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11: R2 Consolidated Statements of Operations HTML 120K
12: R3 Consolidated Statements of Comprehensive Income HTML 50K
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13: R4 Consolidated Balance Sheets HTML 114K
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17: R8 Basis of Presentation HTML 24K
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29: R20 Incentive Stock Plans HTML 45K
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31: R22 Income Taxes HTML 26K
32: R23 Segments HTML 56K
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Securities Excluded from Computation (Details)
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol
Name of exchange on which registered
iCommon
stock, par value $0.01 per share
iRYAM
iNew York Stock Exchange
Securities to be registered pursuant to Section 12(g) of the Act: None
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.
iYesx No o
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).
iYesx No o
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.
Large accelerated filer
o
iAccelerated
filer
x
Non-accelerated filer
o
Smaller reporting company
i☐
Emerging growth company
i☐
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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes i☐ No
x
Notes to Consolidated Financial Statements (Unaudited)
(in thousands unless otherwise stated)
i
1.
Basis of Presentation
i
The unaudited consolidated financial statements and notes thereto of the Company have been prepared in accordance with GAAP for interim financial information and in accordance with the rules and regulations of the SEC. In the opinion of management, these consolidated financial statements and notes reflect all adjustments, including all normal recurring adjustments, necessary for a fair presentation of the results of operations, financial position and cash flows for the periods
presented. These statements and notes should be read in conjunction with the consolidated financial statements and supplementary data included in the Company’s 2022 Form 10-K.
As a result of the sale of its lumber and newsprint assets in August 2021 to GreenFirst, the Company presents the results for those operations as discontinued operations. Unless otherwise stated, information in these notes to consolidated financial statements relates to continuing operations. See Note 2—Discontinued Operationsfor further information on the sale.
i
Recent
Accounting Developments
There have been no new or recently adopted accounting pronouncements impacting the Company’s consolidated interim financial statements.
i
Subsequent Events
In April 2023, the Company repurchased $i10 million
of Senior Secured Notes through open-market transactions and retired the notes for cash of $i9 million.
//i
2.
Discontinued Operations
In August 2021, the Company completed the sale of its lumber and newsprint facilities and certain related assets located in Canada to GreenFirst for $i232 million, which included i28.7 million
shares of GreenFirst common stock with a deemed fair value of $i42 million. In the second quarter of 2022, the Company sold the GreenFirst common shares for $i43 million.
Prior to the sale of shares, the GreenFirst common shares were accounted for at fair value, with changes in fair value recorded in the consolidated statements of operations. The shares sale agreement contains a purchase price protection clause whereby the Company is entitled to participate in further share price appreciation under certain circumstances until December 2023.
As part of the sale of the lumber assets, the Company retained all rights and obligations to softwood duties generated or incurred through the closing date of the sale. In total, the Company paid $i112 million
in softwood lumber duties from 2017 through August 2021, and expects to receive all or the vast majority of these duties upon final resolution of the dispute. As of April 1, 2023, the Company had a $i38 million long-term receivable related to USDOC administrative reviews completed to date.
The Company’s operating and finance leases are primarily for corporate offices, warehouse space, rail cars and equipment. As of April 1, 2023, the Company’s leases have remaining lease terms of less than ione year to i13.6
years with standard renewal and termination options available at the Company’s discretion. Certain equipment leases have purchase options at the end of the term of the lease, which are not included in the ROU assets, as it is not reasonably certain that the Company will exercise such options. The Company’s lease agreements do not contain any material residual value guarantees or restrictive covenants. The Company uses its incremental borrowing rate in determining the present value of lease payments unless the lease provides an implicit or explicit interest rate.
i
Financial
and other information related to the Company’s operating and finance leases follow:
(a) Included
at both April 1, 2023 and December 31, 2022 was CAD $ii25/ million
(USD $ii18/ million) associated
with funds received in 2021 for CEWS. All CEWS claims are subject to mandatory audit. The Company will recognize amounts from these claims in income at the time there is sufficient evidence that it will not be required to repay such amounts.
(b) Included at April 1, 2023 and December 31, 2022 was $i16 million and $i30 million,
respectively, of energy-related payables associated with Tartas facility operations.
ABL Credit Facility due 2025: $i100
million available, bearing interest of i6.98% (i4.73% adjusted SOFR plus i2.25%
margin) at April 1, 2023
$
i—
$
i—
i7.625%
Senior Secured Notes due 2026
i475,000
i475,000
i5.50%
Senior Unsecured Notes due 2024
i317,675
i322,675
i5.50%
CAD-based term loan due 2028
i34,301
i36,585
Other
loans(a)
i19,576
i19,598
Short-term
factoring facility-France
i3,182
i3,773
Finance
lease obligations
i1,662
i1,760
Total
principal payments due
i851,396
i859,391
Less:
unamortized debt premium, discount and issuance costs
(i5,654)
(i6,266)
Total
debt
i845,742
i853,125
Less:
debt due within one year
(i14,317)
(i14,617)
Long-term
debt
$
i831,425
$
i838,508
——————————————
(a) Consist
of loans for energy and bioethanol projects in France.
/
In March 2023, the Company repurchased $i5 million of Senior Unsecured Notes through open-market transactions and retired the notes for cash of $i5 million.
An immaterial gain on extinguishment for the repurchase was recorded to “other income (expense), net” in the consolidated statements of operations.
In
addition to these estimated liabilities, the Company is subject to the risk of reasonably possible additional liabilities in excess of the established reserves due to potential changes in circumstances and future events, including, without limitation, changes to current laws and regulations; changes in governmental agency personnel, direction, philosophy or enforcement policies; developments in remediation technologies; increases in the cost of remediation, operation, maintenance and monitoring of its environmental liability; 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 April 1, 2023, the
Company estimates this exposure could range up to approximately $i85 million, although no assurances can be given that this amount will not be exceeded given the factors described above. These potential additional costs are attributable to several sites and other applicable liabilities. This estimate excludes liabilities that would otherwise be considered reasonably possible but for the fact that they are not currently estimable, primarily due to the factors discussed above.
Subject
to the previous paragraph, the Company believes its estimates of liabilities are sufficient for probable costs expected to be incurred over the next i20 years with respect to its environmental liabilities. However, no assurances are given that these estimates will be sufficient for the reasons described above and additional liabilities could have a material adverse effect on the Company’s financial position, results of operations and cash flows.
Notes to Consolidated Financial Statements (Unaudited)
(in thousands unless otherwise stated)
i
9. Fair Value Measurements
i
The
following table presents the carrying amount, estimated fair values and categorization under the fair value hierarchy for financial instruments held by the Company, using market information and what management believes to be appropriate valuation methodologies:
The Company uses the following methods and assumptions in estimating the fair value of its financial instruments:
Cash and cash equivalents — Cash and cash equivalents are highly liquid investments purchased with an original or remaining maturity of
three months or less at the date of purchase and the carrying amount is equal to fair market value. The Company measures its investments in money market and similar funds using level 1 inputs.
Debt — The fair value of fixed rate debt is based upon quoted market prices for debt with similar terms and maturities. Variable rate debt adjusts with changes in the market rate and so carrying value approximates fair value.
Unrecognized components of employee benefit plans, net of tax
Balance, beginning of period
$
(i43,694)
$
(i76,849)
Reclassifications
to earnings(a)
Amortization of (gain) loss
(i176)
i2,488
Amortization
of prior service cost
i13
i8
Income
tax on reclassifications
i36
(i548)
Net
comprehensive gain (loss) on employee benefit plans, net of tax
(i127)
i1,948
Balance,
end of period
(i43,821)
(i74,901)
Unrealized
gain (loss) on derivative instruments, net of tax
Balance, beginning of period
(i567)
(i847)
Reclassifications
to earnings - foreign currency exchange contracts(b)
i63
i92
Income
tax on reclassifications
(i8)
(i12)
Net
comprehensive gain on derivative instruments, net of tax
i55
i80
Balance,
end of period
(i512)
(i767)
Foreign
currency translation
Balance, beginning of period
(i19,537)
(i6,774)
Foreign
currency translation adjustment, net of tax(c)
i4,212
(i6,282)
Balance,
end of period
(i15,325)
(i13,056)
Accumulated
other comprehensive loss, end of period
$
(i59,658)
$
(i88,724)
——————————————
(a) The
AOCI components for defined benefit pension and post-retirement plans are included in the computation of net periodic benefit cost. See Note 14—Employee Benefit Plans for further information.
(b) Reclassifications of foreign currency exchange contracts are recorded in “cost of sales,”“other operating expense, net” or “other income (expense), net,” as appropriate.
(c) Foreign currency translation is net of tax effects of $ii0/
for all periods presented, as the French operations are taxed on the foreign functional currency, not the translated reporting currency.
//i
11. Stockholders’
Equity
Stockholder Rights Plan
In March 2022, the Company adopted a stockholder rights plan whereby a significant penalty is imposed upon any person or group which acquires beneficial ownership of i10% or more of the Company’s common stock without the approval of the Board of Directors. On the same date,
the Board of Directors declared a dividend of ione preferred share Purchase Right for each outstanding share of common stock of the Company, par value $i0.01
per share, which was paid to Company stockholders of record as of March 31, 2022. On March 20, 2023, the Purchase Rights expired.
Stock-based compensation expense for the three months ended April 1, 2023 and March 26, 2022 was $i1 million and $i2
million, respectively.
The Company made new grants of restricted stock units, performance-based stock units and performance-based cash units during the first quarter of 2023. The 2023 restricted stock unit awards cliff vest after ithree years. The 2023 performance-based awards cliff vest after ithree
years and are based equally on TSR relative to peers and three-year cumulative adjusted EBITDA. Participants can earn between i0 and i200
percent of the target award. Performance below the threshold for the TSR would result in izero payout for the TSR metric. The performance-based cash unit award is measured using the same objectives as the performance-based stock unit award, but is paid and accounted for separately. Performance-based cash unit awards are classified as a liability and remeasured to fair value at the end of each reporting period until settlement.
In
March 2023, the performance-based stock units granted in 2020 were settled with the issuance of i1,257,015 shares of common stock, including incremental shares of i370,366,
based on performance results.
i
The following table summarizes the activity of the Company’s incentive stock awards:
Notes to Consolidated Financial Statements (Unaudited)
(in thousands unless otherwise stated)
i
14. Employee Benefit Plans
Defined Benefit Plans
The Company has defined benefit pension and other long-term
and postretirement benefit plans covering certain union and non-union employees, primarily in the U.S. and Canada. The defined benefit pension plans are closed to new participants. The liabilities for these plans are calculated using actuarial estimates and management assumptions. These estimates are based on historical information and certain assumptions about future events.
During the three months ended April 1, 2023, the Company recorded a $i2 million
loss related to the final asset surplus distribution to the plan participants of certain Canadian pension plans previously wound up. The settlement was recognized in “other components of pension and OPEB, excluding service costs” in the Company’s consolidated statements of operations.
i
The following table presents the components of net periodic benefit costs from these plans:
Service
cost is included in “cost of sales” or “selling, general and administrative expenses” in the consolidated statements of operations, as appropriate. Interest cost, expected return on plan assets, amortization of prior service cost and amortization of losses are included in “other components of pension and OPEB, excluding service costs” in the consolidated statements of operations.
/i
15.
Income Taxes
Effective Tax Rate
The effective tax rate for the three months ended April 1, 2023 is not meaningful due to near break-even pretax income for the period, which results in any discrete tax adjustments significantly impacting the rate. The largest adjustments creating a difference between the effective tax rate and the statutory rate of 21 percent were an excess tax benefit on vested stock compensation and return-to-accrual adjustments related to previously filed tax returns.
The effective tax rate on the loss from continuing operations for the three months ended March 26, 2022 was an expense of i6
percent. The 2022 effective tax rate differed from the federal statutory rate of 21 percent primarily due to disallowed interest deductions in the U.S. and nondeductible executive compensation, partially offset by U.S. tax credits and tax return-to-accrual adjustments.
Deferred Taxes
The Company’s net DTA includes $i17 million of disallowed U.S. interest deductions that the
Company does not believe will be realized. This asset did not materially change in the three months ended April 1, 2023. In strict compliance with the American Institute of Certified Public Accountants’ Technical Questions and Answers 3300.01-02, which asserts that certain material evidence regarding the realizability of disallowed U.S. interest deductions should be ignored when assessing the need for a valuation allowance, the Company has inot
recognized a valuation allowance on this portion of the net DTA generated from disallowed interest.
Notes to Consolidated Financial Statements (Unaudited)
(in thousands unless otherwise stated)
i
16.
Segments
The Company operates in the following business segments: High Purity Cellulose, Paperboard and High-Yield Pulp. Corporate consists primarily of senior management, accounting, information systems, human resources, treasury, tax and legal administrative functions that provide support services to the operating business units. The Company allocates a portion of the cost of maintaining these support functions to its operating units.
The Company evaluates the performance of its segments based on operating income (loss). Intersegment sales consist primarily of High-Yield Pulp sales to Paperboard. Intersegment sales prices
are at rates that approximate market for the respective operating area.
i
Net sales, disaggregated by product line, was comprised of the following:
The Company had no material changes to the purchase obligations presented in its 2022 Form 10-K that were outside the normal course of business during the three months ended April 1, 2023. The Company’s purchase obligations continue to primarily consist of commitments for the purchase of natural gas, steam energy and wood chips.
Notes to Consolidated Financial Statements (Unaudited)
(in thousands unless otherwise stated)
The Company leases certain buildings, machinery and equipment under various operating leases. See Note 5—Leases for further information.
Litigation and Contingencies
Duties on Canadian softwood lumber sold to the U.S.
The Company previously operated isix
softwood lumber mills in Ontario and Quebec, Canada, and exported softwood lumber into the U.S. from Canada. In connection with these exports, the Company paid approximately $i112 million in softwood lumber duties through August 28, 2021, recorded as expense in the periods incurred. As part of the sale of its lumber assets, the
Company retained all rights and obligations to softwood duties generated or incurred through the closing date of the transaction. As of April 1, 2023, the Company had a $i38 million long-term receivable associated with the USDOC’s December 2020, December 2021 and August 2022 determinations of the revised rates for
the 2017, 2018, 2019 and 2020 periods. Preliminary results of the USDOC’s fourth administrative review were released in January 2023, with final results expected later in 2023. Cash is not expected to return to the Company until final resolution of the softwood lumber dispute, which remains subject to legal challenges and to USDOC administrative review of the remaining 2021 period.
Other
In addition to the above, the Company is engaged in various legal and regulatory actions and proceedings and has been named as a defendant in various lawsuits and claims arising in the ordinary course of business. While the
Company has procured reasonable and customary insurance covering risks normally occurring in connection with its businesses, the Company has, in certain cases, retained some risk through the operation of self-insurance, primarily in the areas of workers’ compensation, property insurance, business interruption and general liability. These other lawsuits and claims, either individually or in the aggregate, are not expected to have a material adverse effect on the Company’s financial position, results of operations or cash flows.
Guarantees and Other
The Company provides financial guarantees as required by creditors, insurance
programs and various governmental agencies. As of April 1, 2023, the Company had net exposure of $i36 million from various standby letters of credit, primarily for financial assurance relating to environmental remediation, credit support for natural gas and electricity purchases and guarantees related to foreign retirement plan obligations. These standby letters of credit represent
a contingent liability; the Company would only be liable upon its default on the related payment obligations. The standby letters of credit have various expiration dates and are expected to be renewed as required.
The Company had surety bonds of $i86 million as of April 1, 2023,
primarily to comply with financial assurance requirements relating to environmental remediation and post closure care, to provide collateral for the Company’s workers’ compensation program and to guarantee taxes and duties for products shipped internationally. These surety bonds expire at various dates and are expected to be renewed annually as required.
LTF is a venture in which the Company owns i45
percent and its partner, Borregaard ASA, owns i55 percent. The Company is a guarantor of LTF’s financing agreements and, in the event of default, expects it would only be liable for its proportional share of any repayment under the agreements. The Company proportion of the LTF financing agreement guarantee was $i32
million at April 1, 2023.
The Company has not recorded any liabilities for these financial guarantees in its consolidated balance sheets, either because the Company has recorded the underlying liability associated with the guarantee or the guarantee is dependent on the Company’s own performance and, therefore, is not subject to the measurement requirements or because the Company has calculated the estimated fair value of the guarantee and determined it to be immaterial based upon the current facts and circumstances that would trigger
a payment obligation.
It is not possible to determine the maximum potential amount of liability under these potential obligations due to the unique set of facts and circumstances likely to be involved with each provision.
As of December 31, 2022, a collective bargaining agreement covering approximately i575 unionized employees was expired. The employees have continued to work under the terms of the expired contract
while negotiations continue. While there can be no assurances, the Company expects to reach agreements with the union. However, a work stoppage could have a material adverse effect on the Company’s business, financial condition and results of operations.
Notes to Consolidated Financial Statements (Unaudited)
(in
thousands unless otherwise stated)
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following analysis of our financial condition and results of operations should be read in conjunction with our Financial Statements and the notes thereto included in this Quarterly Report on Form 10-Q and with our 2022 Form 10-K and information contained in subsequent Forms 8-K and other reports filed with the SEC.
Forward-Looking Statements
Certain statements in this Quarterly Report on Form 10-Q regarding anticipated financial, business, legal or other outcomes, including business and market conditions, outlook and other similar statements
relating to 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,”“could,”“expect,”“estimate,”“believe,”“intend,”“plan,”“forecast,”“anticipate,”“project,”“guidance” and other similar language. However, the absence of these or similar words or expressions does not mean that a statement is not forward-looking.
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 that these expectations will be attained, and it is possible that actual results may differ materially from those indicated by these forward-looking statements due to a variety of risks and uncertainties. The risk factors contained in Item 1A—Risk Factors of our 2022 Form 10-K, among others, could cause actual results or events to differ materially from RYAM’s historical experience and those expressed in forward-looking statements made in this report.
Forward-looking statements are only as of the date of the filing of this Quarterly Report on Form 10-Q and RYAM undertakes no duty to update its forward-looking statements except as required by law. You are advised to review any further disclosures that we have made or may make in our filings and other submissions to the SEC, including those on Forms 10-K, 10-Q, 8-K and other reports.
Business
Overview
We are a global leader of specialty cellulose materials with a broad offering of high purity cellulose specialties, a natural polymer used in the production of a variety of specialty chemical products, including liquid crystal displays, filters, textiles and performance additives for pharmaceutical, food and other industrial applications. Building upon more than 95 years of experience in cellulose chemistry, we provide some of the highest quality high-purity cellulose pulp products that make up the essential building blocks for our customers’ products while providing exceptional service and value. We also produce a unique, lightweight multi-ply paperboard product and a bulky, high-yield pulp product. Our paperboard is used for production in the commercial printing, lottery ticket and high-end packaging sectors. Our high-yield pulp is used by paperboard producers, as well as in traditional printing, writing and specialty
paper manufacturing.
We operate in the following business segments: High Purity Cellulose, Paperboard and High-Yield Pulp.
Recent Business Developments
•In April 2023, we repurchased $10 million of Senior Secured Notes through open-market transactions and retired the notes for cash of $9 million.
•In March 2023, we repurchased $5 million of our Senior Unsecured Notes through open-market transactions and retired the notes for cash of $5 million.
Notes to Consolidated Financial Statements (Unaudited)
(in thousands unless otherwise stated)
Market Assessment
This market assessment represents our best current estimate of our business segments’ future performance.
High Purity Cellulose
Demand for cellulose specialties remains mixed. Strength in acetate and certain other cellulose specialty end markets is offsetting softness in construction and food-related end markets. Average sales prices for cellulose specialties in 2023 are expected to be high single digit percent higher than average 2022 sales prices, while sales volumes are expected to decrease due to the softness in demand. Market demand for commodity products remains
resilient but at lower prices than first quarter levels. Fluff sales prices are expected to decline versus 2022 levels, in line with industry forecasts. Viscose pulp sales prices have stabilized and are expected to increase slightly in the second half of the year. Commodity sales volumes are expected to increase as production and logistics constraints improve. Additional benefits from prior strategic capital investments are expected throughout the year. Certain raw material and energy prices have come off the 2022 highs, but are expected to remain significantly elevated versus pre-COVID pandemic levels. We experienced a slower than anticipated return to production after the annual maintenance outage of our Tartas facility, which has been completed but is expected to impact the second quarter, but overall production is anticipated to be made up in the balance of the year. Additionally, in the second quarter, annual maintenance outages will be executed at our two largest
facilities in Jesup and Temiscaming.
Paperboard
Paperboard prices are expected to moderate slightly over the balance of the year but remain elevated from 2022 levels, while sales volumes are expected to remain steady. Raw material prices are expected to reduce as pulp markets decline.
High-Yield Pulp
High-yield pulp markets have declined as global economic demand slows and new capacity ramps up, impacting sales price. Prices are expected to decline in 2023, in line with industry forecasts for the global paper pulp market. Sales volumes are expected to improve slightly in 2023, primarily due to improved logistics and production reliability.
A Sustainable Future
We continue to focus on growing our bio-based
product offering and expects to grow our sales of bioelectricity and lignosulfonates and increase overall margins over time.
The bioethanol facility at our Tartas, France facility is under construction and is anticipated to be operational in the first half of 2024. The total estimated cost of the project is approximately $41 million, with $29 million to be spent in 2023. We plan to utilize $28 million of low-cost green loans to help fund the project, including $8 million already raised, and $4 million in grants. The project is expected to provide $9 million to $11 million of annual incremental EBITDA beginning in 2024.
Net sales for the three months ended April 1, 2023 increased $115 million, or 33 percent, compared to the prior year quarter, driven primarily by higher sales prices across all segments and higher sales volumes in the High Purity Cellulose and High-Yield Pulp segments due to strong demand, increased productivity and improved logistics. See Operating Results by Segment below for further discussion.
Notes to Consolidated Financial Statements (Unaudited)
(in thousands unless otherwise stated)
Operating
results for the three months ended April 1, 2023 improved $33 million, or 206 percent, compared to the prior year quarter due to higher sales prices across all segments and higher sales volumes in the High Purity Cellulose and High-Yield Pulp segments, partially offset by higher chemicals, purchased pulp and logistics costs and the impact of the extended maintenance outage in the prior year. See Operating Results by Segment below for further discussion.
Non-operating Expenses
Included in non-operating expenses for the three months ended April 1, 2023 was a $2 million pension settlement loss.
Included in non-operating expenses for the three months ended March 26,
2022 was a $9 million unrealized gain on GreenFirst common shares received in connection with the sale of our lumber and newsprint assets.
Income Taxes
The effective tax rate for the three months ended April 1, 2023 is not meaningful due to near break-even pretax income for the period, which results in any discrete tax adjustments significantly impacting the rate. The largest adjustments creating a difference between the effective tax rate and the statutory rate of 21 percent were an excess tax benefit on vested stock compensation and return-to-accrual adjustments related to previously filed tax returns.
The effective tax rate on the loss from continuing operations for the three months ended March 26,
2022 was an expense of 6 percent. The 2022 effective tax rate differed from the federal statutory rate of 21 percent primarily due to disallowed interest deductions in the U.S. and nondeductible executive compensation, partially offset by US tax credits and tax return-to-accrual adjustments.
(a) Includes sales of bioelectricity, lignosulfonates and other by-products to third parties.
Net sales of our High Purity Cellulose segment for the three months ended April 1, 2023 increased
$93 million compared to the prior year quarter. Included in the current and prior year quarters were $23 million and $27 million, respectively, of other sales primarily from bio-based energy and lignosulfonates. Sales prices increased 8 percent during the current quarter compared to the prior year quarter, driven by increases in cellulose specialties and commodity products prices of 18 percent and 6 percent, respectively. Total sales volumes increased 27 percent during the current quarter compared to the prior year quarter, including 65 percent and 5 percent increases in commodity products and cellulose specialties, respectively, which were primarily driven by strong demand, increased productivity and improved logistics and cellulose specialties customer contract terms.
Operating
income of our High Purity Cellulose segment for the three months ended April 1, 2023 increased $21 million compared to the prior year quarter, driven by the higher sales prices and sales volumes discussed above, partially offset by higher chemicals and logistics costs and the impact of the extended maintenance outage in the prior year.
Net
sales of our Paperboard segment for the three months ended April 1, 2023 increased $5 million compared to the prior year quarter due to an 18 percent increase in sales prices, driven primarily by demand for packaging, partially offset by a 7 percent decrease in sales volumes, driven by the timing of sales.
Operating
income of our Paperboard segment for the three months ended April 1, 2023 increased $4 million compared to the prior year quarter, driven primarily by the higher sales prices, partially offset by the lower sales volumes and higher chemicals and purchased pulp costs.
(a) Average
sales prices and sales volumes for external sales only. For the three months ended April 1, 2023 and March 26, 2022, the High-Yield Pulp segment sold 17,000 MTs and 15,000 MTs of high-yield pulp for $8 million and $6 million, respectively, to the Paperboard segment.
Net
sales of our High-Yield Pulp segment for the three months ended April 1, 2023 increased $20 million compared to the prior year quarter, driven by 39 percent and 43 percent increases in sales prices and sales volumes, respectively, driven by stronger demand, increased productivity and easing logistics constraints.
Operating
income of our High-Yield Pulp segment for the three months ended April 1, 2023 increased $7 million compared to the prior year quarter, driven by the higher sales prices and sales volumes, partially offset by higher chemicals and logistics costs.
The Corporate operating loss for the three months ended April 1, 2023 improved by $1 million, driven primarily by lower variable stock-based compensation
costs.
Liquidity and Capital Resources
Overview
Cash flows from operations, primarily driven by operating results, have historically been our primary source of liquidity and capital resources. As operating cash flows can be negatively impacted by fluctuations in market prices for our commodity products and changes in demand for our products, we maintain a key focus on cash, managing working capital closely and optimizing the timing and level of our capital expenditures.
Notes to Consolidated Financial Statements (Unaudited)
(in thousands unless otherwise stated)
Our Board of Directors suspended our quarterly common stock dividend in September 2019. No dividends have been declared since. The declaration and payment of future common stock dividends, if any, will be at the discretion of our Board of Directors and will be dependent upon our financial condition, results of operations, capital requirements and other factors that the Board of Directors deems relevant. In addition, our debt facilities place limitations on the declaration and payment of future dividends.
In January 2018, our Board of Directors authorized a $100 million common stock share buyback program. We
did not repurchase any shares under this program during either of the three months ended April 1, 2023 and March 26, 2022, and do not expect to utilize any authorization in the future.
As of April 1, 2023, we were in compliance with all financial and other customary covenants under our credit arrangements. We believe our future cash flows from operations, availability under our ABL Credit Facility and 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.
Our non-guarantor subsidiaries
had assets of $474 million, liabilities of $146 million, year-to-date revenue of $40 million and a trailing twelve month ABL Credit Facility covenant EBITDA for continuing operations of $42 million as of April 1, 2023.
Our liquidity and capital resources are summarized below:
Total capitalization (total debt plus stockholders’ equity)
1,677
1,682
Debt to capital ratio
50
%
51
%
——————————————
(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 April 1, 2023, we had $136 million of gross availability and net available borrowings of $100 million after taking into account standby letters of credit of $36 million. We recently purchased credit insurance, which we estimate would have resulted in pro forma ABL Credit Facility net availability as of quarter end of $136 million. In addition to the availability under the ABL Credit Facility, we have $7 million available under our accounts receivable factoring line of credit in France.
(c) See Note 7—Debt and Finance Leasesto our Financial Statements for further information.
Cash Requirements
Contractual Commitments
Our principal contractual commitments include standby letters of credit, surety bonds, guarantees, purchase obligations and leases. We utilize arrangements such as standby letters of credit and surety bonds 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. As part of our ongoing operations, we also periodically issue guarantees to third parties. Our primary purchase obligation payments relate to natural gas, steam energy and wood chips purchase contracts.
There have been no material changes to our contractual commitments outside the ordinary course of business during the three months ended April 1, 2023. See Note 17—Commitments and Contingenciesto our Financial Statements for further information.
Notes to Consolidated Financial Statements (Unaudited)
(in thousands unless otherwise stated)
Senior Notes
During
the three months ended April 1, 2023, we repurchased $5 million of our Senior Unsecured Notes through open-market transactions and retired the notes for cash of $5 million.
In April 2023, we repurchased $10 million of Senior Secured Notes through open-market transactions and retired the notes for cash of $9 million.
Our next significant debt maturity is in June 2024. We are actively monitoring the capital markets and are prepared to refinance the Senior Unsecured Notes at acceptable terms in the coming quarter. We have partnered with Goldman Sachs to act as the lead financial advisor to support the refinancing effort. We are considering using a portion of our cash balance to repay debt or assist in a holistic refinancing of our capital structure.
Cash provided by operating activities during the three months ended April 1, 2023 increased $75 million compared to the prior year quarter primarily due to increased cash inflows from working capital, partially offset by payments on deferred energy liabilities associated with our
Tartas facility operations.
Cash used in investing activities during the three months ended April 1, 2023 decreased $24 million compared to the prior year quarter due to lower capital spending.
Cash used in financing activities during the three months ended April 1, 2023 increased by $10 million compared to the prior year quarter, primarily due to higher repayments of long-term debt and repurchases of common stock to satisfy tax withholding requirements related to the issuance of stock under our incentive stock plans, partially offset by a decrease in net short-term borrowings.
Performance and Liquidity Indicators
The
discussion below is presented to enhance the reader’s understanding of our operating performance, liquidity and ability to generate cash and satisfy rating agency and creditor requirements. This information includes the non-GAAP financial measures of EBITDA, adjusted EBITDA and adjusted free cash flows. These measures are not defined by GAAP and our discussion of them is not intended to conflict with or change any of our GAAP disclosures provided in this report.
We believe these non-GAAP financial measures provide useful information to our Board of Directors, management and investors regarding our financial condition and results of operations. Our management uses these non-GAAP financial measures to compare our performance to that of prior periods for trend analyses, to determine management incentive compensation and for budgeting, forecasting and planning purposes. Our management considers these non-GAAP financial measures,
in addition to operating income, to be important in estimating our enterprise and stockholder values and for making strategic and operating decisions. In addition, analysts, investors and creditors use these non-GAAP financial measures when analyzing our operating performance, financial condition and cash-generating ability. We use EBITDA and adjusted EBITDA as performance measures and adjusted free cash flows as a liquidity measure.
We do not consider non-GAAP financial measures an alternative to financial measures determined in accordance with GAAP. The principal limitation of these non-GAAP financial measures is that they may exclude significant expense and income items that are required by GAAP to be recognized in our 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 our non-GAAP financial measures to their most directly comparable GAAP financial measures are provided below. Non-GAAP financial measures are not necessarily indicative of results that may be generated in future periods and should not be relied upon, in whole or part, in evaluating our financial condition, results of operations or future prospects.
Notes to Consolidated Financial Statements (Unaudited)
(in thousands unless otherwise stated)
EBITDA
and Adjusted EBITDA
EBITDA is defined as earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA is defined as EBITDA adjusted for a settlement of certain pension plans and other items.
Reconciliations of income (loss) from continuing operations to EBITDA and Adjusted EBITDA from continuing operations, by segment, follow:
EBITDA
from continuing operations for the three months ended April 1, 2023 improved by $29 million compared to the prior year quarter, primarily driven by higher sales prices across all segments and higher sales volumes in the High Purity Cellulose and High-Yield Pulp segments, partially offset by higher chemicals and logistics costs. See Results of Operations above for additional discussion of the changes in our operating results.
Adjusted Free Cash Flows
Adjusted free cash flows is defined as cash provided by operating activities of continuing operations adjusted for capital expenditures, net of proceeds from the sale of assets and excluding strategic capital expenditures deemed discretionary by management. Adjusted free cash flows is a non-GAAP financial measure of cash generated during a
period, which is available for debt reduction, strategic capital expenditures, acquisitions and repurchases of our common stock. Adjusted free cash flows is not necessarily indicative of the adjusted free cash flows that may be generated in future periods.
Cash flows of operating activities of continuing operations is reconciled to adjusted free cash flows as follows:
Cash provided by (used in) operating activities-continuing operations
$
51
$
(23)
Capital expenditures, net(a)
(15)
(36)
Adjusted free cash flows-continuing operations
$
36
$
(59)
——————————————
(a) Net
of proceeds from the sale of assets and excluding strategic capital expenditures. Strategic capital expenditures for the three months ended April 1, 2023 and March 26, 2022 were $6 million and $9 million, respectively.
Adjusted free cash flows of continuing operations increased primarily due to changes in working capital and lower capital expenditures. See Cash Flows above for additional discussion of our operating cash flows.
Notes to Consolidated Financial Statements (Unaudited)
(in thousands unless otherwise stated)
Item 3. 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 Finance & Strategic Planning Committee of our Board of Directors.
Foreign Currency
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.
Prices
The prices, sales volumes and margins of the commodity products of our High Purity Cellulose segment and all the products of the High-Yield Pulp segment have historically been cyclically affected by economic and market shifts, fluctuations in capacity and changes in foreign currency exchange rates. These products
have less distinguishing qualities from producer to producer and competition is based primarily on price, which is determined by market 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.
Certain key input costs, such as wood fiber, chemicals and energy, may experience significant price fluctuations, also impacted by market shifts, fluctuations in capacity and other demand and supply dynamics. 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 that are derivative instruments are reported in our consolidated balance sheets at their fair values, unless they qualify for the normal purchase normal sale exception and such exception has been elected, in which case the fair values of such contracts are not recognized in the balance sheet.
Variable Interest Rates
As of April 1, 2023 and December 31,
2022, we had $3 million and $4 million, respectively, of variable rate debt subject to interest rate risk. At these borrowing levels, a hypothetical one percent change in interest rates would have resulted in an immaterial change in interest expense for the respective periods.
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 April 1, 2023 and December 31, 2022 was $815 million and $839 million, respectively, compared to their respective $847 million and $854 million principal amounts. 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.
Item 4. Controls and Procedures
Management’s Evaluation of Disclosure Controls and Procedures
Our 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 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 Quarterly Report on Form 10-Q, 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 that 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.
Notes to Consolidated Financial Statements (Unaudited)
(in thousands unless otherwise stated)
Based
on an evaluation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q, 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 April 1, 2023.
Internal Control over Financial Reporting
For the quarter ended April 1, 2023, based upon the evaluation required by SEC Rule 13a-15(d), 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.
Notes to Consolidated Financial Statements (Unaudited)
(in thousands unless otherwise stated)
Part II. Other Information
Item 1. 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 business. While the Company has procured reasonable
and customary insurance covering risks normally occurring in connection with its businesses, the Company has, in certain cases, retained some risk through the operation of self-insurance, primarily in the areas of workers’ compensation, property insurance, business interruption and general liability. While there can be no assurance, the ultimate outcomes of these actions, either individually or in the aggregate, are not expected to have a material adverse effect on the Company’s financial position, results of operations or cash flows.
Item 1A. Risk Factors
There have been no material changes
or updates to the risk factors previously disclosed in our 2022 Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
The following table summarizes our purchases of RYAM common stock during the quarter ended April 1, 2023:
Total
Number of Shares Purchased(a)
Average Price Paid per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
Dollar Value of Shares That May Yet be Purchased Under the Publicly Announced Plans or Programs(b)
January 1 to February 4
89,797
$
7.79
—
$
60,294,000
February
5 to March 4
525,110
$
8.40
—
$
60,294,000
March 5 to April 1
—
$
—
—
$
60,294,000
Total
614,907
—
——————————————
(a) Represents
shares repurchased to satisfy tax withholding requirements related to the issuance of stock under our stock incentive plans.
(b) As of April 1, 2023, $60 million of share repurchase authorization remains under the authorization declared by our Board of Directors.
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
Notes to Consolidated Financial Statements (Unaudited)
(in thousands unless otherwise stated)
SIGNATURE
Pursuant to the requirements 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.
