Rayonier Advanced Materials Inc. — FY 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual filing, not a standalone fourth-quarter report; quarterly figures below are included where useful. The company makes high-purity cellulose products and also operates lumber, paperboard, pulp and newsprint businesses. Comparisons are affected by the 2019 sale of the Matane mill, classified as discontinued operations.
Financial performance and liquidity
| Metric | 2020 | 2019 |
|---|---|---|
| Net sales | $1.739 billion | $1.775 billion |
| Gross margin | $138 million; 7.9% | $54 million; 3.1% |
| Operating income (loss) | $27 million; 1.6% | $(83) million; (4.7)% |
| Continuing operations income (loss) | $(0.2) million | $(119) million |
| Net income (loss) | $1 million | $(22) million |
| Cash from operating activities | $124 million | $42 million |
| Capital expenditures | $77 million | $105 million |
| Adjusted EBITDA (non-GAAP) | $153 million | $76 million |
| Adjusted free cash flow (non-GAAP) | $73 million | $(53) million |
Revenue declined 2%, while operating results improved substantially, primarily on stronger lumber prices, lower costs and a $21 million reversal of previously accrued lumber duties. Segment operating income was $80 million in Forest Products, $7 million in High Purity Cellulose, $18 million in Paperboard and a $25 million loss in Pulp & Newsprint; Corporate operating loss was $53 million. High Purity Cellulose sales fell 7%, Forest Products sales rose 31%, Paperboard sales fell 5%, and Pulp & Newsprint sales fell 20%.
Fourth-quarter 2020 sales were $508 million, operating income $37 million and net income $9 million, versus fourth-quarter 2019 sales of $468 million, an operating loss of $32 million and net income of $29 million. The prior-year net income included the Matane sale gain; 2020 quarterly continuing-operations results also included a large tax benefit.
At year-end, cash was $94 million, total debt $1.084 billion and equity $695 million; debt-to-capital was 61%. The company reported $102 million of net availability under its asset-based revolver, plus $19 million under a French receivables factoring line. Interest expense was $64 million, up from $60 million. The quarterly common dividend remained suspended and none was declared in 2020.
Material changes and unusual items
- In December 2020, the company issued $500 million of 7.625% senior secured notes due 2026 and entered a five-year, $200 million asset-based revolving facility, using proceeds and cash to repay its prior secured credit facilities. Debt extinguishment generated an $8 million loss.
- The $21 million lumber-duty reversal followed a U.S. Department of Commerce administrative review. The company reported approximately $91 million of duties paid to date; recovery of amounts paid remains contingent on legal or negotiated resolution.
- The 2020 income tax benefit was $47 million, largely reflecting CARES Act benefits and valuation-allowance adjustments. Consequently, reported income and the effective tax rate are not a straightforward indicator of operating performance.
- Defined-benefit pension plans were underfunded by approximately $188 million, with the deficit increasing $25 million during 2020, primarily due to lower discount rates.
Outlook, risks and contingencies
Management’s market assessment anticipated higher overall pricing in 2021, with total High Purity Cellulose volumes and mix expected to remain roughly steady; it expected a second-quarter Jesup maintenance outage to offset productivity gains. Cellulose-specialty prices were expected to decline slightly, while commodity viscose and fluff prices were expected to rise significantly in the first quarter and remain elevated near term. Lumber prices were near historic highs, and the company expected production to increase by about 40 million board feet, or 7%. Paperboard profitability was expected to remain flat. Pulp and newsprint prices were expected to improve, while newsprint volumes were expected to be lower. These are management expectations, not guarantees.
- COVID-19 disrupted demand and supply chains, drove newsprint weakness and prompted 4–8 weeks of early-2020 downtime at Canadian sawmills. Future effects remain uncertain.
- Environmental liabilities were $172 million; the company estimated reasonably possible additional exposure of up to approximately $78 million. This was identified as a critical audit matter.
- The Ontario electricity-market operator issued orders totaling CAD $25 million concerning the Kapuskasing facility. The company contests the orders; the ultimate outcome is uncertain.
- Other key exposures include cyclical commodity prices, wood-fiber and input-cost availability, customer concentration (top ten customers were about 31% of sales), international trade and currency risk, facility reliability, labor relations, environmental regulation and substantial debt.
- The company reported compliance with debt covenants at year-end. The ABL agreement requires a fixed-charge coverage ratio if availability falls below a specified threshold; dividend payments are also restricted by debt agreements.
Important facts for investors to verify
- Whether 2021 pricing and volume assumptions materialized, particularly for lumber, cellulose specialties, commodity pulp and newsprint.
- Cash generation, revolver availability, debt maturities and refinancing needs, including the 2024 senior-note maturity and 2026 secured notes.
- Progress and recoverability of the $21 million lumber-duty receivable, and any further duty-rate changes or dispute resolution.
- Changes in environmental remediation estimates, pension funding requirements and the outcome of the CAD $25 million IESO orders.
- Tax-benefit sustainability and deferred-tax-asset realizability; the filing reports substantial tax attributes and identifies this as a critical audit matter.
Non-GAAP measures are management-defined and should be considered alongside, not instead of, GAAP results.