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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 June 27, 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
https://cdn.kscope.io/5ae0a3cebb0057db2438cedeac49c4e6-ryam-20200627_g1.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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par valueRYAMNew 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
o
Accelerated filer
x
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 63,351,226 shares of common stock, $.01 par value per share, outstanding as of August 4, 2020.



Table of Contents
ItemPage
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)
(Unaudited)

(Dollars in thousands, except per share amounts)
Three Months EndedSix Months Ended
June 27, 2020June 29, 2019June 27, 2020June 29, 2019
Net Sales$396,753  $450,233  $806,561  $891,293  
Cost of Sales(376,539) (432,254) (775,885) (865,695) 
Gross Margin20,214  17,979  30,676  25,598  
Selling, general and administrative expenses(22,257) (20,478) (42,504) (48,622) 
Duties(5,668) (7,004) (12,119) (11,520) 
Foreign exchange gains (losses)(4,085) (2,018) 1,711  2,906  
Other operating income (expense), net(3,624) (3,798) (5,191) (11,281) 
Operating Income (Loss)(15,420) (15,319) (27,427) (42,919) 
Interest expense(15,761) (14,415) (30,986) (28,018) 
Interest income and other, net(1,085) (750) (663) (99) 
Other components of pension and OPEB, excluding service costs
397  1,089  750  2,468  
Income (Loss) from Continuing Operations Before Income Taxes
(31,869) (29,395) (58,326) (68,568) 
Income tax benefit (expense) (Note 16)18,942  10,121  20,564  21,307  
Income (Loss) from Continuing Operations(12,927) (19,274) (37,762) (47,261) 
Income from discontinued operations, net of taxes (Note 2)
64  4,357  772  10,294  
Net Income (Loss) Attributable to the Company
(12,863) (14,917) (36,990) (36,967) 
Mandatory convertible preferred stock dividends  (3,441)   (6,805) 
Net Income (Loss) Available to Common Stockholders
$(12,863) $(18,358) $(36,990) $(43,772) 
Basic Earnings Per Common Share (Note 13)
Income (loss) from continuing operations$(0.20) $(0.46) $(0.60) $(1.10) 
Income from discontinued operations  0.09  0.01  0.21  
Net income (loss) per common share-basic$(0.20) $(0.37) $(0.59) $(0.89) 
Diluted Earnings Per Common Share (Note 13)
Income (loss) from continuing operations$(0.20) $(0.46) $(0.60) $(1.10) 
Income from discontinued operations  0.09  0.01  0.21  
Net income (loss) per common share-diluted$(0.20) $(0.37) $(0.59) $(0.89) 


See Notes to Consolidated Financial Statements.


1

Table of Contents
Rayonier Advanced Materials Inc.
Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
(Dollars in thousands)
Three Months EndedSix Months Ended
June 27, 2020June 29, 2019June 27, 2020June 29, 2019
Net Income (Loss)$(12,863) $(14,917) $(36,990) $(36,967) 
Other Comprehensive Income (Loss), net of tax (Note 11):
Foreign currency translation adjustments
5,888  3,658  (583) (1,694) 
Unrealized gain (loss) on derivative instruments
10,129  3,393  (10,530) 11,265  
Net gain from pension and postretirement plans
2,741  1,865  9,313  3,756  
Total other comprehensive income (loss)18,758  8,916  (1,800) 13,327  
Comprehensive Income (Loss)$5,895  $(6,001) $(38,790) $(23,640) 


See Notes to Consolidated Financial Statements.
2

Table of Contents
Rayonier Advanced Materials Inc.
Consolidated Balance Sheets
(Unaudited)
(Dollars in thousands)
 June 27, 2020December 31, 2019
Assets
Current Assets
Cash and cash equivalents$48,739  $64,025  
Accounts receivable, net (Note 3)173,427  181,658  
Inventory (Note 4)249,383  251,180  
Income tax receivable53,670  16,118  
Prepaid and other current assets69,954  60,846  
Total current assets595,173  573,827  
Property, Plant and Equipment (net of accumulated depreciation of $1,547,846 at June 27, 2020 and $1,482,261 at December 31, 2019)
1,267,288  1,316,055  
Deferred Tax Assets380,146  384,513  
Intangible Assets, net41,946  45,451  
Other Assets160,739  160,301  
Total Assets$2,445,292  $2,480,147  
Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable$157,656  $153,181  
Accrued and other current liabilities (Note 6)122,329  102,178  
Current maturities of long-term debt (Note 7)14,399  19,448  
Current environmental liabilities (Note 8)11,109  11,339  
Total current liabilities305,493  286,146  
Long-Term Debt (Note 7)1,061,251  1,062,695  
Long-Term Environmental Liabilities (Note 8)
159,190  160,037  
Pension and Other Postretirement Benefits221,432  236,625  
Deferred Tax Liabilities22,307  24,847  
Other Long-Term Liabilities26,893  26,999  
Commitments and Contingencies (Note 18)
Stockholders’ Equity
Common stock, 140,000,000 shares authorized at $0.01 par value, 63,347,326 and 63,136,129 issued and outstanding, as of June 27, 2020 and December 31, 2019, respectively
633  632  
Additional paid-in capital403,737  399,020  
Retained earnings385,383  422,373  
Accumulated other comprehensive income (loss) (Note 11)(141,027) (139,227) 
Total Stockholders’ Equity648,726  682,798  
Total Liabilities and Stockholders’ Equity$2,445,292  $2,480,147  

See Notes to Consolidated Financial Statements.
3

Table of Contents
Rayonier Advanced Materials Inc.
Consolidated Statements of Cash Flows
(Unaudited)

(Dollars in thousands)
Six Months Ended
June 27, 2020June 29, 2019
Operating Activities
Net income (loss)$(36,990) $(36,967) 
Loss (income) from discontinued operations (772) (10,294) 
Adjustments to reconcile income (loss) from continuing operations to cash provided by operating activities:
Depreciation and amortization73,045  70,996  
Stock-based incentive compensation expense5,157  3,456  
Deferred income tax expense (benefit)2,207  (20,149) 
Net periodic benefit cost of pension and other postretirement plans
5,175  3,496  
Unrealized loss (gain) on derivative instruments2,311  (4,014) 
Unrealized loss (gain) from foreign currency(6,756) 5,586  
Other479  927  
Changes in operating assets and liabilities:
Receivables4,851  36,144  
Inventories1,668  19,690  
Accounts payable8,159  (7,903) 
Accrued liabilities11,871  (18,219) 
All other operating activities(53,755) (33,978) 
Contributions to pension and other postretirement plans(5,783) (4,552) 
Cash Provided by (Used for) Operating Activities-continuing operations10,867  4,219  
Cash Provided by (Used for) Operating Activities-discontinued operations 204  14,077  
Cash Provided by (Used for) Operating Activities11,071  18,296  
Investing Activities
Capital expenditures(22,597) (58,822) 
Cash Used for Investing Activities-continuing operations(22,597) (58,822) 
Cash Used for Investing Activities-discontinued operations  (1,075) 
Cash Used for Investing Activities(22,597) (59,897) 
Financing Activities
Borrowings on revolving credit and other facilities10,561  86,000  
Repayments of revolving credit and other facilities(8,000) (36,000) 
Repayment of debt(2,359) (5,562) 
Dividends paid on common stock  (8,569) 
Dividends paid on preferred stock  (6,900) 
Common stock repurchased(438) (5,825) 
Debt issue costs(3,378)   
Cash Provided by (Used for) Financing Activities-continuing operations(3,614) 23,144  
Cash Provided by (Used for) Financing Activities-discontinued operations    
Cash Provided by (Used for) Financing Activities(3,614) 23,144  
Cash and Cash Equivalents
Change in cash and cash equivalents(15,140) (18,457) 
Net effect of foreign exchange on cash and cash equivalents(146) (405) 
Balance, beginning of year64,025  108,966  
Balance, end of period$48,739  $90,104  


See Notes to Consolidated Financial Statements.
4

Table of Contents

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

(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 consolidated 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 consolidated financial statements and supplementary data included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, as filed with the SEC on March 2, 2020.
The Company has reclassified certain prior year amounts to conform to the current year’s presentation for discontinued operations to reflect the November 2019 sale of its Matane high-yield pulp operations. Unless otherwise stated, information in these notes to consolidated financial statements relates to continuing operations. See Note 2 —Discontinued Operations for additional information.
The Company’s businesses have been significantly impacted by the novel 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 been deemed “essential businesses” and have remained operating. In order to mitigate the impact of COVID-19 on its financial results and operations, the Company has taken the following decisive 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 to match production with market demand.
To maximize cash flow and liquidity, the Company entered into an amendment of its Senior Secured Credit Agreement under which, among other changes, the lenders have agreed to relax the financial covenants through 2022 and provide additional liquidity by reducing the minimum availability the Company is required to maintain.
Due to the financial impacts of COVID-19, the Company is actively monitoring the recoverability of the carrying value of its long-term assets compared to the business’s future estimated undiscounted future cash flows. During the three and six months ended June 27, 2020, the Company did not recognize any impairment charges related to long-lived assets held for use. However, the Company’s estimates of undiscounted cash flows are highly subjective and actual results may vary from the estimates due to the current uncertain market conditions and their impact on the projection of long-term financial performance. The Company will continue to evaluate the recoverability of these and other assets as necessary.
New or Recently Adopted Accounting Pronouncements
The Company adopted Accounting Standards Update (“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
5


Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements - (Unaudited) (Continued)
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.
Subsequent Events
Events and transactions subsequent to the consolidated balance sheets date have been evaluated for potential recognition and disclosure through August 6, 2020, the date these consolidated financial statements were available to be issued. The following subsequent events warranting disclosure were identified:
On July 28, 2020, final regulations were issued related to United States Internal Revenue Code Section 163(j) (“Section 163(j)”). Section 163(j), which was modified by the 2017 Tax Reform Act and the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), limits U.S. business interest expense deductions to the sum of business interest income and 30 percent, or 50 percent as applicable, of adjusted taxable income (“ATI”). Previously released proposed regulations contained a provision that required depreciation recorded in cost of goods sold to reduce ATI and thus reduced the allowable interest deduction for certain years. The final regulations amended this provision, allowing depreciation included in cost of goods sold to be excluded from ATI in years where it is permitted. As a result, the Company expects to reduce the valuation allowance related to its deferred tax assets and its liability related to uncertain tax positions, both on its consolidated balance sheet, and record a non-cash, tax benefit on its consolidated statement of income of approximately $10 million to $15 million in the third quarter of 2020.

2. 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 $175 million. Income from discontinued operations for the three and six months ended June 27, 2020 represents an adjustment to the gain on sale of the Matane mill from working capital adjustments that arose following the November 2019 closing. Income (loss) from discontinued operations for the three and six months ended June 27, 2020 and June 29, 2019 is comprised of the following:
Three Months EndedSix Months Ended
June 27, 2020June 29, 2019June 27, 2020June 29, 2019
Revenues$  $37,584  $  $79,304  
Cost of sales  (30,133)   (62,295) 
Gross margin  7,451    17,009  
Selling, general and administrative expenses and other   (426)   (854) 
Operating income (loss)   7,025    16,155  
Interest expense (a)  (1,185)   (2,356) 
Other non-operating income  87    175  
Income from discontinued operations, before income taxes  5,927    13,974  
Income tax expense   (1,570)   (3,680) 
Income from discontinued operations, net of taxes$  $4,357  $  $10,294  
  Adjustment to gain from sale of discontinued operations    955  
  Income tax (expense) benefit on gain from sale
64  (183) 
Income from Discontinued Operations $64  $4,357  772$10,294  

(a) The Company was required to pay $100 million of debt from proceeds received from the sale of the Matane mill in November 2019. 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:
6

Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements - (Unaudited) (Continued)
Three Months EndedSix Months Ended
June 27, 2020June 29, 2019June 27, 2020June 29, 2019
Depreciation and amortization$  $725  $  $1,360  
Capital expenditures$  $449  $  $1,075  

3. Accounts Receivable, Net
The Company’s accounts receivable included the following:
 June 27, 2020December 31, 2019
Accounts receivable, trade$146,893  $142,181  
Accounts receivable, other (a)27,223  40,082  
Allowance for doubtful accounts(689) (605) 
Total accounts receivable, net$173,427  $181,658  
(a) Accounts receivable, other consists primarily of value added/consumption taxes, grants receivable and accrued billings due from government agencies.

4. Inventory
The Company’s inventory included the following:
 June 27, 2020December 31, 2019
Finished goods$148,622  $150,259  
Work-in-progress13,967  17,065  
Raw materials76,791  73,385  
Manufacturing and maintenance supplies10,003  10,471  
Total inventory$249,383  $251,180  
5.  Leases
The Company’s operating and finance leases are primarily for corporate offices, warehouse space, rail cars and equipment. As of June 27, 2020, 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 Right of Use (“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 June 27, 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 June 27, 2020 and December 31, 2019 was 7.0 percent.
7

Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements - (Unaudited) (Continued)
The Company’s operating and finance lease cost is as follows:
Three Months EndedSix Months Ended
June 27, 2020June 29, 2019June 27, 2020June 29, 2019
Operating Leases
   Operating lease expense $1,796  $1,141  $3,600  $2,606  
Finance Leases
   Amortization of ROU assets81  22  161  150  
   Interest47  53  96  107  
Total$1,924  $1,216  $3,857  $2,863  
As of June 27, 2020, the weighted average remaining lease term is 4.0 years and 6.4 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 $4 million and $2 million from operating lease payments made during the six months ended June 27, 2020 and June 29, 2019, respectively. Finance lease cash flows were immaterial during the six months ended June 27, 2020 and June 29, 2019.
The Company’s finance leases are included as debt and the maturities for the remainder of 2020 and the next four years and thereafter are included in Note 7 — Long Term Debt and Finance Leases. The Company’s consolidated balance sheets includes the following operating lease assets and liabilities:
Balance Sheet ClassificationJune 27, 2020December 31, 2019
Right-of-use assets Other assets$20,011  $22,406  
Lease liabilities, currentAccrued and other current liabilities$5,699  $5,887  
Lease liabilities, non-currentOther long-term liabilities$14,769  $17,522  
As of June 27, 2020, operating lease maturities for the remainder of 2020 through 2024 and thereafter are as follows:
June 27, 2020
Remainder of 2020$3,471  
20216,191  
20225,662  
20234,679  
20241,557  
Thereafter1,528  
Total minimum lease payments$23,088  
Less: imputed interest(2,620) 
Present value of future minimum lease payments$20,468  

8

Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements - (Unaudited) (Continued)
6. Accrued and Other Current Liabilities
The Company’s accrued and other current liabilities included the following:
 June 27, 2020December 31, 2019
Accrued customer incentives and prepayments$26,167  $31,696  
Accrued payroll and benefits27,288  23,593  
Accrued interest2,980  2,785  
Accrued income taxes17,615  3,616  
Derivative instruments10,071  995  
Accrued property and other taxes8,042  5,643  
Other current liabilities30,166  33,850  
Total accrued and other current liabilities$122,329  $102,178  


7. Long Term Debt and Finance Leases
The Company’s long term debt and finance leases included the following:
June 27, 2020December 31, 2019
U.S. Revolver of $84 million maturing in November 2022, $38 million available, bearing interest at PRIME plus 2.75% or LIBOR plus 3.75% at June 27, 2020
$  $  
Multi-currency Revolver of $126 million maturing in November 2022, $60 million available, bearing interest at PRIME plus 2.75% or LIBOR plus 3.75% at June 27, 2020
    
Term A-1 Loan Facility borrowings maturing through November 2022 bearing interest at LIBOR floor of 1% plus 3.75%, interest rate of 4.75% at June 27, 2020
133,283  133,283  
Term A-2 Loan Facility borrowings maturing through November 2024 bearing interest at LIBOR floor of 1% plus 3.40% (after consideration of 0.60% patronage benefit), interest rate of 4.40% at June 27, 2020
365,592  365,592  
Senior Notes due 2024 at a fixed interest rate of 5.5%
495,647  495,647  
Canadian dollar, fixed interest rate term loans with rates ranging from 5.5% to 6.86% and maturity dates ranging from September 2020 through April 2028, secured by certain assets of the Temiscaming mill
76,989  83,122  
Other loans9,792  7,285  
Finance lease obligation2,656  2,818  
Total debt principal payments due1,083,959  1,087,747  
Less: Debt premium, original issue discount and issuance costs, net(8,309) (5,604) 
Total debt1,075,650  1,082,143  
Less: Current maturities of long-term debt(14,399) (19,448) 
Long-term debt$1,061,251  $1,062,695  
As of June 27, 2020, debt and finance lease payments due during the remainder of 2020 and the next four years and thereafter are as follows:
9

Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements - (Unaudited) (Continued)
Finance Lease PaymentsDebt Principal Payments
2020$258  $10,312  
2021515  9,361  
2022515  159,919  
2023515  8,115  
2024515  869,258  
Thereafter987  24,338  
Total principal payments$3,305  $1,081,303  
Less: Imputed interest
649  
Present value minimum finance lease payments$2,656  
In March 2020, Investment Quebec (“IQ”), a holder of the Company’s Canadian dollar fixed rate term loans secured by certain assets of the Temiscaming mill, agreed to defer required monthly principal payments totaling approximately $6 million. The sum of these deferred principal payments will be reallocated over the remaining monthly principal payments which resume in March 2021. The final maturity of the loan was not extended, and the Company continues to make the required monthly interest payments.
In March 2020, IQ also granted all of its customers, including the Company, a 6-month deferral on principal payments, which resulted in the deferral of an additional $7 million of principal payment that was originally due to be paid in March 2020 to September 2020. Interest on this principal also continues to be paid by the Company.
In June 2020, the Company entered into an amendment of its Senior Secured Credit Agreement (the “Amendment”) under which, among other changes, the lenders have agreed to relax the financial covenants through 2022. In addition, the Amendment provides additional liquidity to the Company by reducing the minimum availability the Company is required to maintain under its revolving credit facility. The Amendment added a 1 percent LIBOR floor and lenders were paid a customary fee as consideration for their consent to the Amendment.

8. Environmental Liabilities
An analysis of liabilities for the six months ended June 27, 2020 is as follows:
Balance, December 31, 2019$171,376  
Increase in liabilities1,891  
Payments(2,290) 
Foreign currency adjustments(678) 
Balance, June 27, 2020170,299  
Less: Current portion(11,109) 
Long-term environmental liabilities$159,190  
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 June 27, 2020, the Company estimates this exposure could range up to approximately $77 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
10

Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements - (Unaudited) (Continued)
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.
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 currency 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 are as follows:
 June 27, 2020December 31, 2019
Interest rate swaps (a)$200,000  $200,000  
Foreign exchange forward contracts (b)$245,074  $343,665  
Foreign exchange forward contracts (c)$67,707  $83,126  
(a) Maturity date of December 2020
(b) Various maturity dates through March 2021
(c) Various maturity dates in 2022 and 2028
The fair values of derivative instruments included in the consolidated balance sheets as of June 27, 2020 and December 31, 2019 are provided in the below table. See Note 10 — Fair Value Measurements for additional information related to the Company’s derivatives.</