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Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 28, 2019
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
https://cdn.kscope.io/98685e32a20320c8517bf08197f57896-ryam-logoa73.jpg
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: (904357-4600

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.01 par value
RYAM
The New York Stock Exchange
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 x        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).
Yes x       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
x
 
Accelerated filer  
Non-accelerated filer  
o
 
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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes         No x
The registrant had 63,210,809 shares of common stock, $.01 par value per share, outstanding as of November 4, 2019.




Table of Contents

Item
 
 
Page
 
 
Part I  Financial Information
 
1.
 
 
 
 
 
 
 
 
 
 
2.
 
3.
 
4.
 
 
 
Part II  Other Information
 
1.
 
1A.
 
2.
 
6.
 
 
 
 


Table of Contents

Part I.
Financial Information

Item 1.
Financial Statements

Rayonier Advanced Materials Inc.
Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)
(Unaudited)
(Dollars in thousands, except per share amounts)
 
Three Months Ended
 
Nine Months Ended
 
September 28, 2019
 
September 29, 2018
 
September 28, 2019
 
September 29, 2018
Net Sales
$
416,129

 
$
501,298

 
$
1,307,422

 
$
1,475,649

Cost of Sales
(399,510
)
 
(419,001
)
 
(1,265,217
)
 
(1,236,761
)
Gross Margin
16,619

 
82,297

 
42,205

 
238,888

 
 
 
 
 
 
 
 
Selling, general and administrative expenses
(23,416
)
 
(30,596
)
 
(72,026
)
 
(77,669
)
Duties
(4,542
)
 
(816
)
 
(16,062
)
 
(20,680
)
Other operating income (expense), net
2,775

 
(7,945
)

(5,600
)
 
(9,507
)
Operating Income (Loss)
(8,564
)
 
42,940

 
(51,483
)
 
131,032

Interest expense
(14,580
)
 
(13,831
)
 
(42,598
)
 
(41,839
)
Interest income and other, net
3,439

 
(394
)
 
3,341

 
5,013

Other components of pension and OPEB, excluding service costs
846

 
2,066

 
3,313

 
6,270

Adjustment to gain on bargain purchase

 
6,175

 

 
20,836

Income (Loss) From Continuing Operations Before Income Taxes
(18,859
)
 
36,956

 
(87,427
)
 
121,312

Income tax (expense) benefit (Note 16)
4,506

 
(6,989
)
 
25,813

 
(28,960
)
Income (Loss) from Continuing Operations
(14,353
)
 
29,967

 
(61,614
)
 
92,352

Income (loss) from discontinued operations, net of taxes (Note 2)
137

 
7,969

 
10,431

 
23,429

Net Income (Loss) Attributable to the Company
(14,216
)
 
37,936

 
(51,183
)
 
115,781

Mandatory convertible stock dividends
(1,777
)
 
(3,441
)
 
(8,582
)
 
(10,284
)
Net Income (Loss) Available to Common Stockholders
$
(15,993
)
 
$
34,495

 
$
(59,765
)
 
$
105,497

 
 
 
 
 
 
 
 
Basic Earnings Per Common Share (Note 13)
 
 
 
 
 
 
 
Income (loss) from continuing operations
$
(0.29
)
 
$
0.52

 
$
(1.36
)
 
$
1.61

Income from discontinued operations

 
0.16

 
0.20

 
0.46

Net income per common share-basic
$
(0.29
)
 
$
0.68

 
$
(1.16
)
 
$
2.07

Diluted Earnings Per Common Share (Note 13)
 
 
 
 
 
 
 
Income (loss) from continuing operations
$
(0.29
)
 
$
0.47

 
$
(1.36
)
 
$
1.45

Income from discontinued operations

 
0.13

 
0.20

 
0.37

Net income per common share-diluted
$
(0.29
)
 
$
0.60

 
$
(1.16
)
 
$
1.82



See Notes to Consolidated Financial Statements.



1


Table of Contents

Rayonier Advanced Materials Inc.
Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
(Dollars in thousands, except per share amounts)
 
Three Months Ended
 
Nine Months Ended
 
September 28, 2019
 
September 29, 2018
 
September 28, 2019
 
September 29, 2018
Net Income (Loss)
$
(14,216
)
 
$
37,936

 
$
(51,183
)
 
$
115,781

Other Comprehensive Income (Loss),
net of tax (Note 11):
 
 
 
 
 
 
 
Foreign currency translation adjustments
(11,210
)
 
(2,014
)
 
(12,905
)
 
(10,265
)
Unrealized gain (loss) on derivative instruments
(3,283
)
 
6,126

 
7,982

 
(936
)
Net gain from pension and postretirement plans
2,365

 
2,398

 
6,122

 
7,193

Total other comprehensive income
(12,128
)
 
6,510

 
1,199

 
(4,008
)
Comprehensive Income (Loss)
$
(26,344
)
 
$
44,446

 
$
(49,984
)
 
$
111,773


See Notes to Consolidated Financial Statements.

2


Table of Contents

Rayonier Advanced Materials Inc.
Consolidated Balance Sheets
(Unaudited)
(Dollars in thousands)
 
September 28, 2019
 
December 31, 2018
Assets
Current Assets
 
 
 
Cash and cash equivalents
$
62,762

 
$
108,966

Accounts receivable, net (Note 3)
162,107

 
199,284

Inventory (Note 4)
291,425

 
304,028

Prepaid and other current assets
71,828

 
61,314

Assets of discontinued operations-held for sale (Note 2)
84,298

 
42,500

Total current assets
672,420

 
716,092

 
 
 
 
Property, Plant and Equipment (net of accumulated depreciation of $1,470,506 at September 28, 2019 and $1,385,837 at December 31, 2018)
1,327,052

 
1,363,557

Deferred Tax Assets
393,224

 
375,471

Intangible Assets, net
47,203

 
52,460

Other Assets
156,795

 
120,299

Assets of discontinued operations-held for sale (Note 2)

 
51,207

Total Assets
$
2,596,694

 
$
2,679,086

 
 
 
 
Liabilities and Stockholders’ Equity
Current Liabilities
 
 
 
Accounts payable
$
144,677

 
$
181,705

Accrued and other current liabilities (Note 6)
116,718

 
146,155

Current maturities of long-term debt (Note 7)
21,357

 
15,012

Current environmental liabilities (Note 8)
11,445

 
11,310

Liabilities of discontinued operations-held for sale (Note 2)
18,774

 
16,236

Total current liabilities
312,971

 
370,418

 
 
 
 
Long-Term Debt (Note 7)
1,212,432

 
1,173,157

Long-Term Environmental Liabilities (Note 8)
148,054

 
149,344

Pension and Other Postretirement Benefits
231,388

 
233,658

Deferred Tax Liabilities
23,842

 
28,016

Other Long-Term Liabilities
28,999

 
12,074

Liabilities of discontinued operations-held for sale (Note 2)

 
5,548

Commitments and Contingencies

 

 
 
 
 
Stockholders’ Equity
 
 
 
Preferred stock, 0 and 10,000,000 shares authorized at $0.00 and $0.01 par value, 0 and 1,725,000 issued and outstanding as of September 28, 2019 and December 31, 2018, respectively, aggregate liquidation preference $0 and $172,500

 
17

Common stock, 140,000,000 shares authorized at $0.01 par value, 63,210,811 and 49,291,130 issued and outstanding, as of September 28, 2019 and December 31, 2018, respectively
632

 
493

Additional paid-in capital
399,234

 
399,490

Retained earnings
393,640

 
462,568

Accumulated other comprehensive income (loss) (Note 11)
(154,498
)
 
(155,697
)
Total Stockholders’ Equity
639,008

 
706,871

Total Liabilities and Stockholders’ Equity
$
2,596,694

 
$
2,679,086

See Notes to Consolidated Financial Statements.

3


Table of Contents

Rayonier Advanced Materials Inc.
Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
 
Nine Months Ended
 
September 28, 2019
 
September 29, 2018
Operating Activities
 
 
 
Net income (loss)
$
(51,183
)
 
$
115,781

Loss (income) from discontinued operations
(10,431
)
 
(23,429
)
Adjustments to reconcile income (loss) from continuing operations to cash provided by operating activities:
 
 
 
Depreciation and amortization
111,695

 
105,703

Stock-based incentive compensation expense
5,696

 
10,146

Amortization of capitalized debt costs, discount and premium
429

 
942

Deferred income tax
(22,847
)
 
30,748

Gain on bargain purchase

 
(19,458
)
Net periodic benefit cost of pension and postretirement plans
5,412

 
4,313

Loss (gain) from foreign currency
4,180

 
(6,341
)
Other
(31
)
 
5,318

Changes in operating assets and liabilities:
 
 
 
Receivables
35,232

 
(9,921
)
Inventories
11,308

 
(34,189
)
Accounts payable
(35,217
)
 
(4,887
)
Accrued liabilities
(8,612
)
 
5,582

All other operating activities
(32,459
)
 
(25,730
)
Contributions to pension and other postretirement benefit plans
(6,004
)
 
(8,000
)
Expenditures for environmental liabilities
(2,547
)
 
(5,549
)
Cash provided by operating activities-continuing operations
4,621

 
141,029

 Cash provided by operating activities-discontinued operations
19,437

 
19,333

Cash Provided by Operating Activities
24,058

 
160,362

 
 
 
 
Investing Activities
 
 
 
Proceeds from sale of resin operations

 
16,143

Capital expenditures
(80,806
)
 
(90,094
)
Cash used for investing activities-continuing operations
(80,806
)
 
(73,951
)
 Cash used for investing activities-discontinued operations
(2,606
)
 
(2,492
)
Cash Used for Investing Activities
(83,412
)
 
(76,443
)
 
 
 
 
Financing Activities
 
 
 
Revolving credit facility and other borrowings
88,627

 

Repayments of revolving credit facility
(36,000
)
 

Repayment of debt
(9,929
)
 
(34,141
)
Dividends paid on common stock
(8,569
)
 
(11,030
)
Dividends paid on preferred stock
(10,350
)
 
(10,350
)
Proceeds from the issuance of common stock

 
452

Common stock repurchased
(5,830
)
 
(17,784
)
Cash provided by (used for) financing activities-continuing operations
17,949

 
(72,853
)
 Cash provided by (used for) financing activities-discontinued operations

 

Cash Provided by (Used for) Financing Activities
17,949

 
(72,853
)
 
 
 
 
Cash and Cash Equivalents

 
 
Change in cash and cash equivalents
(41,405
)
 
11,066

Net effect of foreign exchange on cash and cash equivalents
(4,799
)
 
(1,325
)
Balance, beginning of year
108,966

 
96,235

Balance, end of period
$
62,762

 
$
105,976


See Notes to Consolidated Financial Statements.

4


Table of Contents
Index to Financial Statements
RAYONIER INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands unless otherwise stated)


1.Basis of Presentation and New Accounting Pronouncements
Basis of Presentation
The unaudited consolidated financial statements and notes thereto of Rayonier Advanced Materials Inc. (the “Company”) have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of management, these financial statements and notes reflect all adjustments (all of which are 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 financial statements and supplementary data included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, as filed with the SEC on March 1, 2019.
The Company has reclassified certain prior year amounts to conform to the current year’s presentation for discontinued operations to reflect the sale of its Matane high-yield pulp operations. Unless otherwise stated, information in these notes to consolidated financial statements relates to continuing operations. Certain of our operations have been presented as discontinued 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 2 —Discontinued Operations for additional information.
Liquidity
Cash flows from operations, primarily driven by operating results, have historically been the Company’s primary source of liquidity and capital resources. As a result of the significant decreases in the market prices for commodity products, primarily viscose, fluff, high-yield pulp, lumber, paperboard and newsprint, over the last nine months, the financial results of the Company have declined requiring it to amend the financial covenants under its Senior Secured Credit Facilities. On September 30, 2019, the Company entered into an amendment of its Senior Secured Credit Facilities reducing the restrictions of its first lien secured net leverage ratio and the interest coverage ratio tests through the year ended December 31, 2021. Under the amended agreement, the Company is in compliance with the financial covenants as of September 28, 2019 and, as such, management believes that there is no longer substantial doubt of the Company’s ability to continue as a going concern. See Note 7 Debt and Finance Leases for additional information.

Recently Adopted Accounting Pronouncements
Leases
The Company adopted Accounting Standards Update 2016-02, Leases, as amended, as of January 1, 2019. The standard requires the recognition of right of use (“ROU”) assets and lease liabilities to be reported on the balance sheet but did not change the manner in which expenses are recorded in the income statement. The Company has adopted the lease guidance using the cumulative effect adjustment approach, which requires prospective application at the adoption date and elected certain practical expedients permitted under the transition guidance. The practical expedients allow for the carry forward of the historical lease classification of existing leases and eliminates the need to reassess any lease classification of expired leases and initial direct costs. The Company also elected the short-term lease practical expedient. The Company does not record ROU assets or lease liabilities for short-term leases. In addition, the Company utilized the portfolio approach to group leases with similar characteristics and did not use hindsight to determine the lease term. For leases that include other costs, such as maintenance and other services, in addition to lease cost, the Company is separating lease and non-lease components when determining the ROU assets and lease liabilities.
Adoption of the new standard resulted in the recording of a ROU lease assets and lease liability of $10 million and $11 million, respectively, and the reversal of deferred rent liability balances. See Note 5Leases for additional information.
Subsequent Events
Events and transactions subsequent to the balance sheet date have been evaluated for potential recognition and disclosure through November 7, 2019, the date these financial statements were available to be issued. The following subsequent events warranting disclosure were identified:

5


Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements (Continued)




(Unaudited)
(Dollar amounts in thousands unless otherwise stated)



Table of Contents

In October 2019, the Company entered into an agreement to settle certain pension liabilities. The settlement is estimated to result in a non-cash loss of approximately $15 to $20 million in the fourth quarter.
On November 4, 2019, the Company completed the sale of its Matane plant and received net proceeds of approximately $150 million, subject to working capital adjustments. Approximately $100 million of the proceeds will be used to pay down the Company’s debt as required by its September 30, 2019 amendment to its Senior Secured Credit Facilities.
2.Discontinued Operations

On August 1, 2019, the Company announced it entered into an agreement to sell 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. in November 2017 and was previously reported as part of the Company’s Pulp segment.

As of September 28, 2019, the assets and liabilities are classified as current in the Company’s consolidated balance sheet as the transaction is expected to close within one year.
    
The following table presents the major classes of assets and liabilities of discontinued operations that are classified as held for sale:
 
September 28, 2019
 
December 31, 2018
Accounts receivable, net
$
15,355

 
$
23,093

Inventory
15,770

 
17,349

Prepaid and other current assets
811

 
2,058

Total current assets
31,936

 
42,500

Property, plant and equipment, net
18,437

 
17,482

Deferred tax assets
31,486

 
31,486

Other assets
2,439

 
2,239

   Total assets
$
84,298

 
$
93,707

 
 
 
 
Accounts payable
$
6,415

 
$
11,035

Accrued and other current liabilities
5,946

 
3,786

Other current liabilities
752

 
1,415

Total current liabilities
13,113

 
16,236

Other long-term liabilities
5,661

 
5,548

Total liabilities
$
18,774

 
$
21,784


6


Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements (Continued)




(Unaudited)
(Dollar amounts in thousands unless otherwise stated)



Table of Contents


Income (loss) from discontinued operations is comprised of the following:
 
Three Months Ended
 
Nine Months Ended
 
September 28, 2019
 
September 29, 2018
 
September 28, 2019
 
September 29, 2018
Revenues
$
34,781

 
$
43,041

 
$
114,085

 
$
132,401

Cost of sales
(31,271
)
 
(29,425
)
 
(93,567
)
 
(93,546
)
Gross margin
3,510

 
13,616

 
20,518

 
38,855

Selling, general and administrative expenses and other
(2,001
)
 
(406
)
 
(2,855
)
 
(1,258
)
Operating income (loss)
1,509

 
13,210

 
17,663

 
37,597

Interest expense (a)
(1,160
)
 
(1,142
)
 
(3,516
)
 
(3,298
)
Other non-operating income
87

 
93

 
262

 
284

Income (Loss) Before Income Taxes
436

 
12,161

 
14,409

 
34,583

Income tax benefit (expense)
(299
)
 
(4,192
)
 
(3,978
)
 
(11,154
)
Net Income (loss)
$
137

 
$
7,969

 
$
10,431

 
$
23,429


(a)
The Company is required to pay $100 million of debt from proceeds received from the sale of Matane. 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:    
 
Three Months Ended
 
Nine Months Ended
 
September 28, 2019
 
September 29, 2018
 
September 28, 2019
 
September 29, 2018
Depreciation and amortization
$
230

 
$
630

 
$
1,590

 
$
1,818

Capital expenditures
$
1,531

 
$
712

 
$
2,606

 
$
2,492



3.Accounts Receivable, Net
The Company’s accounts receivable included the following:
 
September 28, 2019
 
December 31, 2018
Accounts receivable, trade
$
124,958

 
$
146,056

Accounts receivable, other (a)
37,796

 
53,787

Allowance for doubtful accounts
(647
)
 
(559
)
Total accounts receivable, net
$
162,107

 
$
199,284

(a)
Accounts receivable, other consists primarily of value added/consumption taxes, grants receivable and accrued billings due from government agencies.

7


Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements (Continued)




(Unaudited)
(Dollar amounts in thousands unless otherwise stated)



Table of Contents

4.Inventory
The Company’s inventory included the following:
 
September 28, 2019
 
December 31, 2018
Finished goods
$
184,771

 
$
203,350

Work-in-progress
19,837

 
21,478

Raw materials
77,057

 
68,656

Manufacturing and maintenance supplies
9,760

 
10,544

Total inventory
$
291,425

 
$
304,028


5.     Leases
The Company accounts for leases in accordance with ASC Topic 842, Leases, which was adopted on January 1, 2019. See Note 1Basis of Presentation and New Accounting Pronouncements, for additional information on the adoption. The Company’s operating and finance leases are primarily for corporate offices, warehouse space, rail cars and equipment. As of September 28, 2019, the Company’s leases have remaining lease terms of 1 year to 9 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 assets and liabilities as of September 28, 2019 was 6.0 percent. The weighted average discount rate used in determining the finance lease ROU assets and liabilities as of September 28, 2019 was 7.0 percent.
The Company’s operating and finance lease cost is as follows:
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 28, 2019
 
September 28, 2019
Operating Leases
 
 
 
 
   Operating lease expense
 
$
1,715

 
$
4,322

Finance Leases
 
 
 
 
   Amortization of ROU assets
 
77

 
228

   Interest
 
52

 
159

Total
 
$
1,844

 
$
4,709


As of September 28, 2019, the weighted average remaining lease term is 4.6 years and 7.2 years for operating leases and financing leases, respectively. Cash provided by operating activities includes approximately $4 million from operating lease payments made during the nine months ended September 28, 2019. Finance lease cash flows were immaterial during the nine months ended September 28, 2019.
The Company’s finance leases are included as debt and the maturities for the remainder of 2019 and the next four years and thereafter are included in Note 7Debt and Finance Leases. The Company’s balance sheet includes the following operating lease assets and liabilities:
 
Balance Sheet Classification
 
September 28, 2019
Right-of-use assets
Other assets
 
$
22,516

Lease liabilities, current
Accrued and other current liabilities
 
$
5,276

Lease liabilities, non-current
Other non-current liabilities
 
$
17,935



8


Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements (Continued)




(Unaudited)
(Dollar amounts in thousands unless otherwise stated)



Table of Contents

As of September 28, 2019, operating lease maturities for the remainder of 2019 through 2023 and thereafter are as follows:
 
September 28, 2019
Remainder of 2019
$
1,664

2020
6,323

2021
5,639

2022
5,414

2023
4,605

Thereafter
3,056

Total minimum lease payments
$
26,701

Less: imputed interest
(3,490
)
Present value of future minimum lease payments
$
23,211



6.Accrued and Other Current Liabilities
The Company’s accrued and other current liabilities included the following:
 
September 28, 2019
 
December 31, 2018
Accrued customer incentives and prepayments
$
34,556

 
$
41,734

Accrued payroll and benefits
24,461

 
29,567

Accrued interest
9,775

 
3,170

Derivative instruments
2,930

 
16,767

Accrued property and other taxes
14,814

 
10,663

Other current liabilities
30,182

 
44,254

Total accrued and other current liabilities
$
116,718

 
$
146,155



9


Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements (Continued)




(Unaudited)
(Dollar amounts in thousands unless otherwise stated)



Table of Contents

7.Debt and Finance Leases
The Company’s debt and finance leases included the following:
 
 
September 28, 2019
 
December 31, 2018
U.S. Revolver of $100 million maturing in November 2022, $41 available, bearing interest at LIBOR plus 2.25%, interest of 4.30% at September 28, 2019
 
$
50,000

 
$

Multi-currency Revolver of $150 million maturing in November 2022, $126 available, bearing interest at LIBOR plus 2.00% at September 28, 2019
 

 

Term A-1 Loan Facility borrowings maturing through November 2022 bearing interest at LIBOR plus 2.25%, interest rate of 4.30% at September 28, 2019
 
160,000

 
160,000

Term A-2 Loan Facility borrowings maturing through November 2024 bearing interest at LIBOR plus 2.50% (after consideration of 0.60% patronage benefit), interest rate of 4.55% at September 28, 2019
 
438,875

 
438,875

Senior Notes due 2024 at a fixed interest rate of 5.50%
 
495,647

 
495,647

Canadian dollar, fixed interest rate term loans with rates ranging from 5.50% to 6.86% and maturity dates ranging from March 2020 through April 2028, secured by certain assets of the Temiscaming plant
 
85,501

 
91,304

Other loans
 
4,891

 
3,777

Finance lease obligation
 
2,896

 
3,124

Total debt principal payments due
 
1,237,810

 
1,192,727

Less: Debt premium, original issue discount and issuance costs, net
 
(4,021
)
 
(4,558
)
Total debt
 
1,233,789

 
1,188,169

Less: Current maturities of long-term debt
 
(21,357
)
 
(15,012
)
Long-term debt
 
$
1,212,432

 
$
1,173,157


As of September 28, 2019, debt and finance lease payments due during the remainder of 2019 and the next four years and thereafter are as follows:
 
Finance Lease Payments
 
 
Debt Principal Payments
Remaining 2019
$
129

 
 
$
3,342

2020
515

 
 
23,124

2021
515

 
 
12,568

2022
515

 
 
239,779

2023
515

 
 
10,674

Thereafter
1,502

 
 
945,427

Total principal payments
$
3,691

 
 
$
1,234,914

Less: Imputed interest
(795
)
 
 
 
Present value minimum finance lease payments
$
2,896

 
 
 

On September 30, 2019, the Company entered into an amendment (the “Amendment”) of its Senior Secured Credit Agreement under which, the lenders have agreed to make the Total Net Senior First Lien Secured Leverage Ratio and Interest Coverage Ratio tests less restrictive through the year ended December 31, 2021. The Amendment also increases the interest rate margin by a maximum of 1.25 percent, subject to the operation of a pricing grid which conversely provides for reduced rate margins when the Company’s leverage ratios improve. In addition, the Amendment has additional collateral requirements on certain Company assets as well as the maintenance of available amounts on its revolving credit facility to reflect the seasonality of the business.

10


Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements (Continued)




(Unaudited)
(Dollar amounts in thousands unless otherwise stated)



Table of Contents

8.Environmental Liabilities
An analysis of liabilities for the nine months ended September 28, 2019 is as follows:
Balance, December 31, 2018
$
160,654

Increase in liabilities
928

Payments
(2,547
)
Foreign currency adjustments
464

Balance, September 28, 2019
159,499

Less: Current portion
(11,445
)
Long-term environmental liabilities
$
148,054


In addition to the 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 and/or enforcement policies; developments in remediation technologies; increases in the cost of remediation, operation, maintenance and monitoring of its environmental liability sites; changes in the volume, nature or extent of contamination to be remediated or monitoring to be undertaken; the outcome of negotiations with governmental agencies and non-governmental parties; and changes in accounting rules or interpretations. Based on information available as of September 28, 2019, the Company estimates this exposure could range up to approximately $69 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. Further, this estimate excludes reasonably possible liabilities which are not currently estimable primarily due to the factors discussed above.
Subject to the previous paragraph, the Company believes established liabilities are sufficient for probable costs expected to be incurred over the next 20 years with respect to its environmental liabilities. However, no assurances are given they will be sufficient for the reasons described above, and additional liabilities could have a material adverse effect on the Company’s financial position, results of operations and cash flows.
9.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 designated as a hedge of a forecasted transaction or 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.
Interest Rate Risk
The Company’s primary debt obligations utilize variable-rate LIBOR, exposing the Company to variability in interest payments due to changes in interest rates. The Company entered into interest rate swap agreements to reduce the volatility of financing costs, 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 designated the swaps as cash flow hedges and is assessing their effectiveness using the hypothetical derivative method in conjunction with regression. Effective gains and losses, deferred to accumulated other comprehensive income (loss) (“AOCI”), are reclassified into earnings over the life of the associated hedge.

11


Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements (Continued)




(Unaudited)
(Dollar amounts in thousands unless otherwise stated)



Table of Contents

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 uses foreign currency forward contracts to selectively hedge its foreign currency cash flow 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 of outstanding derivative instruments as of September 28, 2019 and December 31, 2018 are presented below.
 
 
September 28, 2019
 
December 31, 2018
Interest rate swaps (a)
 
$
200,000

 
$
200,000

Foreign exchange forward contracts (b)
 
$
359,648

 
$
388,930

Foreign exchange forward contracts (c)
 
$
95,051

 
$
125,979


(a) Maturity date of December 2020
(b) Various maturity dates through September 2020
(c) Various maturity dates in 2020, 2022 and 2028
The fair values of derivative instruments included in the consolidated balance sheet as of September 28, 2019 and December 31, 2018 are provided in the below table. See Note 10Fair Value Measurements for additional information related to the Company’s derivatives.
 
 
Balance Sheet Location
 
September 28, 2019
 
December 31, 2018
Assets
 
 
 
 
 
 
Derivatives designated as hedging instruments:
 
 
 
 
 
 
Interest rate swaps
 
Other current assets
 
$

 
$
1,194

Interest rate swaps
 
Other assets
 

 
937

Foreign exchange forward contracts
 
Other current assets
 
914

 

Derivatives not designated as hedging instruments:
 
 
 
 
 
 
Foreign exchange forward contracts
 
Other current assets
 
35

 
7

 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
Derivatives designated as hedging instruments:
 
 
 
 
 
 
Interest rate swaps
 
Other current liabilities
 
(557
)
 

Interest rate swaps
 
Other non-current liabilities
 
(277
)
 

Foreign exchange forward contracts
 
Other current liabilities
 
(2,373
)
 
(16,408
)
Foreign exchange forward contracts
 
Other non-current liabilities
 
(2,044
)
 
(3,105
)
Derivatives not designated as hedging instruments:
 
 
 
 
 
 
Foreign exchange forward contracts
 
Other current liabilities
 

 
(360
)
Total derivatives
 
 
 
$
(4,302
)
 
$
(17,735
)


12


Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements (Continued)




(Unaudited)
(Dollar amounts in thousands unless otherwise stated)



Table of Contents

The effects of derivatives designated as hedging instruments, the related changes in AOCI and the gains and losses in income are presented below.
 
 
Three Months Ended September 28, 2019
 
 
Derivatives Designated as Hedging Instruments
 
Gain (Loss) Recognized in OCI on Derivative
 
Gain (Loss) Reclassified from AOCI into Income
 
Location on Statement of Income
Interest rate swaps
 
$
(64
)
 
$
172

 
Interest expense
Foreign exchange forward contracts
 
$
(5,940
)
 
$
(76
)
 
Other operating expense, net
Foreign exchange forward contracts
 
$
1,256

 
$
(1,256
)
 
Cost of sales
Foreign exchange forward contracts
 
$
(2,000
)
 
$
(1,290
)
 
Interest income and other, net
 
 
 
 
 
 
 
 
 
Three Months Ended September 29, 2018
 
 
 
 
Gain (Loss) Recognized in OCI on Derivative
 
Gain (Loss) Reclassified from AOCI into Income
 
Location on Statement of Income
Interest rate swaps
 
$
530

 
$
74

 
Interest expense
Foreign exchange forward contracts
 
$
5,002

 
$
60

 
Other operating expense, net
Foreign exchange forward contracts
 
$
1,399

 
$
(1,399
)
 
Cost of sales
Foreign exchange forward contracts
 
$
1,570

 
$
1,529

 
Interest income and other, net
 
 
 
 
 
 
 
 
 
Nine Months Ended September 28, 2019
 
 
Derivatives Designated as Hedging Instruments
 
Gain (Loss) Recognized in OCI on Derivative
 
Gain (Loss) Reclassified from AOCI into Income
 
Location on Statement of Income
Interest rate swaps
 
$
(2,237
)
 
$
728

 
Interest expense
Foreign exchange forward contracts
 
$
(1,903
)
 
$
600

 
Other operating expense, net
Foreign exchange forward contracts
 
$
8,822

 
$
(8,822
)
 
Cost of sales
Foreign exchange forward contracts
 
$
1,031

 
$
2,077

 
Interest income and other, net
 
 
 
 
 
 
 
 
 
Nine Months Ended September 29, 2018
 
 
Derivatives Designated as Hedging Instruments
 
Gain (Loss) Recognized in OCI on Derivative
 
Gain (Loss) Reclassified from AOCI into Income
 
Location on Statement of Income
Interest rate swaps
 
$
3,095

 
$
(112
)
 
Interest expense
Foreign exchange forward contracts
 
$
(5,406
)
 
$
1,188

 
Other operating expense, net
Foreign exchange forward contracts
 
$
1,466

 
$
(1,466
)
 
Cost of sales
Foreign exchange forward contracts
 
$
181

 
$
973

 
Interest income and other, net


13


Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements (Continued)




(Unaudited)
(Dollar amounts in thousands unless otherwise stated)



Table of Contents

The effects of derivative instruments not designated as hedging instruments on the statement of income were as follows:
 
 
 
 
 
 
 
 
 
Three Months Ended
 
Nine Months Ended
Derivatives Not Designated as Hedging Instruments
 
Location of Gain (Loss) Recognized in Income on Derivative
 
September 28, 2019
 
September 29, 2018
 
September 28, 2019
 
September 29, 2018
Foreign exchange forward contracts
 
Other operating income (expense), net
 
$
(137
)
 
$
(250
)
 
$
193