Feb 20, 2018 6:30 AM
Fourth quarter 2017 net income was
Fourth quarter and full year net income were negatively impacted by
approximately
“In 2017 we faced new challenges and took advantage of exciting
opportunities. Our operating results were significantly impacted by both
Hurricane Irma, which shut our plants for an extended period of time,
and an operational disruption at one of our major customer’s
facilities,” said
Full Year 2017 and Fourth Quarter Operating Results
Full year 2017 sales were
Fourth quarter 2017 sales were
Full year 2017 operating income was
Fourth quarter 2017 operating income was break-even, which represents a
The Company’s adjusted operating income for the full year and fourth
quarter 2017 includes Tembec’s adjusted operating income from the date
of acquisition to year end 2017 of approximately
During 2017, the Company achieved its gross cost savings target of
Interest and Other Expense, Net
Interest expense, net of interest income and other expense, was
Income Tax Expense
The Company’s effective tax rate was 6 percent for 2017, which compares
to 35 percent during the prior year period. The decrease is primarily
due to the non-taxable gain on bargain purchase partially offset by the
impact of the
Cash Flows and Liquidity
Year-to-date, the Company generated operating cash flows of
Outlook
High Purity Cellulose
Cellulose specialties prices are anticipated to decline 4 to 5 percent in 2018 primarily due to lower acetate prices, offset by improved pricing in the ethers and other cellulose specialties products. The Company believes that its 2018 acetate pricing is now consistent with its competition. Demand for ethers and other cellulose specialties continues to show strength and will provide opportunities for the Company to expand sales in these faster growing end-uses. Additionally, the Company’s expanded capabilities in ethers and its enhanced innovation footprint should allow the Company to further diversify its portfolio of products.
Forest Products
Increased demand from the steady growth of the
Pulp and Paper
High-yield pulp prices are currently at peak levels due to increased Chinese demand driven primarily from the reduction of imports of recycled fiber. This demand is not expected to continue at its current level for the entire year. In paperboard, markets are expected to remain stable though peak pulp prices, which benefit our high-yield pulp, will impact the cost of raw materials. Finally, in newsprint, reduced industry production capacity has resulted in a temporary supply imbalance and higher pricing; however, continued decreases in demand and the potential for final countervailing and anti-dumping duties are expected to negatively impact results.
Capital Allocation and Investment
The Company anticipates that it will spend approximately
“With the acquisition complete, we have greater product and geographic diversity within the high purity cellulose business which will reduce volatility through the cycle. Additionally, we are a stronger, more balanced business with greater scale to drive substantial value over the next several years,” Boynton continued, “Looking forward over the next 3 years, we see opportunities to deliver approximately $155 million of EBITDA growth through our strategic pillars, as we capture up to $75 million of synergies in costs and market optimization, leverage shared R&D capacity to create new products and re-invest capital into high return capital projects. We will also strive to maximize shareholder value through a disciplined and balanced capital allocation strategy focused on reducing leverage and providing strong risk-adjusted returns.”
Conference Call Information
About
Forward-Looking Statements
Certain statements in this document regarding anticipated financial, business, legal or other outcomes including business and market conditions, outlook and other similar statements relating to Rayonier Advanced Materials’ 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,” “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 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 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.
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 on
Form 10-K and our other filings and submissions to the
Other important factors that could cause actual results or events to
differ materially from those expressed in forward-looking statements
that may have been made in this document are described or will be
described in our filings with the
Non-GAAP Financial Measures
This earnings release and the accompanying schedules contain certain non-GAAP financial measures, including EBITDA, adjusted free cash flows, adjusted operating income, adjusted net income, adjusted EBITDA and adjusted net debt. These non-GAAP measures are reconciled to each of their respective most directly comparable GAAP financial measures on Schedules C - D of this earnings release. 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 these non-GAAP measures an alternative to financial measures determined in accordance with GAAP. The principal limitations of these non-GAAP financial measures are that they may exclude significant expenses 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 expenses and income items are excluded or included in determining these non-GAAP financial measures. In order to compensate for these limitations, management provides reconciliations of the non-GAAP financial measures we use to their most directly comparable GAAP measures. 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.
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Condensed Consolidated Statements of Income |
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(millions of dollars, except per share information) | |||||||||||||||||||
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Three Months Ended | Twelve Months Ended | |||||||||||||||||
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2017 | 2017 | 2016 | 2017 | 2016 | |||||||||||||||
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$ |
349 |
$ |
210 |
$ |
231 |
$ |
961 |
$ |
869 |
|||||||||
Cost of Sales | (311 | ) | (179 | ) | (189 | ) | (822 | ) | (687 | ) | |||||||||
Gross Margin | 38 | 31 | 42 | 139 | 182 | ||||||||||||||
Selling, general & administrative expenses | (39 | ) | (13 | ) | (12 | ) | (80 | ) | (38 | ) | |||||||||
Other operating expense, net | 1 | — | (4 | ) | (2 | ) | (6 | ) | |||||||||||
Operating Income (Loss) | — | 18 | 26 | 57 | 138 | ||||||||||||||
Interest and other expense, net | (12 | ) | (9 | ) | (9 | ) | (37 | ) | (35 | ) | |||||||||
Gain on bargain purchase | 317 | — | — | 317 | — | ||||||||||||||
Gain (loss) on derivative instrument | (8 | ) | 14 | — | 8 | — | |||||||||||||
Gain on debt extinguishment | — | — | — | — | 9 | ||||||||||||||
Income Before Income Taxes | 297 | 23 | 17 | 345 | 112 | ||||||||||||||
Income tax expense | (2 | ) | (7 | ) | (6 | ) | (20 | ) | (39 | ) | |||||||||
Net Income Attributable to |
$ | 295 | $ | 16 | $ | 11 | $ | 325 | $ | 73 | |||||||||
Mandatory convertible stock dividends | (4 | ) | (4 | ) | (3 | ) | (14 | ) | (5 | ) | |||||||||
Net Income Available to |
$ | 291 | $ | 12 | $ | 8 | $ | 311 | $ | 68 | |||||||||
Earnings Per Share of Common Stock | |||||||||||||||||||
Basic earnings per share | $ | 6.31 | $ | 0.29 | $ | 0.19 | $ | 7.17 | $ | 1.61 | |||||||||
Diluted earnings per share | $ | 5.01 | $ | 0.28 | $ | 0.18 | $ | 5.81 | $ | 1.55 | |||||||||
Adjusted net income per share (a) | $ | 0.50 | $ | 0.15 | $ | 0.18 | $ | 0.97 | $ | 1.43 | |||||||||
Shares Used for Determining | |||||||||||||||||||
Basic EPS | 46,179,253 | 42,427,437 | 42,337,729 | 43,416,868 | 42,279,811 | ||||||||||||||
Diluted EPS | 58,937,310 | 56,034,722 | 43,012,003 | 55,902,452 | 47,145,821 | ||||||||||||||
(a) Adjusted net income per share is a non-GAAP measure. See Schedule D for a reconciliation to the nearest GAAP measure. |
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A |
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Condensed Consolidated Balance Sheets | ||||||
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(millions of dollars) |
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2017 |
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Assets | ||||||
Cash and cash equivalents | $ | 96 | $ | 326 | ||
Other current assets | 550 | 193 | ||||
Property, plant and equipment, net | 1,408 | 801 | ||||
Other assets | 589 | 102 | ||||
$ | 2,643 | $ | 1,422 | |||
Liabilities and Stockholders’ Equity | ||||||
Current maturities of long-term debt | $ | 9 | $ | 9 | ||
Other current liabilities | 298 | 117 | ||||
Long-term debt and capital lease obligations | 1,232 | 774 | ||||
Non-current liabilities for disposed operations | 151 | 139 | ||||
Other non-current liabilities | 259 | 171 | ||||
Total stockholders’ equity | 694 | 212 | ||||
$ | 2,643 | $ | 1,422 | |||
B |
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Condensed Consolidated Statements of Cash Flows | |||||||
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(millions of dollars) |
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Twelve Months Ended | |||||||
2017 |
2016 |
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Cash Provided by Operating Activities: | |||||||
Net income | $ | 325 | $ | 73 | |||
Gain on bargain purchase | (317 | ) | — | ||||
Depreciation and amortization | 97 | 88 | |||||
Other items to reconcile net income to cash provided by operating activities | 54 | 62 | |||||
Changes in working capital and other assets and liabilities | (29 | ) | 9 | ||||
130 | 232 | ||||||
Cash Used for Investing Activities: | |||||||
Acquisition | (210 | ) | — | ||||
Capital expenditures | (75 | ) | (89 | ) | |||
Other | 8 | 2 | |||||
(277 | ) | (87 | ) | ||||
Cash Used for Financing Activities: | |||||||
Changes in debt | (50 | ) | (71 | ) | |||
Dividends paid | (26 | ) | (15 | ) | |||
Issuance of mandatory convertible preferred stock, net | — | 167 | |||||
Other | (8 | ) | (1 | ) | |||
(84 | ) | 80 | |||||
Cash and Cash Equivalents: | |||||||
Change in cash and cash equivalents | (231 | ) | 225 | ||||
Net effect of foreign exchange on cash and cash equivalents | 1 | — | |||||
Balance, beginning of year | 326 | 101 | |||||
Balance, end of period | $ | 96 | $ | 326 | |||
C |
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Reconciliation of Non-GAAP Measures |
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(millions of dollars) | |||||||||||||||
Three Months Ended | Twelve Months Ended | ||||||||||||||
EBITDA (a): |
2017 |
2016 |
2017 |
2016 |
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Net Income | $ | 295 | $ | 11 | $ | 325 | $ | 73 | |||||||
Depreciation and amortization | 32 | 24 | 97 | 88 | |||||||||||
Interest expense, net | 13 | 9 | 38 | 35 | |||||||||||
Income tax expense | 2 | 6 | 20 | 39 | |||||||||||
EBITDA | $ | 342 | $ | 50 | $ | 480 | $ | 235 | |||||||
Acquisition related costs | 21 | — | 34 | — | |||||||||||
Inventory write-up to fair value | 23 | — | 23 | — | |||||||||||
Gain on bargain purchase | (317 | ) | — | (317 | ) | — | |||||||||
Loss (Gain) on derivative instrument | 8 | — | (8 | ) | — | ||||||||||
Gain on debt extinguishment | — | — | — | (9 | ) | ||||||||||
Adjusted EBITDA | $ | 77 | $ | 50 | $ | 212 | $ | 226 | |||||||
(a) Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) is defined by the Securities and Exchange | |||||||||||||||
Commission. We define adjusted EBITDA as EBITDA before acquisition related costs, inventory fair value adjustment, gain on | |||||||||||||||
bargain purchase, loss (gain) on derivative instrument, and gain on debt extinguishment. EBITDA and adjusted EBITDA are not |
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necessarily indicative of results that may be generated in future periods. |
Twelve Months Ended | |||||||
Adjusted Free Cash Flows (b): |
2017 |
2016 |
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Cash provided by operating activities | $ | 130 | $ | 232 | |||
Capital expenditures | (65 | ) | (85 | ) | |||
Acquisition related costs, net of tax | 26 | — | |||||
Adjusted Free Cash Flows | $ | 91 | $ | 147 | |||
(b) We define adjusted free cash flows as cash provided by operating activities adjusted for capital expenditures excluding | |||||||
strategic capital and acquisition related costs, net of tax. Adjusted free cash flows is a non-GAAP measure of cash | |||||||
generated during a period which is available for dividend distribution, debt reduction, strategic acquisitions and | |||||||
repurchase of our common stock. Adjusted free cash flows is not necessarily indicative of the adjusted free cash flows that | |||||||
may be generated in future periods. |
Adjusted Net Debt (c): |
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Current maturities of long-term debt | $ | 9 | $ | 9 | |||
Long-term debt & capital lease obligation | 1,232 | 774 | |||||
Total debt | 1,241 | 783 | |||||
Original issue discount, premiums and debt issuance costs | 5 | 9 | |||||
Cash and cash equivalents | (96 | ) | (326 | ) | |||
Adjusted Net Debt | $ | 1,150 | $ | 466 | |||
(c) We define adjusted net debt as the amount of debt after the consideration of the original issue discount, premiums, and | |||||||
debt issuance costs, less cash. Adjusted net debt is a non-GAAP measure of debt and is not necessarily indicative of the | |||||||
adjusted net debt that may occur in future periods. | |||||||
D |
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Reconciliation of Non-GAAP Measures (Continued) |
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(millions of dollars, except per share information) | |||||||||||||||||||||||||||||||||||||||
Three Months Ended | Twelve Months Ended | ||||||||||||||||||||||||||||||||||||||
2017 |
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2016 |
2017 |
2016 |
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Adjusted Operating Income and Net Income (a): | $ |
Per |
$ |
Per |
$ |
Per |
$ |
Per |
$ |
Per |
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Operating Income | $ | — | $ | 18 | $ | 26 | $ | 57 | $ | 138 | |||||||||||||||||||||||||||||
Acquisition related costs | 21 | 5 | — | 34 | — | ||||||||||||||||||||||||||||||||||
Inventory write-up to fair value | 23 | — | — | 23 | — | ||||||||||||||||||||||||||||||||||
Adjusted Operating Income | $ | 44 | $ | 23 | $ | 26 | $ | 114 | $ | 138 | |||||||||||||||||||||||||||||
Net Income | $ | 295 | $ | 5.01 | $ | 16 | $ | 0.28 | $ | 11 | $ | 0.18 | $ | 325 | $ | 5.81 | $ | 73 | $ | 1.55 | |||||||||||||||||||
Gain on debt extinguishment | — | — | — | — | — | — | — | — | (9 | ) | (0.19 | ) | |||||||||||||||||||||||||||
Gain on bargain purchase | (317 | ) | (5.37 | ) | — | — | — | — | (317 | ) | (5.66 | ) | — | — | |||||||||||||||||||||||||
Acquisition related costs | 21 | 0.36 | 5 | 0.09 | — | — | 34 | 0.61 | — | — | |||||||||||||||||||||||||||||
Inventory write-up to fair value | 23 | 0.39 | — | — | — | — | 23 | 0.41 | — | — | |||||||||||||||||||||||||||||
Loss (Gain) on derivative instrument | 8 | 0.14 | (14 | ) | (0.25 | ) | — | — | (8 | ) | (0.14 | ) | — | — | |||||||||||||||||||||||||
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11 | 0.19 | — | — | — | — | 11 | 0.20 | — | — | |||||||||||||||||||||||||||||
Tax effects of adjustments | (12 | ) | (0.22 | ) | 3 | 0.06 | — | — | (11 | ) | (0.21 | ) | 3 | 0.07 | |||||||||||||||||||||||||
Dilutive impact of Preferred Stock | — | — | — | (0.03 | ) | — | — | — | (0.05 | ) | — | — | |||||||||||||||||||||||||||
Adjusted Net Income | $ | 29 | $ | 0.50 | $ | 10 | $ | 0.15 | $ | 11 | $ | 0.18 | $ | 57 | $ | 0.97 | $ | 67 | $ | 1.43 | |||||||||||||||||||
(a) Adjusted operating income is defined as operating income adjusted for acquisition related costs and fair market | |||||||||||||||||||||||||||||||||||||||
valuation of inventory. Adjusted net income is defined as net income adjusted net of tax for gain on debt extinguishment, | |||||||||||||||||||||||||||||||||||||||
gain on bargain purchase, acquisition related costs, fair market valuation of inventory, and loss (gain) on derivative. | |||||||||||||||||||||||||||||||||||||||
Adjusted operating income and adjusted net income are not necessarily indicative of results that may be generated in future | |||||||||||||||||||||||||||||||||||||||
periods. | |||||||||||||||||||||||||||||||||||||||
E |
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