UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 25, 202124, 2022
OR
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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| For the transition period from to |
Commission File Number 001-36285
RAYONIER ADVANCED MATERIALS INC.
Incorporated in the State of Delaware
I.R.S. Employer Identification No. 46-4559529
1301 RIVERPLACE BOULEVARD, SUITE 2300
JACKSONVILLE, FL 32207
(Principal Executive Office)
Telephone Number: (904) 357-4600
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, $0.01 par value | RYAM | 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.
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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 63,737,35363,971,166 shares of common stock, $.01 par value per share, outstanding as of November 1, 2021.October 31, 2022.
Table of Contents
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| | Part I — Financial Information | |
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| | Part II — Other Information | |
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Part I. Financial Information | |
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Part II. Other Information | |
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Part I. | Financial Information |
Part I. Financial Information
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Item 1. | Item 1. Financial Statements |
Rayonier Advanced Materials Inc.
Consolidated Statements of Income (Loss)Operations
(Unaudited)
(Dollars in thousands, except per share amounts)
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended |
| | September 25, 2021 | | September 26, 2020 | | September 25, 2021 | | September 26, 2020 | | September 24, 2022 | | September 25, 2021 | | September 24, 2022 | | September 25, 2021 |
Net Sales | Net Sales | $ | 374,014 | | | $ | 323,483 | | | $ | 1,033,712 | | | $ | 972,128 | | Net Sales | $ | 466,346 | | | $ | 374,014 | | | $ | 1,217,282 | | | $ | 1,033,712 | |
Cost of Sales | Cost of Sales | (354,678) | | | (301,913) | | | (971,672) | | | (919,741) | | Cost of Sales | (419,804) | | | (354,678) | | | (1,138,118) | | | (971,672) | |
Gross Margin | Gross Margin | 19,336 | | | 21,570 | | | 62,040 | | | 52,387 | | Gross Margin | 46,542 | | | 19,336 | | | 79,164 | | | 62,040 | |
| Selling, general and administrative expenses | Selling, general and administrative expenses | (17,473) | | | (18,322) | | | (51,548) | | | (57,389) | | Selling, general and administrative expenses | (19,905) | | | (17,473) | | | (68,041) | | | (51,548) | |
| Foreign exchange gains (losses) | 3,315 | | | (1,079) | | | 582 | | | 79 | | |
Foreign exchange gains | | Foreign exchange gains | 3,025 | | | 3,315 | | | 4,480 | | | 582 | |
Other operating expense, net | Other operating expense, net | (2,352) | | | (3,279) | | | (7,345) | | | (8,514) | | Other operating expense, net | (1,133) | | | (2,352) | | | (5,764) | | | (7,345) | |
Operating Income (Loss) | 2,826 | | | (1,110) | | | 3,729 | | | (13,437) | | |
Operating Income | | Operating Income | 28,529 | | | 2,826 | | | 9,839 | | | 3,729 | |
Interest expense | Interest expense | (17,185) | | | (13,739) | | | (49,003) | | | (40,554) | | Interest expense | (16,433) | | | (17,185) | | | (49,318) | | | (49,003) | |
Interest income and other, net | Interest income and other, net | 2,113 | | | (2,700) | | | 379 | | | (3,263) | | Interest income and other, net | 4,071 | | | 2,113 | | | 6,241 | | | 379 | |
Other components of pension and OPEB, excluding service costs | Other components of pension and OPEB, excluding service costs | 803 | | | 1,900 | | | 1,545 | | | 1,293 | | Other components of pension and OPEB, excluding service costs | 1,009 | | | 803 | | | 1,910 | | | 1,545 | |
| Unrealized loss on GreenFirst equity securities | (7,955) | | | — | | | (7,955) | | | — | | |
Gain (loss) on GreenFirst equity securities | | Gain (loss) on GreenFirst equity securities | — | | | (7,955) | | | 5,197 | | | (7,955) | |
Gain on debt extinguishment | Gain on debt extinguishment | 2,326 | | | — | | | 2,326 | | | — | | Gain on debt extinguishment | 46 | | | 2,326 | | | 519 | | | 2,326 | |
Loss from Continuing Operations Before Income Taxes | (17,072) | | | (15,649) | | | (48,979) | | | (55,961) | | |
Income tax benefit (Note 16) | 4,101 | | | 28,270 | | | 28,665 | | | 47,090 | | |
Income (Loss) from Continuing Operations Before Income Taxes | | Income (Loss) from Continuing Operations Before Income Taxes | 17,222 | | | (17,072) | | | (25,612) | | | (48,979) | |
Income tax (expense) benefit (Note 16) | | Income tax (expense) benefit (Note 16) | 1,824 | | | 4,101 | | | (3,230) | | | 28,665 | |
Equity in loss of equity method investment | Equity in loss of equity method investment | (423) | | | — | | | (994) | | | — | | Equity in loss of equity method investment | (691) | | | (423) | | | (2,127) | | | (994) | |
Income (Loss) from Continuing Operations | Income (Loss) from Continuing Operations | (13,394) | | | 12,621 | | | (21,308) | | | (8,871) | | Income (Loss) from Continuing Operations | 18,355 | | | (13,394) | | | (30,969) | | | (21,308) | |
Income from discontinued operations, net of taxes (Note 2) | Income from discontinued operations, net of taxes (Note 2) | 8,636 | | | 16,239 | | | 111,751 | | | 741 | | Income from discontinued operations, net of taxes (Note 2) | 11,252 | | | 8,636 | | | 12,458 | | | 111,751 | |
Net Income (Loss) | Net Income (Loss) | $ | (4,758) | | | $ | 28,860 | | | $ | 90,443 | | | $ | (8,130) | | Net Income (Loss) | $ | 29,607 | | | $ | (4,758) | | | $ | (18,511) | | | $ | 90,443 | |
| Basic Earnings (Loss) Per Common Share (Note 13) | | |
Basic Earnings Per Common Share (Note 13) | | Basic Earnings Per Common Share (Note 13) | |
Income (loss) from continuing operations | Income (loss) from continuing operations | $ | (0.21) | | | $ | 0.20 | | | $ | (0.33) | | | $ | (0.14) | | Income (loss) from continuing operations | $ | 0.29 | | | $ | (0.21) | | | $ | (0.48) | | | $ | (0.33) | |
Income from discontinued operations | Income from discontinued operations | 0.14 | | | 0.26 | | | 1.76 | | | 0.01 | | Income from discontinued operations | 0.18 | | | 0.14 | | | 0.20 | | | 1.76 | |
Net income (loss) per common share-basic | Net income (loss) per common share-basic | $ | (0.07) | | | $ | 0.46 | | | $ | 1.43 | | | $ | (0.13) | | Net income (loss) per common share-basic | $ | 0.47 | | | $ | (0.07) | | | $ | (0.28) | | | $ | 1.43 | |
Diluted Earnings (Loss) Per Common Share (Note 13) | | | | | | | | |
| Diluted Earnings Per Common Share (Note 13) | | Diluted Earnings Per Common Share (Note 13) | |
Income (loss) from continuing operations | Income (loss) from continuing operations | $ | (0.21) | | | $ | 0.20 | | | $ | (0.33) | | | $ | (0.14) | | Income (loss) from continuing operations | $ | 0.28 | | | $ | (0.21) | | | $ | (0.48) | | | $ | (0.33) | |
Income from discontinued operations | Income from discontinued operations | 0.14 | | | 0.25 | | | 1.76 | | | 0.01 | | Income from discontinued operations | 0.17 | | | 0.14 | | | 0.20 | | | 1.76 | |
Net income (loss) per common share-diluted | Net income (loss) per common share-diluted | $ | (0.07) | | | $ | 0.45 | | | $ | 1.43 | | | $ | (0.13) | | Net income (loss) per common share-diluted | $ | 0.45 | | | $ | (0.07) | | | $ | (0.28) | | | $ | 1.43 | |
|
See Notes to Consolidated Financial Statements.
Rayonier Advanced Materials Inc.
Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
(Dollars in thousands)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 25, 2021 | | September 26, 2020 | | September 25, 2021 | | September 26, 2020 |
Net Income (Loss) | $ | (4,758) | | | $ | 28,860 | | | $ | 90,443 | | | $ | (8,130) | |
Other Comprehensive Income (Loss), net of tax (Note 11): | | | | | | | |
Foreign currency translation adjustments | (4,336) | | | 10,572 | | | (10,558) | | | 9,989 | |
Unrealized gain (loss) on derivative instruments | 86 | | | 7,589 | | | (2,767) | | | (2,942) | |
Net gain from pension and postretirement plans | 6,177 | | | 2,733 | | | 12,842 | | | 12,047 | |
Total other comprehensive income (loss) | 1,927 | | | 20,894 | | | (483) | | | 19,094 | |
Comprehensive Income (Loss) | $ | (2,831) | | | $ | 49,754 | | | $ | 89,960 | | | $ | 10,964 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 24, 2022 | | September 25, 2021 | | September 24, 2022 | | September 25, 2021 |
Net Income (Loss) | $ | 29,607 | | | $ | (4,758) | | | $ | (18,511) | | | $ | 90,443 | |
Other Comprehensive Income (Loss), net of tax (Note 11): | | | | | | | |
Foreign currency translation adjustments | (14,697) | | | (4,336) | | | (30,561) | | | (10,558) | |
Unrealized gain (loss) on derivative instruments | 67 | | | 86 | | | 224 | | | (2,767) | |
Net gain from pension and postretirement plans | 1,948 | | | 6,177 | | | 5,844 | | | 12,842 | |
Total other comprehensive income (loss) | (12,682) | | | 1,927 | | | (24,493) | | | (483) | |
Comprehensive Income (Loss) | $ | 16,925 | | | $ | (2,831) | | | $ | (43,004) | | | $ | 89,960 | |
See Notes to Consolidated Financial Statements.
Rayonier Advanced Materials Inc.
Consolidated Balance Sheets
(Unaudited)
(Dollars in thousands, except per share amounts)
| | | September 25, 2021 | | December 31, 2020 | | September 24, 2022 | | December 31, 2021 |
Assets | Assets | Assets |
Current Assets | Current Assets | | Current Assets | |
Cash and cash equivalents | Cash and cash equivalents | $ | 279,156 | | | $ | 93,653 | | Cash and cash equivalents | $ | 131,673 | | | $ | 253,307 | |
Accounts receivable, net (Note 3) | Accounts receivable, net (Note 3) | 203,932 | | | 179,208 | | Accounts receivable, net (Note 3) | 217,358 | | | 181,604 | |
Inventory (Note 4) | Inventory (Note 4) | 206,209 | | | 170,647 | | Inventory (Note 4) | 269,526 | | | 230,691 | |
Income tax receivable | Income tax receivable | 28,921 | | | 58,657 | | Income tax receivable | 1,051 | | | 21,411 | |
Investment in GreenFirst equity securities (Note 2) | 34,204 | | | — | | |
Investment in GreenFirst equity securities (Note 10) | | Investment in GreenFirst equity securities (Note 10) | — | | | 38,510 | |
Prepaid and other current assets | Prepaid and other current assets | 54,155 | | | 58,845 | | Prepaid and other current assets | 68,652 | | | 50,597 | |
Assets of discontinued operations-held for sale (Note 2) | — | | | 72,562 | | |
| Total current assets | Total current assets | 806,577 | | | 633,572 | | Total current assets | 688,260 | | | 776,120 | |
| Property, Plant and Equipment (net of accumulated depreciation of $1,637,866 at September 25, 2021 and $1,578,140 at December 31, 2020) | 1,133,277 | | | 1,177,791 | | |
Property, Plant and Equipment (net of accumulated depreciation of $1,703,459 and $1,642,442 as of September 24, 2022 and December 31, 2021, respectively) | | Property, Plant and Equipment (net of accumulated depreciation of $1,703,459 and $1,642,442 as of September 24, 2022 and December 31, 2021, respectively) | 1,132,128 | | | 1,146,162 | |
Deferred Tax Assets | Deferred Tax Assets | 340,736 | | | 382,959 | | Deferred Tax Assets | 327,807 | | | 335,119 | |
Intangible Assets, net | Intangible Assets, net | 33,184 | | | 38,441 | | Intangible Assets, net | 26,175 | | | 31,432 | |
Other Assets | Other Assets | 160,763 | | | 156,399 | | Other Assets | 162,051 | | | 156,191 | |
Assets of discontinued operations-held for sale (Note 2) | — | | | 140,703 | | |
| Total Assets | Total Assets | $ | 2,474,537 | | | $ | 2,529,865 | | Total Assets | $ | 2,336,421 | | | $ | 2,445,024 | |
| Liabilities and Stockholders’ Equity | Liabilities and Stockholders’ Equity | Liabilities and Stockholders’ Equity |
Current Liabilities | Current Liabilities | | Current Liabilities | |
Accounts payable | Accounts payable | $ | 143,889 | | | $ | 156,721 | | Accounts payable | $ | 154,140 | | | $ | 169,456 | |
Accrued and other current liabilities (Note 6) | Accrued and other current liabilities (Note 6) | 138,118 | | | 109,715 | | Accrued and other current liabilities (Note 6) | 153,566 | | | 136,124 | |
Debt due within one year (Note 7) | Debt due within one year (Note 7) | 22,482 | | | 17,100 | | Debt due within one year (Note 7) | 21,554 | | | 37,680 | |
Current environmental liabilities (Note 8) | Current environmental liabilities (Note 8) | 8,685 | | | 8,684 | | Current environmental liabilities (Note 8) | 11,273 | | | 11,303 | |
Liabilities of discontinued operations-held for sale (Note 2) | — | | | 780 | | |
| Total current liabilities | Total current liabilities | 313,174 | | | 293,000 | | Total current liabilities | 340,533 | | | 354,563 | |
| Long-Term Debt (Note 7) | Long-Term Debt (Note 7) | 924,040 | | | 1,066,837 | | Long-Term Debt (Note 7) | 851,006 | | | 891,031 | |
Long-Term Environmental Liabilities (Note 8) | Long-Term Environmental Liabilities (Note 8) | 161,547 | | | 162,995 | | Long-Term Environmental Liabilities (Note 8) | 159,027 | | | 159,919 | |
Pension and Other Postretirement Benefits | Pension and Other Postretirement Benefits | 239,733 | | | 251,391 | | Pension and Other Postretirement Benefits | 159,149 | | | 170,317 | |
Deferred Tax Liabilities | Deferred Tax Liabilities | 21,803 | | | 24,462 | | Deferred Tax Liabilities | 16,782 | | | 20,485 | |
Other Long-Term Liabilities | 28,996 | | | 24,279 | | |
Liabilities of Discontinued Operations-Held for Sale (Note 2) | — | | | 11,814 | | |
Other Liabilities | | Other Liabilities | 30,201 | | | 34,366 | |
| Commitments and Contingencies (Note 18) | Commitments and Contingencies (Note 18) | 0 | | 0 | Commitments and Contingencies (Note 18) | |
| Stockholders’ Equity | Stockholders’ Equity | | Stockholders’ Equity | |
| Common stock, 140,000,000 shares authorized at $0.01 par value, 63,737,356 and 63,359,839 issued and outstanding, as of September 25, 2021 and December 31, 2020, respectively | 637 | | | 633 | | |
Common stock: 140,000,000 shares authorized at $0.01 par value, 63,971,166 and 63,738,409 issued and outstanding as of September 24, 2022 and December 31, 2021, respectively | | Common stock: 140,000,000 shares authorized at $0.01 par value, 63,971,166 and 63,738,409 issued and outstanding as of September 24, 2022 and December 31, 2021, respectively | 639 | | | 637 | |
Additional paid-in capital | Additional paid-in capital | 405,354 | | | 405,161 | | Additional paid-in capital | 417,216 | | | 408,834 | |
Retained earnings | Retained earnings | 513,371 | | | 422,928 | | Retained earnings | 470,831 | | | 489,342 | |
Accumulated other comprehensive income (loss) (Note 11) | (134,118) | | | (133,635) | | |
Accumulated other comprehensive loss (Note 11) | | Accumulated other comprehensive loss (Note 11) | (108,963) | | | (84,470) | |
Total Stockholders’ Equity | Total Stockholders’ Equity | 785,244 | | | 695,087 | | Total Stockholders’ Equity | 779,723 | | | 814,343 | |
Total Liabilities and Stockholders’ Equity | Total Liabilities and Stockholders’ Equity | $ | 2,474,537 | | | $ | 2,529,865 | | Total Liabilities and Stockholders’ Equity | $ | 2,336,421 | | | $ | 2,445,024 | |
See Notes to Consolidated Financial Statements.
Rayonier Advanced Materials Inc.
Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in thousands)
| | | Nine Months Ended | | | Nine Months Ended | |
| | September 25, 2021 | | September 26, 2020 | | | September 24, 2022 | | September 25, 2021 | |
Operating Activities | Operating Activities | | | | | Operating Activities | | | | |
Net income (loss) | Net income (loss) | $ | 90,443 | | | $ | (8,130) | | | Net income (loss) | $ | (18,511) | | | $ | 90,443 | | |
Loss (income) from discontinued operations | (111,751) | | | (741) | | | |
Income from discontinued operations | | Income from discontinued operations | (12,458) | | | (111,751) | | |
Adjustments to reconcile income (loss) from continuing operations to cash provided by operating activities: | Adjustments to reconcile income (loss) from continuing operations to cash provided by operating activities: | | | Adjustments to reconcile income (loss) from continuing operations to cash provided by operating activities: | | |
Depreciation and amortization | Depreciation and amortization | 101,284 | | | 101,285 | | | Depreciation and amortization | 96,294 | | | 101,284 | | |
Stock-based incentive compensation expense | Stock-based incentive compensation expense | 1,620 | | | 6,714 | | | Stock-based incentive compensation expense | 8,687 | | | 1,620 | | |
Deferred income tax expense (benefit) | Deferred income tax expense (benefit) | (29,569) | | | 9,316 | | | Deferred income tax expense (benefit) | 372 | | | (29,569) | | |
| Gain on debt extinguishment | Gain on debt extinguishment | (2,326) | | | — | | | Gain on debt extinguishment | (519) | | | (2,326) | | |
Unrealized loss on GreenFirst equity securities | 7,955 | | | — | | | |
(Gain) loss on GreenFirst equity securities | | (Gain) loss on GreenFirst equity securities | (5,197) | | | 7,955 | | |
Net periodic benefit cost of pension and other postretirement plans | Net periodic benefit cost of pension and other postretirement plans | 7,338 | | | 6,495 | | | Net periodic benefit cost of pension and other postretirement plans | 4,489 | | | 7,338 | | |
| Unrealized loss (gain) on derivative instruments | (3,787) | | | 3,049 | | | |
Unrealized loss (gain) from foreign currency | (1,304) | | | (1,482) | | | |
Loss on disposal of property, plant and equipment | | Loss on disposal of property, plant and equipment | 2,917 | | | 801 | | |
Unrealized gain on derivative instruments | | Unrealized gain on derivative instruments | — | | | (3,787) | | |
Unrealized gain from foreign currency | | Unrealized gain from foreign currency | (6,853) | | | (1,304) | | |
Other | Other | 6,615 | | | 5,102 | | | Other | 5,908 | | | 5,814 | | |
Changes in operating assets and liabilities: | Changes in operating assets and liabilities: | | | Changes in operating assets and liabilities: | | |
Receivables | Receivables | (36,264) | | | 16,113 | | | Receivables | (41,599) | | | (36,264) | | |
Inventories | Inventories | (33,560) | | | (5,958) | | | Inventories | (41,504) | | | (33,560) | | |
Accounts payable | Accounts payable | (2,903) | | | (2,203) | | | Accounts payable | (2,393) | | | (2,903) | | |
Accrued liabilities | Accrued liabilities | 25,858 | | | 16,560 | | | Accrued liabilities | 23,620 | | | 25,858 | | |
All other operating activities | 30,263 | | | (82,075) | | | |
Other | | Other | (338) | | | 30,263 | | |
Contributions to pension and other postretirement plans | Contributions to pension and other postretirement plans | (5,243) | | | (7,433) | | | Contributions to pension and other postretirement plans | (5,467) | | | (5,243) | | |
| Cash Provided by Operating Activities-continuing operations | 44,669 | | | 56,612 | | | |
Cash Provided by Operating Activities-discontinued operations | 162,230 | | | 6,463 | | | |
Cash Provided by Operating Activities-Continuing Operations | | Cash Provided by Operating Activities-Continuing Operations | 7,448 | | | 44,669 | | |
Cash Provided by Operating Activities-Discontinued Operations | | Cash Provided by Operating Activities-Discontinued Operations | — | | | 162,230 | | |
Cash Provided by Operating Activities | Cash Provided by Operating Activities | 206,899 | | | 63,075 | | | Cash Provided by Operating Activities | 7,448 | | | 206,899 | | |
| Investing Activities | Investing Activities | | | Investing Activities | | |
| Capital expenditures, net | Capital expenditures, net | (61,029) | | | (35,416) | | | Capital expenditures, net | (114,159) | | | (61,029) | | |
| Investment in equity method investment | Investment in equity method investment | (4,142) | | | — | | | Investment in equity method investment | — | | | (4,142) | | |
| Cash Used for Investing Activities-continuing operations | (65,171) | | | (35,416) | | | |
Cash Provided by (Used for) Investing Activities-discontinued operations | 182,690 | | | (7,403) | | | |
Cash Provided by (Used for) Investing Activities | 117,519 | | | (42,819) | | | |
Cash Used in Investing Activities-Continuing Operations | | Cash Used in Investing Activities-Continuing Operations | (114,159) | | | (65,171) | | |
Cash Provided by Investing Activities-Discontinued Operations | | Cash Provided by Investing Activities-Discontinued Operations | 44,428 | | | 182,690 | | |
Cash Provided by (Used in) Investing Activities | | Cash Provided by (Used in) Investing Activities | (69,731) | | | 117,519 | | |
| Financing Activities | Financing Activities | | | Financing Activities | | |
| Revolving credit facility and other borrowings | — | | | 22,887 | | | |
Repayments of revolving credit and other facilities | — | | | (17,000) | | | |
Other borrowings | | Other borrowings | 5,721 | | | — | | |
| Repayment of long-term debt | Repayment of long-term debt | (131,171) | | | (4,209) | | | Repayment of long-term debt | (51,128) | | | (131,171) | | |
Short-term financing, net | Short-term financing, net | (4,492) | | | — | | | Short-term financing, net | (4,990) | | | (4,492) | | |
| Common stock repurchased | Common stock repurchased | (1,422) | | | (456) | | | Common stock repurchased | (303) | | | (1,422) | | |
Debt issue costs | Debt issue costs | (636) | | | (3,378) | | | Debt issue costs | — | | | (636) | | |
Other | | Other | (282) | | | — | | |
Cash Used in Financing Activities | | Cash Used in Financing Activities | (50,982) | | | (137,721) | | |
| Cash Used for Financing Activities | (137,721) | | | (2,156) | | | |
| Cash and Cash Equivalents | | | |
Change in cash and cash equivalents | Change in cash and cash equivalents | 186,697 | | | 18,100 | | | Change in cash and cash equivalents | (113,265) | | | 186,697 | | |
Net effect of foreign exchange on cash and cash equivalents | Net effect of foreign exchange on cash and cash equivalents | (1,194) | | | 764 | | | Net effect of foreign exchange on cash and cash equivalents | (8,369) | | | (1,194) | | |
Balance, beginning of year | 93,653 | | | 64,025 | | | |
Balance, beginning of period | | Balance, beginning of period | 253,307 | | | 93,653 | | |
Balance, end of period | Balance, end of period | $ | 279,156 | | | $ | 82,889 | | | Balance, end of period | $ | 131,673 | | | $ | 279,156 | | |
See Notes to Consolidated Financial Statements.
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 statementsConsolidated 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 statementsConsolidated 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 statementsConsolidated Financial Statements and supplementary data included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020,2021, as filed with the SEC on March 1, 2021.2022 (the “2021 Form 10-K”).
On August 28, 2021,As a result of the Company completed the previously announced sale of its lumber and newsprint facilities and certain related assets (the “Purchased Assets”) located in Ontario and Québec CanadaAugust 2021 to GreenFirst Forest Products, Inc. (“GreenFirst”). As a result of, the sale,Company presents the lumber and newsprint assets andresults for those operations have been presented as discontinued operations and the Company has reclassified certain prior year amounts to conform to this presentation.operations. Unless otherwise stated, information in these notes to consolidated financial statementsConsolidated Financial Statements relates to continuing operations. The Company presents businesses that represent components as discontinued operations when they meet the criteria for held for sale or are sold, and their disposal represents a strategic shift that has, or will have, a major effect on ourthe Company’s operations and financial results. See Note 2 —Discontinued Operations for additionalfurther information.
Coronavirus Pandemic
During 2020, the Company’s businesses were significantly impacted by the coronavirus ("COVID-19") pandemic. While market demand and pricing for certain of the Company’s products began to recover towards the end of 2020 and have continued to improve throughout 2021, the Company's operations remain vulnerable to a reversal of these trends or other continuing negative effects caused by COVID-19.
In its operating facilities and work spaces, the Company continues to maintain protocols previously implemented to reduce the potential spread of COVID-19 and ensure the safety of its employees and continuity of operations.
New or Recently AdoptedRecent Accounting PronouncementsDevelopments
There have been no newnewly issued or recently adopted accounting pronouncements impacting the Company’s unaudited consolidated interim financial statements.
Subsequent Events
Events and transactions subsequent to the consolidated balance sheets date have been evaluated for potential recognition and disclosure through the date of issuance of these Consolidated Financial Statements. The following subsequent events warranting disclosure were identified:
OnIn October 7, 2021, pursuant to a notice previously provided to the trustee under the indenture governing its 7.625% Senior Secured Notes due 2026 (the “Secured Notes”),2022, the Company redeemed $25repaid a Canadian dollar (“CAD”) fixed interest rate term loan in the amount of CAD $12 million of the Secured Notes at a redemption price of 103 percent.(U.S. dollar (“USD”) $9 million).
Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements - (Unaudited) (Continued)
2. Discontinued Operations
OnIn August 28, 2021, the Company completed the previously announced sale of its lumber and newsprint facilities and certain related assets (the “Purchased Assets”) located in Ontario and Québec Canada, to GreenFirst for cash of $232 million. At closing, the Company received $193 million, in cash, approximately 28.7 million shares of GreenFirst’sGreenFirst common stock with a deemed fair value of $42 million and a credit note issued to the Company by GreenFirst in the amount of CDNCAD $8 million (approximately USD $5 million after present value discount). The credit note may be offset against amounts owed byCompany sold the Company to GreenFirst common shares for $43 million in the future for wood chip purchases, equally oversecond quarter of 2022. Prior to the next 5 years. Thesale, the GreenFirst common shares will be held for a minimum of six months andwere accounted for at fair value, with changes in fair value recorded in the consolidated statementstatements of income.operations. See Note 10 — Fair Value Measurements for additionalfurther information. 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 over the next 18 months.
The cash consideration received at closing was preliminary and remains subject to final purchase price adjustments to be completed within 90 days followingand other sale-related adjustments. During the closefirst quarter of the transaction. Driven primarily by lower inventory balances,2022, the Company currently estimates the cash portion of the purchase price will be reduced by $8 million, from $193 million to $185 million. However, concurrentlytrued up certain sale-related items with purchase price adjustments, the Company and GreenFirst will settle other adjustments resulting from events related to the sale, expected to result infor a total net cash outflow byof $3 million, as expected and previously disclosed. No adjustments have been made in 2022 to the Company of approximately $2 million to $3 million.
As of August 28, 2021, the carrying value of the Purchased Assets was $215 million. The Purchased Assets included 6 lumber facilities, a newsprint facility, inventory and certain real property, machinery, permits, leases, licenses, pension assets and liabilities and other related assets associated with the successful operations of these businesses. Other assets and liabilities, including accounts receivable, accounts payable, certain retained inventory and rights and obligations to softwood lumber duties, generated or incurred through the closing date, are excluded. Since 2017, the Company has paid a total of $112 million in duties. In connection with the sale, the Company recorded a preliminary gain on sale recorded during the year ended December 31, 2021. Pursuant to the terms of $6 million, net of tax, inclusive of currently estimatedthe asset purchase price adjustments. The preliminary net gain is included inagreement, GreenFirst and the results of discontinued operations.Company continue efforts to finalize the closing inventory valuation adjustment.
In connection with the transaction, the Company entered into a 20-year wood chip and residual fiber supply agreement with GreenFirst, securing supply for the Company’s operations at the Temiscaming plant. Additionally,sale, the parties entered into a Transition Services Agreement ("TSA"(“TSA”) whereby the Company willwould provide certain transitional services to GreenFirst, for a period of timeincluding information technology, accounting, treasury and other services, following the closing of the transaction, not to exceed twelve months from such date.transaction. The TSA includes support related to information technology, accounting, treasury, human resourcestransitional services have been completed and payroll, tax, supply chain and procurement functions. Costs incurred by the Company associated with the TSA will be reimbursed by GreenFirst.
Income (loss) from discontinued operations is comprisedwas terminated during the second quarter of the following:2022.
Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements - (Unaudited) (Continued)
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| Three Months Ended | | Nine Months Ended |
| September 25, 2021 | | September 26, 2020 | | September 25, 2021 | | September 26, 2020 |
Net sales (a) | $ | 83,994 | | | $ | 100,440 | | | $ | 442,833 | | | $ | 258,356 | |
Cost of sales | (68,224) | | | (72,040) | | | (237,912) | | | (230,098) | |
Gross margin | 15,770 | | | 28,400 | | | 204,921 | | | 28,258 | |
Selling, general and administrative expenses and other | (7,571) | | | (9,901) | | | (26,465) | | | (24,860) | |
Operating income (loss) | 8,199 | | | 18,499 | | | 178,456 | | | 3,398 | |
Interest expense (b) | (1,973) | | | (2,162) | | | (7,290) | | | (6,333) | |
Other non-operating income | 254 | | | 711 | | | 967 | | | 1,969 | |
Income (loss) from discontinued operations before income taxes | 6,480 | | | 17,048 | | | 172,133 | | | (966) | |
Income tax benefit (expense) | (4,239) | | | (793) | | | (66,777) | | | 952 | |
Income (loss) from discontinued operations, net of taxes | $ | 2,241 | | | $ | 16,255 | | | $ | 105,356 | | | $ | (14) | |
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Gain from sale of discontinued operations, pre-tax | 9,217 | | | — | | | 9,217 | | | 956 | |
Income tax expense on gain | (2,822) | | | (17) | | | (2,822) | | | (200) | |
Gain from sale of discontinued operations, net of tax (c) | 6,395 | | | (17) | | | 6,395 | | | 756 | |
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Income from Discontinued Operations | $ | 8,636 | | | $ | 16,238 | | | $ | 111,751 | | | $ | 742 | |
During the third quarter of 2022, the U.S. Department of Commerce (the “USDOC”) completed its third administrative review of duties applied to Canadian softwood lumber exports to the U.S. during 2020 and reduced rates applicable to the Company to a combined 8.6 percent. In connection with this development, the Company recorded a $16 million gain, pre-tax, in the results of discontinued operations within selling, general and administrative expenses and other, and increased the long-term receivable related to the USDOC administrative reviews to $38 million. See Note 18 — Commitments and Contingencies for further information relating to this dispute.Income from discontinued operations is comprised of the following:
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| Three Months Ended | | Nine Months Ended |
| September 24, 2022 | | September 25, 2021 | | September 24, 2022 | | September 25, 2021 |
Net sales (a) | $ | — | | | $ | 83,994 | | | $ | — | | | $ | 442,833 | |
Cost of sales | — | | | (68,224) | | | 155 | | | (237,912) | |
Gross margin | — | | | 15,770 | | | 155 | | | 204,921 | |
Selling, general and administrative expenses and other | 15,313 | | | (7,571) | | | 16,808 | | | (26,465) | |
Operating income | 15,313 | | | 8,199 | | | 16,963 | | | 178,456 | |
Interest expense (b) | (4) | | | (1,973) | | | (13) | | | (7,290) | |
Other non-operating income | — | | | 254 | | | — | | | 967 | |
Income from discontinued operations before income taxes | 15,309 | | | 6,480 | | | 16,950 | | | 172,133 | |
Income tax expense | (4,057) | | | (4,239) | | | (4,492) | | | (66,777) | |
Income from discontinued operations, net of taxes | 11,252 | | | 2,241 | | | 12,458 | | | 105,356 | |
Gain on sale of discontinued operations, pre-tax | — | | | 9,217 | | | — | | | 9,217 | |
Income tax expense on gain | — | | | (2,822) | | | — | | | (2,822) | |
Gain on sale of discontinued operations, net of tax | — | | | 6,395 | | | — | | | 6,395 | |
Income from discontinued operations | $ | 11,252 | | | $ | 8,636 | | | $ | 12,458 | | | $ | 111,751 | |
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(a)
(a) Net of There were no intercompany sales offor the three and nine months ended September 24, 2022 and $8 million and $10$31 million for the three months ended September 25, 2021 and September 26, 2020, respectively, and $31 million and $33 million for the nine months ended September 25, 2021, and September 26, 2020, respectively.
(b)
(b) The Company has allocated interest expense to discontinued operations based on the total portion of debt not attributable to other operations repaid as a result of the transaction.
(c) Also included in income from discontinued operations for the three and nine months ended September 26, 2020 is income/ (expense) of $(17) thousand and $756 thousand, respectively, from working capital adjustments that arose following the closing of the November 2019 sale of the Company’s Matane, Quebec pulp mill.
Other discontinued operations information is as follows:includes the following:
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended |
| | September 25, 2021 | | September 26, 2020 | | September 25, 2021 | | September 26, 2020 | | September 24, 2022 | | September 25, 2021 | | September 24, 2022 | | September 25, 2021 |
Depreciation and amortization | Depreciation and amortization | $ | — | | | $ | 3,477 | | | $ | 3,172 | | | $ | 9,259 | | Depreciation and amortization | $ | — | | | $ | — | | | $ | — | | | $ | 3,172 | |
Capital expenditures | Capital expenditures | $ | 2,119 | | | $ | 3,976 | | | $ | 7,933 | | | $ | 7,403 | | Capital expenditures | $ | — | | | $ | 2,119 | | | $ | — | | | $ | 7,933 | |
3. Accounts Receivable, Net
The following table presentsCompany’s accounts receivables included the major classesfollowing:
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| September 24, 2022 | | December 31, 2021 |
Accounts receivable, trade | $ | 180,492 | | | $ | 131,371 | |
Accounts receivable, other (a) | 38,158 | | | 51,007 | |
| | | |
Allowance for expected credit losses | (1,292) | | | (774) | |
Accounts receivable, net | $ | 217,358 | | | $ | 181,604 | |
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(a)Consists primarily of assetsvalue added/consumption taxes, grants receivable and liabilities of discontinued operations that are classified as held for sale:accrued billings due from government agencies.
Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements - (Unaudited) (Continued)
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| September 25, 2021 | | December 31, 2020 |
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Inventory | $ | — | | | $ | 62,837 | |
Prepaid and other current assets | — | | | 9,725 | |
Total current assets | — | | | 72,562 | |
Property, plant and equipment, net | — | | | 97,151 | |
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Other assets | — | | | 43,552 | |
Total assets | $ | — | | | $ | 213,265 | |
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Accrued and other current liabilities | $ | — | | | $ | 780 | |
Total current liabilities | — | | | 780 | |
Pension and Other Postretirement Benefits | — | | | 9,316 | |
Other long-term liabilities | — | | | 2,498 | |
Total liabilities | $ | — | | | $ | 12,594 | |
As of September 25, 2021, collective bargaining agreements currently covering less than 40 unionized employees in Canada working in the lumber and newsprint operations had expired. The unionized employees have continued to work under the terms of the expired contracts while negotiations continue with GreenFirst. The Company is no longer a party to these negotiations.
3. Accounts Receivable, Net
The Company’s accounts receivable included the following:
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| September 25, 2021 | | December 31, 2020 |
Accounts receivable, trade | $ | 163,022 | | | $ | 140,036 | |
Accounts receivable, other (a) | 41,646 | | | 39,659 | |
| | | |
Allowance for expected credit losses | (736) | | | (487) | |
Total accounts receivable, net | $ | 203,932 | | | $ | 179,208 | |
(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:
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| September 25, 2021 | | December 31, 2020 |
Finished goods | $ | 152,411 | | | $ | 119,549 | |
Work-in-progress | 4,885 | | | 2,242 | |
Raw materials | 43,672 | | | 43,697 | |
Manufacturing and maintenance supplies | 5,241 | | | 5,159 | |
Total inventory | $ | 206,209 | | | $ | 170,647 | |
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| September 24, 2022 | | December 31, 2021 |
Finished goods | $ | 202,576 | | | $ | 175,832 | |
Work-in-progress | 6,903 | | | 6,533 | |
Raw materials | 53,527 | | | 41,974 | |
Manufacturing and maintenance supplies | 6,520 | | | 6,352 | |
Inventory | $ | 269,526 | | | $ | 230,691 | |
5. Leases
The Company’s operating and finance leases are primarily for corporate offices, warehouse space, rail cars and equipment. As of September 25, 2021,24, 2022, the Company’s leases havehad remaining lease terms of 1 year to 7.414.1 years with standard renewal and
Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements - (Unaudited) (Continued)
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 Rightright of Useuse (“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 25, 202124, 2022 and December 31, 20202021 was 7.98.7 percent and 6.17.6 percent, respectively. The weighted average discount rate used in determining the finance lease ROU assets and liabilities as of September 25, 202124, 2022 and December 31, 20202021 was 7.0 percent.
The Company’s operating and finance lease cost is as follows:
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended |
| | September 25, 2021 | | September 26, 2020 | | September 25, 2021 | | September 26, 2020 | | September 24, 2022 | | September 25, 2021 | | September 24, 2022 | | September 25, 2021 |
Operating Leases | Operating Leases | | | | | | | | | Operating Leases | | | | | | | |
Operating lease expense | Operating lease expense | | $ | 1,416 | | | $ | 1,419 | | | $ | 4,254 | | | $ | 4,411 | | Operating lease expense | $ | 1,973 | | | $ | 1,416 | | | $ | 5,821 | | | $ | 4,254 | |
Finance Leases | Finance Leases | | Finance Leases | |
Amortization of ROU assets | Amortization of ROU assets | | 89 | | | 83 | | | 262 | | | 244 | | Amortization of ROU assets | 95 | | | 89 | | | 281 | | | 262 | |
Interest | Interest | | 40 | | | 46 | | | 125 | | | 142 | | Interest | 34 | | | 40 | | | 106 | | | 125 | |
Total | Total | | $ | 1,545 | | | $ | 1,548 | | | $ | 4,641 | | | $ | 4,797 | | Total | $ | 2,102 | | | $ | 1,545 | | | $ | 6,208 | | | $ | 4,641 | |
As of September 25, 2021,24, 2022, the weighted average remaining lease term is 4.3was 5.7 years and 5.24.1 years for operating leases and financing leases, respectively. As of December 31, 2020,2021, the weighted average remaining lease term is 3.5was 5.3 years and 5.94.9 years for operating leases and finance leases, respectively. Cash provided by operating activities includes approximately $5$2 million and $4$5 million from operating lease payments made during the nine months ended September 25, 202124, 2022 and September 26, 2020,25, 2021, respectively. Finance lease cash flows were immaterial during the nine months ended September 25, 202124, 2022 and September 26, 2020.25, 2021.
As of both September 25, 202124, 2022 and December 31, 2020,2021, assets acquired under finance leases of $2 million and $2 million, respectively, are reflected in Property, Plant“property, plant and Equipment, net.equipment, net” in the consolidated balance sheets. The Company’s finance leases are included as debtin “long-term debt” and thetheir maturities for the remainder of 2021 and the next four years and thereafter are includeddisclosed in Note 7 — Debt and Finance Leases.
The Company’s consolidated balance sheet includessheets include the following operating lease assets and liabilities:
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| Balance Sheet Classification | | September 25, 2021 | | December 31, 2020 |
Right-of-use assets | Other assets | | $ | 12,865 | | | $ | 15,847 | |
Lease liabilities, current | Accrued and other current liabilities | | $ | 5,256 | | | $ | 4,886 | |
Lease liabilities, non-current | Other long-term liabilities | | $ | 8,430 | | | $ | 11,974 | |
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As of September 25, 2021, operating lease maturities for the remainder of 2021 through 2025 and thereafter are as follows:
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| September 25, 2021 |
Remainder of 2021 | $ | 1,484 | |
2022 | 5,875 | |
2023 | 4,998 | |
2024 | 1,481 | |
2025 | 648 | |
Thereafter | 462 | |
Total minimum lease payments | $ | 14,948 | |
Less: imputed interest | (1,262) | |
Present value of future minimum lease payments | $ | 13,686 | |
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| Balance Sheet Classification | | September 24, 2022 | | December 31, 2021 |
ROU assets | Other assets | | $ | 17,068 | | | $ | 18,316 | |
Lease liabilities, current | Accrued and other current liabilities | | $ | 5,024 | | | $ | 6,050 | |
Lease liabilities, non-current | Other liabilities | | $ | 12,423 | | | $ | 12,551 | |
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Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements - (Unaudited) (Continued)
Operating lease maturities as of September 24, 2022 were as follows:
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Remainder of 2022 | $ | 1,773 | |
2023 | 5,880 | |
2024 | 3,676 | |
2025 | 2,784 | |
2026 | 2,106 | |
Thereafter | 7,180 | |
Total minimum lease payments | 23,399 | |
Less: imputed interest | (5,952) | |
Present value of future minimum lease payments | $ | 17,447 | |
6. Accrued and Other Current Liabilities
The Company’s accrued and other current liabilities included the following:
| | | September 25, 2021 | | December 31, 2020 | | September 24, 2022 | | December 31, 2021 |
Accrued customer incentives and prepayments | $ | 27,660 | | | $ | 29,387 | | |
Accrued customer incentives | | Accrued customer incentives | $ | 29,546 | | | $ | 26,726 | |
Accrued payroll and benefits | Accrued payroll and benefits | 22,354 | | | 21,500 | | Accrued payroll and benefits | 18,533 | | | 13,363 | |
Accrued interest | Accrued interest | 14,934 | | | 3,230 | | Accrued interest | 15,290 | | | 19,153 | |
Accrued income taxes | Accrued income taxes | 5,697 | | | 5,052 | | Accrued income taxes | 7,639 | | | 9,210 | |
Accrued stumpage | 2,608 | | | 10,045 | | |
Accrued property and other taxes | Accrued property and other taxes | 9,951 | | | 3,995 | | Accrued property and other taxes | 9,341 | | | 4,074 | |
Deferred revenue (a) | Deferred revenue (a) | 20,463 | | | 721 | | Deferred revenue (a) | 20,796 | | | 22,518 | |
| Other current liabilities | Other current liabilities | 34,451 | | | 35,785 | | Other current liabilities | 52,421 | | | 41,080 | |
Total accrued and other current liabilities | $ | 138,118 | | | $ | 109,715 | | |
Accrued and other current liabilities | | Accrued and other current liabilities | $ | 153,566 | | | $ | 136,124 | |
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(a) In JanuaryIncludes CAD $25 million (approximately USD $20 million) associated with funds received in 2021 the Company's Canadian subsidiaries applied for the Canada Emergency Wage Subsidy (“CEWS”) in the amount of CAD $25 million for periods between March 2020 and August 2020. As of September 25, 2021, the Company had received the full amount.. All CEWS claims are subject to mandatory audit. The Company will recognize amounts from these claims in income at the time that there is sufficient evidence that it will not be required to repay such amounts.
7. Debt and Finance Leases
The Company’s debt and finance leases included the following:
| | | September 25, 2021 | | December 31, 2020 | | September 24, 2022 | | December 31, 2021 |
ABL Credit Facility due 2025, $76 million available, bearing interest 0.25% LIBOR floor plus 2.50%, interest rate of 2.75% at September 25, 2021 | | $ | — | | | $ | — | | |
ABL Credit Facility due 2025: $128 million available, bearing interest of 5.33% (3.08% LIBOR plus 2.25%) at September 24, 2022 | | ABL Credit Facility due 2025: $128 million available, bearing interest of 5.33% (3.08% LIBOR plus 2.25%) at September 24, 2022 | $ | — | | | $ | — | |
Senior Secured Notes due 2026 at a fixed interest rate of 7.625% | Senior Secured Notes due 2026 at a fixed interest rate of 7.625% | | 500,000 | | | 500,000 | | Senior Secured Notes due 2026 at a fixed interest rate of 7.625% | 475,000 | | | 475,000 | |
Senior Notes due 2024 at a fixed interest rate of 5.5% | Senior Notes due 2024 at a fixed interest rate of 5.5% | | 369,185 | | | 495,647 | | Senior Notes due 2024 at a fixed interest rate of 5.5% | 334,185 | | | 369,185 | |
Canadian dollar, fixed interest rate term loans with rates ranging from 5.5% to 6.86% and maturity dates ranging from July 2022 through April 2028, secured by certain assets of the Temiscaming mill | | 68,332 | | | 73,791 | | |
Canadian dollar, fixed interest rate term loans with rates ranging from 5.50% to 6.86% and maturity dates ranging from October 2022 through April 2028, secured by certain assets of the Temiscaming mill | | Canadian dollar, fixed interest rate term loans with rates ranging from 5.50% to 6.86% and maturity dates ranging from October 2022 through April 2028, secured by certain assets of the Temiscaming mill | 47,218 | | | 65,451 | |
Other loans (a) | Other loans (a) | | 15,574 | | | 18,193 | | Other loans (a) | 19,048 | | | 18,280 | |
Short-term factoring facility-France | Short-term factoring facility-France | | 597 | | | 5,089 | | Short-term factoring facility-France | 2,127 | | | 7,118 | |
Finance lease obligation | Finance lease obligation | | 2,228 | | | 2,489 | | Finance lease obligation | 1,857 | | | 2,138 | |
Total debt principal payments due | Total debt principal payments due | | 955,916 | | | 1,095,209 | | Total debt principal payments due | 879,435 | | | 937,172 | |
Less: Debt premium, original issue discount and issuance costs, net | Less: Debt premium, original issue discount and issuance costs, net | | (9,394) | | | (11,272) | | Less: Debt premium, original issue discount and issuance costs, net | (6,875) | | | (8,461) | |
Total debt | Total debt | | 946,522 | | | 1,083,937 | | Total debt | 872,560 | | | 928,711 | |
Less: Debt due within one year | Less: Debt due within one year | | (22,482) | | | (17,100) | | Less: Debt due within one year | (21,554) | | | (37,680) | |
Long-term debt | Long-term debt | | $ | 924,040 | | | $ | 1,066,837 | | Long-term debt | $ | 851,006 | | | $ | 891,031 | |
(a) Primarily loans for energy projects in France. | | | | | |
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(a) Consist of loans for energy and bioethanol projects in France.
Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements - (Unaudited) (Continued)
During the third quarter of 2022, the Company repaid a Canadian dollar fixed interest rate term loan in the amount of CAD $12 million (USD $9 million).
During the second and third quarters of 2022, the Company repurchased approximately $127$20 million and $15 million, respectively, of its 5.50% Senior Notes5.5% unsecured senior notes due 2024 (the “Unsecured Notes”) through open-market transactions and retired such Unsecured Notesthe notes for cash of approximately $124$20 million in cash. In connection with the repurchases, the Company wrote off $1and $15 million, of deferred financing costs associated with the Unsecured Notes. Therespectively. A net gain of $2less than $1 million ison the repurchases was recorded in Gainto “gain on debt extinguishmentextinguishment” in the Consolidated Statementconsolidated statements of Income.
As of September 25, 2021, debt and finance lease payments dueoperations during the remainder of 2021,nine months ended September 24, 2022.
During the next four yearsthree and thereafter are as follows:
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| Finance Lease Payments | | | Debt Principal Payments |
Remainder of 2021 | $ | 129 | | | | $ | 4,703 | |
2022 | 515 | | | | 30,115 | |
2023 | 515 | | | | 10,232 | |
2024 | 515 | | | | 379,338 | |
2025 | 515 | | | | 10,195 | |
Thereafter | 472 | | | | 519,105 | |
Total principal payments | $ | 2,661 | | | | $ | 953,688 | |
Less: Imputed interest | 433 | | | | |
Present value minimum finance lease payments | $ | 2,228 | | | | |
8. Environmental Liabilities
An analysis of liabilities for the nine months ended September 25, 2021, isthe Company recorded a $2 million gain on extinguishment on the repurchase of $127 million of Unsecured Notes.
As of September 24, 2022, the Company’s debt principal payments were due as follows:
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Remainder of 2022 | $ | 14,515 | |
2023 | 9,995 | |
2024 | 344,890 | |
2025 | 10,594 | |
2026 | 485,028 | |
Thereafter | 12,556 | |
Total debt principal payments, excluding finance lease obligation | $ | 877,578 | |
8. Environmental Liabilities
The Company’s environmental liabilities balance changed as follows during the nine months ended September 24, 2022:
| | | | | |
| |
Balance at December 31, 20202021 | $ | 171,679171,222 | |
Increase in liabilities | 2,9722,803 | |
Payments | (4,456)(3,071) | |
Foreign currency adjustments | 37 (654) | |
Balance at September 25, 202124, 2022 | 170,232170,300 | |
Less: Current portion | (8,685)(11,273) | |
Long-term environmental liabilities | $ | 161,547159,027 | |
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 25, 2021,24, 2022, the Company estimates this exposure could range up to approximately $78$84 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
Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements - (Unaudited) (Continued)
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 ofhas used derivative financial instruments to manage interest rate and foreign currency exchange rate exposure butexposure: it does not allowuse derivatives to be used for trading or speculative purposes.
Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements - (Unaudited) (Continued)
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 (loss) until earnings are affected by the hedged transaction and are then reported in current earnings. Changes in the fair value of undesignated derivative instruments and the ineffective portion of designated derivative instruments are reported in current earnings.
In December 2020, the Company terminated all outstanding derivative instruments, which had been previously designated as hedging instruments and had various maturity dates through 2028. Accumulated gains and losses associated with these instruments were deferred as a component of accumulated other comprehensive income (loss), totaling a net after tax gain of $2 million as of December 31, 2020, to be recognized in earnings as the underlying hedged transactions occur and affect earnings. During the three and nine months ended September 25, 2021, the Company recognized after-tax gains of $86 thousand and $2.8 million, respectively, associated with the deferred component in accumulated other comprehensive income (loss) related to these settlements. A $0.9 million net after-tax loss remains deferred within accumulated other comprehensive income (loss) as of September 25, 2021, which will be recognized in earnings as the underlying hedged transactions occur and affect earnings.
Interest Rate Risk
The Company’s current debt obligations are primarily fixed and therefore not materially exposed to variability in interest payments due to changes in interest rates. The Company previously entered into interest rate swap agreements to reduce the volatility of interest expense, achieve a desired proportion of fixed-rate versus floating-rate debt and to hedge the variability in cash flows attributable to interest rate risks caused by changes in the LIBOR benchmark.
The Company had designated the swaps as cash flow hedges and assesses their effectiveness using the hypothetical derivative method in conjunction with regression. Effective gains and losses deferred to AOCI are reclassified into earnings over the life of the associated hedge. Ineffective gains and losses are classified to earnings immediately. There was no hedge ineffectiveness during 2020.
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.USD. Management may use foreign currency forward contracts to selectively hedge its foreign currency cash flows exposure and manage risk associated with changes in currency exchange rates. The Company’s principal foreign currency exposure is to the Canadian dollar,CAD, and to a lesser extent, the euro.
There were no derivatives designated as hedging instruments during the three and nine months ended September 24, 2022. The effects of derivatives designated as hedging instruments, the related changes in AOCI and the gains and losses in income is as follows:
Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements - (Unaudited) (Continued)
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended September 25, 2021 | | | | | | |
Derivatives Designated as Hedging Instruments | | Gain (Loss) Recognized in OCI on Derivative | | Gain (Loss) Reclassified from AOCI into Income | | Location on Statement of Income | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Foreign exchange forward contracts | | $ | — | | | $ | (99) | | | Interest income and other, net | | | | |
| | | | | | | | | | |
| | Three Months Ended September 26, 2020 | | | | | | |
| | Gain (Loss) Recognized in OCI on Derivative | | Gain (Loss) Reclassified from AOCI into Income | | Location on Statement of Income | | | | |
Interest rate swaps | | $ | 273 | | | $ | (595) | | | Interest expense | | | | |
Foreign exchange forward contracts | | $ | 2,176 | | | $ | 223 | | | Other operating income (expense), net | | | | |
Foreign exchange forward contracts | | $ | 3,197 | | | $ | (3,197) | | | Cost of sales | | | | |
Foreign exchange forward contracts | | $ | 1,992 | | | $ | 1,316 | | | Interest income and other, net | | | | |
| | | | | | | | | | |
| | Nine Months Ended September 25, 2021 | | | | | | |
Derivatives Designated as Hedging Instruments | | Gain (Loss) Recognized in OCI on Derivative | | Gain (Loss) Reclassified from AOCI into Income | | Location on Statement of Income | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Foreign exchange forward contracts | | $ | — | | | $ | 4,088 | | | Cost of sales | | | | |
Foreign exchange forward contracts | | $ | — | | | $ | (301) | | | Interest income and other, net | | | | |
| | | | | | | | | | |
| | Nine Months Ended September 26, 2020 | | | | | | |
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 | | $ | (1,709) | | | $ | (1,431) | | | Interest expense | | | | |
Foreign exchange forward contracts | | $ | (18,442) | | | $ | (771) | | | Other operating income (expense), net | | | | |
Foreign exchange forward contracts | | $ | 6,666 | | | $ | (6,666) | | | Cost of sales | | | | |
Foreign exchange forward contracts | | $ | (2,718) | | | $ | (3,281) | | | Interest income and other, net | | | | |
The effects of derivative instruments not designated as hedging instruments onfor the consolidated statement of incomethree and nine months ended September 25, 2021 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 25, 2021 | | September 26, 2020 | | September 25, 2021 | | September 26, 2020 |
Foreign exchange forward contracts | | Other operating income (expense), net | | $ | — | | | $ | — | | | $ | — | | | $ | (703) | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | Three Months Ended September 25, 2021 | | | | | | |
Derivatives Designated as Hedging Instruments | | Gain (Loss) Recognized in OCI | | Gain (Loss) Reclassified from AOCI into Income | | Location on Statement of Income | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Foreign exchange forward contracts | | $ | — | | | $ | (99) | | | Interest income and other, net | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | Nine Months Ended September 25, 2021 | | | | | | |
Derivatives Designated as Hedging Instruments | | Gain (Loss) Recognized in OCI | | Gain (Loss) Reclassified from AOCI into Income | | Location on Statement of Income | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Foreign exchange forward contracts | | $ | — | | | $ | 4,088 | | | Cost of sales | | | | |
Foreign exchange forward contracts | | $ | — | | | $ | (301) | | | Interest income and other, net | | | | |
The after-tax amounts of unrealized gains (losses)gain (loss) in AOCI related to hedge derivatives areis presented below:
| | | | | | | | | | | | | | |
| | September 25, 2021 | | December 31, 2020 |
| | | | |
Foreign exchange cash flow hedges | | $ | (934) | | | $ | 1,834 | |
The portion of future reclassifications from AOCI into earnings will fluctuate as the underlying hedged transactions occur and affect earnings.
| | | | | | | | | | | | | | |
| | September 24, 2022 | | December 31, 2021 |
| | | | |
Foreign exchange cash flow hedges, net of tax | | $ | (623) | | | $ | (847) | |
Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements - (Unaudited) (Continued)
10. Fair Value Measurements
The following table presents the carrying amount, estimated fair values and categorization under the fair value hierarchy for financial instruments held by the Company, using market information and what management believes to be appropriate valuation methodologies:
| | | September 25, 2021 | | | December 31, 2020 | | September 24, 2022 | | | December 31, 2021 |
| | Carrying Amount | | Fair Value | | | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value (b) | | | Carrying Amount | | Fair Value (b) |
Assets: | Assets: | | Level 1 | | Level 2 | | | | Level 1 | | Level 2 | | Assets: | Carrying Amount | | Level 1 | | Level 2 | | Carrying Amount | | Level 1 | | Level 2 | |
Cash and cash equivalents | Cash and cash equivalents | $ | 279,156 | | | $ | 279,156 | | | $ | — | | | | $ | 93,653 | | | $ | 93,653 | | | $ | — | | | Cash and cash equivalents | | | | | | | | | | | |
| Cash | | Cash | $ | 97,771 | | | $ | 97,771 | | | $ | — | | | | $ | 253,307 | | | $ | 253,307 | | | $ | — | | |
Money market and similar funds | | Money market and similar funds | 33,902 | | | 33,902 | | | — | | | | — | | | — | | | — | | |
| Investment in GreenFirst equity securities | Investment in GreenFirst equity securities | $ | 34,204 | | | $ | — | | | $ | 34,204 | | | | $ | — | | | $ | — | | | $ | — | | | Investment in GreenFirst equity securities | — | | | — | | | — | | | | 38,510 | | | — | | | 38,510 | | |
| Liabilities (a): | | | | | |
Liabilities: (a) | | Liabilities: (a) | | | | |
| Fixed-rate long-term debt | Fixed-rate long-term debt | 943,697 | | | — | | | 989,112 | | | | 1,076,359 | | | — | | | 1,050,287 | | | Fixed-rate long-term debt | $ | 868,576 | | | $ | — | | | $ | 823,481 | | | | $ | 919,455 | | | $ | — | | | $ | 964,308 | | |
|
——————————————
(a) Liabilities exclude finance lease obligation.
(b) The Company did not have Level 3 assets or liabilities at September 24, 2022 or December 31, 2021.
The Company uses the following methods and assumptions in estimating the fair value of its financial instruments:
Cash and cash equivalents— TheCash and cash equivalents are all 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.
Investment The Company had $34 million of investments in GreenFirst shares —money market and similar funds as of September 24, 2022, measured using level 1 inputs. The fair valueCompany did not invest in any such funds as of the shares of common stock received in connection with the sale of the lumber and newsprint assets to GreenFirst reflects a discount for lack of marketability (“DLOM”) given the restriction on sale by the Company for a minimum of six months following the close of the transaction. The primary inputs in the fair value estimate are expected term, dividend yield, volatility and risk-free rate. All inputs to the DLOM are obvservable. GreenFirst is based in Canada and currently does not pay a dividend. The following are the key inputs at each measurement date:
| | | | | | | | | | | | | | |
| | At closing of transaction | | At period end |
Expected Term | | 0.5 years | | 0.425 years |
Risk-free rate | | 0.20 | % | | 0.15 | % |
Dividend yield | | — | | | — | |
Volatility | | 92.04 | % | | 88.79 | % |
| | | | |
DLOM | | 14.38 | % | | 12.90 | % |
December 31, 2021.
Debt — The fair value of fixed rate debt is based upon quoted market prices for debt with similar terms and maturities. The variable rate debt adjusts with changes in the market rate, therefore the carrying value approximates fair value.
Investment in GreenFirst shares — The Company received 28.7 million shares of GreenFirst common stock in connection with the sale of the lumber and newsprint assets to GreenFirst, which the Company was required to hold for a minimum of six months following the close of the transaction. Accordingly, prior to February 28, 2022, the fair value of these shares reflected a discount for lack of marketability (“DLOM”) given the restriction on sale by the Company. The primary inputs in the fair value estimate during the minimum holding period were expected term, dividend yield, volatility and risk-free rate. All inputs to the DLOM were observable. In May 2022, the Company sold the 28.7 million common shares for $43 million.
The following were the key inputs at each measurement date:
| | | | | | | | | | | |
| December 31, 2021 | | At closing of transaction |
Expected Term | 0.16 years | | 0.5 years |
Risk-free rate | 0.10 | % | | 0.20 | % |
Dividend yield | — | | | — | |
Volatility | 73.77 | % | | 92.04 | % |
DLOM | 6.77 | % | | 14.38 | % |
Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements - (Unaudited) (Continued)
11. Accumulated Other Comprehensive Income (Loss)
The components of AOCI are as follows:include:
| | | Nine Months Ended | | Nine Months Ended |
| | September 25, 2021 | | September 26, 2020 | | September 24, 2022 | | September 25, 2021 |
Unrecognized components of employee benefit plans, net of tax: | Unrecognized components of employee benefit plans, net of tax: | | | | Unrecognized components of employee benefit plans, net of tax: | | | |
Balance, beginning of year | Balance, beginning of year | $ | (146,614) | | | $ | (126,638) | | Balance, beginning of year | $ | (76,849) | | | $ | (146,614) | |
Other comprehensive gain (loss) before reclassifications | Other comprehensive gain (loss) before reclassifications | (236) | | | 4,781 | | Other comprehensive gain (loss) before reclassifications | — | | | (236) | |
Income tax on other comprehensive loss | Income tax on other comprehensive loss | 61 | | | (1,238) | | Income tax on other comprehensive loss | — | | | 61 | |
Reclassifications to earnings: (a) | Reclassifications to earnings: (a) | | Reclassifications to earnings: (a) | |
Pension settlement loss | Pension settlement loss | 226 | | | — | | Pension settlement loss | — | | | 226 | |
Amortization of losses | Amortization of losses | 12,258 | | | 10,143 | | Amortization of losses | 7,466 | | | 12,258 | |
Amortization of prior service costs | Amortization of prior service costs | 413 | | | 422 | | Amortization of prior service costs | 24 | | | 413 | |
| Income tax on reclassifications | Income tax on reclassifications | (2,853) | | | (2,061) | | Income tax on reclassifications | (1,646) | | | (2,853) | |
Plans included in sale of assets to GreenFirst | Plans included in sale of assets to GreenFirst | 4,012 | | | — | | Plans included in sale of assets to GreenFirst | — | | | 4,012 | |
Income Tax on plans included in sale of assets to GreenFirst | Income Tax on plans included in sale of assets to GreenFirst | (1,039) | | | — | | Income Tax on plans included in sale of assets to GreenFirst | — | | | (1,039) | |
| Net comprehensive gain on employee benefit plans, net of tax | Net comprehensive gain on employee benefit plans, net of tax | 12,842 | | | 12,047 | | Net comprehensive gain on employee benefit plans, net of tax | 5,844 | | | 12,842 | |
Balance, end of period | Balance, end of period | (133,772) | | | (114,591) | | Balance, end of period | (71,005) | | | (133,772) | |
| Unrealized gain (loss) on derivative instruments, net of tax: | Unrealized gain (loss) on derivative instruments, net of tax: | | Unrealized gain (loss) on derivative instruments, net of tax: | |
Balance, beginning of year | Balance, beginning of year | 1,834 | | | 1,290 | | Balance, beginning of year | (847) | | | 1,834 | |
Other comprehensive gain (loss) before reclassifications | — | | | (16,203) | | |
Income tax on other comprehensive income | — | | | 3,778 | | |
| Reclassifications to earnings: (b) | Reclassifications to earnings: (b) | | Reclassifications to earnings: (b) | |
Interest rate contracts | — | | | 1,431 | | |
| Foreign exchange contracts | Foreign exchange contracts | (3,787) | | | 10,718 | | Foreign exchange contracts | 258 | | | (3,787) | |
Income tax on reclassifications | Income tax on reclassifications | 1,020 | | | (2,666) | | Income tax on reclassifications | (34) | | | 1,020 | |
Net comprehensive loss on derivative instruments, net of tax | (2,767) | | | (2,942) | | |
Net comprehensive gain (loss) on derivative instruments, net of tax | | Net comprehensive gain (loss) on derivative instruments, net of tax | 224 | | | (2,767) | |
Balance, end of period | Balance, end of period | (933) | | | (1,652) | | Balance, end of period | (623) | | | (933) | |
| Foreign currency translation adjustments: | Foreign currency translation adjustments: | | Foreign currency translation adjustments: | |
Balance, beginning of year | Balance, beginning of year | 11,145 | | | (13,879) | | Balance, beginning of year | (6,774) | | | 11,145 | |
Foreign currency translation adjustment, net of tax of $0 and $0 | Foreign currency translation adjustment, net of tax of $0 and $0 | (10,558) | | | 9,989 | | Foreign currency translation adjustment, net of tax of $0 and $0 | (30,561) | | | (10,558) | |
Balance, end of period | Balance, end of period | 587 | | | (3,890) | | Balance, end of period | (37,335) | | | 587 | |
| Accumulated other comprehensive income (loss), end of period | $ | (134,118) | | | $ | (120,133) | | |
Accumulated other comprehensive loss, end of period | | Accumulated other comprehensive loss, end of period | $ | (108,963) | | | $ | (134,118) | |
——————————————
(a)The AOCI components for defined benefit pension and post-retirement plans are included in the computation of net periodic benefit cost. See Note 15—15 — Employee Benefit Plans for additionalfurther information.
(b)Reclassifications of interest rate contracts are recorded in interest expense. Reclassifications of foreign currency exchange contracts are recorded in cost of sales, other operating income or non-operating income as appropriate. See Note 9 —Derivative Instruments for additionalfurther information.
Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements - (Unaudited) (Continued)
12. Stockholders'Stockholders’ Equity
An analysis of stockholders’ equity is shown below (share amounts not in thousands):
| | | | Common Stock | | | Additional Paid in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total Stockholders’ Equity |
| | Common Stock | | | Additional Paid in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total Stockholders’ Equity | | Shares | | Par Value | | | Additional Paid in Capital | Retained Earnings | |
| Shares | | Par Value | | | | |
For the nine months ended September 25, 2021 | | | | | | | | | | |
Balance, January 1, 2021 | 63,359,839 | | | $ | 633 | | | | $ | 405,161 | | | $ | 422,928 | | | $ | (133,635) | | | $ | 695,087 | | |
Net income (loss) | — | | | — | | | | — | | | 90,443 | | | — | | | 90,443 | | |
Other comprehensive income (loss), net of tax | — | | | — | | | | — | | | — | | | (483) | | | (483) | | |
Nine Months Ended September 24, 2022 | | Nine Months Ended September 24, 2022 | | | | | | | | | | | | |
Balance at December 31, 2021 | | Balance at December 31, 2021 | 63,738,409 | | | $ | 637 | | | | $ | 408,834 | | | $ | 489,342 | | | $ | (84,470) | | | $ | 814,343 | |
Net loss | | Net loss | — | | | — | | | | — | | | (18,511) | | | — | | | (18,511) | |
Other comprehensive loss, net of tax | | Other comprehensive loss, net of tax | — | | | — | | | | — | | | — | | | (24,493) | | | (24,493) | |
Issuance of common stock under incentive stock plans | Issuance of common stock under incentive stock plans | 509,713 | | | 5 | | | | (5) | | | — | | | — | | | — | | Issuance of common stock under incentive stock plans | 294,936 | | | 3 | | | | (3) | | | — | | | — | | | — | |
Stock-based compensation | Stock-based compensation | — | | | — | | | | 1,619 | | | — | | | — | | | 1,619 | | Stock-based compensation | — | | | — | | | | 8,687 | | | — | | | — | | | 8,687 | |
Repurchase of common shares (a) | Repurchase of common shares (a) | (132,196) | | | (1) | | | | (1,421) | | | — | | | — | | | (1,422) | | Repurchase of common shares (a) | (62,179) | | | (1) | | | | (302) | | | — | | | — | | | (303) | |
Balance September 25, 2021 | 63,737,356 | | | $ | 637 | | | | $ | 405,354 | | | $ | 513,371 | | | $ | (134,118) | | | $ | 785,244 | | |
Balance at September 24, 2022 | | Balance at September 24, 2022 | 63,971,166 | | | $ | 639 | | | | $ | 417,216 | | | $ | 470,831 | | | $ | (108,963) | | | $ | 779,723 | |
| For the three months ended September 25, 2021 | | | | |
Balance, June 26, 2021 | 63,737,356 | | | $ | 637 | | | | $ | 404,120 | | | $ | 518,129 | | | $ | (136,045) | | | $ | 786,841 | | |
Net income (loss) | — | | | — | | | | — | | | (4,758) | | | — | | | (4,758) | | |
Three Months Ended September 24, 2022 | | Three Months Ended September 24, 2022 | | | |
Balance at June 25, 2022 | | Balance at June 25, 2022 | 63,971,166 | | | $ | 639 | | | | $ | 415,257 | | | $ | 441,224 | | | $ | (96,281) | | | $ | 760,839 | |
Net income | | Net income | — | | | — | | | | — | | | 29,607 | | | — | | | 29,607 | |
Other comprehensive income (loss), net of tax | Other comprehensive income (loss), net of tax | — | | | — | | | | — | | | — | | | 1,927 | | | 1,927 | | Other comprehensive income (loss), net of tax | — | | | — | | | | — | | | — | | | (12,682) | | | (12,682) | |
| Stock-based compensation | | Stock-based compensation | — | | | — | | | | 1,959 | | | — | | | — | | | 1,959 | |
| Balance at September 24, 2022 | | Balance at September 24, 2022 | 63,971,166 | | | $ | 639 | | | | $ | 417,216 | | | $ | 470,831 | | | $ | (108,963) | | | $ | 779,723 | |
| Nine Months Ended September 25, 2021 | | Nine Months Ended September 25, 2021 | | | |
Balance at December 31, 2020 | | Balance at December 31, 2020 | 63,359,839 | | | $ | 633 | | | | $ | 405,161 | | | $ | 422,928 | | | $ | (133,635) | | | $ | 695,087 | |
Net income | | Net income | — | | | — | | | | — | | | 90,443 | | | — | | | 90,443 | |
Other comprehensive loss, net of tax | | Other comprehensive loss, net of tax | — | | | — | | | | — | | | — | | | (483) | | | (483) | |
| Issuance of common stock under incentive stock plans | Issuance of common stock under incentive stock plans | — | | | — | | | | — | | | — | | | — | | | — | | Issuance of common stock under incentive stock plans | 509,713 | | | 5 | | | | (5) | | | — | | | — | | | — | |
Stock-based compensation | Stock-based compensation | — | | | — | | | | 1,234 | | | — | | | — | | | 1,234 | | Stock-based compensation | — | | | — | | | | 1,619 | | | — | | | — | | | 1,619 | |
Repurchase of common shares (a) | Repurchase of common shares (a) | — | | | — | | | | — | | | — | | | — | | | — | | Repurchase of common shares (a) | (132,196) | | | (1) | | | | (1,421) | | | — | | | — | | | (1,422) | |
| Balance, September 25, 2021 | 63,737,356 | | | $ | 637 | | | | $ | 405,354 | | | $ | 513,371 | | | $ | (134,118) | | | $ | 785,244 | | |
Balance at September 25, 2021 | | Balance at September 25, 2021 | 63,737,356 | | | $ | 637 | | | | $ | 405,354 | | | $ | 513,371 | | | $ | (134,118) | | | $ | 785,244 | |
| For the nine months ended September 26, 2020 | | | | |
Balance, January 1, 2020 | 63,136,129 | | | $ | 632 | | | | $ | 399,020 | | | $ | 422,373 | | | $ | (139,227) | | | $ | 682,798 | | |
Net income (loss) | — | | | — | | | | — | | | (8,130) | | | — | | | (8,130) | | |
Other comprehensive income (loss), net of tax | — | | | — | | | | — | | | — | | | 19,094 | | | 19,094 | | |
| Issuance of common stock under incentive stock plans | 390,448 | | | 4 | | | | (4) | | | — | | | — | | | — | | |
Stock-based compensation | — | | | — | | | | 6,839 | | | — | | | — | | | 6,839 | | |
Repurchase of common shares (a) | (191,659) | | | (3) | | | | (454) | | | — | | | — | | | (457) | | |
Three Months Ended September 25, 2021 | | Three Months Ended September 25, 2021 | | | |
Balance at June 26, 2021 | | Balance at June 26, 2021 | 63,737,356 | | | $ | 637 | | | | $ | 404,120 | | | $ | 518,129 | | | $ | (136,045) | | | $ | 786,841 | |
Net loss | | Net loss | — | | | — | | | | — | | | (4,758) | | | — | | | (4,758) | |
Other comprehensive income, net of tax | | Other comprehensive income, net of tax | — | | | — | | | | — | | | — | | | 1,927 | | | 1,927 | |
| Balance, September 26, 2020 | 63,334,918 | | | $ | 633 | | | | $ | 405,401 | | | $ | 414,243 | | | $ | (120,133) | | | $ | 700,144 | | |
| For the three months ended September 26, 2020 | | | | |
Balance, June 27, 2020 | 63,347,326 | | | $ | 633 | | | | $ | 403,737 | | | $ | 385,383 | | | $ | (141,027) | | | $ | 648,726 | | |
Net income (loss) | — | | | — | | | | — | | | 28,860 | | | — | | | 28,860 | | |
Other comprehensive income (loss), net of tax | — | | | — | | | | — | | | — | | | 20,894 | | | 20,894 | | |
| Issuance of common stock under incentive stock plans | (6,305) | | | — | | | | — | | | — | | | — | | | — | | |
Stock-based compensation | Stock-based compensation | — | | | — | | | | 1,682 | | | — | | | — | | | 1,682 | | Stock-based compensation | — | | | — | | | | 1,234 | | | — | | | — | | | 1,234 | |
Repurchase of common shares (a) | (6,103) | | | — | | | | (18) | | | — | | | — | | | (18) | | |
| Balance, September 26, 2020 | 63,334,918 | | | $ | 633 | | | | $ | 405,401 | | | $ | 414,243 | | | $ | (120,133) | | | $ | 700,144 | | |
| Balance at September 25, 2021 | | Balance at September 25, 2021 | 63,737,356 | | | $ | 637 | | | | $ | 405,354 | | | $ | 513,371 | | | $ | (134,118) | | | $ | 785,244 | |
——————————————
(a) Repurchased to satisfy the tax withholding requirements related to the issuance of stock under the Rayonier Advanced Materials Incentive Stock Plan.
Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements - (Unaudited) (Continued)
Common Stock Buyback
OnIn January 29, 2018, the Board of Directors authorized a share buyback program pursuant to which the Company may, from time to time, purchase shares of its common stock with an aggregate purchase price of up to $100 million. During the three and nine months ended September 25, 202124, 2022 and September 26, 2020,25, 2021 the Company did not repurchase any common shares under this buyback program. As of September 25, 2021,24, 2022, there was approximately $60 million of share repurchase authorization remaining under the program. The Company does not expect to utilize any further authorization in the near future.
Shareholder Rights Plan
In March 2022, the Company adopted a shareholder rights plan (the “Rights Agreement”) whereby a significant penalty is imposed upon any person or group which acquires beneficial ownership of 10% or more of the Company’s common stock without the approval of the Board of Directors (the “Board”). Also on this date, the Board declared a dividend of one preferred share purchase right (a “Right”) for each outstanding share of common stock of the Company, par value $0.01 per share (“Company Common Stock”), which was paid to Company stockholders of record as of the close of business on March 31, 2022.
Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements - (Unaudited) (Continued)
The Rights trade with, and are inseparable from, shares of the Company Common Stock. Each Right will allow its holder to purchase from the Company one one-hundredth of a share of Series A Junior Participating Preferred Stock for $35.00, once the Rights become exercisable. This portion of a Preferred Share will give the stockholder approximately the same dividend, voting and liquidation rights as would one share of Company Common Stock. The Rights expire on March 20, 2023 and are exercisable 10 days after the public announcement or public disclosure that a person or group has acquired a beneficial ownership of 10% or more of the outstanding Company Common Stock (including certain derivative positions), subject to certain exceptions.
13. Earnings Per Share of Common StockShare
The following table provides details of the calculations of basic and diluted earnings per share:common share (share and per share amounts not in thousands):
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended |
| | September 25, 2021 | | September 26, 2020 | | September 25, 2021 | | September 26, 2020 | | September 24, 2022 | | September 25, 2021 | | September 24, 2022 | | September 25, 2021 |
Income (loss) from continuing operations | Income (loss) from continuing operations | $ | (13,394) | | | $ | 12,621 | | | $ | (21,308) | | | $ | (8,871) | | Income (loss) from continuing operations | $ | 18,355 | | | $ | (13,394) | | | $ | (30,969) | | | $ | (21,308) | |
| Income from discontinued operations | Income from discontinued operations | 8,636 | | | 16,239 | | | 111,751 | | | 741 | | Income from discontinued operations | 11,252 | | | 8,636 | | | 12,458 | | | 111,751 | |
Net income (loss) available for common stockholders | Net income (loss) available for common stockholders | $ | (4,758) | | | $ | 28,860 | | | $ | 90,443 | | | $ | (8,130) | | Net income (loss) available for common stockholders | $ | 29,607 | | | $ | (4,758) | | | $ | (18,511) | | | $ | 90,443 | |
| Shares used for determining basic earnings per share of common stock | Shares used for determining basic earnings per share of common stock | 63,737,355 | | | 63,310,689 | | | 63,610,710 | | | 63,178,342 | | Shares used for determining basic earnings per share of common stock | 63,971,166 | | | 63,737,355 | | | 63,882,920 | | | 63,610,710 | |
Dilutive effect of: | Dilutive effect of: | | Dilutive effect of: | |
Stock options | Stock options | — | | | — | | | — | | | — | | Stock options | — | | | — | | | — | | | — | |
Performance and restricted stock | Performance and restricted stock | — | | | 605,553 | | | — | | | — | | Performance and restricted stock | 1,548,941 | | | — | | | — | | | — | |
| Shares used for determining diluted earnings per share of common stock | Shares used for determining diluted earnings per share of common stock | 63,737,355 | | | 63,916,242 | | | 63,610,710 | | | 63,178,342 | | Shares used for determining diluted earnings per share of common stock | 65,520,107 | | | 63,737,355 | | | 63,882,920 | | | 63,610,710 | |
| Basic per share amounts | Basic per share amounts | | Basic per share amounts | |
Income (loss) from continuing operations | Income (loss) from continuing operations | $ | (0.21) | | | $ | 0.20 | | | $ | (0.33) | | | $ | (0.14) | | Income (loss) from continuing operations | $ | 0.29 | | | $ | (0.21) | | | $ | (0.48) | | | $ | (0.33) | |
Income from discontinued operations | Income from discontinued operations | 0.14 | | | 0.26 | | | 1.76 | | | 0.01 | | Income from discontinued operations | 0.18 | | | 0.14 | | | 0.20 | | | 1.76 | |
Net income (loss) | Net income (loss) | $ | (0.07) | | | $ | 0.46 | | | $ | 1.43 | | | $ | (0.13) | | Net income (loss) | $ | 0.47 | | | $ | (0.07) | | | $ | (0.28) | | | $ | 1.43 | |
| Diluted per share amounts | Diluted per share amounts | | | | | | | | Diluted per share amounts | |
Income (loss) from continuing operations | Income (loss) from continuing operations | $ | (0.21) | | | $ | 0.20 | | | $ | (0.33) | | | $ | (0.14) | | Income (loss) from continuing operations | $ | 0.28 | | | $ | (0.21) | | | $ | (0.48) | | | $ | (0.33) | |
Income from discontinued operations | Income from discontinued operations | 0.14 | | | 0.25 | | | 1.76 | | | 0.01 | | Income from discontinued operations | 0.17 | | | 0.14 | | | 0.20 | | | 1.76 | |
Net income (loss) | Net income (loss) | $ | (0.07) | | | $ | 0.45 | | | $ | 1.43 | | | $ | (0.13) | | Net income (loss) | $ | 0.45 | | | $ | (0.07) | | | $ | (0.28) | | | $ | 1.43 | |
Anti-dilutive instruments excluded from the computation of diluted earnings per share:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 25, 2021 | | September 26, 2020 | | September 25, 2021 | | September 26, 2020 |
Stock options | 115,973 | | | 152,281 | | | 115,973 | | | 152,281 | |
Performance and restricted stock | 2,390,153 | | | 564,425 | | | 2,390,153 | | | 2,676,002 | |
| | | | | | | |
Total anti-dilutive instruments | 2,506,126 | | | 716,706 | | | 2,506,126 | | | 2,828,283 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 24, 2022 | | September 25, 2021 | | September 24, 2022 | | September 25, 2021 |
Stock options | 78,660 | | | 115,973 | | | 78,660 | | | 115,973 | |
Performance and restricted stock | 1,517,135 | | | 2,390,153 | | | 3,726,090 | | | 2,390,153 | |
Total anti-dilutive instruments | 1,595,795 | | | 2,506,126 | | | 3,804,750 | | | 2,506,126 | |
14. Incentive Stock Plans
The Company’s total stock-based compensation expense for the three months ended September 24, 2022 and September 25, 2021 and September 26, 2020 was $1$2 million and $2$1 million, respectively. Stock-based compensation expense for the nine months ended September 24, 2022 and September 25, 2021 and September 26, 2020 was $2$9 million and $7$2 million, respectively.
Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements - (Unaudited) (Continued)
The Company made new grants of restricted stock units and performance-based stock units to certain employees during the first nine months of 2021.2022. The 20212022 restricted stock unit awards cliff vest after three years. The 20212022 performance-based stock unit awards measure total shareholder return (“TSR”) on an absolute basis and relative to peers. Participants can earn between 0 and 200250 percent of the target award. Performance below the threshold for the absolute TSRestablished thresholds would result in a 0 payout for the TSR metric.zero payout. There is a performance-based stock award and cash unit stock award that will be measured using the same objectives but paid and accounted for separately. As required by Accounting Standards Codification 718, Compensation-Stock Compensation, theThe portion of the award to be settled in cash is classified as a liability and remeasured to fair value at the end of each reporting period until settlement.
In March 2021,2022, the performance-based share units granted in 2018 were settled at an average of 60 percent of2019 vested without meeting the performance-basedperformance thresholds, resulting in no stock units awarded, resulting in the issuance of 182,811 shares of common stock.being awarded.
The following table summarizes the activity on the Company’s incentive stock awards foraward activity during the nine months ended September 25, 2021:24, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Stock Options | | Restricted Stock Units | | Performance-Based Stock Units | | |
| Options | | Weighted Average Exercise Price | | Awards | | Weighted Average Grant Date Fair Value | | Awards | | Weighted Average Grant Date Fair Value | | | | |
Outstanding at January 1, 2021 | 152,281 | | | $ | 38.26 | | | 828,955 | | | $ | 10.27 | | | 1,821,402 | | | $ | 8.77 | | | | | |
Granted | — | | | — | | | 561,025 | | | 9.71 | | | 267,086 | | | 17.61 | | | | | |
Forfeited | — | | | — | | | (132,713) | | | 10.81 | | | (326,256) | | | 22.76 | | | | | |
Exercised or settled | — | | | — | | | (326,830) | | | 13.50 | | | (302,516) | | | 8.81 | | | | | |
Expired or cancelled | (36,308) | | | 34.52 | | | — | | | — | | | — | | | — | | | | | |
Outstanding at September 25, 2021 | 115,973 | | | $ | 39.43 | | | 930,437 | | | $ | 8.72 | | | 1,459,716 | | | $ | 7.48 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Stock Options | | Restricted Stock Units | | Performance-Based Stock Units | | |
| Options | | Weighted Average Exercise Price | | Awards | | Weighted Average Grant Date Fair Value | | Awards | | Weighted Average Grant Date Fair Value | | | | |
Outstanding at January 1, 2022 | 111,124 | | | $ | 39.47 | | | 927,556 | | | $ | 8.72 | | | 1,459,716 | | | $ | 6.51 | | | | | |
Granted | — | | | — | | | 1,328,931 | | | 5.50 | | | 1,661,452 | | | 6.97 | | | | | |
Forfeited | — | | | — | | | (180,103) | | | 5.83 | | | (1,164,249) | | | 6.70 | | | | | |
Exercised or settled | — | | | — | | | (307,213) | | | 11.08 | | | — | | | — | | | | | |
Expired or cancelled | (32,464) | | | 38.24 | | | — | | | — | | | — | | | — | | | | | |
Outstanding at September 24, 2022 | 78,660 | | | $ | 39.98 | | | 1,769,171 | | | $ | 6.18 | | | 1,956,919 | | | $ | 6.79 | | | | | |
15. Employee 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., Canada and France.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, along with certain assumptions about future events.
During 2019, the Company settled certain Canadian pension liabilities through the purchase of annuity contracts with an insurance company. The settlement received final government approval, resultingresulted in the recognition of a $1 million loss during the nine months ended September 25, 2021. The settlement was recognized2021 in “Other“other components of net periodic benefitpension and OPEB, excluding service costs” in our Consolidated Statementthe consolidated statements of Incomeoperations. The Company recorded an additional $1 million loss in “other components of pension and Comprehensive Income forOPEB, excluding service costs” during the nine months ended September 25, 2021.24, 2022, related to the final asset surplus distribution to the plans’ participants.
Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements - (Unaudited) (Continued)
The following tables present the components of net periodic benefit costs from these plans that have been recorded are shown in the following table:plans:
| | | Pension | Postretirement | | Pension | Postretirement |
| | Three Months Ended | | Three Months Ended | | Three Months Ended | | Three Months Ended |
Components of Net Periodic Benefit Cost | September 25, 2021 | | September 26, 2020 | | September 25, 2021 | | September 26, 2020 | |
| | | September 24, 2022 | | September 25, 2021 | | September 24, 2022 | | September 25, 2021 |
Service cost | Service cost | $ | 2,619 | | | $ | 2,293 | | | $ | 358 | | | $ | 340 | | Service cost | $ | 2,150 | | | $ | 2,619 | | | $ | 352 | | | $ | 358 | |
Interest cost | Interest cost | 4,287 | | | 5,875 | | | 179 | | | (2,012) | | Interest cost | 4,561 | | | 4,287 | | | 215 | | | 179 | |
Expected return on plan assets | Expected return on plan assets | (9,586) | | | (9,284) | | | — | | | — | | Expected return on plan assets | (8,258) | | | (9,586) | | | — | | | — | |
Amortization of prior service cost | Amortization of prior service cost | 176 | | | 179 | | | (38) | | | (38) | | Amortization of prior service cost | 38 | | | 176 | | | (31) | | | (38) | |
Amortization of losses | Amortization of losses | 4,084 | | | 3,428 | | | 5 | | | (47) | | Amortization of losses | 2,473 | | | 4,084 | | | 17 | | | 5 | |
Pension settlement loss (gain) | 90 | | | — | | | — | | | — | | |
Pension settlement loss | | Pension settlement loss | (25) | | | 90 | | | — | | | — | |
Total net periodic benefit cost | Total net periodic benefit cost | $ | 1,670 | | | $ | 2,491 | | | $ | 504 | | | $ | (1,757) | | Total net periodic benefit cost | $ | 939 | | | $ | 1,670 | | | $ | 553 | | | $ | 504 | |
| | | Pension | Postretirement | | Pension | Postretirement |
| | Nine Months Ended | | Nine Months Ended | | Nine Months Ended | | Nine Months Ended |
Components of Net Periodic Benefit Cost | September 25, 2021 | | September 26, 2020 | | September 25, 2021 | | September 26, 2020 | |
| | | September 24, 2022 | | September 25, 2021 | | September 24, 2022 | | September 25, 2021 |
Service cost | Service cost | $ | 7,800 | | | $ | 6,774 | | | $ | 1,083 | | | $ | 1,013 | | Service cost | $ | 6,497 | | | $ | 7,800 | | | $ | 1,057 | | | $ | 1,083 | |
Interest cost | Interest cost | 13,138 | | | 17,621 | | | 530 | | | (1,583) | | Interest cost | 13,764 | | | 13,138 | | | 646 | | | 530 | |
Expected return on plan assets | Expected return on plan assets | (28,865) | | | (27,896) | | | — | | | — | | Expected return on plan assets | (24,965) | | | (28,865) | | | — | | | — | |
Amortization of prior service cost | Amortization of prior service cost | 527 | | | 537 | | | (115) | | | (115) | | Amortization of prior service cost | 116 | | | 527 | | | (92) | | | (115) | |
Amortization of losses | Amortization of losses | 12,247 | | | 10,282 | | | 11 | | | (138) | | Amortization of losses | 7,419 | | | 12,247 | | | 47 | | | 11 | |
Pension settlement loss (gain) | 980 | | | — | | | — | | | — | | |
Pension settlement loss | | Pension settlement loss | 1,154 | | | 980 | | | — | | | — | |
Total net periodic benefit cost | Total net periodic benefit cost | $ | 5,828 | | | $ | 7,318 | | | $ | 1,510 | | | $ | (823) | | Total net periodic benefit cost | $ | 3,985 | | | $ | 5,828 | | | $ | 1,658 | | | $ | 1,510 | |
Service cost is included in cost“cost of salessales” and selling,“selling, general and administrative expensesexpenses” in the statements of income,operations, as appropriate. Interest cost, expected return on plan assets, amortization of prior service cost and amortization of losses are included in other“other components of pension and OPEB, excluding service cost oncosts” in the consolidated statementstatements of income.
operations.
16. Income Taxes
Effective Tax Rate
The Company’s effective tax rate on its income from continuing operations for the three months ended September 24, 2022 was a benefit of 11 percent. The effective tax rate on its loss from continuing operations for the nine months ended September 24, 2022 was an expense of 13 percent. The Company’s effective tax rates on its loss from continuing operations for the three and nine months ended September 25, 2021 waswere benefits of 24 percent and 59 percent, respectively, compared with arespectively.
The effective tax benefit rate of 181 percent and 84 percent for the three months ended September 24, 2022 differed from the federal statutory rate of 21 percent primarily due to changes in the valuation allowance on disallowed interest deductions in the U.S. and interest received on overpayments of tax from prior years, partially offset by unfavorable tax return-to-accrual adjustments. The effective tax expense rate for the nine months ended September 26, 2020, respectively.24, 2022 differed from the federal statutory rate primarily due to changes in the valuation allowance on disallowed interest deductions in the U.S. and nondeductible executive compensation, partially offset by interest received on overpayments of tax from prior years, U.S. tax credits and favorable tax return-to-accrual adjustments.
The year to dateeffective tax benefit rate for the nine months ended September 25, 2021 effective rate differsdiffered from the federal statutory rate of 21 percent primarily due to a tax benefit recognized by remeasuring the Company’s Canadian deferred tax assets at a higher Canadian blended statutory tax rate. The Canadian statutory tax rate is higher as a result of changing the allocation of income between the Canadian provinces as a result ofafter the sale of FPGthe Company’s lumber and Newsprint.newsprint assets. Other factors impacting the effective benefit rate are return to accrualwere return-to-accrual adjustments and tax credits, partially offset by nondeductible interest expense in the U.S. and lower tax deductions on vested stock compensation.
The effective tax rate benefit for the period ended September 26, 2020 differs from the federal statutory rate primarily due to the release of certain valuation allowances related to nondeductible interest expense, benefits from the CARES Act, return to accrual adjustments and tax credits, partially offset by nondeductible interest expense in the U.S., taxable income generated from the 2020 credit agreement amendment, increases to uncertain tax position reserves, nondeductible executive compensation, and lower tax deductions on vested stock compensation.
There has been no material change to the balance of unrecognized tax benefits reported at December 31, 2020.
Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements - (Unaudited) (Continued)
Deferred Taxes
The Company’s deferred tax assets include approximately $17 million of disallowed U.S. interest deductions that the Company does not believe it will be able to realize. This asset was reduced by $1 million recognized as tax expense and increased by a net tax benefit of $5 million in the three and nine months ended September 24, 2022, respectively. In December 2019, the American Institute of Certified Public Accountants (“AICPA”) issued Technical Questions and Answers (“TQA”) 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. In strict compliance with the AICPA’s TQA, the Company has not recognized a valuation allowance on a portion of the deferred tax assets generated from disallowed interest.
Other
In August 2022, the Company received cash of $23 million, including interest of $2 million, related to a U.S. federal tax refund.
There has been a $1 million increase to the balance of unrecognized tax benefits reported at December 31, 2021.
17. Segment and Geographical Information
As a result of the announced sale of the Company’s lumber and newsprint assets, theThe Company operates in the following business segments: High Purity Cellulose, Paperboard, High-Yield Pulp and Corporate. The Corporate operations consist 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. 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.
Net sales, disaggregated by product-line,product line, was comprised of the following:
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Nine Months Ended |
| | September 25, 2021 | | September 26, 2020 | | September 25, 2021 | | September 26, 2020 | | September 24, 2022 | | September 25, 2021 | | September 24, 2022 | | September 25, 2021 |
High Purity Cellulose | High Purity Cellulose | | | | | | | | High Purity Cellulose | | | | | | | |
Cellulose Specialties | Cellulose Specialties | $ | 186,029 | | | $ | 168,549 | | | $ | 521,442 | | | $ | 489,859 | | Cellulose Specialties | $ | 243,175 | | | $ | 186,029 | | | $ | 645,169 | | | $ | 521,442 | |
Commodity Products | Commodity Products | 74,577 | | | 64,916 | | | 195,894 | | | 206,867 | | Commodity Products | 92,638 | | | 74,577 | | | 223,151 | | | 195,894 | |
Other sales (a) | Other sales (a) | 26,902 | | | 19,243 | | | 74,532 | | | 60,614 | | Other sales (a) | 33,080 | | | 26,902 | | | 84,059 | | | 74,532 | |
Total High Purity Cellulose | Total High Purity Cellulose | 287,508 | | | 252,708 | | | 791,868 | | | 757,341 | | Total High Purity Cellulose | 368,893 | | | 287,508 | | | 952,379 | | | 791,868 | |
Paperboard | Paperboard | | Paperboard | 65,039 | | | 52,188 | | | 182,512 | | | 156,799 | |
Paperboard | 52,188 | | | 46,862 | | | 156,799 | | | 140,492 | | |
High-Yield Pulp | | |
High-Yield Pulp | High-Yield Pulp | 41,877 | | | 29,622 | | | 106,207 | | | 91,444 | | High-Yield Pulp | 39,564 | | | 41,877 | | | 101,992 | | | 106,207 | |
| | Eliminations | Eliminations | (7,559) | | | (5,709) | | | (21,163) | | | (17,148) | | Eliminations | (7,150) | | | (7,559) | | | (19,601) | | | (21,163) | |
Total net sales | $ | 374,014 | | | $ | 323,483 | | | $ | 1,033,712 | | | $ | 972,128 | | |
(a) Other sales include sales of electricity, lignin and other by-products to third-parties | |
Net sales | | Net sales | $ | 466,346 | | | $ | 374,014 | | | $ | 1,217,282 | | | $ | 1,033,712 | |
——————————————
(a) Include sales of bioelectricity, lignosulfonates and other products to third parties.
Operating income (loss) by segment was comprised of the following:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| September 25, 2021 | | September 26, 2020 | | September 25, 2021 | | September 26, 2020 |
High Purity Cellulose | $ | 1,852 | | | $ | 7,752 | | | $ | 18,903 | | | $ | 9,615 | |
| | | | | | | |
Paperboard | 1,978 | | | 3,380 | | | 10,174 | | | 14,315 | |
High-Yield Pulp | 7,612 | | | 973 | | | 8,150 | | | 497 | |
Corporate | (8,616) | | | (13,215) | | | (33,498) | | | (37,864) | |
Total operating income (loss) | $ | 2,826 | | | $ | (1,110) | | | $ | 3,729 | | | $ | (13,437) | |
Identifiable assets by segment were as follows:
| | | | | | | | | | | | | | Three Months Ended | | Nine Months Ended |
| | September 25, 2021 | | December 31, 2020 | | | September 24, 2022 | | September 25, 2021 | | September 24, 2022 | | September 25, 2021 |
High Purity Cellulose | High Purity Cellulose | $ | 1,534,149 | | | $ | 1,528,929 | | | High Purity Cellulose | $ | 22,536 | | | $ | 1,852 | | | $ | 21,221 | | | $ | 18,903 | |
| Paperboard | Paperboard | 116,721 | | | 129,871 | | | Paperboard | 11,293 | | | 1,978 | | | 27,579 | | | 10,174 | |
High-Yield Pulp | High-Yield Pulp | 43,708 | | | 33,259 | | | High-Yield Pulp | 5,646 | | | 7,612 | | | 3,910 | | | 8,150 | |
Corporate and other (a) | 779,959 | | | 624,541 | | | |
Assets Held for Sale | — | | | 213,265 | | | |
Total identifiable assets | $ | 2,474,537 | | | $ | 2,529,865 | | | |
Corporate | | Corporate | (10,946) | | | (8,616) | | | (42,871) | | | (33,498) | |
Operating income (loss) | | Operating income (loss) | $ | 28,529 | | | $ | 2,826 | | | $ | 9,839 | | | $ | 3,729 | |
Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements - (Unaudited) (Continued)
(a) Includes the remainingIdentifiable assets of the lumber and newsprint operations excluded from the sale to GreenFirst.by segment were as follows:
| | | | | | | | | | | | | |
| September 24, 2022 | | December 31, 2021 | | |
High Purity Cellulose | $ | 1,638,666 | | | $ | 1,579,300 | | | |
| | | | | |
Paperboard | 114,990 | | | 114,391 | | | |
High-Yield Pulp | 49,742 | | | 38,147 | | | |
Corporate and other | 533,023 | | | 713,186 | | | |
| | | | | |
Total identifiable assets | $ | 2,336,421 | | | $ | 2,445,024 | | | |
18. Commitments and Contingencies
Commitments
The Company has no material changes to the purchase obligations presented in Note 2221 — Commitments and Contingencies in the Company’s Annual Report on2021 Form 10-K, for the year ended December 31, 2020, as filed with the SEC on March 1, 2021, that are outside the normal course of business for the nine months ended September 25, 2021.24, 2022. The Company’s purchase obligations continue to primarily consist of commitments for the purchase of natural gas, steam energy, wood chips, and electricity contracts entered into within the normal course of business.
The Company leases certain buildings, machinery and equipment under various operating leases. See Note 5 — Leases, for additionalfurther information.
Litigation and Contingencies
Final Settlement Reached in Dispute with IESO Relating to Investigation of the Kapuskasing Newsprint Facility. From the period from 2014 to early 2021, the Market Assessment and Compliance Division (“MACD”) branch of the Independent Electricity System Operator (“IESO”), the governmental agency responsible for operating the wholesale electricity market and directing the operation of the bulk electrical system in the province of Ontario, Canada, had been engaged in reviewing the Company's compliance with the published rules that govern the operation of the wholesale electricity market in Ontario, Canada. The inquiry was focused primarily on payments made by IESO to the Company between 2010 and 2019 under market rules in connection with multiple planned, extended and unplanned forced outages that caused extensive downtime, in full or in part, of the Company’s Kapuskasing, Ontario newsprint facility.
In May 2020, MACD finalized two of its four investigations into the Company’s electricity management practices at its Kapuskasing newsprint facility and issued orders asserting penalties of CAD $25 million. These orders called for the Company to pay penalties of CAD $3 million immediately and CAD $12 million over a 10 year period, with the remaining CAD $10 million to be deferred and ultimately forgiven assuming the Company otherwise complied with the orders’ remaining terms. The Company, which maintained it had complied in all material respects with the published rules, vigorously contested IESO’s orders, including through the filing of judicial review proceedings with the divisional Court (Superior Court of Justice) of Ontario seeking invalidation of the orders. At the time these orders were issued, the remaining two investigations remained open, subjecting the Company to the risk that MACD may in the future issue additional orders upon finalization of these additional investigations.
On April 19, 2021, the Company and IESO entered into Minutes of Settlement (“MOS”) pursuant to which the parties agreed to fully and finally settle all claims relating to all four of the investigations (whether completed or not) and related orders, the judicial review proceedings and underlying disputes. As part of the settlement, the Company agreed to a fixed obligation to pay a sum of CAD $12 million over a period of 5 years comprised of a CAD $4.5 million up-front payment and a CAD $7.5 million payment to be spread (on a front-weighted basis) over the next 5 anniversaries of the MOS, without interest. In addition to the foregoing, the MOS provides that a “suspended” sum of CAD $10.4 million would become due and payable in the event the Company fails to comply with any of the terms and conditions of the MOS or commits an event of default, as defined under the applicable market rules, unless such breach or event of default is remedied on a timely basis. This contingent “suspended” sum decreases annually as the scheduled fixed, or non-contingent, payments are made under the MOS. Assuming no uncured event of default or breach occurs during the repayment period, upon full payment of the CAD $12 million, the entire "suspended" sum shall be extinguished and RYAM shall be released from any payment obligation with respect thereto.
Given the parties’ finalization of and entry into the MOS, the Company considers this matter concluded (subject only to the parties’ obligations yet to be performed under the MOS).
Duties on Canadian softwood lumber sold to the U.SU.S.. The Company previously operated 6six softwood lumber mills in Ontario and Quebec, Canada and exported softwood lumber into the United States from Canada. In 2017, anti-dumping and countervailing duties were assessed byconnection with these exports, the United States Department of Commerce (“USDOC”) on lumber exported into the United States, with the Company being assigned an anti-dumping duty rate of 6 percent and a countervailing duty rate of 14 percent. In December 2020, following its administrative review of the period of April 28, 2017 through December 31, 2018, USDOC determined revised rates for anti-dumping and countervailing duties. As such, from December 2020 through the closing of the sale of the lumber assets on August 28, 2021, the Company was subject to an anti-dumping duty rate of approximately 1.6
Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements - (Unaudited) (Continued)
percent and a countervailing duty rate of approximately 7.4 percent. Canada’s legal challenge to the USDOC’s assessment of duties continues in spite of the recent revision in rates.
The Company paid approximately $112 million in softwood lumber duties through August 28, 2021, recorded as expense in the periods incurred. TheAs of September 24, 2022, the Company currently hashad a $20$38 million long-term receivable associated with the USDOC’s December 2020, determinationDecember 2021 and August 2022 determinations of the revised rates for the 2017, 2018, 2019 and 20182020 periods. 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 further administrative review processes covering periods after December 31, 2018.2020. As part of the sale of its lumber assets, the Company retainsretained all rights and obligations to softwood lumber duties, generated or incurred through the closing date of the transaction.
Other. In addition to the above, the Company is engaged in various legal and regulatory actions and proceedings and has been named as a defendant in various lawsuits and claims arising in the ordinary course of its business. While the Company has procured reasonable and customary insurance covering risks normally occurring in connection with its businesses, the Company has in certain cases retained some risk through the operation of self-insurance, primarily in the areas of workers’ compensation, property insurance and general liability. These other lawsuits and claims, either individually orand in 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 September 25, 2021,24, 2022, the Company had net exposure of $40$38 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 letters of credit have various expiration dates and will be renewed as required.
The Company had surety bonds of $86$88 million as of September 25, 2021,24, 2022, 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.
LignoTech Florida (“LTF”) is a venture in which the Company owns 45 percent and its partner Borregaard ASA owns 55 percent. The Company is a guarantor of LTF’s financing agreements and, in the event of default, expects it would only be liable for its proportional share of any repayment under the agreements. The Company’s proportion of the LTF financing agreement guarantee was $32$31 million at September 25, 2021.24, 2022.
Rayonier Advanced Materials Inc.
Notes to Consolidated Financial Statements - (Unaudited) (Continued)
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 the liability under these potential obligations due to the unique set of facts and circumstances likely to be involved with each provision.
As of September 25, 2021,24, 2022, all of the Company’s collective bargaining agreements covering its unionized employees arewere current.
19. Supplemental DisclosuresDisclosure of Cash FlowFlows Information
Supplemental disclosuresdisclosure of cash flows information were comprised of the following for the nine months ended:follows:
| | | September 25, 2021 | | September 26, 2020 | | Nine Months Ended |
| | | | | | September 24, 2022 | | September 25, 2021 |
Interest paid | Interest paid | $ | 34,852 | | | $ | 29,350 | | Interest paid | $ | 48,384 | | | $ | 34,852 | |
Income taxes paid (received) | $ | (27,268) | | | $ | 1,086 | | |
Income taxes received | | Income taxes received | (16,484) | | | (27,268) | |
Capital assets purchased on account | Capital assets purchased on account | $ | 9,609 | | | $ | 11,442 | | Capital assets purchased on account | 16,316 | | | 9,609 | |
| |
| | | | | |
Item 2. | Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
When we refer to “we,” “us,” “our” or “the Company,” we mean Rayonier Advanced Materials Inc. and its consolidated subsidiaries. References herein to “Notes to Consolidated Financial Statements” refer to the Notes to the Consolidated Financial Statements of Rayonier Advanced Materials Inc. included in Item 1 of this Quarterly Report on Form 10-Q (the “Report.”“Report”).
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to provide a reader of our consolidated financial statementsConsolidated Financial Statements with a narrative from the perspective of management on our financial condition, results of operations, liquidity and certain other factors which may affect future results. This MD&A should be read in conjunction with our 2020 Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Form 10-K”) and information contained in our subsequent Forms 8-K and other reports to the U.S. Securities and Exchange Commission (the “SEC”).
As a result of the sale of the lumber and newsprint assets completed on August 28, 2021, these operations are presented as discontinued operations and certain prior year amounts are reclassified to conform to this presentation. Unless otherwise stated, informationAmounts contained in this MD&A relatesReport may not always add due to continuing operations. We present 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 Operationsfor additional information on the sale.rounding.
As a result of reclassifying the lumber and newsprint operations to discontinued operations as discussed above, we operate in the following business segments: High Purity Cellulose, Paperboard, High-Yield Pulp and Corporate.
Note About Forward-Looking Statements
Certain statements in this Report regarding anticipated financial, business, legal or other outcomes, including business and market conditions, outlook and other similar statements relating to Rayonier Advanced Materials’ (“the Company” ) future events, developments, or financial or operational performance or results, are “forward-looking statements” made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. These forward-looking statements are identified by the use of words such as “may,” “will,” “should,” “expect,” “estimate,” “believe,” “intend,” “forecast,” “anticipate”“anticipate,” “guidance” and other similar language. However, the absence of these or similar words or expressions does not mean a statement is not forward-looking. While we believe these forward-looking statements are reasonable when made, forward-looking
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 actual results may differ materially from those indicated by these forward-looking statements due to a variety of risks and uncertainties. TheThe following risk factors and those contained in Item 1A — Risk Factors in our Annual Report on2021 Form 10-K, for the year ended December 31, 2020 as filed with the SEC, among others, could cause actual results or events to differ materially from the Company’s historical experience and those expressed in forward-looking statements made in this document.
Amounts containedForward-looking statements are only as of the date they are made, and the Company undertakes no duty to update its forward-looking statements except as required by law. You are advised to review any further disclosures we have made or may make in this Report may not always add dueour filings and other submissions to rounding.the SEC, including those on Forms 10-Q, 10-K, 8-K and other reports.
Risk Factors
Our operations are subject to a number of risks and uncertainties including, but not limited to, those listed below. When considering an investment in our securities, you should carefully read and consider these risks, together with all other information in our Annual Report on2021 Form 10-K for the year ended December 31, 2020 as filed with the SEC and our other filings and submissions to the SEC, which provide much more information and detail on the risks described below. If any of the events described in the following risk factors actually occur, our business, financial condition or operating results, as well as the market price of our securities, could be materially adversely affected. These risks and events include, without limitation:
EpidemicsEpidemic and Pandemic Risks
•We are subject to risks associated with epidemics and pandemics, including the COVID-19 pandemic and related impacts. The nature and extent of ongoing and future impacts of the pandemic are highly uncertain and unpredictable.
Macroeconomic and Industry Risks
•The businesses we operate are highly competitive, and many of them are cyclical, which may result in fluctuations in pricing and volume that can materially adversely affect our business, financial condition and results of operations.
•Changes in raw material and energy availability and prices could have a material adverse effect on our business, results of operations and financial condition.
•We are subject to material risks associated with doing business outside of the United States.
•Currency fluctuations may have a material negative impact on our business, financial condition and results of operations.
•Restrictions on trade through tariffs, countervailing and anti-dumping duties, quotas and other trade barriers, in the United States and internationally, could materially adversely affect our ability to access certain markets.
•Our business, financial condition and results of operations could be adversely affected by disruptions in the global economy caused by the ongoing conflict between Russia and Ukraine or other geopolitical conflict.
Business and OperatingOperational Risks
•After giving effect to the sale of the lumber and newsprint assets, ourOur ten largest customers represented approximately 3740 percent of our 20202021 revenue, and the loss of all or a substantial portion of our revenue from these large customers could have a material adverse effect on our business.
•A material disruption at one of our major manufacturing facilities could prevent us from meeting customer demand, reduce our sales and profitability, increase our cost of production and capital needs, or otherwise materially adversely affect our business, financial condition and results of operations and financial condition.operations.
•The availability of, and prices for, wood fiber may have a material adverse impact on our business, results of operations and financial condition.
•Our operations require substantial capital.
•We depend on third parties for transportation services and increases in costs and the availability of transportation could materially adversely affect our business.
•Our failure to maintain satisfactory labor relations could have a material adverse effect on our business.
•We are dependent upon attracting and retaining key personnel, the loss of whom could materially adversely affect our business.
•Failure to develop new products or discover new applications for our existing products, or our inability to protect the intellectual property underlying such new products or applications, could have a material negative impact on our business.
•The risk of loss of the Company’s intellectual property and sensitive data, or disruption of its manufacturing operations, in each case due to cyberattacks or cybersecurity breaches, could materially adversely impact the Company.
Regulatory Risks
•Our business is subject to extensive environmental laws, regulations and permits that may materially restrict or adversely affect how we conduct business and our financial results.
•The potential longer-term impacts of climate related risks remain uncertain at this time.
•The Company considers and evaluates climate-related risks in three general categories;categories: Regulatory, Transition to a low-carbon economy, and Physical risks related to climate-change.climate change.
•The potential longer-term impacts of climate-related risks remain uncertain at this time.
Financial Risks
•We may need to make significant additional cash contributions to our retirement benefit plans if investment returns on pension assets are lower than expected or interest rates decline, and/or due to changes to regulatory, accounting and actuarial requirements.
•We have debt obligations that could materially adversely affect our business and our ability to meet our obligations.
•The phase-out of the London Inter Bank OfficeInterbank Offered Rate (“LIBOR”) as an interest rate benchmark in 2023 may impact our borrowing costs.
•Challenges in the commercial and credit environments, including material increases in interest rates, may materially adversely affect our future access to capital.
•We may need additional financing in the future to meet our capital needs or to make acquisitions, and such financing may not be available on favorable terms, if at all, and may be dilutive to existing stockholders.
Company’s Common Stock and Certain Corporate Matters Risks
•Your percentage of ownership in the Company may be diluted in the future.
•Certain provisions in our amended and restated certificate of incorporation and bylaws, and of Delaware law, could prevent or delay an acquisition of the Company, which could decrease the price of our common stock.
Merger and Acquisition Risk
•Approximately fifteen percent (15%) of the purchase price for the GreenFirst transaction was payable in the common shares of the capital of GreenFirst (to be held by the Company for a minimum of six (6) months following the transaction closing) and the Company’s ability to ultimately realize the benefit of this consideration is subject to market conditions and GreenFirst’s future performance.
Forward-looking statements are only as of the date they are made, and the Company undertakes no duty to update its forward-looking statements except as required by law. You are advised, however, to review any further disclosures we have made or may make in our filings and other submissions to the SEC, including those on Forms 10-Q, 10-K, 8-K and other reports. Details on each of the above risk factors are more specifically described in Item 1A -— Risk Factor sFactorsin our Annual Report on2021 Form 10-K for the year ended December 31, 2020 as filed with the SEC.
Note About Non-GAAP Financial Measures
A “non-GAAP financial measure” is generally defined as a numerical measure of a company’s historical or future performance that excludes or includes amounts, or is subject to adjustments, so as to be different from the most directly comparable measure calculated and presented in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”). This Report contains certain non-GAAP financial measures, including Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”), adjusted EBITDA, and adjusted free cash flows. These non-GAAP measures are reconciled to each of their respective most directly comparable GAAP financial measures in Item 21A — Management’s Discussion and AnalysisRisk Factors of Financial Condition and Results of Operationsthis Report..
We believe these non-GAAP measures provide useful information to our Board of Directors, management and investors regarding certain trends relating to our financial condition and results of operations. Our management uses these non-GAAP measures to compare our performance to that of prior periods for trend analyses, purposes of determining management incentive compensation and budgeting, forecasting and planning purposes.
We do not consider non-GAAP measures an alternative to financial measures determined in accordance with GAAP. The principal limitation of these non-GAAP financial measures is they may exclude significant expense and income items that are required by GAAP to be recognized in our consolidated financial statements. In addition, they reflect the exercise of management’s judgment about which expense and income items are excluded or included in determining these non-GAAP financial measures. In order to compensate for these limitations, reconciliations of the non-GAAP financial measures we use to their most directly comparable GAAP measures are provided. Non-GAAP financial measures should not be relied upon, in whole or part, in evaluating the financial condition, results of operations or future prospects of the Company.
Business
We are a global leader of cellulose-based technologies, which comprise a broad offering of high purity cellulose specialties, a natural polymer commonly used in the production of specialty chemicals and polymers for use in producing LCDliquid crystal displays, filters, fibers,textiles and performance additives for pharmaceutical, food and other industrial applications. Starting from a tree and building upon more than 9095 years of experience in cellulose chemistry, we provide high quality high-purityhigh-purity cellulose pulp productsmaterials that make up the essential building blocks for our customers’ products while providing exceptional service and value. In addition, weWe also produce unique, lightweight paperboard and a bulky, high-yield pulp for use in consumer products. In connection with the closing
We operate in four business segments: High Purity Cellulose, Paperboard, High-Yield Pulp and Corporate.
As a result of the sale of the lumber and newsprint facilities and certain related assets oncompleted in August 28, 2021, we ceased the manufacturing of lumber and newsprint products.
operations are presented as discontinued operations and certain prior year amounts are reclassified to conform to this presentation. Unless otherwise stated, information in this MD&A relates to continuing operations. See Note 2 — Table of ContentsDiscontinued Operations to our Consolidated Financial Statements for further information on the sale.Recent developmentsDevelopments
Debt repayments•In October 2022, we repaid a Canadian dollar fixed interest rate term loan in the amount of CAD $12 million (USD $9 million).
•During the third quarter of 2022, we repurchased approximately $127$15 million of our 5.50% Senior Notessenior notes due 2024 (the “Unsecured Notes”) through open-market transactions and retired suchthe notes for approximately $15 million in cash.
•During the third quarter of 2022, we repaid a Canadian dollar fixed interest rate term loan in the amount of CAD $12 million (USD $9 million).
•During the second quarter of 2022, we repurchased $20 million of our Unsecured Notes through open-market transactions and retired the notes for approximately $124$20 million in cash. In
•During the second quarter of 2022, we sold the 28.7 million shares of GreenFirst common stock we received in connection with the repurchases, we wrote off $1 million of deferred financing costs associated with the Unsecured Notes. The net gain of $2 million is recorded in Gain on debt extinguishment in the Consolidated Statement of Income.
On October 7,August 2021 pursuant to a notice previously provided to the trustee under the indenture governing our 7.625% Senior Secured Notes due 2026 (the “Secured Notes”), we redeemed $25 million of the Secured Notes at a redemption price of 103 percent.
Sale of lumber and newsprint assets
On August 28, 2021, we completed the previously announced sale of our lumber and newsprint assets locatedfor $43 million. The shares sale agreement contains a purchase price protection clause whereby we are entitled to participate in Ontariofurther stock price appreciation under certain circumstances over the next 18 months.
•Our business has experienced a significant increase in the costs for wood, chemicals, energy and Québec Canada,supply chain. In response, we announced a $146 per metric ton (“MT”) cost surcharge applicable to GreenFirst.all shipments of our cellulose specialties, effective starting with shipments made on April 1, 2022 and later.
•As of March 2022, our fluff pulp qualifies as an “Inspected Raw Material” by Nordic Swan Ecolabelling. The Nordic Swan Ecolabel sets strict environmental requirements in all phases of manufacturing, including requirements for eco-friendly chemicals used in ecolabeled products. The status will appear on products made with our fluff pulp and indicates to consumers and commercial buyers that the product is sustainably produced and environmentally friendly.
•On March 21, 2022, our Board of Directors adopted a shareholder rights plan and declared a dividend of one preferred share purchase right for each outstanding share of our common stock, par value $0.01 per share. See Note 212 —Discontinued OperationsStockholders’ Equityto our Consolidated Financial Statements for additionalfurther information.
Final Settlement Reached in Dispute with IESO Relating to Investigation of the Kapuskasing Newsprint Facility
We had previously been engaged in litigation with the Market Assessment and Compliance Division (“MACD”) branch of the Independent Electricity System Operator (“IESO”) regarding their investigations into the Company's compliance with the published rules that govern the operation of the wholesale electricity market in Ontario, Canada. On April 19, 2021, we and the IESO entered into Minutes of Settlement (“MOS”) pursuant to which the parties agreed to fully and finally settle all claims relating to their investigations. We consider this matter concluded (subject only to the parties’ obligations yet to be performed under the MOS). See Note 18 —Commitments and Contingencies for additional information.
Coronavirus-Update
Our businesses were significantly impacted by the coronavirus ("COVID-19") pandemic in 2020. While market demand and pricing for certain of our products began to recover towards the end of 2020 and have continued to improve throughout 2021, our operations remain vulnerable to a reversal of these trends or other continuing negative effects caused by COVID-19.
In our operating facilities and work spaces, we continue to maintain protocols previously implemented to reduce the potential spread of COVID-19 and ensure the safety of our employees and continuity of operations.
Market Assessment
TheThis market assessment represents our best current estimate of eachour business segments’ future performance.
We have updated our Adjusted EBITDA guidance to exceed $175 million for 2022, subject to ongoing supply chain constraints. Additionally, we remain on track to reduce our net debt level to $725 million by the end of the year. We have reduced our net leverage ratio to 5.1 times as of the end of the third quarter and as we continue to reduce this ratio towards 4.0 times, we expect to have opportunities to refinance our senior notes due June 2024 in this environment.the near future.
High Purity Cellulose
Pricing levels for our commodity products increased during the third quarter; however, prices are expected to moderate for the fourth quarter. Prices for cellulose specialties remain in line with expectations for the full year but are expected to increase for 2022.Demand for cellulose specialties volumes remains strong. Total segment volumes are expected to decline for the full year mainly due to logistics constraints, the kiln disruption in the third quarter at the Jesup, GA facility that negatively impacted production and the extended planned maintenance outages in 2021 and early 2022. Volumes for both cellulose specialties and commodity products remains strong albeit somewhat tempered as global economic growth slows. As such, average sales prices are expected to be down modestly in the fourth quarter driven by a greater mix of commodity sales volumes as production and logistics constraints improve. Key raw material inflation is expected to remain elevated. Adjusted EBITDA for the segment is expected to be down slightly compared to the third quarter but higher for the full year 2022 compared to 2021.
Paperboard
Paperboard prices are expected to remain strongelevated in the fourth quarter and into 2022. However, logistic and shipping constraints may negatively impact sales volumes in the near term.
Key costs remain difficult to predict. Prices for energy, wood and chemicals as well as logistics costs, have increased significantly for the year and are expected to escalate further in the fourth quarter and into 2022.
With current market conditions, including strong demand in most cellulose specialties end markets, and elevated pricing for commodity viscose and fluff products along with cotton and petroleum-based substitute products, we announced significant price increases for our cellulose specialties products, which positions us well to help offset inflationary pressures in 2022. We also remain committed to investing in our core business to reduce costs, improve reliability and provide new platforms for growth.
Paperboard
Paperboard prices continued to increase in the third quarter as expected, due todriven by strong demand in both the commercial printing and packaging segments, helping offset increases inend-use markets. Sales volumes and raw material costs. Prices for our unique Kallima® brand paperboard are expected to increase further as demand for our products continues to strengthen, while industry supply remains constrained due to competitor production disruptions. Raw material costs are expected to decline as pulp prices moderate.remain steady.As a result, Paperboard is anticipated to deliver another solid quarter of Adjusted EBITDA.
High-Yield Pulp
High-yield pulp markets experienced additional price increases during the third quarterappear to be peaking as global economic demand slows. However, due to the typical sales lag experienced in the business. However, pulp market prices have recently declined and lowerthis segment, realized prices are still expected to increase in the fourth quarter. Sales volumes are anticipated to increase significantly as production and logistics constraints improve.As such, Adjusted EBITDA for the remainder of the year. Logistics constraints and higher costs also may negatively impact operating resultsHigh-Yield Pulp is anticipated to improve in the coming quarter.
InvestingA Sustainable Future
For over 95 years, we have invested in renewable product offerings and our biorefinery model provides a platform to grow existing and new products to address needs of the changing economy. We continue to focus on growing our bio-based product offering. In the first nine months of 2022, other sales in the FutureHigh Purity Cellulose segment were $84 million primarily related to sales of bioelectricity and lignosulfonates. We expect to grow these sales and increase overall margins over time.
WithOur investment into a bioethanol facility at our Tartas, France facility is anticipated to be operational in 2024, subject to the completionapproval of the sale of the lumber and newsprint assets, we are focused on our four high purity cellulose plants and capitalizing on the global demand for more sustainable products with our leading cellulose specialties offerings.certain permits. These specialized biorefinery assets are capable of creatingFurther updates will be provided as the world’s leading plant-based high purity cellulose and ideally suited for generating green fuels, bioelectricity and other biomaterials such as lignin and tall oils. We will invest to improve reliability in 2022. Additionally, we are evaluating specific strategic capital projects similar to several recently completed high return projects to enhance the value of our assets.These strategic investments include expenditures in green energy in Tartas, France and in TemSilk™ pulp, a critical input in the production of Lyocell, a more sustainable textile, and in Anomera, Inc., a company that manufactures carboxylated cellulose nanocrystals (CNC), a patented, biodegradable product for use in cosmetics and a wide variety of industrial applications. The Tartas green energy projectschedule is fully operational and we anticipate realizing $10 million in annualized benefits from this investment. We will also leverage our world-class R&D facilities to work with new and existing customers to develop natural-based solutions. The investments in reliability, strategic growth and innovation are expected to drive significant incremental margins in the coming years.
Critical Accounting Policies and Use of Estimates
The preparation of financial statements requires us to make estimates, assumptions and judgments that affect our assets, liabilities, revenues and expenses and disclosure of contingent assets and liabilities. We base these estimates and assumptions on historical data and trends, current fact patterns, expectations and other sources of information we believe are reasonable. Actual results may differ from these estimates.
For a full description of our critical accounting policies, see Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2020 Annual Report on Form 10-K. For recent accounting pronouncements see Item 1 of Part I, Financial Statements — Note 1 —Basis of Presentation and New Accounting Pronouncements for additional information.finalized.
Results of Operations
| Financial Information | Three Months Ended | | % | | Nine Months Ended | | % | |
| | | Three Months Ended | | Nine Months Ended | |
(in millions, except percentages) | (in millions, except percentages) | September 25, 2021 | | September 26, 2020 | | Change | | September 25, 2021 | | September 26, 2020 | | Change | (in millions, except percentages) | September 24, 2022 | | September 25, 2021 | | % Change | | September 24, 2022 | | September 25, 2021 | | % Change |
Net Sales | Net Sales | $ | 374 | | | $ | 323 | | | 16% | | $ | 1,034 | | | $ | 972 | | | 6% | Net Sales | $ | 466 | | | $ | 374 | | | 25% | | $ | 1,217 | | | $ | 1,034 | | | 18% |
Cost of Sales | Cost of Sales | (355) | | | (302) | | | (972) | | | (920) | | | Cost of Sales | (419) | | | (355) | | | (1,138) | | | (972) | | |
Gross Margin | Gross Margin | 19 | | | 21 | | | (10)% | | 62 | | | 52 | | | 19% | Gross Margin | 47 | | | 19 | | | 147% | | 79 | | | 62 | | | 27% |
| Selling, general and administrative expenses | Selling, general and administrative expenses | (17) | | | (18) | | | (52) | | | (57) | | | Selling, general and administrative expenses | (20) | | | (17) | | | (68) | | | (52) | | |
| Foreign exchange gains (losses) | 3 | | | (1) | | | 1 | | | — | | | |
Other operating income (expense), net | (2) | | | (3) | | | (7) | | | (9) | | | |
Operating Income (Loss) | 3 | | | (1) | | | NA | | 4 | | | (13) | | | 131% | |
Foreign exchange gains | | Foreign exchange gains | 3 | | | 3 | | | 4 | | | 1 | | |
Other operating expense, net | | Other operating expense, net | (1) | | | (2) | | | (5) | | | (7) | | |
Operating Income | | Operating Income | 29 | | | 3 | | | 867% | | 10 | | | 4 | | | 150% |
Interest expense | Interest expense | (17) | | | (14) | | | (49) | | | (41) | | | Interest expense | (16) | | | (17) | | | (49) | | | (49) | | |
Interest income and other, net | Interest income and other, net | 2 | | | (3) | | | — | | | (3) | | | Interest income and other, net | 3 | | | 2 | | | 6 | | | — | | |
| Net periodic pension and OPEB income (expense), excluding service costs | 1 | | | 2 | | | 2 | | | 1 | | | |
Unrealized loss on GreenFirst equity securities | (8) | | | — | | | (8) | | | — | | | |
Other components of pension and OPEB, excluding service costs | | Other components of pension and OPEB, excluding service costs | 1 | | | 1 | | | 2 | | | 2 | | |
Gain (loss) on GreenFirst equity securities | | Gain (loss) on GreenFirst equity securities | — | | | (8) | | | 5 | | | (8) | | |
Gain on debt extinguishment | Gain on debt extinguishment | 2 | | | — | | | 2 | | | — | | | Gain on debt extinguishment | — | | | 2 | | | — | | | 2 | | |
Income (Loss) From Continuing Operations Before Income Taxes | Income (Loss) From Continuing Operations Before Income Taxes | (17) | | | (16) | | | (6)% | | (49) | | | (56) | | | 13% | Income (Loss) From Continuing Operations Before Income Taxes | 17 | | | (17) | | | 200% | | (26) | | | (49) | | | 47% |
Income tax benefit (expense) | 4 | | | 29 | | | 29 | | | 47 | | | |
Equity in income (loss) of equity method investment | — | | | $ | — | | | (1) | | | — | | | |
Income tax (expense) benefit | | Income tax (expense) benefit | 2 | | | 4 | | | (3) | | | 29 | | |
Equity in loss of equity method investment | | Equity in loss of equity method investment | (1) | | | — | | | (2) | | | (1) | | |
Income (Loss) from Continuing Operations | Income (Loss) from Continuing Operations | $ | (13) | | | $ | 13 | | | (200)% | | $ | (21) | | | $ | (9) | | | (133)% | Income (Loss) from Continuing Operations | 18 | | | (13) | | | 238% | | (31) | | | (21) | | | (48)% |
Income from discontinued operations, net of taxes | Income from discontinued operations, net of taxes | 9 | | | 16 | | | 112 | | | 1 | | | Income from discontinued operations, net of taxes | 12 | | | 9 | | | 12 | | | 112 | | |
Net Income (Loss) | Net Income (Loss) | $ | (5) | | | $ | 29 | | | $ | 90 | | | $ | (8) | | | Net Income (Loss) | $ | 30 | | | $ | (5) | | | $ | (19) | | | $ | 90 | | |
| Gross Margin % | Gross Margin % | 5 | % | | 7 | % | | 6 | % | | 5 | % | | Gross Margin % | 10 | % | | 5 | % | | 7 | % | | 6 | % | |
Operating Margin % | Operating Margin % | 1 | % | | — | % | | — | % | | (1) | % | | Operating Margin % | 6 | % | | 1 | % | | 1 | % | | — | % | |
Effective Tax Rate % | Effective Tax Rate % | 24 | % | | 181 | % | | 59 | % | | 84 | % | | Effective Tax Rate % | (11) | % | | 24 | % | | (13) | % | | 59 | % | |
Net Sales
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
(in millions) | September 24, 2022 | | September 25, 2021 | | September 24, 2022 | | September 25, 2021 |
High Purity Cellulose | $ | 369 | | | $ | 288 | | | $ | 952 | | | $ | 792 | |
Paperboard | 66 | | | 52 | | | 183 | | | 157 | |
High-Yield Pulp | 40 | | | 42 | | | 102 | | | 106 | |
| | | | | | | |
Eliminations | (9) | | | (8) | | | (20) | | | (21) | |
Net Sales | $ | 466 | | | $ | 374 | | | $ | 1,217 | | | $ | 1,034 | |
Net sales by segment were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
Net sales (in millions) | September 25, 2021 | | September 26, 2020 | | September 25, 2021 | | September 26, 2020 |
High Purity Cellulose | $ | 288 | | | $ | 253 | | | $ | 792 | | | $ | 757 | |
Paperboard | 52 | | | 47 | | | 157 | | | 140 | |
High-Yield Pulp | 42 | | | 30 | | | 106 | | | 91 | |
| | | | | | | |
Eliminations | (8) | | | (7) | | | (21) | | | (16) | |
Total net sales | $ | 374 | | | $ | 323 | | | $ | 1,034 | | | $ | 972 | |
Net sales increased by $51$92 million and $62$183 million, respectively, during the three and nine months ended September 25, 202124, 2022 when compared to the same prior year periods, ended September 26, 2020, respectively,driven primarily driven by higher High Purity
Cellulose commodity sales prices along with stronger Cellulose Specialties sales volumes. In addition, sales prices increased for both Paperboard and High-Yield Pulp. For further discussion, seeacross all segments. See Operating Results by Segment. below for further discussion.
Operating Income
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
(in millions) | September 24, 2022 | | September 25, 2021 | | September 24, 2022 | | September 25, 2021 |
High Purity Cellulose | $ | 22 | | | $ | 2 | | | $ | 21 | | | $ | 19 | |
Paperboard | 12 | | | 2 | | | 28 | | | 10 | |
High-Yield Pulp | 6 | | | 8 | | | 4 | | | 8 | |
Corporate | (11) | | | (9) | | | (43) | | | (33) | |
Operating Income | $ | 29 | | | $ | 3 | | | $ | 10 | | | $ | 4 | |
Operating income (loss) by segment was as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
Operating income (loss) (in millions) | September 25, 2021 | | September 26, 2020 | | September 25, 2021 | | September 26, 2020 |
High Purity Cellulose | $ | 2 | | | $ | 8 | | | $ | 19 | | | $ | 10 | |
Paperboard | 2 | | | 3 | | | 10 | | | 14 | |
High-Yield Pulp | 8 | | | 1 | | | 8 | | | — | |
Corporate | (9) | | | (13) | | | (33) | | | (37) | |
Total operating income (loss) | $ | 3 | | | $ | (1) | | | $ | 4 | | | $ | (13) | |
The operating results for the three and nine month periodsmonths ended September 25, 2021 improved by $424, 2022 increased $26 million and $17$6 million, respectively, when compared to the same prior year periods ended September 26, 2020. The three months ended September 25, 2021 reflectdue to higher High Purity Cellulose commodity, Paperboard and High-Yield Pulp sales prices and higher High Purity Cellulose specialty volumesacross all segments, partially offset by higher inputincreased costs shippingresulting from inflation on key inputs, including chemicals, wood fiber and energy costs, lower sales volumes due to supply chain constraints and equipment reliability issues resultinglower productivity when comparing the nine-month periods.
Non-Operating Expenses
Included in lower production. The improvement duringnon-operating expenses for the nine months ended September 25, 202124, 2022 was primarily driven by higher High Purity Cellulose commodity prices and cellulose specialties sales volumes as well as higher High-Yield Pulp and Paperboard sales prices partly offset by higher input costs, shipping constraints and equipment reliability issues resulting in lower production.
Non-operating Expenses
Interest expense increased $3a $5 million and $8 million to $17 million and $49 million during the three and nine months ended September 25, 2021, respectively, when compared to the same prior year periods. The increases were principally driven by the higher interest rate and additional amortization of debt issuance costs related to the December 2020 refinancing of certain debt instruments. See Note 7 — Debt and Finance Leases for further information.
Included in non-operating expenses during the three and nine months ended September 25, 2021 is a $8 million unrealized lossgain associated with the fair value ofGreenFirst shares of GreenFirst received in connection with the sale of lumber and newsprint assets. A loss of $8 million was recognized on the shares during the three and nine months ended September 25, 2021. The shares were sold in May 2022 for $43 million. See Note 10 — Fair Value Measurementsfor additional information.
Additionally, we recorded a $2 million net gain on debt extinguishment associated with open-market purchases of the Unsecured Notes. See Note 7 — Debt and Finance Leases to our Consolidated Financial Statements for further information.
Income Tax (Expense) Benefit (Expense)
The effective tax rate foron the third quarter 20212022 income from continuing operations was a benefit of 2411 percent, compared to a benefit of 18124 percent on the loss from continuing operations in the same quarter of 2020. 2021. The effective tax rate on the loss from continuing operations for the nine months ended September 24, 2022 was an expense of 13 percent, compared to a benefit of 59 percent for the comparable prior year period.
The 2022 effective tax rates differ from the statutory rate of 21 percent primarily due to changes in the valuation allowance on disallowed interest deductions in the U.S., nondeductible executive compensation, interest received on overpayments of tax from prior years, U.S. tax credits and tax return-to-accrual adjustments.
The effective tax rate for the nine months ended September 25, 2021 was a benefit of 59 percent compared to a benefit of 84 percent for the comparable prior year period. The 2021 effective tax rate differs from the statutory rate of 21 percent primarily due to a tax benefit recognized by remeasuring the Company’sour Canadian deferred tax assets at a higher Canadian blended statutory tax rate in Canada.rate. The Canadian statutory tax rate is higher as a result of changing the allocation of income between the Canadian provinces due toafter the sale of our lumber and newsprint assets. The 2020Other factors impacting the effective taxbenefit rate benefit differs from the federal statutory rate of 21 percent primarily due to the release of certain valuation allowances related to nondeductible interest expense, benefits from the CARES Act, tax return to accrualwere return-to-accrual adjustments and tax credits, partially offset by nondeductible interest expense in the U.S., taxable income generated from the 2020 credit agreement amendment, increases to uncertain tax position reserves, nondeductible executive compensation, and lower tax deductions on vested stock compensation. See Note 16 — Income Taxes to our Consolidated Financial Statements for additionalfurther information.
Discontinued Operations
Income from discontinued operations,The sale of our lumber and newsprint facilities and certain related assets was completed in August 2021. The cash received at closing was preliminary and remains subject to final purchase price and other sale-related adjustments. During the first quarter of 2022, we trued-up certain sale-related items with GreenFirst for a total net cash outflow of taxes, for$3 million, as expected and previously disclosed. No adjustments have been made in 2022 to the three monthsgain on sale recorded during the year ended September 25, 2021 was $9 million comparedDecember 31, 2021. Pursuant to the terms of the asset purchase agreement, we and GreenFirst continue efforts to finalize the closing inventory valuation adjustment.
During the third quarter of 2022, the U.S. Department of Commerce (the “USDOC”) completed the third administrative review of duties applied to Canadian softwood lumber exports to the U.S. and reduced rates applicable to us to a combined 8.6 percent. We recorded a $16 million forgain, pre-tax, in connection with this development and increased the comparable prior period ended September 26, 2020. The decline was driven primarily by lowertotal long-term receivable related to the USDOC’s administrative reviews to $38 million. Cash is not expected to return to us until final resolution of the softwood lumber sales volumes due to only two months of activity in the current quarter, lower lumber prices and higher income tax expense.dispute.
Income from discontinued operations, net of taxes, during the nine months ended September 25, 2021 was $112 million compared to $1 million for the same prior year period ended September 26, 2020. The improvement was driven by an increase in prices for lumber offset by the impact of Global Intangible Low Taxed Income (“GILTI”) on foreign earnings. The application of GILTI effectively results in double book taxation of the majority of the Company’s high Canadian earnings.
We expect minimal cash taxes to be paid in 2021 and 2022 as a result of 2021 earnings associated with discontinued operations.
Operating Results by Segment
High Purity Cellulose
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
(in millions) | September 25, 2021 | | September 26, 2020 | | September 25, 2021 | | September 26, 2020 |
Net Sales | $ | 288 | | | $ | 253 | | | $ | 792 | | | $ | 757 | |
Operating income | $ | 2 | | | $ | 8 | | | $ | 19 | | | $ | 10 | |
Average Sales Prices ($ per metric ton): | | | | | | | |
High Purity Cellulose | $ | 1,159 | | | $ | 1,020 | | | $ | 1,111 | | | $ | 983 | |
Sales Volumes (thousands of metric tons): | | | | | | | |
High Purity Cellulose | 225 | | | 229 | | | 646 | | | 709 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
(in millions) | September 24, 2022 | | September 25, 2021 | | September 24, 2022 | | September 25, 2021 |
Net Sales | $ | 369 | | | $ | 288 | | | $ | 952 | | | $ | 792 | |
Operating Income | $ | 22 | | | $ | 2 | | | $ | 21 | | | $ | 19 | |
Average Sales Prices ($ per metric ton) | $ | 1,402 | | | $ | 1,159 | | | $ | 1,329 | | | $ | 1,111 | |
Sales Volumes (thousands of metric tons) | 240 | | | 225 | | | 653 | | | 646 | |
Changes inNet Sales — Three Months Ended
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 25, 2021 | | Changes Attributable to: | | Three Months Ended September 24, 2022 |
(in millions) | Price | | Volume/Mix/Other | |
Cellulose Specialties | $ | 186 | | | $ | 48 | | | $ | 9 | | | $ | 243 | |
Commodity Products | 75 | | | 13 | | | 5 | | | 93 | |
Other sales (a) | 27 | | | — | | | 6 | | | 33 | |
Net Sales | $ | 288 | | | $ | 61 | | | $ | 20 | | | $ | 369 | |
——————————————
(a) Includes sales of bioelectricity, lignosulfonates and other by-products to third parties.
Net sales of our High Purity Cellulose net sales are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended | | | Changes Attributable to: | | |
Net Sales (in millions) | September 26, 2020 | Price | | Volume/Mix/Other | | September 25, 2021 |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Total Net Sales (a) | $ | 253 | | | $ | 15 | | | $ | 20 | | | $ | 288 | |
(a) includes other sales consisting of electricity, lignin and other by-products to third-parties. |
Total salessegment for the three months ended September 25, 2021 improved $3524, 2022 increased $81 million when compared to the same prior year quarter. Cellulose specialties sales prices increased 25 percent, inclusive of the $146/MT cost surcharge effective April 2022, and sales volumes increased 16 percent driven by improved demand, while sales prices declined by 5 percent during the three months ended September 25, 2021 when compareddue to the same prior year period.impact of contract negotiations. Commodity product sales prices rose 50 percent while commodity productand sales volumes decreased 23rose 13 percent dueand 9 percent, respectively, driven by higher demand. Included within net sales for the period was $33 million of other sales, primarily from bio-based energy and lignosulfonates.
Net Sales — Nine Months Ended
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 25, 2021 | | Changes Attributable to: | | Nine Months Ended September 24, 2022 |
(in millions) | Price | | Volume/Mix/Other | |
Cellulose Specialties | $ | 521 | | | $ | 101 | | | $ | 23 | | | $ | 645 | |
Commodity Products | 196 | | | 39 | | | (12) | | | 223 | |
Other sales (a) | 75 | | | — | | | 9 | | | 84 | |
Net Sales | $ | 792 | | | $ | 140 | | | $ | 20 | | | $ | 952 | |
——————————————(a) Includes sales of bioelectricity, lignosulfonates and other by-products to a more favorable mixthird parties.
Net sales of cellulose specialties, logistics constraints and the impact of a kiln reliability disruption at the Jesup, GA facility that negatively impacted production by 10,000 metric tons.
| | | | | | | | | | | | | | | | | | | | | | | |
Nine Months Ended | | | Changes Attributable to: | | |
Net Sales (in millions) | September 26, 2020 | Price | | Volume/Mix/Other | | September 25, 2021 |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Total Net Sales (a) | $ | 757 | | | $ | 35 | | | $ | 0 | | | $ | 792 | |
(a) includes other sales consisting of electricity, lignin and other by-products to third-parties. |
Total net salesour High Purity Cellulose segment for the nine months ended September 25, 2021 were $792 million, an improvement of $3524, 2022 increased $160 million when compared to the same prior year period. Cellulose specialties sales prices increased 19 percent, inclusive of the $146/MT cost surcharge effective April 2022, and sales volumes improved by 9increased 4 percent due to increased demand, while sales prices declined slightly by 3 percent during the year to date ended September 25, 2021 when compared to the same prior year period.impact of contract negotiations. Commodity product sales prices increased 34rose 19 percent, during the first nine months of 2021 when compared to the same prior year period, howeverdriven by higher demand, while commodity product sales volumes decreased 294 percent due to a more favorable mix of cellulose specialties, logisticslower production, supply chain constraints and lower commodities volumes in favor of higher specialties volumes. Included within net sales for the extended planned maintenance outage at the Jesup, Georgia facility. Additionally,period was $84 million of other sales, were impacted by a kiln reliability disruption at the Jesup, GA facility that negatively impacted production by 10,000 metric tons.primarily from bio-based energy and lignosulfonates.
Operating Income — Three Months Ended
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 25, 2021 | | Gross Margin Changes Attributable to: | | | | Three Months Ended September 24, 2022 |
(in millions) | Sales Price | | Sales Volume/ Mix/Other (a) | | Cost | | SG&A and other | |
Operating Income | $ | 2 | | | $ | 61 | | | $ | 13 | | | $ | (54) | | | $ | — | | | $ | 22 | |
Operating Margin % | 0.7 | % | | 17.4 | % | | 2.5 | % | | (14.6) | % | | — | % | | 6.0 | % |
——————————————(a) Sales volume computed based on contribution margin.
Operating income of our High Purity Cellulose operating income are as follows
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended | | | Gross Margin Changes Attributable to (a): | | | | |
(in millions) | September 26, 2020 | Sales Price | | Sales Volume/Mix/Other | | Cost | | SG&A and other | | September 25, 2021 |
Operating income | $ | 8 | | | $ | 15 | | | $ | 17 | | | $ | (39) | | | $ | 1 | | | $ | 2 | |
Operating margin % | 3.2 | % | | 5.4 | % | | 5.3 | % | | (13.5) | % | | 0.3 | % | | 0.7 | % |
(a) Sales Volume computed based on contribution margin. |
Operating results declined by $6segment increased $20 million during the three months ended September 25, 202124, 2022 to operating income of $2$22 million when compared to the same prior year quarter. Sales prices for the segment increased 1421 percent during the current quarter, driven by highera 25 percent increase, inclusive of the $146/MT cost surcharge, for cellulose specialties and a 13 percent increase for commodity prices. ComparedTotal volumes increased 7 percent when compared to the prior year sales volumes declined 2quarter due to 5 percent during the current quarter driven by lowerand 9 percent increases in cellulose specialties and commodity volumes, shipping constraints and an equipment reliability issue, partially offset by higher cellulose specialties sales volumes. Additionally, costsrespectively. Costs increased during the third quarter of 2021 primarily duecompared to the impact ofprior year period driven by inflation on key material inputs, including chemicals, wood fiber and energy costs, as well as higher maintenancesupply chain expenses.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Nine Months Ended | | | Gross Margin Changes Attributable to (a): | | | | |
(in millions) | September 26, 2020 | Sales Price | | Sales Volume/Mix/Other | | Cost | | SG&A and other | | September 25, 2021 |
Operating income | $ | 10 | | | $ | 35 | | | $ | 15 | | | $ | (44) | | | $ | 3 | | | $ | 19 | |
Operating margin % | 1.3 | % | | 4.4 | % | | 1.9 | % | | (5.6) | % | | 0.4 | % | | 2.4 | % |
(a) Sales Volume computed based on contribution margin. |
Offsetting higher energy costs in the current period were $2 million of excess emission allowances sales associated with the operations in Tartas, France.Operating results improved by $9Income — Nine Months Ended
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 25, 2021 | | Gross Margin Changes Attributable to: | | | | Nine Months Ended September 24, 2022 |
(in millions) | Sales Price | | Sales Volume/ Mix/Other (a) | | Cost | | SG&A and other | |
Operating Income | $ | 19 | | | $ | 140 | | | $ | 19 | | | $ | (154) | | | $ | (3) | | | $ | 21 | |
Operating Margin % | 2.4 | % | | 14.7 | % | | 1.6 | % | | (16.2) | % | | (0.3) | % | | 2.2 | % |
——————————————(a) Sales volume computed based on contribution margin.
Operating income of our High Purity Cellulose segment increased $2 million during the nine months ended September 25, 202124, 2022 to operating income of $19$21 million when compared to the same prior year period. Sales prices for the segment increased 1319 percent during the current period driven by 19 percent increases in both cellulose specialties, inclusive of the $146/MT cost surcharge, and commodity prices. Total volumes increased 1 percent, driven by a 4 percent increase in cellulose specialties sales volumes that was almost entirely offset by a 4 percent decrease in commodity product sales volumes that resulted from lower productivity, supply chain constraints and lower commodities volumes in favor of higher specialties volumes. Costs increased compared to the prior year to date period driven by inflation on key inputs, including chemicals, wood fiber and energy costs, as well as higher supply chain expenses, partially offset by improved productivity in the most recent quarter. Offsetting higher energy costs in the current period were $12 million of excess emission allowances sales associated with the operations in Tartas, France.
Paperboard | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
(in millions) | September 24, 2022 | | September 25, 2021 | | September 24, 2022 | | September 25, 2021 |
Net Sales | $ | 66 | | | $ | 52 | | | $ | 183 | | | $ | 157 | |
Operating Income | $ | 12 | | | $ | 2 | | | $ | 28 | | | $ | 10 | |
Average Sales Prices ($ per metric ton) | $ | 1,587 | | | $ | 1,184 | | | $ | 1,450 | | | $ | 1,149 | |
Sales Volumes (thousands of metric tons) | 41 | | | 44 | | | 126 | | | 137 | |
Net Sales — Three Months Ended
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 25, 2021 | | Changes Attributable to: | | Three Months Ended September 24, 2022 |
(in millions) | Price | | Volume/Mix | |
Net Sales | $ | 52 | | | $ | 17 | | | $ | (3) | | | $ | 66 | |
Net sales of our Paperboard segment for the three months ended September 24, 2022 increased $14 million compared to the same prior year period due to a 34 percent increase in sales prices, driven by higher commodity prices. Compared to the prior year,strong demand, partially offset by a 7 percent decrease in sales volumes due to lower productivity.
Net Sales — Nine Months Ended
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 25, 2021 | | Changes Attributable to: | | Nine Months Ended September 24, 2022 |
(in millions) | Price | | Volume/Mix | |
Net Sales | $ | 157 | | | $ | 38 | | | $ | (12) | | | $ | 183 | |
Net sales of our Paperboard segment for the segment were impacted by shipping constraints and planned maintenance outages. Total sales volumes for the segment declined 9 percent during the current nine-month period whennine months ended September 24, 2022 increased $26 million compared to the same prior year period due to a 26 percent increase in sales prices, driven by lower commodity volumes,strong demand, partially offset by higher cellulose specialtiesan 8 percent decrease in sales volumes. Additionally, costs increased during the year to date period ended September 25, 2021 primarilyvolumes due to due to the impactlower productivity.
Operating Income — Three Months Ended
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 25, 2021 | | Gross Margin Changes Attributable to: | | | | Three Months Ended September 24, 2022 |
(in millions) | Sales Price | | Sales Volume/Mix (a) | | Cost | | SG&A and other | |
Operating Income | $ | 2 | | | $ | 17 | | | $ | (1) | | | $ | (6) | | | $ | — | | | $ | 12 | |
Operating Margin % | 3.8 | % | | 23.7 | % | | (0.3) | % | | (9.0) | % | | — | % | | 18.2 | % |
——————————————(a) Sales volume computed based on contribution margin.
Operating income of inflation on key material inputs and higher maintenance and logistic expenses.
Paperboard
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
(in millions) | September 25, 2021 | | September 26, 2020 | | September 25, 2021 | | September 26, 2020 |
Net Sales | $ | 52 | | | $ | 47 | | | $ | 157 | | | $ | 140 | |
Operating income | $ | 2 | | | $ | 3 | | | $ | 10 | | | $ | 14 | |
Average Sales Prices ($ per metric tons): | | | | | | | |
Paperboard | $ | 1,184 | | | $ | 1,048 | | | $ | 1,149 | | | $ | 1,082 | |
Sales Volumes (in thousands of metric tons): | | | | | | | |
Paperboard | 44 | | | 45 | | | 137 | | | 130 | |
Changes inour Paperboard net sales are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended | September 26, 2020 | | Changes Attributable to: | | September 25, 2021 |
Net Sales (in millions) | Price | | Volume/Mix | |
Paperboard | $ | 47 | | | $ | 6 | | | $ | (1) | | | $ | 52 | |
Salessegment for the three months ended September 25, 202124, 2022 increased $5 million compared to the three months ended September 26, 2020. During the third quarter ended September 25, 2021, sales volumes decreased 2 percent while sales prices were up 13 percent when compared to the same prior year period.
| | | | | | | | | | | | | | | | | | | | | | | |
Nine Months Ended | September 26, 2020 | | Changes Attributable to: | | September 25, 2021 |
Net Sales (in millions) | Price | | Volume/Mix | |
Paperboard | $ | 140 | | | $ | 9 | | | $ | 8 | | | $ | 157 | |
Sales for the nine months ended September 25, 2021 increased $17 million as sales volumes and prices improved by 5 percent and 6 percent, respectively, when compared to the same prior year period. The increased volumes and prices were driven by improved market demand.
Changes in Paperboard operating income are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended | | Gross Margin Changes Attributable to (a): | | | | |
(in millions) | September 26, 2020 | Sales Price | | Sales Volume/Mix | | Cost | | SG&A and other | | September 25, 2021 |
Operating income | $ | 3 | | | $ | 6 | | | $ | — | | | $ | (7) | | | $ | — | | | $ | 2 | |
Operating margin % | 6.4 | % | | 10.6 | % | | 0.3 | % | | (13.5) | % | | — | % | | 3.8 | % |
(a) Computed based on contribution margin. |
Operating income for the three months ended September 25, 2021 declined $1$10 million when compared to the same prior year period primarily due to higher raw material input costssales prices, partially offset by improvements in sales prices.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Nine Months Ended | | Gross Margin Changes Attributable to (a): | | | | |
(in millions) | September 26, 2020 | Sales Price | | Sales Volume/Mix | | Cost | | SG&A and other | | September 25, 2021 |
Operating income | $ | 14 | | | $ | 9 | | | $ | 3 | | | $ | (16) | | | $ | — | | | $ | 10 | |
Operating margin % | 10.0 | % | | 5.4 | % | | 1.1 | % | | (10.2) | % | | — | % | | 6.4 | % |
(a) Computed based on contribution margin. |
Operating results declined by$4 million during the nine months ended September 25, 2021 to operating income of $10 million. The decrease was primarily due to higher raw material inputpulp, chemicals and logistics costs and higher operational costs partially offset by improvements inas well as lower sales prices and volumes driven by increased demand.volumes.
Operating Income — Nine Months Ended
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 25, 2021 | | Gross Margin Changes Attributable to: | | | | Nine Months Ended September 24, 2022 |
(in millions) | Sales Price | | Sales Volume/Mix (a) | | Cost | | SG&A and other | |
Operating Income | $ | 10 | | | $ | 38 | | | $ | (4) | | | $ | (16) | | | $ | — | | | $ | 28 | |
Operating Margin % | 6.4 | % | | 18.2 | % | | (0.6) | % | | (8.7) | % | | — | % | | 15.3 | % |
——————————————(a) Sales volume computed based on contribution margin.
High-Yield Pulp
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
(in millions) | September 25, 2021 | | September 26, 2020 | | September 25, 2021 | | September 26, 2020 |
Net Sales | $ | 42 | | | $ | 30 | | | $ | 106 | | | $ | 91 | |
Operating income (loss) | $ | 8 | | | $ | 1 | | | $ | 8 | | | $ | — | |
Average Sales Prices ($ per metric ton): | | | | | | | |
High-Yield Pulp (a) | $ | 618 | | | $ | 486 | | | $ | 549 | | | $ | 481 | |
Sales Volumes (in metric tons): | | | | | | | |
High-Yield Pulp (a) | 55 | | | 49 | | | 154 | | | 154 | |
(a) Average sales prices and volumes for external sales only. For the three month period ended September 25, 2021 and September 26, 2020, the High-Yield Pulp segment sold 17,000 metric tons and 16,000 metric tons of high-yield pulp for $8 million and $6 million, respectively, to the Paperboard segment. For the nine months ended September 25, 2021 and September 26, 2020, the High-Yield Pulp segment sold 51,000 metric tons and 50,000 metric tons of high-yield pulp for $22 million and $18 million, respectively, to the Paperboard segment. |
Changes in High-Yield Pulp net sales are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended | September 26, 2020 | | Changes Attributable to: | | September 25, 2021 |
Net Sales (in millions) | Price | | Volume/Mix | |
High-Yield Pulp Net Sales | $ | 30 | | | $ | 9 | | | $ | 3 | | | $ | 42 | |
| | | | | | | |
Sales for the three months ended September 25, 2021 increased $12 million compared to the three months ended September 26, 2020. High-yield pulp sales prices and volumes increased 27 percent and 12 percent, respectively, during the three months ended September 25, 2021 when compared to the same prior year period. The increases were primarily driven by market demand improvements.
| | | | | | | | | | | | | | | | | | | | | | | |
Nine Months Ended | September 26, 2020 | | Changes Attributable to: | | September 25, 2021 |
Net Sales (in millions) | Price | | Volume/Mix | |
High-Yield Pulp Net Sales | $ | 91 | | | $ | 14 | | | $ | 1 | | | $ | 106 | |
Salesour Paperboard segment for the nine months ended September 25, 202124, 2022 increased $15 million, or 16 percent, when compared to the comparable period in 2020. High-yield pulp sales prices were up 14 percent while high-yield pulp sales volumes were flat during the period ended September 25, 2021.
Changes in High-Yield Pulp operating income are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Three Months Ended | | Gross Margin Changes Attributable to (a): | | | | |
(in millions) | September 26, 2020 | Sales Price | | Sales Volume/Mix | | Cost | | SG&A and other | | September 25, 2021 |
Operating income | $ | 1 | | | $ | 9 | | | $ | 2 | | | $ | (4) | | | $ | — | | | $ | 8 | |
Operating margin % | 3.3 | % | | 22.3 | % | | 2.9 | % | | (9.5) | % | | — | % | | 19.0 | % |
(a) Sales Volume computed based on contribution margin. |
Operating results for the third quarter ended September 25, 2021 increased $7$18 million when compared to the same prior year period. Higher high-yield pulpperiod due to higher sales prices, were partlypartially offset by higher maintenance, woodraw material pulp, chemicals and transportation costs.logistics costs as well as lower sales volumes.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Nine Months Ended | | Gross Margin Changes Attributable to (a): | | | | |
(in millions) | September 26, 2020 | Sales Price | | Sales Volume/Mix | | Cost | | SG&A and other | | September 25, 2021 |
Operating income (loss) | $ | — | | | $ | 14 | | | $ | — | | | $ | (6) | | | $ | — | | | $ | 8 | |
Operating margin % | — | % | | 13.3 | % | | (0.1) | % | | (5.7) | % | | — | % | | 7.5 | % |
(a) Sales Volume computed based on contribution margin. |
High-Yield PulpOperating results | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
(in millions) | September 24, 2022 | | September 25, 2021 | | September 24, 2022 | | September 25, 2021 |
Net Sales | $ | 40 | | | $ | 42 | | | $ | 102 | | | $ | 106 | |
Operating Income | $ | 6 | | | $ | 8 | | | $ | 4 | | | $ | 8 | |
Average Sales Prices ($ per metric ton) (a) | $ | 712 | | | $ | 618 | | | $ | 630 | | | $ | 549 | |
Sales Volumes (metric tons) (a) | 45 | | | 55 | | | 130 | | | 154 | |
——————————————(a) External sales only. For the three months ended September 24, 2022 and September 25, 2021, the High-Yield Pulp segment sold 16,000 metric tons and 17,000 metric tons of high-yield pulp for $7 million and $8 million, respectively, to the Paperboard segment. For the nine months ended September 24, 2022 and September 25, 2021, the High-Yield Pulp segment sold 47,000 metric tons and 51,000 metric tons of high-yield pulp for $20 million and $22 million, respectively, to the Paperboard segment.
Net Sales — Three Months Ended
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 25, 2021 | | Changes Attributable to: | | Three Months Ended September 24, 2022 |
(in millions) | Price | | Volume/Mix | |
Net Sales | $ | 42 | | | $ | 4 | | | $ | (6) | | | $ | 40 | |
| | | | | | | |
Net sales of our High-Yield Pulp segment for the three months ended September 24, 2022 decreased $2 million compared to the same prior year period due to an 18 percent decrease in sales volumes, partially offset by a 15 percent increase in sales prices.
Net Sales — Nine Months Ended
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 25, 2021 | | Changes Attributable to: | | Nine Months Ended September 24, 2022 |
(in millions) | Price | | Volume/Mix | |
Net Sales | $ | 106 | | | $ | 10 | | | $ | (14) | | | $ | 102 | |
| | | | | | | |
Net sales of our High-Yield Pulp segment for the nine months ended September 25, 2021 improved24, 2022 decreased $4 million compared to the same prior year period due to a 16 percent decrease in sales volumes,partially offset by $8a 15 percent increase in sales prices.
Operating Income — Three Months Ended
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 25, 2021 | | Gross Margin Changes Attributable to: | | | | Three Months Ended September 24, 2022 |
(in millions) | Sales Price | | Sales Volume/Mix (a) | | Cost | | SG&A and other | |
Operating Income | $ | 8 | | | $ | 4 | | | $ | (3) | | | $ | (3) | | | $ | — | | | $ | 6 | |
Operating Margin % | 19.0 | % | | 7.1 | % | | (3.6) | % | | (7.5) | % | | — | % | | 15.0 | % |
——————————————(a) Sales volume computed based on contribution margin.
Operating income of our High-Yield Pulp segment for the three months ended September 24, 2022 decreased $2 million when compared to the same prior year period. Higher high-yield pulpperiod, as higher sales prices were partlymore than offset by lower sales volumes due to lower productivity, logistics constraints and higher maintenance, woodinput and transportationsupply chain costs.
CorporateOperating Income — Nine Months Ended
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
Operating Income (Loss) (in millions) | September 25, 2021 | | September 26, 2020 | | September 25, 2021 | | September 26, 2020 |
Operating loss | $ | (9) | | | $ | (13) | | | $ | (33) | | | $ | (37) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 25, 2021 | | Gross Margin Changes Attributable to: | | | | Nine Months Ended September 24, 2022 |
(in millions) | Sales Price | | Sales Volume/Mix (a) | | Cost | | SG&A and other | |
Operating Income | $ | 8 | | | $ | 10 | | | $ | (6) | | | $ | (8) | | | $ | — | | | $ | 4 | |
Operating Margin % | 7.5 | % | | 8.0 | % | | (3.8) | % | | (7.8) | % | | — | % | | 3.9 | % |
——————————————The operating loss(a) Sales volume computed based on contribution margin.
Operating income of our High-Yield Pulp segment for the three-month periodnine months ended September 25, 2021 improved by24, 2022 decreased $4 million when compared to the same prior year period, primarilyas higher sales prices were more than offset by lower sales volumes due primarily to favorable foreign currency impacts. lower productivity, logistics constraints and higher input and supply chain costs.
Corporate
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
(in millions) | September 24, 2022 | | September 25, 2021 | | September 24, 2022 | | September 25, 2021 |
Operating Loss | $ | (11) | | | $ | (9) | | | $ | (43) | | | $ | (33) | |
The operating loss of our Corporate segment for the nine-month periodthree months ended September 25, 2021, improved24, 2022 increased $2 million when compared to the same prior year quarter driven primarily by $4higher variable stock-based compensation costs.
The operating loss of our Corporate segment for the nine months ended September 24, 2022 increased $10 million when compared to the same prior year period driven primarily by loweran increase in severance and variable stock-based compensation costs.costs, partially offset by favorable foreign exchange impacts.
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. However, ourAs operating cash flows have been volatile in recent years due tocan be negatively impacted by fluctuations in market prices for our commodity products, as well as the impact onchanges in demand driven by the COVID-19 pandemic and the subsequent recovery. In response,for our products, we maintain a key focus on cash, managing working capital closely and optimizing the timing and level of our capital expenditures.
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 the Board of Directors and will be dependent upon our financial condition, results of operations, capital requirements and other factors that the Board of Directors deem 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 the three and nine months ended September 24, 2022 and September 25, 2021, and do not expect to utilize any authorization in the near future.
As of September 25, 2021,24, 2022, we arewere in compliance with all financial and other customary covenants. We believe our future cash flows from operations and availability under our ABL Credit Facility, as well as our ability to access the capital markets, if necessary or desirable, will be adequate to fund our operations and anticipated long-term funding requirements, including capital expenditures, defined benefit plan contributions and repayment of debt maturities.
TheOur non-guarantor subsidiaries had assets of $730$799 million, liabilities of $234 million, year-to-date revenue of $173$187 million and a trailing twelve month covenant EBITDA for the last twelve months is a $19 million loss and liabilitiescontinuing operations of $267$34 million as of September 25, 2021.24, 2022.
On September 6, 2019, our Board of Directors suspended our quarterly common stock dividend. No dividends have been declared since. The declaration and payment of future common stock dividends, if any, will be at the discretion of the Board of Directors and will be dependent upon our financial condition, results of operations, capital requirements and other factors the Board of Directors deem relevant. In addition, our debt facilities place limitations on the declaration and payment of future dividends.
On January 29, 2018, our Board of Directors authorized a $100 million common stock share buyback program. For the three and nine months ended September 25, 2021 and September 26, 2020, we did not repurchase any common shares under this buyback program. We do not expect to utilize any further authorization in the near future.
A summary ofOur liquidity and capital resources is shown below (in millions of dollars):are summarized below:
| | September 25, 2021 | | December 31, 2020 | |
(in millions, except ratios) | | (in millions, except ratios) | September 24, 2022 | | December 31, 2021 |
Cash and cash equivalents (a) | Cash and cash equivalents (a) | $ | 279 | | | $ | 94 | | Cash and cash equivalents (a) | $ | 132 | | | $ | 253 | |
Availability under the ABL Credit Facility (b) | Availability under the ABL Credit Facility (b) | 76 | | | 102 | | Availability under the ABL Credit Facility (b) | 128 | | | 103 | |
Total debt (c) | Total debt (c) | 947 | | | 1,084 | | Total debt (c) | 873 | | | 929 | |
Stockholders’ equity | Stockholders’ equity | 785 | | | 695 | | Stockholders’ equity | 780 | | | 814 | |
Total capitalization (total debt plus equity) | $ | 1,732 | | | $ | 1,779 | | |
Total capitalization (total debt plus stockholders’ equity) | | Total capitalization (total debt plus stockholders’ equity) | 1,653 | | | 1,743 | |
Debt to capital ratio | Debt to capital ratio | 55 | % | | 61 | % | Debt to capital ratio | 53 | % | | 53 | % |
——————————————(a) Cash and cash equivalents consisted Consists 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 September 25, 2021,24, 2022, we had $116$166 million of gross availability and net available borrowings of $76$128 million after taking into account standby letters of credit of approximately $40$38 million. In addition to the availability under the ABL Credit Facility, we have $23 million available under an accounts receivable factoring line of credit in France.
(c) See Note 7 — Debt and Finance Leases to our Consolidated Financial Statements for further information.
Other Sources of Cash
In May 2022, we sold our GreenFirst shares for $43 million. See Note 2 — Discontinued Operations to our Consolidated Financial Statements for further information.
In August 2022, we received a U.S. federal tax refund of $23 million. See Note 16 — Income Taxes to our Consolidated Financial Statements for further information.
Cash Requirements
We experienced increased operating expenses and capital spend during the nine months ended September 24, 2022, including for the extensive planned maintenance outages performed in the first half of the year.
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 consolidated financial statementsself-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 obligations 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 nine months ended September 24, 2022.
Senior Notes
During the nine months ended September 24, 2022, we repurchased $35 million of our Unsecured Notes through open market transactions and retired the notes for cash of approximately $35 million.
With our next significant debt maturity in mid-2024, we continue to monitor the capital markets and are prepared to opportunistically refinance the Unsecured Notes at the appropriate time considering market conditions and all other relevant factors. We are confident that by executing on our strategy to improve our credit profile, we can obtain a refinancing at acceptable terms based on market conditions. We may also use a portion of our cash balances to opportunistically repay debt or assist in a holistic refinancing of our capital structure.
Canadian Dollar Term Loans
During the nine months ended September 24, 2022, we repaid a Canadian dollar fixed interest rate term loan in the amount of CAD $12 million (USD $9 million). In October 2022, we repaid an additional information.term loan in the amount of CAD $12 million (USD $9 million).
Cash Flows (in millions of dollars)
The following table summarizes our cash flows from operating, investing and financing activities for the nine months ended:flows:
| | | | | | | | | | | |
Cash Flows Provided by (Used for): | September 25, 2021 | | September 26, 2020 |
Operating activities-continuing operations | $ | 45 | | | $ | 57 | |
Operating activities-discontinued operations | $ | 162 | | | $ | 6 | |
Investing activities-continuing operations | $ | (65) | | | $ | (35) | |
Investing activities-discontinued operations | $ | 183 | | | $ | (7) | |
Financing activities | $ | (138) | | | $ | (2) | |
| | | | | | | | | | | |
| Nine Months Ended |
(in millions) | September 24, 2022 | | September 25, 2021 |
Cash flows provided by (used in): | | | |
Operating activities-continuing operations | $ | 7 | | | $ | 45 | |
Operating activities-discontinued operations | — | | | 162 | |
Investing activities-continuing operations | (114) | | | (65) | |
Investing activities-discontinued operations | 44 | | | 183 | |
Financing activities | (51) | | | (138) | |
Cash flows provided by operating activities of continuing operations declined $12decreased $38 million during the nine months ended September 25, 202124, 2022, to $45$7 million, when compared to the same prior year period due to higher sales prices across segmentschanges in addition to $27 millionworking capital and other items, which were influenced by the impact of net income tax cash refunds and $20 millionthe extensive planned maintenance outages through the second quarter of CEWS claims received in the period,2022, partially offset by higher costs, the impactreceipt of shipping constraints and lower production. An additional $29a $23 million of cashU.S. federal tax refunds are expected in the next six to twelve months. The nine months ended September 26, 2020 included a $24 million increase to the U.S. income tax receivable from the passage of the CARES Act in March of 2020.refund.
Cash provided by operatingflows used in investing activities of discontinuedcontinuing operations increased $49 million during the nine months ended September 25, 2021 improved by $156 million24, 2022 when compared to the same prior year period primarily driven bydue to increased capital spending related to the increaseplanned maintenance outages in lumber sales prices. In addition, newsprint operations improved driven by sales price increases during the nine months ended September 26, 2021.current year.
Cash flows used forprovided by investing activities of continuingdiscontinued operations increased $30decreased $139 million during the nine months ended September 25, 202124, 2022, to $44 million, when compared to the same prior year period primarily from increased custodial capital spending.period. The increase also includes a $4 million investmentcash inflow in Anomera, Inc.
Cash provided by investing activities2022 was the result of discontinued operations increased $190 million to $183 million during the nine months ended September 25,sale of GreenFirst common stock as well as the first installment on the credit note associated with the sale of our lumber and newsprint assets in August 2021. The cash inflow in 2021 compared toconsisted of the same prior year period ended. The increase is driven by net cash received in connection with the sale of the lumber and newsprint assets which was completed on August 28, 2021, partially offset by capital expenditures of $8 million during the current period.assets.
Cash flows used forin financing activities increased by $136decreased $87 million during the nine months ended September 25, 202124, 2022, to $138$51 million, when compared to the same prior year period. The increase isperiod, primarily driven by the open-market purchasesdue to a decrease in repayment of a portion of our Unsecured Notes during the third quarter of 2021. Additionally, cash used to repurchase common stock in lieu of income taxes from the vesting of incentive stock grants was $1 million higher during the current period. The nine months ended September 26, 2020 had $3 million of higher debt issuance costs when compared to the current period. See Note 7 —Debt and Finance LeasesandNote 12 — Stockholders' Equity, to our consolidated financial statements for additional information.long-term debt.
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 followingnon-GAAP financial measures of financial results: EBITDA, adjusted EBITDA and adjusted free cash flows. These measures are not defined by U.S. Generally Accepted Accounting Principles (“GAAP”)GAAP and theour discussion of EBITDA, adjusted EBITDA and adjusted free cash flowsthem is not intended to conflict with or change any of theour GAAP disclosures described above.provided in this Report.
We believe these non-GAAP 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 measures to compare our performance to that of prior periods for trend analyses, purposes of determiningto determine management incentive compensation and for budgeting, forecasting and planning purposes. Our management considers these measures, in addition to operating income, to be important to estimatein estimating the enterprise and stockholder values of the Company and for making strategic and operating decisions. In addition, analysts, investors and creditors use these measures when analyzing our operating performance, financial condition and cash generatingcash-generating ability. Our management usesWe use EBITDA and adjusted EBITDA as performance measures and adjusted free cash flows as a liquidity measure. See Item 2 — Note
We do not consider non-GAAP measures an alternative to financial measures determined in accordance with GAAP. The principal limitation of these non-GAAP financial measures is that they may exclude significant expense and income items that are required by GAAP to be recognized in our Consolidated Financial Statements. In addition, they reflect the exercise of management’s judgment about which expense and income items are excluded or included in determining these non-GAAP financial measures. In order to compensate for these limitations, reconciliations of our non-GAAP financial measures to their most directly comparable GAAP measures are provided below. Non-GAAP Financial Measures for limitations associated with non-GAAP measures.financial measures should not be relied upon, in whole or part, in evaluating the financial condition, results of operations or future prospects of the Company.
EBITDA and Adjusted EBITDA
EBITDA is defined by SEC rules as earnings before interest, taxes, depreciation and amortization. EBITDA is not necessarily indicative of results that may be generated in future periods.
Below is a reconciliation of Income (Loss)income (loss) from Continuing Operationscontinuing operations to EBITDA from continuing operations, by segment (in millions of dollars):segment:
| Three Months Ended: | | High Purity Cellulose | | Paperboard | | High-Yield Pulp | | Corporate & Other | | Total | | |
September 25, 2021 | | | | | | | | | | | | |
(in millions) | | (in millions) | | High Purity Cellulose | | Paperboard | | High-Yield Pulp | | Corporate & Other | | Total | |
Three Months Ended September 24, 2022 | | Three Months Ended September 24, 2022 | | | | | | | | | | | |
Income (loss) from continuing operations | Income (loss) from continuing operations | | $ | 2 | | | $ | 2 | | | $ | 8 | | | $ | (25) | | | $ | (13) | | | Income (loss) from continuing operations | | $ | 23 | | | $ | 12 | | | $ | 6 | | | $ | (23) | | | $ | 18 | | |
Depreciation and amortization | Depreciation and amortization | | 30 | | | 4 | | | 1 | | | — | | | 35 | | | Depreciation and amortization | | 30 | | | 3 | | | — | | | 2 | | | 35 | | |
Interest expense, net | Interest expense, net | | — | | | — | | | — | | | 17 | | | 17 | | | Interest expense, net | | — | | | — | | | — | | | 17 | | | 17 | | |
Income tax expense (benefit) | | — | | | — | | | — | | | (4) | | | (4) | | | |
EBITDA from continuing operations | | $ | 32 | | | $ | 6 | | | $ | 9 | | | $ | (12) | | | $ | 35 | | | |
Pension settlement (gain) loss | | — | | | — | | | — | | | — | | | — | | | |
| Adjusted EBITDA from continuing operations | | $ | 32 | | | $ | 6 | | | $ | 9 | | | $ | (12) | | | $ | 35 | | | |
| September 26, 2020 | | | | |
Income (loss) from continuing operations | | $ | 8 | | | $ | 3 | | | $ | 2 | | | $ | (1) | | | $ | 12 | | | |
Depreciation and amortization | | 28 | | | 4 | | | 1 | | | 1 | | | 34 | | | |
Interest expense, net | | — | | | — | | | — | | | 14 | | | 14 | | | |
Income tax expense (benefit) | | — | | | — | | | — | | | (28) | | | (28) | | | |
EBITDA from continuing operations | | $ | 36 | | | $ | 7 | | | $ | 3 | | | $ | (14) | | | $ | 32 | | | |
Income tax benefit | | Income tax benefit | | — | | | — | | | — | | | (2) | | | (2) | | |
EBITDA and Adjusted EBITDA from continuing operations | | EBITDA and Adjusted EBITDA from continuing operations | | $ | 53 | | | $ | 15 | | | $ | 6 | | | $ | (6) | | | $ | 68 | | |
| Nine Months Ended: | | High Purity Cellulose | | Paperboard | | High-Yield Pulp | | Corporate & Other | | Total | | |
September 25, 2021 | | | | | | | | | | | | |
| | Three Months Ended September 25, 2021 | | Three Months Ended September 25, 2021 | | | |
Income (loss) from continuing operations | | Income (loss) from continuing operations | | $ | 2 | | | $ | 2 | | | $ | 8 | | | $ | (25) | | | $ | (13) | | |
Depreciation and amortization | | Depreciation and amortization | | 30 | | | 4 | | | 1 | | | — | | | 35 | | |
Interest expense, net | | Interest expense, net | | — | | | — | | | — | | | 17 | | | 17 | | |
Income tax benefit | | Income tax benefit | | — | | | — | | | — | | | (4) | | | (4) | | |
EBITDA from continuing operations | | EBITDA from continuing operations | | 32 | | | 6 | | | 9 | | | (12) | | | 35 | | |
| Gain on debt extinguishment | | Gain on debt extinguishment | | — | | | — | | | — | | | (2) | | | (2) | | |
Adjusted EBITDA from continuing operations | | Adjusted EBITDA from continuing operations | | $ | 32 | | | $ | 6 | | | $ | 9 | | | $ | (14) | | | $ | 33 | | |
| | Nine Months Ended September 24, 2022 | | Nine Months Ended September 24, 2022 | | | |
| Income (loss) from continuing operations | Income (loss) from continuing operations | | $ | 20 | | | $ | 11 | | | $ | 9 | | | $ | (61) | | | $ | (21) | | | Income (loss) from continuing operations | | $ | 22 | | | $ | 29 | | | $ | 5 | | | $ | (87) | | | $ | (31) | | |
Depreciation and amortization | Depreciation and amortization | | 85 | | | 11 | | | 2 | | | 3 | | | 101 | | | Depreciation and amortization | | 83 | | | 10 | | | 1 | | | 2 | | | 96 | | |
Interest expense, net | Interest expense, net | | — | | | — | | | — | | | 49 | | | 49 | | | Interest expense, net | | — | | | — | | | — | | | 49 | | | 49 | | |
Income tax expense (benefit) | | — | | | — | | | — | | | (29) | | | (29) | | | |
Income tax expense | | Income tax expense | | — | | | — | | | — | | | 3 | | | 3 | | |
EBITDA from continuing operations | EBITDA from continuing operations | | $ | 105 | | | $ | 22 | | | $ | 11 | | | $ | (38) | | | $ | 100 | | | EBITDA from continuing operations | | 105 | | | 39 | | | 6 | | | (33) | | | 117 | | |
Pension settlement (gain) loss | | — | | | — | | | — | | | 1 | | | 1 | | | |
| Pension settlement loss | | Pension settlement loss | | — | | | — | | | — | | | 1 | | | 1 | | |
Severance | | Severance | | — | | | — | | | — | | | 4 | | | 4 | | |
| Adjusted EBITDA from continuing operations | Adjusted EBITDA from continuing operations | | $ | 105 | | | $ | 22 | | | $ | 11 | | | $ | (37) | | | $ | 101 | | | Adjusted EBITDA from continuing operations | | $ | 105 | | | $ | 39 | | | $ | 6 | | | $ | (28) | | | $ | 122 | | |
| September 26, 2020 | | | | |
Nine Months Ended September 25, 2021 | | Nine Months Ended September 25, 2021 | | | |
Income (loss) from continuing operations | Income (loss) from continuing operations | | $ | 8 | | | $ | 15 | | | $ | 2 | | | $ | (33) | | | $ | (8) | | | Income (loss) from continuing operations | | $ | 20 | | | $ | 11 | | | $ | 9 | | | $ | (61) | | | $ | (21) | | |
Depreciation and amortization | Depreciation and amortization | | 85 | | | 11 | | | 2 | | | 3 | | | 101 | | | Depreciation and amortization | | 85 | | | 11 | | | 2 | | | 3 | | | 101 | | |
Interest expense, net | Interest expense, net | | — | | | — | | | — | | | 40 | | | 40 | | | Interest expense, net | | — | | | — | | | — | | | 49 | | | 49 | | |
Income tax expense (benefit) | | — | | | — | | | — | | | (47) | | | (47) | | | |
Income tax benefit | | Income tax benefit | | — | | | — | | | — | | | (29) | | | (29) | | |
EBITDA from continuing operations | EBITDA from continuing operations | | $ | 93 | | | $ | 26 | | | $ | 4 | | | $ | (37) | | | $ | 86 | | | EBITDA from continuing operations | | 105 | | | 22 | | | 11 | | | (38) | | | 100 | | |
Pension settlement loss | | Pension settlement loss | | — | | | — | | | — | | | 1 | | | 1 | | |
| Gain on debt extinguishment | | Gain on debt extinguishment | | — | | | — | | | — | | | (2) | | | (2) | | |
Adjusted EBITDA from continuing operations | | Adjusted EBITDA from continuing operations | | $ | 105 | | | $ | 22 | | | $ | 11 | | | $ | (39) | | | $ | 99 | | |
EBITDA from continuing operations forFor the three and nine months ended September 25, 2021 improved by $324, 2022, EBITDA from continuing operations increased $33 million and $15$17 million, respectively, and Adjusted EBITDA from continuing operations increased $35 million and $23 million, respectively, when compared to the same periods ended September 26, 2020,prior year periods. These increases were primarily from favorable operating results driven by higher High Purity Cellulosesales prices across all segments, partially offset by higher operational costs.key input and logistics costs due to inflation, lower volumes due to supply chain constraints and lower productivity when comparing the nine-month periods. For thea full discussion of changes to operating income, see Management’s Discussion of Results of Operations.Operations above.
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.expenditures deemed discretionary by management. Adjusted free cash flows, as defined by the Company,us, is a non-GAAP measure of cash generated during a period which is available for debt reduction, strategic
capital expenditures and acquisitions and repurchase of the Company’sour common stock. Adjusted free cash flows is not necessarily indicative of the adjusted free cash flows that may be generated in future periods.
Below is a reconciliation of cash flows from operations of continuing operations to adjusted free cash flows of- continuing operations for the respective periods (in millions of dollars):periods:
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| Nine Months Ended |
Cash Flows from Operations to Adjusted Free Cash Flows Reconciliation | September 25, 2021 | | September 26, 2020 |
Cash provided by (used for) operating activities - continuing operations | $ | 45 | | | $ | 57 | |
Capital expenditures (a) | (51) | | | (25) | |
Adjusted Free Cash Flows | $ | (6) | | | $ | 32 | |
| | | | | | | | | | | |
| Nine Months Ended |
(in millions) | September 24, 2022 | | September 25, 2021 |
Cash provided by operating activities-continuing operations | $ | 7 | | | $ | 45 | |
Capital expenditures (a) | (92) | | | (51) | |
Adjusted Free Cash Flows-continuing operations | $ | (85) | | | $ | (6) | |
——————————————(a) Capital expenditures exclude strategic capital expenditures which are deemed discretionary by management. Strategic expenditures for the first nine months ofended 2022 and 2021 were approximately $22 million and $10 million. Strategic capital expenditures for the same period of 2020 were approximately $10 million.million, respectively.
Adjusted free cash flows of continuing operations declined primarily due to changes in working capital and other items as well as higher capital expenditures. For thea full discussion of operating cash flows, see Management’s Discussion and Analysis of Cash Flows.Flows above.
Contractual Financial Obligations and Off-Balance Sheet Arrangements
We have no material changes outside the ordinary course of business to the Contractual Financial Obligations table as presented in Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2020 Annual Report on Form 10-K.
See Note 18 —Commitments and Contingencies for details on our letters of credit and surety bonds as of September 25, 2021.
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Item 3. | 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, foreign currency and commodity prices. Our objective is to minimize the economic impact of these market risks. We may use derivatives in accordance with policies and procedures approved by the Audit Committee of our Board of Directors. Derivatives are managed by a senior executive committee whose responsibilities include initiating, managing and monitoring resulting exposures. See Note 9 — Derivative Instruments to our Consolidated Financial Statements for additionalfurther information.
We manage our foreign currency exposures by balancing certain assets and liabilities denominated in foreign currencies. We previously have used, and may do so again, used foreign currency forward contracts to manage these exposures. The principal objective of such contracts is to minimize the potential volatility and financial impact of changes in foreign currency exchange rates. We do not utilize financial instruments for trading or other speculative purposes.
The prices, sales volumes and margins of the commodity products of our High Purity Cellulose segment and all the products of the High-Yield Pulp segment have historically been cyclically affected by economic and market shifts, fluctuations in capacity and changes in foreign currency exchange rates. In general, these products are commodities that are widely available from other producers; becauseproducers. Because these products have few distinguishing qualities from producer to producer, competition is based primarily on price, which is determined by supply relative to demand. The overall levels of demand for the products we manufacture, and consequently our sales and profitability, reflect fluctuations in end user demand. Our cellulose specialties product prices are impacted by market supply and demand, raw material and processing costs, changes in global currencies and other factors. While these prices are not directly correlated to commodity dissolving wood pulp and paper pulp prices, changes in commodity dissolving wood pulp and paper pulp prices may impact competitors'competitors’ actions which can lead to an impact in prices for cellulose specialties products. In addition, approximatelyslightly over half of our cellulose specialties contracted volumes are under multi-year contracts that expire between 20212022 and 2023.
2024.
As of September 25, 2021,24, 2022, we had $1$2 million of variable rate debt which is subject to interest rate risk. At this borrowing level, a hypothetical one-percentage point increase/decreaseone percent change in interest rates would result in an immaterial increase/decrease in interest payments and expense over a 12-month period.
The fair market value of our long-term fixed interest rate debt is also subject to interest rate risk. However, we intend to hold most of our debt until maturity. The estimated fair value of our fixed-rate debt at September 25, 202124, 2022 was $989$823 million compared to the $944$869 million carrying value of principal amount. We use quoted market prices to estimate the fair value of our fixed-rate debt. Generally, the fair market value of fixed-rate debt will increase as interest rates fall and decrease as interest rates rise.
We may periodically enter into commodity forward contracts to fix some of our energy costs that are subject to price volatility caused by weather, supply conditions, political and economic variables and other unpredictable factors. Such forward contracts partially mitigate the risk of changes to our gross margins resulting from an increase or decrease in these costs. Forward contracts whichthat are derivative instruments are reported in the consolidated balance sheets at their fair values, unless they qualify for the normal purchase normal sale ("NPNS"(“NPNS”) exception and such exception has been elected. If the NPNS exception is elected, the fair values of such contracts are not recognized on the balance sheet.
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Item 4. | Item 4. Controls and Procedures |
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 Securities Exchange Act of 1934 (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.
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 September 25, 2021.24, 2022.
During the quarter ended September 25, 2021,24, 2022, based upon the evaluation required by paragraph (d) of SEC Rule 13a-15, there were no changes in our internal control over financial reporting that would materially affect or are reasonably likely to materially affect our internal control over financial reporting.
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Part II. | Part II. Other Information |
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Item 1. | 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 its business. While the Company has procured reasonable and customary insurance covering risks normally occurring in connection with its businesses, the Company has in certain cases retained some risk through the operation of self-insurance, primarily in the areas of workers’ compensation, property insurance, business interruption and general liability. While there can be no assurance, the ultimate outcome of these actions, either individually or in the aggregate, is not expected to have a material adverse effect on the Company’s financial position, results of operations or cash flows, except as may be noted below.
Final Settlement Reached in Dispute with IESO Relating to Investigation of the Kapuskasing Newsprint Facility
From the period from 2014 to early 2021, the Market Assessment and Compliance Division (“MACD”) branch of the Independent Electricity System Operator (“IESO”), the governmental agency responsible for operating the wholesale electricity market and directing the operation of the bulk electrical system in the province of Ontario, Canada, had been engaged in reviewing the Company's compliance with the published rules that govern the operation of the wholesale electricity market in Ontario, Canada. The inquiry was focused primarily on payments made by IESO to the Company between 2010 and 2019 under market rules in connection with multiple planned, extended and unplanned forced outages that caused extensive downtime, in full or in part, of the Company’s Kapuskasing, Ontario newsprint facility.
In May 2020, MACD finalized two of its four investigations into the Company’s electricity management practices at its Kapuskasing newsprint facility and issued orders asserting penalties of CAD $25 million. These orders called for the Company to pay penalties of CAD $3 million immediately and CAD $12 million over a 10-year period, with the remaining CAD $10 million to be deferred and ultimately forgiven assuming the Company otherwise complied with the orders’ remaining terms. The Company, which maintained it had complied in all material respects with the published rules, vigorously contested IESO’s orders, including through the filing of judicial review proceedings with the divisional Court (Superior Court of Justice) of Ontario seeking invalidation of the orders. At the time these orders were issued, the remaining two investigations remained open, subjecting the Company to the risk that MACD may in the future issue additional orders upon finalization of these additional investigations.
On April 19, 2021, the Company and IESO entered into Minutes of Settlement (“MOS”) pursuant to which the parties agreed to fully and finally settle all claims relating to all four of the investigations (whether completed or not) and related orders, the judicial review proceedings and underlying disputes. As part of the settlement, the Company agreed to a fixed obligation to pay a sum of CAD $12 million over a period of 5 years comprised of a CAD $4.5 million up-front payment and a CAD $7.5 payment to be spread (on a front-weighted basis) over the next 5 anniversaries of the MOS, without interest. In addition to the foregoing, the MOS provides that a “suspended” sum of CAD $10.4 million would become due and payable in the event the Company fails to comply with any of the terms and conditions of the MOS or commits an event of default, as defined under the applicable market rules, unless such breach or event of default is remedied on a timely basis. This contingent “suspended” sum decreases annually as the scheduled fixed, or non-contingent, payments are made under the MOS. Assuming no uncured event of default or breach occurs during the repayment period, upon full payment of the CAD $12 million, the entire "suspended" sum shall be extinguished and RYAM shall be released from any payment obligation with respect thereto.
Given the parties’ finalization of and entry into the MOS, the Company considers this matter concluded (subject only to the parties’ obligations yet to be performed under the MOS).flows.
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Item 1A. | Item 1A. Risk Factors |
In addition to the risk factors previously disclosed in our 20202021 Annual Report on Form 10-K, the following risk factors arefactor is hereby added:
MergerOur business, financial condition and Acquisition Riskresults of operations could be adversely affected by disruptions in the global economy caused by the ongoing conflict between Russia and Ukraine or other geopolitical conflict.
•Approximately fifteen percent (15%)The military conflict between Russia and Ukraine, along with economic sanctions placed by Western countries on certain industry sectors and parties in Russia, have negatively impacted the global economy. While we have no direct operations in Russia or Ukraine, we have significant operations in Europe which have experienced shortages in key input materials and increased costs for transportation, energy, and raw materials due to this conflict. Further escalation of geopolitical tensions could result in, among other things, gas shortages in Europe and disruptions of operations for us, our customers and our suppliers, cyberattacks, lower consumer demand and changes to foreign exchange rates and financial markets, any of which would adversely affect our business. These impacts could also directly affect North America and adversely impact our operations in this region. In addition, the effects of the purchase price for the GreenFirst transaction was receivedongoing conflict could heighten many of our known risks described in the common shares this Item 1A — Risk Factors of the capital of GreenFirst (to be held by the Company for a minimum of six (6) months following transaction
closing), and the Company’s ability to ultimately realize the benefit of this consideration is subject to market conditions and GreenFirst’s future performance.
our 2021 Annual Report on Form 10-K.
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Item 2. | Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
Issuer Purchases of Equity Securities
The following table provides information regarding our purchases of Rayonier Advanced Materials common stock during the quarter ended September 25, 2021:24, 2022:
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Period | Total Number of Shares Purchased (b)(a) | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (a)(b) |
June 2726 to July 30 | — | | | $ | — | | | — | | | $ | 60,294,000 | |
July 31 to August 27 | — | | | $ | — | | | — | | | $ | 60,294,000 | |
August 1 to August 28 | — | | | $ | — | | | — | | | $ | 60,294,000 | |
August 29 to September 2524 | — | | | $ | — | | | — | | | $ | 60,294,000 | |
Total | — | | | | | — | | | |
——————————————(a) Repurchased to satisfy the tax withholding requirements related to the issuance of stock under the Rayonier Advanced Materials Incentive Stock Plan.
(b) As of September 25, 2021,24, 2022, approximately $60 million of share repurchase authorization remains under the authorization declared by the Board of Directors on January 29, 2018.
(b) Repurchased to satisfy the tax withholding requirements related to the issuance of stock under the Rayonier Advanced Materials Incentive Stock Plan.
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| Amended and Restated Certificate of Incorporation of Rayonier Advanced Materials Inc. | | Incorporated herein by reference to Exhibit 3.1 to the Registrant’s Form 8-K filed on June 30, 2014 |
| Certificate of Designations of 8.00% Series A Mandatory Convertible Preferred Stock of Rayonier Advanced Materials Inc., filed with the Secretary of State of the State of Delaware and effective August 10, 2016 | | Incorporated herein by reference to Exhibit 3.1 to the Registrant’s Form 8-K filed on August 10, 2016 |
| Amended and Restated Bylaws of Rayonier Advanced Materials IncInc. | | Incorporated herein by reference to Exhibit 3.23.1 to the Registrant’s Form 8-K filed on June 30, 2014October 19, 2022 |
| Certificate of Designations of Series A Junior Participating Preferred Stock | | Incorporated herein by reference to Exhibit 3.1 to the Registrant’s Form 8-K filed on March 21, 2022 |
| Rights Agreement dated as of March 21, 2022, between Rayonier Advanced Materials Inc. and Computershare Trust Company, N.A., which includes the form of Certificate of Designations as Exhibit A, the form of Right Certificate as Exhibit B and the Summary of Rights to Purchase Preferred Shares as Exhibit C | | Incorporated herein by reference to Exhibit 4.1 to the Registrant’s Form 8-K filed on March 21, 2022 |
| Seventh Amendment to Retirement Plan for Salaried Employees of Rayonier Advanced Materials Inc., effective December 31, 2022 | | Filed herewith |
| First Amendment to Rayonier Advanced Materials Inc. Excess Benefit Plan, effective December 31, 2022 | | Filed herewith |
| Chief Executive Officer’s Certification Pursuant to Rule 13a-14(a)/15d-14(a) and pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | Filed herewith |
| Chief Financial Officer’s Certification Pursuant to Rule 13a-14(a)/15d-14(a) and pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | Filed herewith |
| Certification of Periodic Financial Reports Under Section 906 of the Sarbanes-Oxley Act of 2002 | | Furnished herewith |
101 | The following financial information from our Quarterly Report on Form 10-Q for the three and nine months ended September 25, 2021 formattedInteractive data files (formatted in Extensible Business Reporting Language (“XBRL”), includes: (i) the Condensed Consolidated StatementsInline XBRL) pursuant to Rule 405 of Income (Loss) and Comprehensive Income (Loss) for the Three and Nine Months Ended September 25, 2021 and September 26, 2020; (ii) the Condensed Consolidated Balance Sheets as of September 25, 2021 and December 31, 2020; (iii) the Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 25, 2021 and September 26, 2020; and (iv) the Notes to Condensed Consolidated Financial StatementsRegulation S-T | | Filed herewith |
104 | Cover Page Interactive Data File - formatted aspage interactive data file (formatted in Inline XBRL and contained in Exhibit 101101) pursuant to Rule 406 of Regulation S-T | | Filed herewith |
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.
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| | Rayonier Advanced Materials Inc. |
| | (Registrant) |
| | |
| By: | /s/ MARCUS J. MOELTNER |
| | Marcus J. Moeltner Chief Financial Officer and Senior Vice President, Finance (Duly Authorized Officer and Principal Financial Officer) |
Date: November 4, 20212, 2022