RAYONIER ADVANCED MATERIALS INC

1. Basis of Presentation

RYAM is a global leader of specialty cellulose materials with a broad offering of high purity cellulose specialties, a natural polymer used in the production of a variety of specialty chemical products, including liquid crystal displays, filters, textiles and performance additives for pharmaceutical, food and other industrial applications. The Company’s specialized assets are also used to produce biofuels, bioelectricity and other biomaterials such as bioethanol and tall oils. The Company also produces a unique, lightweight multi-ply paperboard product, which is used for production in the commercial printing, lottery ticket and high-end packaging sectors, and a bulky, high-yield pulp product that is used by paperboard producers, as well as in traditional printing, writing and specialty paper manufacturing.

The unaudited consolidated financial statements and notes thereto of the Company have been prepared in accordance with GAAP for interim financial information and in accordance with the rules and regulations of the SEC. In the opinion of management, these consolidated financial statements and notes reflect all adjustments, including all normal recurring adjustments, necessary for a fair presentation of the results of operations, financial position and cash flows for the periods presented. These statements and notes should be read in conjunction with the consolidated financial statements and supplementary data included in the Company’s 2023 Form 10-K.

Recent Accounting Developments

Change in Accounting Policy

On January 1, 2024, the Company changed the method of valuation of its finished goods, work-in-process and raw materials inventories from first-in first-out to average cost. The Company believes the average cost method is preferable because it provides better matching of revenue and expense trends and is a better reflection of periodic income from operations. This change was not retrospectively applied to prior periods presented, as the overall effect of the change is not deemed material to the Company’s consolidated financial statements.

Accounting Pronouncements

There have been no new or recently adopted accounting pronouncements impacting the Company’s consolidated interim financial statements. The Company continues to evaluate the impacts of ASU 2023-05 “Business Combinations—Joint Venture Formations (Subtopic 805-60): Recognition and Initial Measurement,” ASU 2023-07 “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures” and ASU 2023-09 “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” as previously disclosed in its 2023 Form 10-K.

Subsequent Events

Indefinite Suspension of Operations of Temiscaming High Purity Cellulose Plant

On April 29, 2024, the Company announced that it will suspend operations at its Temiscaming High Purity Cellulose plant, effective July 2, 2024, for an indefinite period. The decision does not affect the Temiscaming paperboard and high-yield pulp plants that support the Company’s High-Yield Pulp and Paperboard operating segments, which will continue to operate at full capacity while remaining part of an ongoing, previously announced, sales process. The effective date was determined as the latest possible date allowing enough lead time for the Company to properly execute the shutdown prior to the arrival of winter in the region. The High Purity Cellulose plant will be idled in a safe and environmentally sound manner. The Company will assess on an annual basis the possibility of restarting the Temiscaming High Purity Cellulose plant.

The indefinite suspension of operations will result in approximately 275 layoffs. In connection with the suspension of operations, the Company expects to incur one-time operating charges in 2024 of approximately $30 million, including mothball, severance and other employee costs. Further, the Company also expects to incur non-cash charges in 2024 related to impairments, the amounts of which will be assessed. While most 2024 cash costs associated with the suspension of operations will be incurred and paid in the third and fourth quarters, severance and other restructuring costs are expected to be paid over a period of time.

From 2021 through 2023, average maintenance capital expenditures for the Temiscaming High Purity Cellulose plant was $15 million. In 2023, the High Purity Cellulose plant incurred an operating loss of $60 million, including a non-cash asset impairment of $25 million. Working capital for the High Purity Cellulose plant was $31 million at the end of 2023.

Sale of Softwood Lumber Duty Rights

In August 2021, the Company completed the sale of its lumber and newsprint facilities. As part of the sale, the Company retained all refund rights, including interest, to softwood lumber duties paid by the Company from 2017 through 2021, and has accumulated a $40 million receivable as a result of USDOC administrative reviews. On May 6, 2024, the Company announced the sale of these rights, including all accrued interest, for $39 million, with the opportunity for additional sale proceeds in the future contingent upon the timing and terms of the ultimate outcome of the trade dispute between the USDOC and Canada.

2. Accounts Receivable, Net

Accounts receivable, net included the following:

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

3. Inventory

Inventory included the following:

4. Leases

The Company’s operating and finance leases are primarily for corporate offices, warehouse space, rail cars and equipment. As of March 30, 2024, the Company’s leases have remaining lease terms of less thanone year to 12.6 years with standard renewal and termination options available at the Company’s discretion. Certain equipment leases have purchase options at the end of the term of the lease, which are not included in the ROU assets, as it is not reasonably certain that the Company will exercise such options. The Company’s lease agreements do not contain any material residual value guarantees or restrictive covenants. The Company uses its incremental borrowing rate in determining the present value of lease payments unless the lease provides an implicit or explicit interest rate.

Financial and other information related to the Company’s operating and finance leases follow:

Finance lease cash flows were immaterial during each of the three months ended March 30, 2024 and April 1, 2023.

Operating lease maturities as of March 30, 2024 were as follows:

5. Accrued and Other Current Liabilities

Accrued and other current liabilities included the following:

(a)Included at March 30, 2024 and December 31, 2023 was CAD $25 million (USD $18 million and $19 million, respectively) associated with funds received in 2021 for CEWS. All CEWS claims are subject to mandatory audit. The Company will recognize amounts from these claims in income at the time there is sufficient evidence that it will not be required to repay such amounts.

(b)Included at March 30, 2024 and December 31, 2023 were $14 million and $13 million, respectively, of energy-related payables associated with Tartas facility operations.

6. Debt and Finance Leases

Debt and finance leases included the following:

(a)Consist of loans for energy projects and other loans intended for use in biomaterials projects in France.

Term Loan

In January 2024, the Company amended the 2027 Term Loan to increase the maximum consolidated secured net leverage ratio that it must maintain in the fourth quarter of 2023 and through its 2024 fiscal year (see below). In addition, should the Company exceed the 4.50 to 1.00 maximum ratio established by the original agreement in any of these quarters, it will incur a fee of 0.25% of the principal balance outstanding at the end of the applicable quarter. The Company incurred total fees of $3 million related to this amendment, including $1 million in legal and advisory fees recorded to “selling, general and administrative expense” in the consolidated statements of operations in the fourth quarter of 2023, and $2 million in lender fees recorded as deferred financing costs in the first quarter of 2024 that will be amortized to “interest expense” over the remaining term of the loan.

The Company is required to maintain various financial covenants, including a consolidated secured net leverage ratio, based on covenant EBITDA, as follows:

•5.25 to 1.00 for the fourth quarter of 2023 through the second quarter of 2024;

•5.00 to 1.00 for the third fiscal quarter of 2024;

•4.75 to 1.00 for the fourth fiscal quarter of 2024; and

•4.50 to 1.00 for each fiscal quarter thereafter.

At March 30, 2024, the Company was in compliance with all covenants under its debt agreements.

As of March 30, 2024, the Company’s debt principal payments, excluding finance lease obligations, were due as follows:

7. Environmental Liabilities

The Company’s environmental liabilities balance changed as follows during the three months ended March 30, 2024:

In addition to these estimated liabilities, the Company is subject to the risk of reasonably possible additional liabilities in excess of the established liabilities due to potential changes in circumstances and future events, including, without limitation, changes to current laws and regulations; changes in governmental agency personnel, direction, philosophy or enforcement policies; developments in remediation technologies; increases in the cost of remediation, operation, maintenance and monitoring of its 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 or non-governmental parties; and changes in accounting rules or interpretations. Based on information available as of March 30, 2024, the Company estimates this exposure could range up to approximately $85 million, although no assurances can be given that this amount will not be exceeded given the factors described above. These potential additional costs are attributable to several sites and other applicable liabilities. This estimate excludes liabilities that would otherwise be considered reasonably possible but for the fact that they are not currently estimable, primarily due to the factors discussed above.

Subject to the previous paragraph, the Company believes its estimates of liabilities are sufficient for probable costs expected to be incurred over the next 20 years with respect to its environmental liabilities. However, no assurance is given that these estimates will be sufficient for the reasons described above and additional liabilities could have a material adverse effect on the Company’s financial position, results of operations and cash flows.

8. Fair Value Measurements

The carrying amounts of the Company’s cash, receivables and payables approximate fair value due to the short-term nature of those instruments. The carrying amount of borrowings outstanding under the ABL Credit Facility, 2027 Term Loan and short-term factoring facility approximate fair value due to their variable interest rates.

The fair value of the Company’s fixed rate debt is estimated using quoted market prices for debt with similar terms and maturities, which are Level 2 inputs, and was as follows:

(a)Excludes finance lease obligations.

9. Accumulated Other Comprehensive Loss

(a)The AOCI components for defined benefit pension and post-retirement plans are included in the computation of net periodic benefit cost. See Note 12—Employee Benefit Plans for further information.

(b)Reclassifications of foreign currency exchange contracts are recorded in “cost of sales,” “other operating expense, net” or “other income, net,” as appropriate.

(c)Foreign currency translation is net of tax effects of $0 for all periods presented, as the French operations are taxed on the foreign functional currency, not the translated reporting currency.

10. Earnings Per Common Share

The following table provides the inputs to the calculations of basic and diluted earnings per common share (share amounts not in thousands):

Anti-dilutive instruments excluded from the computation of diluted earnings per share included (not in thousands):

11. Incentive Stock Plans

Stock-based compensation expense was as follows:

The Company made new grants of restricted stock units, performance-based stock units and performance-based cash awards during the first quarter of 2024. The 2024 restricted stock unit awards cliff vest after three years. The 2024 performance-based awards cliff vest after three years and are based equally on TSR relative to peers and three-year cumulative adjusted EBITDA. Participants can earn between 0 percent and 200 percent of the target award for each of the TSR and adjusted EBITDA metrics. Performance below threshold for each metric would result inzero payout. The performance-based cash award is paid in cash and is classified as a liability and remeasured to fair value at the end of each reporting period until settlement.

In March 2024, the performance-based awards granted in 2021 vested without meeting the performance thresholds, resulting inno stock units or cash being awarded.

The following table summarizes the 2024 activity of the Company’s incentive stock awards:

12. Employee Benefit Plans

Defined Benefit Plans

The Company has defined benefit pension and other long-term and postretirement benefit plans covering certain union and non-union employees, primarily in the U.S. and Canada. The defined benefit pension plans are closed to new participants. The liabilities for these plans are calculated using actuarial estimates and management assumptions. These estimates are based on historical information and certain assumptions about future events.

During the three months ended April 1, 2023, the Company recorded a $2 million loss related to the final asset surplus distribution to the plan participants of certain wound-up Canadian pension plans. The settlement was recognized in “components of pension and OPEB, excluding service costs” in the Company’s consolidated statements of operations.

The following table presents the components of net periodic benefit costs of these plans:

Service cost is included in “cost of sales” or “selling, general and administrative expense” in the consolidated statements of operations, as appropriate. Interest cost, expected return on plan assets, amortization of prior service cost (credit) and amortization of gain are included in “components of pension and OPEB, excluding service costs” in the consolidated statements of operations.

13. Income Taxes

Effective Tax Rate

The Company’s effective tax rates were as follows:

The effective tax rate for the three months ended March 30, 2024 differed from the federal statutory rate of 21 percent primarily due to the release of certain tax reserves, partially offset by return-to-accrual adjustments, excess deficit on vested stock compensation and changes in the valuation allowance on disallowed interest deductions.

The effective tax rate for the three months ended April 1, 2023 was not meaningful due to near break-even pretax income for the period, which results in any discrete tax adjustments significantly impacting the rate. The largest adjustments creating a difference between the effective tax rate and the federal statutory rate of 21 percent were an excess tax benefit on vested stock compensation and return-to-accrual adjustments related to previously filed tax returns.

Deferred Taxes

As of March 30, 2024 and December 31, 2023, the Company’s net DTA included $14 million and $15 million, respectively, of disallowed U.S. interest deductions that the Company does not believe will be realized. In strict compliance with the American Institute of Certified Public Accountants’ Technical Questions and Answers 3300.01-02, which asserts that certain material evidence regarding the realizability of disallowed U.S. interest deductions should be ignored when assessing the need for a valuation allowance, the Company hasnot recognized a valuation allowance on this portion of the net DTA generated from disallowed interest.

14. Segments

The Company operates in the following business segments: High Purity Cellulose, Paperboard and High-Yield Pulp. Corporate consists primarily of senior management, accounting, information systems, human resources, treasury, tax and legal administrative functions that provide support services to the operating business units. The Company allocates a portion of the cost of maintaining these support functions to its operating units.

The Company evaluates the performance of its segments based on operating income (loss). Intersegment sales consist primarily of High-Yield Pulp sales to Paperboard. Intersegment sales prices are at rates that approximate market for the respective operating area.

Net sales, disaggregated by product line, was comprised of the following:

(a)Included sales of bioelectricity, lignosulfonates and other by-products to third parties.

Operating income (loss) by segment was comprised of the following:

Identifiable assets by segment were as follows:

15. Commitments and Contingencies

Commitments

The Company had no material changes to the purchase obligations presented in its 2023 Form 10-K that were outside the normal course of business during the three months ended March 30, 2024. The Company’s purchase obligations primarily consist of commitments for the purchase of natural gas, electricity and wood chips.

The Company leases certain buildings, machinery and equipment under various operating and finance leases. See Note 4—Leases for further information.

Litigation and Contingencies

Duties on Canadian Softwood Lumber Sold to the U.S.

The Company previously operatedsix softwood lumber mills in Ontario and Quebec, Canada, and exported softwood lumber into the U.S. from Canada. In connection with these exports, the Company paid approximately $112 million of softwood lumber duties between 2017 and August 2021, including $1 million of ancillary fees, which were recorded as expense in the periods incurred. As part of the sale of its lumber assets, the Company retained all rights and obligations to softwood duties generated or incurred through the closing date of the sale. As of March 30, 2024, the Company had a$40 million long-term receivable associated with the USDOC’s determinations of the revised duty rates for 2017 through 2021. This amount does not include interest, which will be due on any amounts refunded. The Company estimates that interest earned on the total amount of softwood lumber duties paid will exceed $10 million.

On May 6, 2024, the Company announced the sale of these rights, including all accrued interest, for $39 million, with the opportunity for additional sale proceeds in the future contingent upon the timing and terms of the ultimate outcome of the trade dispute between the USDOC and Canada.

Other

In addition to the above, the Company is engaged in various legal and regulatory actions and proceedings and has been named as a defendant in various lawsuits and claims arising in the ordinary course of business. While the Company has procured reasonable and customary insurance covering risks normally occurring in connection with its business, the Company has, in certain cases, retained some risk through the operation of self-insurance, primarily in the areas of workers’ compensation, property insurance, business interruption and general liability. These other lawsuits and claims, either individually or in the aggregate, are not expected to have a material adverse effect on the Company’s financial position, results of operations or cash flows.

Guarantees and Other

The Company provides financial guarantees as required by creditors, insurance programs and various governmental agencies. As of March 30, 2024, the Company had net exposure of $34 million from various standby letters of credit, primarily for financial assurance relating to environmental remediation, credit support for natural gas and electricity purchases and guarantees related to foreign retirement plan obligations. These standby letters of credit represent a contingent liability; the Company would only be liable upon its default on the related payment obligations. The standby letters of credit have various expiration dates and are expected to be renewed as required.

The Company had surety bonds of $89 million as of March 30, 2024, primarily to comply with financial assurance requirements relating to environmental remediation and post-closure care, to provide collateral for the Company’s workers’ compensation program and to guarantee taxes and duties for products shipped internationally. These surety bonds expire at various dates and are expected to be renewed annually as required.

LTF is a venture in which the Company owns 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 $30 million at March 30, 2024.

The Company has not recorded any liabilities for these financial guarantees in its consolidated balance sheets, either because the Company has recorded the underlying liability associated with the guarantee or the guarantee is dependent on the Company’s own performance and, therefore, is not subject to the measurement requirements or because the Company has calculated the estimated fair value of the guarantee and determined it to be immaterial based upon the current facts and circumstances that would trigger a payment obligation.

It is not possible to determine the maximum potential amount of liability under these potential obligations due to the unique set of facts and circumstances likely to be involved with each provision.

As of March 30, 2024, all of the Company’s collective bargaining agreements covering its unionized employees were current. As of the filing of this report, collective bargaining agreements covering approximately 235 unionized employees were expired at the Fernandina plant. The employees have continued to work under the terms of the expired contracts while negotiations continue. While there can be no assurances, the Company expects to reach agreement with the unions. However, a work stoppage could have a material adverse effect on the Company’s business, results of operations and financial condition.