Feb 01, 2016 4:32 PM
Announces Three-Year Transformation Initiative to Improve Cost Structure
For the fourth quarter 2015, the Company reported net income of
“Our focused effort to improve costs coupled with favorable raw material
prices led to solid results that exceeded our 2015 guidance,” said
Full Year and Fourth Quarter Results
For the full year 2015, net sales were
The sales decrease was driven primarily by lower cellulose specialties prices. Additionally, cellulose specialties volumes declined approximately 12 thousand tons, or 2 percent, as we worked with our customers during the fourth quarter to assist them in balancing their inventories to address lower demand as a result of acetate supply chain de-stocking. Partially offsetting the decline were higher commodity sales volumes, driven by improved operational run rates and reduced inventory levels.
Full year 2015 pro forma operating income was
For the fourth quarter of 2015, pro forma operating income was
Interest Expense, Net
Interest expense, net of interest income, was
Income Tax Expense
The full year 2015 effective tax rate was 33 percent, compared to 22 percent for the prior year. The prior year period reflects the impact of the domestic manufacturing deduction as a result of lower pre-tax income driven by large, one-time environmental reserve adjustments, which are not currently deductible for tax purposes.
The 2015 effective tax rate was below the federal rate of 35 percent, primarily due to the benefit of the domestic manufacturing tax deduction and state tax credits, partially offset by an adjustment to the state deferred tax rate.
Cash Flow and Liquidity
The Company generated
Outlook
Industry oversupply and weak end-market demand continue to put near-term
pricing pressure on the Company’s cellulose specialties business.
Pressure on acetate products, key to the Company’s profitability,
persists as overproduction by customers coupled with modest declines in
cigarette demand led to a buildup of acetate product inventories in the
supply chain. In other markets, demand is increasing driven by growth in
high-strength viscose, casings, tire cord and certain ether end-markets.
As a combined result of these market conditions and customer
negotiations, the Company expects 2016 cellulose specialties prices and
sales volumes to be down compared to 2015 6 to 7 percent and 4 to 5
percent, respectively. The Company anticipates generating pro forma
EBITDA between
“We are responding to these challenging market conditions by improving our cost position, enhancing cash flows and driving our overall competitiveness,” said Boynton.
Transformation Initiative
In 2016, the Company is embarking on a three-year transformation
initiative to significantly improve its cost structure and enhance cash
flows. This initiative is being led by a cross-functional team reporting
directly to the CEO. The team’s focus is to increase the overall
efficiency of the business to meet the near-term market challenges. The
transformation initiative targets three-year cost savings of
“Our management team has the expertise to deliver on these aggressive goals. Doing so will position us to perform well in any market condition, allow us to enhance financial flexibility and drive shareholder value,” stated Boynton.
Conference Call Information
A conference call will be held on
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," "anticipate" and other similar language. However, the absence of these or similar words or expressions does not mean that a statement is not forward-looking. While we believe that 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 that 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 that actual results may differ materially from those indicated by these forward-looking statements due to a variety of risks and uncertainties.
Such risks and uncertainties include, but are not limited to: competitive pressures in the markets in which we operate, especially with respect to increases in supply and pressures on demand for our products, which impact pricing; our ability to complete our announced cost and debt reduction initiatives and objectives within the planned parameters and achieve the anticipated benefits; our customer concentration, especially with our three largest customers; changes in global economic conditions, including currency; the Chinese dumping duties currently in effect for commodity viscose pulps; potential legal, regulatory and similar challenges relating to our permitted air emissions and waste water discharges from our facilities by non-governmental groups and individuals; the effect of current and future environmental laws and regulations as well as changes in circumstances on the cost and estimated future cost of required environmental expenditures; the potential impact of future tobacco-related restrictions; potential for additional pension contributions; labor relations with the unions representing our hourly employees; the effect of weather and other natural conditions; changes in transportation-related costs and availability; the failure to attract and retain key personnel; the failure to innovate to maintain our competitiveness, grow our business and protect our intellectual property; uncertainties related to the availability of additional financing to us in the future and the terms of such financing; our inability to make or effectively integrate future acquisitions and engage in certain other corporate transactions; any failure to realize expected benefits from our separation from Rayonier Inc.; financial and other obligations under agreements relating to our debt; and uncertainties relating to general economic, political, and regulatory conditions.
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
Condensed Consolidated Statements of Income
(millions of dollars, except per share information) |
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Three Months Ended | Twelve Months Ended | ||||||||||||||||||
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2015 | 2015 | 2014 | 2015 | 2014 | |||||||||||||||
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Cellulose specialties | $ | 190 | $ | 215 | $ | 214 | $ | 767 | $ | 844 | |||||||||
Commodity products and other | 52 | 42 | 34 | 174 | 114 | ||||||||||||||
Total |
242 | 257 | 248 | 941 | 958 | ||||||||||||||
Cost of Sales | 192 | 187 | 187 | 739 | 734 | ||||||||||||||
Gross Margin | 50 | 70 | 61 | 202 | 224 | ||||||||||||||
SG&A | 14 | 11 | 13 | 48 | 40 | ||||||||||||||
Other operating expense, net (a) | 7 | 1 | 76 | 34 | 121 | ||||||||||||||
Operating Income (Loss) | 29 | 58 | (28 | ) | 120 | 63 | |||||||||||||
Interest and other expense, net | 9 | 9 | 10 | 37 | 22 | ||||||||||||||
Income (Loss) Before Income Taxes | 20 | 49 | (38 | ) | 83 | 41 | |||||||||||||
Income tax expense (benefit) | 7 | 17 | (15 | ) | 28 | 9 | |||||||||||||
Net Income (Loss) | $ | 13 | $ | 32 | $ | (23 | ) | $ | 55 | $ | 32 | ||||||||
Earnings (Loss) Per Share of Common Stock | |||||||||||||||||||
Basic earnings (loss) per share | $ | 0.30 | $ | 0.77 | $ | (0.55 | ) | $ | 1.31 | $ | 0.75 | ||||||||
Diluted earnings (loss) per share | $ | 0.30 | $ | 0.76 | $ | (0.55 | ) | $ | 1.30 | $ | 0.75 | ||||||||
Pro forma net income per share (b) | $ | 0.32 | $ | 0.78 | $ | 0.61 | $ | 1.74 | $ | 2.51 | |||||||||
Shares Used for Determining | |||||||||||||||||||
Basic EPS | 42,201,778 | 42,199,659 | 42,185,223 | 42,194,891 | 42,166,629 | ||||||||||||||
Diluted EPS | 42,273,621 | 42,321,022 | 42,185,223 | 42,222,859 | 42,239,682 | ||||||||||||||
(a) Other expenses primarily consist of non-cash impairment charges, environmental and one-time | |||||||||||||||||||
separation and legal costs. | |||||||||||||||||||
(b) Pro forma net income per share is a non-GAAP measure. See Schedule D for a reconciliation to the | |||||||||||||||||||
nearest GAAP measure. | |||||||||||||||||||
A |
Condensed Consolidated Balance Sheets
(millions of dollars) |
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Assets | ||||||||
Cash and cash equivalents | $ | 101 | $ | 66 | ||||
Other current assets | 226 | 246 | ||||||
Property, plant and equipment, net | 804 | 843 | ||||||
Other assets | 157 | 149 | ||||||
$ | 1,288 | $ | 1,304 | |||||
Liabilities and Stockholders’ Deficit | ||||||||
Current maturities of long-term debt | $ | 8 | $ | 8 | ||||
Other current liabilities | 124 | 123 | ||||||
Long-term debt | 860 | 936 | ||||||
Non-current liabilities for disposed operations | 145 | 149 | ||||||
Other non-current liabilities | 168 | 150 | ||||||
Total stockholders’ deficit | (17 | ) | (62 | ) | ||||
$ | 1,288 | $ | 1,304 | |||||
Condensed Consolidated Statements of Cash Flows
(millions of dollars) |
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Twelve Months Ended | ||||||||
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Cash Provided by Operating Activities: | ||||||||
Net income | $ | 55 | $ | 32 | ||||
Depreciation and amortization | 89 | 86 | ||||||
Increase in liabilities for disposed operations | 7 | 89 | ||||||
Non-cash impairment charge | 28 | 7 | ||||||
Other items to reconcile net income to cash provided by operating activities | 20 | (14 | ) | |||||
Changes in working capital and other assets and liabilities | 3 | (12 | ) | |||||
202 | 188 | |||||||
Cash Used for Investing Activities: | ||||||||
Capital expenditures | (78 | ) | (75 | ) | ||||
Other | — | (16 | ) | |||||
(78 | ) | (91 | ) | |||||
Cash Used for Financing Activities: | ||||||||
Changes in debt, net of issuance costs | (77 | ) | 930 | |||||
Dividends paid | (12 | ) | (6 | ) | ||||
Proceeds from the issuance of common stock | — | 1 | ||||||
Net payments to Parent | — | (956 | ) | |||||
(89 | ) | (31 | ) | |||||
Cash and Cash Equivalents: | ||||||||
Change in cash and cash equivalents | 35 | 66 | ||||||
Balance, beginning of year | 66 | — | ||||||
Balance, end of period | $ | 101 | $ | 66 | ||||
B |
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Reconciliation of Non-GAAP Measures
(millions of dollars) |
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Three Months Ended | Twelve Months Ended | |||||||||||||||
EBITDA (a): |
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Net Income (Loss) | $ | 13 | $ | (23 | ) | $ | 55 | $ | 32 | |||||||
Depreciation and amortization | 24 | 23 | 89 | 86 | ||||||||||||
Interest expense, net | 9 | 10 | 37 | 22 | ||||||||||||
Income tax expense (benefit) | 7 | (15 | ) | 28 | 9 | |||||||||||
EBITDA | $ | 53 | $ | (5 | ) | $ | 209 | $ | 149 | |||||||
Non-cash impairment charge | — | — | 28 | — | ||||||||||||
One-time separation and legal costs | 1 | 2 | 2 | 26 | ||||||||||||
Insurance recovery | — | (3 | ) | (1 | ) | (3 | ) | |||||||||
Environmental reserve adjustments | — | 76 | — | 95 | ||||||||||||
Pro Forma EBITDA | $ | 54 | $ | 70 | $ | 238 | $ | 267 | ||||||||
Twelve Months Ended | ||||||||||
Adjusted Free Cash Flow (b): |
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Cash provided by operating activities | $ | 202 | $ | 188 | ||||||
Capital expenditures | (78 | ) | (75 | ) | ||||||
Adjusted Free Cash Flow | $ | 124 | $ | 113 | ||||||
(a) Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) is defined by the | ||||||||||
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non-cash impairment charges, one-time separation and legal costs, insurance recoveries and | ||||||||||
environmental reserve adjustments. EBITDA and pro forma EBITDA are not necessarily indicative of | ||||||||||
results that may be generated in future periods. | ||||||||||
(b) Adjusted free cash flow is defined as cash provided by operating activities adjusted for capital | ||||||||||
expenditures excluding strategic capital. Adjusted free cash flow, as defined by the Company, is a | ||||||||||
non-GAAP measure of cash generated during a period which is available for dividend distribution, | ||||||||||
debt reduction, strategic acquisitions and repurchase of the Company’s common stock. Adjusted free | ||||||||||
cash flow is not necessarily indicative of the adjusted free cash flow that may be generated in | ||||||||||
future periods. | ||||||||||
C |
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Reconciliation of Non-GAAP Measures (Continued)
(millions of dollars, except per share information) |
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Three Months Ended | Twelve Months Ended | |||||||||||||||||||||||||||||||||||||||
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Pro Forma Operating Income and Net Income (a): | $ |
Per |
$ |
Per |
$ |
Per |
$ |
Per |
$ |
Per |
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Operating Income (Loss) | $ | 29 | $ | 58 | $ | (28 | ) | $ | 120 | $ | 63 | |||||||||||||||||||||||||||||
Non-cash impairment charge | — | — | — | 28 | — | |||||||||||||||||||||||||||||||||||
One-time separation and legal costs | 1 | 2 | 2 | 2 | 26 | |||||||||||||||||||||||||||||||||||
Insurance recovery | — | — | (3 | ) | (1 | ) | (3 | ) | ||||||||||||||||||||||||||||||||
Environmental reserve adjustments | — | — | 76 | — | 95 | |||||||||||||||||||||||||||||||||||
Pro Forma Operating Income | $ | 30 | $ | 60 | $ | 47 | $ | 149 | $ | 181 | ||||||||||||||||||||||||||||||
Net Income (Loss) | $ | 13 | $ | 0.30 | $ | 32 | $ | 0.76 | $ | (23 | ) | $ | (0.55 | ) | $ | 55 | $ | 1.30 | $ | 32 | $ | 0.75 | ||||||||||||||||||
Non-cash impairment charge, net of tax | — | — | — | — | — | — | 18 | 0.43 | — | — | ||||||||||||||||||||||||||||||
One-time separation and legal costs, net of tax | 1 | 0.02 | 1 | 0.02 | 2 | 0.04 | 1 | 0.03 | 19 | 0.45 | ||||||||||||||||||||||||||||||
Insurance recovery, net of tax | — | — | — | — | (2 | ) | (0.05 | ) | (1 | ) | (0.02 | ) | (2 | ) | (0.05 | ) | ||||||||||||||||||||||||
Environmental reserve adjustments, net of tax | — | — | — | — | 49 | 1.17 | — | — | 62 | 1.47 | ||||||||||||||||||||||||||||||
Reversal of reserve related to the taxability of the CBPC |
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— |
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— |
— |
— |
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(5 | ) | (0.11 | ) | |||||||||||||||||||||||||||
Pro Forma Net Income | $ | 14 | $ | 0.32 | $ | 33 | $ | 0.78 | $ | 26 | $ | 0.61 | $ | 73 | $ | 1.74 | $ | 106 | $ | 2.51 | ||||||||||||||||||||
(a) Pro forma operating income is defined as operating income adjusted for non-cash impairment charges, one- | ||||||||||||||||||||||||||||||||||||||||
time separation and legal costs, insurance recoveries and environmental reserve adjustments. Pro forma net | ||||||||||||||||||||||||||||||||||||||||
income is defined as net income adjusted net of tax for non-cash impairment charges, one-time separation and | ||||||||||||||||||||||||||||||||||||||||
legal costs, insurance recoveries, environmental reserve adjustments and for tax benefits from the reversal | ||||||||||||||||||||||||||||||||||||||||
of reserve related to the taxability of the Cellulosic Biofuel Products Credit (“CBPC”). | ||||||||||||||||||||||||||||||||||||||||
Selected Financial and Operating Information
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Three Months Ended | Twelve Months Ended | |||||||||||||||||||
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Sales Volume, thousands of metric tons | ||||||||||||||||||||
Cellulose specialties | 116 | 123 | 467 | 479 | ||||||||||||||||
Commodity products | 73 | 46 | 247 | 148 | ||||||||||||||||
Total | 189 | 169 | 714 | 627 | ||||||||||||||||
Average Sales Price, $ per metric ton | ||||||||||||||||||||
Cellulose specialties | $ | 1,638 | $ | 1,735 | $ | 1,641 | $ | 1,762 | ||||||||||||
Commodity products | $ | 670 | $ | 691 | $ | 671 | $ | 692 | ||||||||||||
D |
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