
5.68 %
U.S.
7.00 %
Canada
6.50 %
4.50 %
5.00 %
4.50 %
2022-2025
2024
2021-2022
The Company’s Pension and Savings Plan Committee and the Audit Committee of the Board of Directors oversee the
defined benefit pension plans’ investment program. The investment approach of each defined benefit pension plan is designed
to maximize returns and provide sufficient liquidity to meet each plans obligations while maintaining acceptable risk levels. For
certain defined benefit plans, investment target allocation percentages for equity securities can range up to 65 percent. In other
more well-funded plans, 100 percent is allocated to fixed income securities. All plans were within their respective targeted
ranges. The Company’s weighted average defined benefit pension plan asset allocation at December 31, 2020 and 2019, by
asset category are as follows:
Asset Category
U.S. equity securities..................................................................................................................
International equity securities.....................................................................................................
U.S. fixed income securities.......................................................................................................
International fixed income securities..........................................................................................
Other...........................................................................................................................................
Total........................................................................................................................................
Percentage of Plan Assets
2020
2019
22 %
27 %
21 %
26 %
4 %
25 %
31 %
19 %
21 %
4 %
100 %
100 %
Investments within the equity categories may include large capitalization, small capitalization and emerging market
securities, while the international fixed income portfolio may include emerging markets debt. Pension assets did not include a
direct investment in Rayonier Advanced Materials common stock at December 31, 2020 or 2019.
F-36
Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements (Continued)
Fair Value Measurements
The following table sets forth by level, within the fair value hierarchy (see Note 2 — Summary of Significant Accounting
Policies and New Accounting Pronouncements for definition), the assets of the plans as of December 31, 2020 and 2019.
Asset Category
Mutual funds........................................................................ $
Level 1
Level 2
Level 3
Total
5,878
$
— $
— $
5,878
Fair Value at December 31, 2020
Investments at net asset value:
Common collective trust funds............................................
Total assets at fair value..................................................
801,365
807,243
$
Asset Category
Mutual funds........................................................................ $
Level 1
Level 2
Level 3
Total
128,000
$
— $
— $
128,000
Fair Value at December 31, 2019
Investments at net asset value:
Common collective trust funds............................................
Total assets at fair value..................................................
617,858
745,858
$
The valuation methodology used for measuring the fair value of these asset categories was as follows:
Mutual funds — Net asset value in an observable market.
Common collective trust funds — Common collective trusts are measured at NAV per share, as a practical expedient
for fair value, as provided by the Plan trustee. The NAV is calculated by determining the fair value of the fund’s
underlying assets, deducting its liabilities, and dividing by the units outstanding as of the valuation date. These funds
are not publicly traded; however, in the majority of cases the unit price calculation is based on observable market inputs
of the funds’ underlying assets.
There have been no changes in the methodology used during the years ended December 31, 2020 and 2019.
Cash Flows
Expected benefit payments for the next ten years are as follows:
Pension
Benefits
Postretirement
Benefits
2021........................................................................................................................................ $
2022........................................................................................................................................
2023........................................................................................................................................
2024........................................................................................................................................
2025........................................................................................................................................
45,657
$
47,245
48,187
49,019
49,934
2026 — 2030..........................................................................................................................
245,613
2,038
1,986
1,894
1,813
1,815
8,712
The Company has mandatory pension contribution requirements of $3 million in 2021 and may make additional
discretionary contributions.
Defined Contribution Plans
The Company provides defined contribution plans to all of its hourly and salaried employees. The Company’s
contributions charged to expense for these plans were $9 million, $9 million, and $8 million for the years ended December 31,
2020, 2019 and 2018, respectively.
F-37
Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements (Continued)
19.
Other Operating Expense, Net
Other operating expense, net was comprised of the following for the three years ended December 31:
2020
2019
2018
Environmental liability expense (a)............................................................. $
(5,962) $
(17,832) $
Loss on sale or disposal of property, plant and equipment..........................
(Loss) gain on foreign exchange..................................................................
Equity income (loss) from joint venture .....................................................
Insurance settlement.....................................................................................
Miscellaneous income (expense).................................................................
(896)
(4,949)
(3,706)
—
300
(1,295)
(3,203)
(5,089)
4,500
(2,078)
(8,332)
(3,186)
1,114
(4,359)
—
2,341
Total other operating expense, net........................................................... $
(15,213) $
(24,997) $
(12,422)
(a) Environmental liability expense reflects the adjustments to the Company’s estimates for environmental liability for the
assessment, remediation and long-term monitoring and maintenance of the disposed operations sites over the next 20 years
and other related costs. See Note 11 — Environmental Liabilities for additional information.
20.
Income Taxes
Income Tax Benefit (Expense) from Continuing Operations
Income tax benefit (expense) from continuing operations for the three years ended December 31 are as follows:
2020
2019
2018
Current
Federal......................................................................................................... $
Foreign........................................................................................................
State and other.............................................................................................
Deferred
Federal.........................................................................................................
Foreign........................................................................................................
State and other.............................................................................................
49,940
$
7,789
$
(962)
(332)
48,646
339
(3,100)
722
(2,039)
(4,201)
536
4,124
2,471
22,702
379
25,552
Income tax expense..................................................................................... $
46,607
$
29,676
$
(8,630)
(10,115)
(657)
(19,402)
4,238
(11,901)
25
(7,638)
(27,040)
F-38
Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements (Continued)
A reconciliation of the U.S. federal statutory income tax rate to the actual income tax rate for the three years ended
December 31 is as follows:
U.S. federal statutory income tax rate........................................................
CARES Act and other tax regulations (a)................................................
Change in valuation allowance (b)..........................................................
Adjustment to previously filed tax returns...............................................
Tax credits (excluding FTC) ...................................................................
Nondeductible compensation for executives and share-based awards....
Net changes in uncertain tax positions
Difference in foreign statutory rates
Book tax differences related to joint venture
Global Intangible Low Taxed Income (Net of FTC)...............................
Nontaxable bargain purchase gain (c)......................................................
Other........................................................................................................
Income tax rate as reported.........................................................................
2020
2019
2018
21.0 %
21.0 %
21.0 %
42.1
29.6
13.7
5.3
(4.4)
(3.6)
(2.7)
0.7
—
—
2.8
(8.6)
0.1
3.1
0.7
(1.2)
2.3
—
—
—
(0.4)
101.3 %
(0.2)
20.0 %
—
—
(2.4)
(3.0)
0.7
(3.1)
5.9
2.0
3.7
(4.2)
0.8
21.4 %
(a) On March 27, 2020, the United States Congress passed the “CARES Act” to provide taxpayer protection against the
economic impacts of COVID-19. As part of the CARES Act, the Company is able to carry 2019 and 2020 tax net operating
losses back to tax years when the U.S. Federal Statutory rate was 35 percent compared with the current 21 percent. The
Company has recognized a $20 million tax benefit arising from the remeasured increased value of the tax net operating
losses in 2019 and 2020. The Company has recorded a $33 million current receivable related to the 2019 loss carryback
expected to be received in 2021 and a $10 million noncurrent receivable related to the 2020 loss carryback. Separately, the
Company has a $22 million current receivable related to tax years under examination by the IRS. The Company believes
the examination will be completed in time to receive this refund within the next twelve months.
(b) The tax benefit for the year ended December 31, 2020 includes an adjustment to reverse a valuation allowance, which was
initially recorded for the year ended December 31, 2019, on a deferred tax asset generated from a disallowed interest
deduction. Under the Internal Revenue Code Section 163(j), U.S. interest is only deductible up to 30 percent of “adjusted
taxable income (“ATI”). The disallowed interest deduction can be carried forward indefinitely but will only be realized to
the extent the Company has net U.S. interest expense below 30 percent of ATI in any given year after first utilizing its
current year interest expense. Based on its projected interest expense and ATI, the Company does not believe it will be able
to realize any of the existing suspended interest deductions and, as a result, had recorded a full valuation allowance on
these deferred tax assets as of December 31, 2019. However, in December of 2019 the American Institute of Certified
Public Accountants (“AICPA”) issued Technical Questions and Answers (“TQA”) 3300.01-02 which asserts that a
valuation allowance should only be recognized to the extent that the reversal of existing deferred tax assets and liabilities is
not sufficient to realize the disallowed interest carryforward, ignoring material evidence including the expectation of future
earnings or losses and future interest expense. In strict compliance with the AICPA’s TQA, in 2020, the Company reversed
all of the valuation allowance on the deferred tax assets generated from disallowed interest through December 31, 2020
resulting in a $14 million increase in the tax benefit, of which $9 million related to recognition of deferred tax assets
recorded on December 31, 2019. The Company has determined that the adjustment was not material to the December 31,
2019 consolidated financial statements. The Company’s conclusion was reached in consideration of qualitative factors such
as the fact that the deferred tax asset will likely never be realized or impact cash taxes and the fact that the income tax
benefit does not impact operating cash flows, operating income, earnings before interest, depreciation and amortization and
adjusted free cash flow. The continued application of this AICPA guidance is expected to result in future recognition of
additional deferred tax assets that the Company believes will not be realized.
(c) The bargain purchase gain from the acquisition of Tembec of $20 million during the year ended December 31, 2018 was
not taxable resulting in a decrease in the income tax rate.
F-39
Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements (Continued)
Deferred Taxes
Deferred income taxes result from recording revenues and expenses in different periods for financial reporting versus tax
reporting. The nature of the temporary differences and the resulting net deferred tax liability for the two years ended December
31 were as follows:
Gross deferred tax assets:
Canadian net operating losses (a)........................................................................................... $
Canadian pool of scientific research and experimentation deductions ("SR&ED") (a).........
Property, plant and equipment basis differences....................................................................
Tax credit carryforwards (a)...................................................................................................
Pension, postretirement and other employee benefits............................................................
Environmental liabilities........................................................................................................
Deferred interest deductions (a).............................................................................................
Other compensation................................................................................................................
State net operating losses (a)..................................................................................................
Capitalized costs.....................................................................................................................
Other.......................................................................................................................................
Total gross deferred tax assets................................................................................................
Less: valuation allowance (a).................................................................................................
Total deferred tax assets after valuation allowance................................................................
Gross deferred tax liabilities:
Property, plant and equipment basis differences....................................................................
Intangible assets......................................................................................................................
Other.......................................................................................................................................
2020
2019
168,342
$
205,563
87,722
97,767
84,844
52,876
39,067
11,290
6,363
4,290
3,521
14,465
570,547
(81,133)
489,414
(103,793)
(11,513)
(13,111)
87,315
66,653
74,503
47,026
39,118
15,537
5,100
3,249
2,979
12,818
559,861
(94,660)
465,201
(90,290)
(12,284)
(2,961)
Total gross deferred tax liabilities..........................................................................................
Net deferred tax asset.................................................................................................................. $
(128,417)
(105,535)
360,997
$
359,666
Included in:.................................................................................................................................
Deferred tax assets.................................................................................................................. $
Deferred tax liabilities............................................................................................................
385,459
(24,462)
$
360,997
$
$
384,513
(24,847)
359,666
(a) The following relates to net operating losses, tax credits, and certain other carryforwards as of December 31, 2020:
Gross Amount
Tax Effected
Valuation
Allowance
Foreign R&D credit carryforwards...................... $
State tax credit carryforwards.............................. $
State net operating losses..................................... $
Canada non-capital losses.................................... $
Canadian pool of SR&ED.................................... $
Interest limitation carryforward........................... $
52,746
22,342
98,058
770,695
409,326
51,316
$
$
$
$
$
$
U.S. Federal net operating losses......................... $
— $
52,746
22,342
4,294
168,342
87,722
$
$
$
$
$
— $
— $
(52,746)
(22,100)
(3,059)
(3,191)
—
—
—
Expiration
2020-2038
2020-2029
2020-2039
2024-2040
None
None
None
F-40
Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements (Continued)
Unrecognized Tax Benefits
The Company recognizes the impact of a tax position if it is more likely than not to prevail, based on technical merit, in the
case of an audit. As of December 31, 2020, there were several positions resulting in unrecognized tax benefits that, if
recognized, would affect income tax expense. A reconciliation of the beginning and ending unrecognized tax benefits for the
three years ended December 31 is as follows:
Balance at January 1,............................................................................................. $
Decreases related to prior year tax positions....................................................
Increases related to prior year tax positions......................................................
Increases related to current year tax positions..................................................
Balance at December 31,....................................................................................... $
2020
2019
2018
10,555
$
8,844
$
23,804
(2,251)
3,009
125
(193)
1,904
—
11,438
$
10,555
$
(17,872)
1,137
1,775
8,844
Each of our unrecognized tax benefits would impact our effective tax rate if recognized. Total interest and penalties
recorded in unrecognized tax benefits is less than $1 million.
It is reasonably possible that within the next twelve months a number of tax positions could increase or decrease, due to
pending tax legislation, new tax regulations, or the conclusion of statute of limitations, impacting our unrecognized tax position
reserve by between a decrease of $2 million and increase of $6 million.
Tax Statutes
In the normal course of business, the Company is regularly audited by tax authorities, and is currently under audit in the
U.S. and Canada. The following table provides detail of tax years that remain open to examination by significant taxing
jurisdictions:
Taxing Jurisdiction
U.S............................................................................................................................................................
France.......................................................................................................................................................
Canada......................................................................................................................................................
Open Tax Years
2014-2020
2017-2020
2016-2020
21.
Segment and Geographical Information
As a result of the Matane Mill sale in November 2019, the Company now operates in the following business segments:
High Purity Cellulose, Forest Products, Paperboard, Pulp & Newsprint and Corporate. All prior period amounts presented
herein have been reclassified to conform to the new segment structure. See Note 3 —Discontinued Operations for additional
information on the Matane Mill sale. See also Note 1 — Nature of Operations and Basis of Presentation for a description of
the operating businesses. The Corporate segment 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 does not allocate the cost of maintaining these support functions to its operating units.
The Company evaluates the performance of its segments based on operating income. Intersegment sales consist primarily
of wood chips sales from Forest Products to High Purity Cellulose and to the Pulp & Newsprint segments. Intersegment sales
prices are at rates that approximate market for the respective operating area.
F-41
Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements (Continued)
Net sales, disaggregated by product-line, was comprised of the following for the three years ended December 31:
Net sales:
High Purity Cellulose
Cellulose Specialties................................................................ $
Commodity Products................................................................
Other sales (a)..........................................................................
Total High Purity Cellulose....................................................
Forest Products
Lumber.....................................................................................
Other sales (b)..........................................................................
Total Forest Products.............................................................
Paperboard
2020
2019
2018
685,177
$
765,077
$
282,663
83,463
1,051,303
319,409
72,819
392,228
279,527
82,383
1,126,987
230,360
68,753
299,113
831,805
243,711
116,873
1,192,389
284,418
71,242
355,660
Paperboard...............................................................................
189,882
199,987
196,866
Pulp & Newsprint
Pulp .........................................................................................
Newsprint.................................................................................
Total Pulp & Newsprint.........................................................
Corporate...................................................................................
Eliminations...............................................................................
125,417
46,942
172,360
127,784
87,188
214,972
169,025
113,275
282,300
(66,874)
(65,667)
(70,221)
Total net sales...................................................................... $
1,738,899
$
1,775,392
$
1,956,994
(a) Other sales include sales of electricity, resins, lignin and other by-products to third-parties
(b) Other sales include sales of logs, wood chips and other by-products to other segments and third-parties
Operating income by segment was comprised of the following for the years ended December 31:
Operating income:
High Purity Cellulose................................................................... $
Forest Products.............................................................................
Paperboard...................................................................................
Pulp & Newsprint........................................................................
Corporate......................................................................................
Total operating income.............................................................. $
2020
2019
2018
6,994
$
6,588
$
112,308
79,999
17,862
(25,379)
(52,402)
27,074
$
(30,904)
4,120
1,658
(64,580)
(83,118) $
24,850
4,392
71,899
(65,634)
147,815
Identifiable assets by segment were as follows for the years ended December 31:
Identifiable assets:....................................................................................................
High Purity Cellulose............................................................................................... $
Forest Products........................................................................................................
Paperboard...............................................................................................................
Pulp & Newsprint....................................................................................................
Corporate.................................................................................................................
Total identifiable assets.......................................................................................... $
2020
2019
1,528,929
$
1,559,073
186,321
129,871
99,374
585,370
171,167
145,030
102,959
501,918
2,529,865
$
2,480,147
F-42
Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements (Continued)
Long-life assets by country were as follows for the years ended December 31:
Long-life assets:..........................................................................................................................
United States.............................................................................................................................. $
Canada (a)..................................................................................................................................
France........................................................................................................................................
Other..........................................................................................................................................
138
Total long-life assets................................................................................................................ $ 1,896,292
2020
2019
768,111
$
791,769
898,430
229,613
905,897
209,304
146
$ 1,907,116
Depreciation and amortization and capital expenditures by segment were as follows for the years ended December 31:
Depreciation and amortization:....................................................
High Purity Cellulose.................................................................... $
Forest Products..............................................................................
Paperboard....................................................................................
Pulp & Newsprint..........................................................................
Corporate.......................................................................................
Total depreciation and amortization............................................ $
Capital expenditures (a):...............................................................
High Purity Cellulose.................................................................... $
Forest Products..............................................................................
Paperboard....................................................................................
Pulp & Newsprint..........................................................................
Corporate.......................................................................................
Total capital expenditures........................................................... $
2020
2019
2018
116,080
$
123,279
$
119,231
11,183
15,420
4,390
4,389
9,288
15,587
4,323
798
6,683
15,674
3,711
658
151,462
$
153,275
$
145,957
67,906
$
79,293
$
9,645
1,838
6,043
1,621
13,667
1,446
4,664
6,300
92,980
26,691
1,598
4,938
2,826
87,053
$
105,370
$
129,033
(a) Amounts exclude the impact of changes in capital assets purchased on account and government grants.
Geographical distribution of the Company’s sales was comprised of the following for the three years ended December 31:
2020
%
2019
%
2018
%
Sales by Destination
United States................................................ $
China............................................................
Canada .........................................................
Japan.............................................................
Europe..........................................................
Latin America...............................................
Other Asia....................................................
All other.......................................................
684,447
357,091
240,890
119,178
233,829
12,688
73,734
17,042
$
39
21
14
7
13
1
4
1
694,785
328,037
221,601
119,839
268,417
10,223
115,332
17,158
$
39
18
12
7
15
1
7
1
771,575
348,550
259,949
143,577
291,008
11,868
125,773
4,694
Total sales................................................ $
1,738,899
100
$
1,775,392
100
$
1,956,994
40
18
13
7
15
1
6
—
100
The Company had no significant customers representing over 10 percent of total sales for the years ended December 31,
2020, 2019 and 2018.
F-43
Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements (Continued
22.
Commitments and Contingencies
Litigation and Contingencies
IESO Investigation of the Kapuskasing Facility.Since 2014, the Market Assessment and Compliance Division (“MACD”)
branch of the Independent Electricity System Operator (“IESO”), the governmental agency responsible for operating the
wholesale electricity market and directing the operation of the bulk electrical system in the province of Ontario, Canada, has
been engaged in reviewing the Company's compliance with the published rules that govern the operation of the wholesale
electricity market in Ontario, Canada. MACD has been specifically reviewing issues relating to payments made by IESO to the
Company’s facility in Kapuskasing, Ontario. The inquiry has focused primarily on payments made by IESO between 2010 and
2019 under market rules in connection with multiple planned, extended and unplanned forced outages that caused extensive
downtime in respect of parts or the entire Kapuskasing facility.
In May 2020, MACD finalized two of its four investigations into the Company’s electricity management practices at its
Kapuskasing facility, and orders claiming penalties of CAD $25 million in connection therewith were issued by the IESO.
More particularly, the orders would require the Company to pay penalties of CAD $3 million immediately and CAD
$12 million over a 10-year period, with the remaining CAD $10 million to be deferred and ultimately forgiven assuming the
Company otherwise complies with the remaining terms of the orders. The Company believes it has complied in all material
respects with the published rules and is vigorously contesting IESO’s orders, including filing of proceedings with the divisional
Court (Superior Court of Justice) of Ontario seeking invalidation of the orders. The Company does not believe the ultimate
outcome of this dispute will be material to its business or financial condition, although no assurances can be given.
Duties on Canadian softwood lumber sold to the U.S.. The Company operates six softwood lumber mills in Ontario and
Quebec, Canada and exports softwood lumber into the United States from Canada. In 2017, anti-dumping and countervailing
duties were assessed by the United States Department of Commerce (“USDOC”) on lumber exported into the United States,
with the Company being assigned an anti-dumping duty rate of 6 percent and a countervailing duty rate of 14 percent.
In
December 2020, following its administrative review of the period of April 28, 2017 through December 31, 2018, USDOC
determined revised rates for anti-dumping and countervailing duties, and the Company is now subject to an anti-dumping duty
rate of approximately 1.6 percent and a countervailing duty rate of approximately 7.4 percent. The reduced rates will be applied
by the Company for lumber sold into the U.S. in the future. Canada’s legal challenge to the USDOC’s assessment of duties
continues in spite of the recent revision in rates.
The Company has paid approximately $91 million in lumber duties to date, recorded as expense in the periods incurred.
Following the December 2020 determination of the revised rates for the 2017 and 2018 periods, the Company reversed
$21 million of prior period expenses, decreasing current period duties expense, and recorded a corresponding long-term
receivable included within “Other Assets” in the Consolidated Balance Sheets, as cash is not expected to return to the Company
until final resolution of the softwood lumber dispute. As the duties remain subject to legal challenges and to USDOC further
administrative review processes covering periods after December 31, 2018, subsequent rate adjustments may become necessary.
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 its 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 and general liability. These other lawsuits and claims, either individually or in aggregate, are
not expected to have a material adverse effect on the Company’s financial position, results of operations or cash flows.
Commitments
The Company leases certain buildings, machinery and equipment under various operating leases. Total rental expense for
operating leases amounted to $8 million, $7 million, and $8 million in 2020, 2019 and 2018, respectively. See Note 5-Leases,
for additional information on future minimum lease payments.
F-44
Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements (Continued)
At December 31, 2020, the future minimum payments under purchase obligations were as follows:
2021............................................................................................................................................. $
2022.............................................................................................................................................
2023.............................................................................................................................................
2024.............................................................................................................................................
2025.............................................................................................................................................
Thereafter....................................................................................................................................
Total........................................................................................................................................ $
Purchase Obligations (a)
138,341
44,840
31,030
25,103
10,036
92,675
342,025
(a) Purchase obligations primarily consist of payments expected to be made on natural gas, steam energy and wood chips
purchase contracts. Obligations reported in the table are estimates and may vary based on changes in actual price and
volumes terms.
Guarantees and Other
The Company provides financial guarantees as required by creditors, insurance programs and various governmental
agencies. As of December 31, 2020, the Company had $44 million of 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 letters of credit have various expiration dates and will be
renewed as required.
The Company had surety bonds of $82 million as of December 31, 2020, 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.
The Company is liable for certain financing agreements related to its LTF joint venture. The Company’s portion of the
guarantee related to LTF at December 31, 2020 was $33 million.
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 not material based upon the current facts and
circumstances that would trigger a payment obligation.
It is not possible to determine the maximum potential amount of the liability under these potential obligations due to the
unique set of facts and circumstances likely to be involved with each provision.
The Company currently employs approximately 4,000 people in the United States, Canada and France. As of
December 31, 2020, approximately 75 percent of the work force is unionized. As a result, the Company is required to negotiate
wages, benefits and other terms with unionized employees collectively. As of December 31, 2020, all of the Company’s
collective bargaining agreements covering its unionized employees were current.
23.
Supplemental Disclosures of Cash Flow Information
Supplemental disclosures of cash flows information was comprised of the following for the three years ended December
31:
Supplemental cash flow information:
Cash paid for interest on debt....................................................................... $
Cash paid for income taxes, net of refunds................................................... $
Capital assets purchased on account............................................................. $
Assets acquired under operating leases ........................................................ $
$
$
$
57,017
1,168
22,549
816
59,434
3,266
14,769
18,198
$
$
$
$
55,286
12,558
16,864
—
2020
2019
2018
F-45
Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements (Continued)
24.
Quarterly Results for 2020 and 2019 (Unaudited)
2020
Net Sales........................................ $
Gross Margin................................. $
Operating Income........................... $
Income (loss) from continuing
operations....................................... $
Income from discontinued
operations....................................... $
Net Income (Loss).......................... $
Basic earnings per share
Continuing operations............... $
Discontinued operations........... $
Total.......................................... $
Diluted earnings per share:
Continuing operations............... $
Discontinued operations........... $
Total.......................................... $
2019
Net Sales........................................ $
Gross Margin................................. $
Operating Income........................... $
Income (loss) from continuing
operations....................................... $
Income from discontinued
operations (b)................................. $
Net Income..................................... $
Basic earnings per share
Continuing operations (a)......... $
Discontinued operations........... $
Total (a).................................... $
Diluted earnings per share:
Continuing operations (a)......... $
Discontinued operations........... $
Total (a).................................... $
March 28
June 27
September 26
December 31
Total Year
Quarter Ended
$
409,808
$
10,461
(12,008) $
$
396,753
$
20,214
(15,420) $
423,924
49,970
17,388
(24,835) $
(12,927) $
28,877
$
$
$
$
508,415
57,139
37,112
8,732
$
$
$
$
$
708
(24,127) $
64
$
(12,863) $
(17) $
$
28,860
(47) $
$
8,685
(0.39) $
0.01
$
(0.38) $
(0.39) $
0.01
$
(0.38) $
0.46
$
— $
0.46
0.45
$
$
— $
0.45
$
(0.20) $
— $
(0.20) $
(0.20) $
— $
(0.20) $
Quarter Ended
0.14
$
— $
0.14
0.14
$
$
— $
0.14
$
1,738,899
137,784
27,074
(153)
708
555
—
0.01
0.01
—
0.01
0.01
March 30
June 29
September 28
December 31
Total Year
$
441,060
7,619
$
(27,599) $
$
450,233
17,979
$
(15,320) $
$
416,129
16,619
$
(8,564) $
$
467,970
11,940
$
(31,635) $
1,775,392
54,157
(83,118)
(27,987) $
(19,274) $
(14,353) $
(56,994) $
(118,608)
5,937
$
(22,050) $
4,357
$
(14,917) $
137
$
(14,216) $
85,727
28,733
$
$
96,158
(22,450)
(0.64) $
$
0.12
(0.52) $
(0.64) $
0.12
$
(0.52) $
(0.46) $
$
0.09
(0.37) $
(0.46) $
0.09
$
(0.37) $
(0.29) $
— $
(0.29) $
(0.29) $
— $
(0.29) $
(0.91) $
1.36
0.45
$
$
(0.91) $
1.36
0.45
$
$
(2.33)
1.76
(0.57)
(2.33)
1.76
(0.57)
(a) Basic and diluted earnings per share may include the impact of dividends on the Company’s Preferred Stock. As a result,
quarterly EPS does not crossfoot to full-year EPS. See Note 16 — Earnings per Share of Common Stock for additional
information.
(b) Fourth quarter 2019 includes the gain from the sale of the Matane mill. See Note 3 —Discontinued Operations.
F-46
Rayonier Advanced Materials Inc.
Schedule II—Valuation and Qualifying Accounts
Years Ended December 31, 2020, 2019, and 2018
(In thousands)
Balance at
Beginning
of Year
Charged to
Cost and
Expenses
Additions
Charged to
Other
Accounts Acquisition Deductions
Balance at
End of
Year
Description
Allowance for doubtful accounts:
Year ended December 31, 2020...... $
Year ended December 31, 2019...... $
Year ended December 31, 2018...... $
Allowance for sales returns:
Year ended December 31, 2020...... $
Year ended December 31, 2019...... $
Year ended December 31, 2018...... $
Deferred tax asset valuation
allowance:
Year ended December 31, 2020...... $
Year ended December 31, 2019...... $
Year ended December 31, 2018...... $
Self-insurance liabilities:
Year ended December 31, 2020...... $
Year ended December 31, 2019...... $
Year ended December 31, 2018...... $
606
559
566
730
1,259
1,121
94,660
85,938
92,081
1,357
1,011
1,289
$
$
$
$
$
$
$
$
$
$
$
$
108
232
239
$
$
$
$
156
(346) $
969
$
4
10
$
$
(54) $
— $
— $
— $
(13,527) $
8,722
$
— $
— $
— $
3,715
$
425
622
348
$
$
$
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
— $
(231) $
(195) $
(192) $
(127) $
(183) $
(831) $
487
606
559
759
730
1,259
— $
— $
(9,858) $
81,133
94,660
85,938
(754) $
(276) $
(626) $
1,028
1,357
1,011
F-47
Subsidiaries of Rayonier Advanced Materials Inc.
As of 12/31/2020
Name of Subsidiary
Rayonier A.M. Canada Energy LP
Rayonier A.M. Canada Enterprises Inc.
Rayonier A.M. Canada General Partnership
Rayonier A.M. Canada Industries Inc.
Rayonier A.M. France SAS
Rayonier A.M. Products Inc.
Rayonier A.M. Sales and Technology Inc.
Rayonier A.M. Tartas SAS
Rayonier Performance Fibers, LLC
Southern Wood Piedmont Company
Spruce Falls Acquisition Corp.
Exhibit 21
Place of Incorporation
Canada
Canada
Canada
Canada
France
Delaware
Delaware
France
Delaware
Delaware
Canada
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
We have issued our reports dated March 1, 2021, with respect to the consolidated financial statements and internal control over
financial reporting included in the Annual Report of Rayonier Advanced Materials Inc. on Form 10-K for the year ended
December 31, 2020. We consent to the incorporation by reference of said reports in the Registration Statements of Rayonier
Advanced Materials Inc. on Forms S-3 (File No. 333-212068 and File No. 333-209747) and on Forms S-8 (File No.
333-197093 and File No. 333-218975).
/s/ Grant Thornton LLP
Jacksonville, Florida
March 1, 2021
Exhibit 31.1
I, Paul G. Boynton, certify that:
Certification
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Rayonier Advanced Materials Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rule 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
b.
c.
d.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control
over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or
persons performing the equivalent functions):
a.
b.
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant's internal control over financial reporting.
Date: March 1, 2021
/s/ PAUL G. BOYNTON
Paul G. Boynton
President and Chief Executive Officer
Rayonier Advanced Materials Inc.
Exhibit 31.2
I, Marcus J. Moeltner, certify that:
Certification
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Rayonier Advanced Materials Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rule 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the registrant and have:
a.
b.
c.
d.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred
during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control
over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or
persons performing the equivalent functions):
a.
b.
All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role
in the registrant's internal control over financial reporting.
Date: March 1, 2021
/s/ MARCUS J. MOELTNER
Marcus J. Moeltner
Chief Financial Officer and
Senior Vice President, Finance
Rayonier Advanced Materials Inc.
Certification
Exhibit 32
The undersigned hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that
to our knowledge:
The annual report on Form 10-K of Rayonier Advanced Materials Inc. (the "Company") for the period ended
December 31, 2020 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and
The information in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
1.
2.
March 1, 2021
/s/ PAUL G. BOYNTON
Paul G. Boynton
President and Chief Executive Officer
Rayonier Advanced Materials Inc.
/s/ MARCUS J. MOELTNER
Marcus J. Moeltner
Chief Financial Officer and
Senior Vice President, Finance
Rayonier Advanced Materials Inc.
BOARD OF DIRECTORS
De Lyle W. Bloomquist
Chair of the Board
Charles E. Adair
Director
Paul G. Boynton
Director
Julie A. Dill
Director
James F. Kirsch
Director
David C. Mariano
Director
Thomas I. Morgan
Director
Lisa M. Palumbo
Director
Ivona Smith
Director
SENIOR LEADERSHIP
Paul G. Boynton
President and Chief Executive Officer
Chris Black
Senior Vice President
Forest Products and Board Business
Gabriela Garcia
Chief Accounting Officer and
Vice President
Controller
William R. Manzer
Senior Vice President
Manufacturing Operations
Anthony R. Matthews
Vice President
Supply Chain
Marcus J. Moeltner
Chief Financial Officer
and Senior Vice President Finance
James L. Posze, Jr.
Chief Administrative Officer and
Senior Vice President
Human Resources
R. Colby Slaughter
Vice President, General Counsel
and Corporate Secretary
ANNUAL MEETING OF STOCKHOLDERS
May 17, 2021
5:30 p.m.
DoubleTree Hotel
1201 Riverplace Boulevard
Jacksonville, Florida 32207
TRANSFER AGENT AND REGISTRAR
Please contact Computershare for all essential
stockholder services, including:
• Change of address
• Lost dividend checks
• Changes in registered ownership
• Certificates of transfer
Inside the U.S.
Outside the U.S.
(866) 246-0322
(201) 680-6578
Rayonier Advanced Materials Inc.
c/o Computershare
P.O. Box 505000
Louisville, KY 40233-5000
Overnight correspondence should be sent to:
Computershare
462 South 4th Street
Suite 1600
Louisville, KY 40202
Online Inquiries:
https://www-us.computershare.com/investor/contact
Stockholder website:
https://www.computershare.com/investor
INVESTOR RELATIONS
Michael H. Walsh
Treasurer and Vice President, Investor Relations
(904) 357-4600
mickey.walsh@rayonieram.com
CORPORATE HEADQUARTERS
1301 Riverplace Boulevard • Suite 2300 / Jacksonville, FL 32207
www.RayonierAM.com