Aug 02, 2017 4:47 PM
Year-to-date net income was
“We continue to execute well against our 2017 objectives and are on
track to achieve the high-end of our full year EBITDA guidance,” said
Second Quarter and Year-to-Date Operating Results
Second quarter 2017 sales were
Second quarter and year-to-date 2017 operating income was
Year-to-date 2017, the Company has realized approximately
The Company expects second half pro forma operating income to improve significantly as the mix of cellulose specialties sales will reflect a higher percentage of higher value products, lower costs and no planned maintenance outages.
Interest and Other Expense, Net
Interest expense, net of interest income and other expense, was
Income Tax Expense
The year-to-date effective tax rate was 42 percent, compared to 36 percent during the prior year period. The current period effective tax rate reflects the accounting impact of the write-off of the deferred tax asset associated with the 2014 employee incentive stock grant, which did not vest.
Cash Flows and Liquidity
Year-to-date, the Company generated operating cash flows of
Guidance
The Company expects net income of
Tembec Acquisition
On
“We continue to reshape our business by lowering our cost position, engineering new products and optimizing the approach to the markets we serve,” Boynton concluded. “The pending acquisition of Tembec will further our goal to diversify our product mix, cash flows, customer base and geographic presence. Combined, the companies will have improved scale leading to new opportunities to create value for stockholders.”
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.
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 current and future acquisitions and engage in certain other corporate transactions; any failure to realize expected benefits from our separation from Rayonier Inc.; risks related to our pending acquisition of Tembec Inc., including the failure to satisfy the conditions to completing the transaction, including obtaining regulatory approvals, our failure to obtain the anticipated benefits and synergies from the acquisition and the impact of additional debt we will incur and equity that we will issue to finance the acquisition; 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
Non-GAAP Financial Measures
This earnings release and the accompanying schedules contain certain non-GAAP financial measures, including EBITDA, adjusted free cash flows, pro forma operating income, pro forma net income, pro forma 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 - E 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 | Six Months Ended | |||||||||||||||||||||||||
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2017 | 2017 | 2016 | 2017 | 2016 | ||||||||||||||||||||||
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Cellulose specialties | $ | 158 | $ | 157 | $ | 175 | $ | 315 | $ | 340 | ||||||||||||||||
Commodity products and other | 43 | 44 |
39 |
88 | 91 | |||||||||||||||||||||
Total |
201 | 201 | 214 | 403 | 431 | |||||||||||||||||||||
Cost of Sales | (168 | ) | (165 | ) | (165 | ) | (333 | ) | (342 | ) | ||||||||||||||||
Gross Margin | 33 | 36 | 49 | 70 | 89 | |||||||||||||||||||||
Selling, general & administrative expenses | (18 | ) | (9 | ) | (9 | ) | (28 | ) | (17 | ) | ||||||||||||||||
Other operating expense, net | (2 | ) | (1 | ) | (1 | ) | (3 | ) | (2 | ) | ||||||||||||||||
Operating Income | 13 | 26 | 39 | 39 | 70 | |||||||||||||||||||||
Interest and other expense, net | (8 | ) | (8 | ) | (9 | ) | (17 | ) | (17 | ) | ||||||||||||||||
Unrealized gain on derivative instrument | 2 | — | — | 2 | — | |||||||||||||||||||||
Gain on debt extinguishment | — | — | — | — | 9 | |||||||||||||||||||||
Income Before Income Taxes | 7 | 18 | 30 | 24 | 62 | |||||||||||||||||||||
Income tax expense | (2 | ) | (8 | ) | (11 | ) | (10 | ) | (22 | ) | ||||||||||||||||
Net Income Attributable to |
$ | 5 | $ | 10 | $ | 19 | $ | 14 | $ | 40 | ||||||||||||||||
Mandatory convertible stock dividends | (4 | ) | (3 | ) | — | (7 | ) | — | ||||||||||||||||||
Net Income Available to |
$ | 1 | $ | 7 | $ | 19 | $ | 7 | $ | 40 | ||||||||||||||||
Earnings Per Share of Common Stock | ||||||||||||||||||||||||||
Basic earnings per share | $ | 0.03 | $ | 0.15 | $ | 0.46 | $ | 0.18 | $ | 0.95 | ||||||||||||||||
Diluted earnings per share | $ | 0.03 | $ | 0.15 | $ | 0.46 | $ | 0.18 | $ | 0.95 | ||||||||||||||||
Pro forma net income per share (a) | $ | 0.11 | $ | 0.15 | $ | 0.46 | $ | 0.26 | $ | 0.82 | ||||||||||||||||
Shares Used for Determining |
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Basic EPS | 42,387,578 | 42,348,148 | 42,229,476 | 42,368,652 | 42,217,952 | |||||||||||||||||||||
Diluted EPS | 43,223,599 | 43,096,360 | 42,480,021 | 43,155,083 | 42,377,789 | |||||||||||||||||||||
(a) Pro forma net income per share is a non-GAAP measure. See Schedule D for a reconciliation to the nearest GAAP measure.
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Condensed Consolidated Balance Sheets | |||||||||
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(millions of dollars) |
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Assets | |||||||||
Cash and cash equivalents | $ | 369 | $ | 326 | |||||
Other current assets | 202 | 193 | |||||||
Property, plant and equipment, net | 787 | 801 | |||||||
Other assets | 91 | 102 | |||||||
$ | 1,449 | $ | 1,422 | ||||||
Liabilities and Stockholders’ Equity | |||||||||
Current maturities of long-term debt | $ | 13 | $ | 9 | |||||
Other current liabilities | 139 | 117 | |||||||
Long-term debt and capital lease obligations | 769 | 774 | |||||||
Non-current liabilities for disposed operations | 136 | 139 | |||||||
Other non-current liabilities | 170 | 171 | |||||||
Total stockholders’ equity | 222 | 212 | |||||||
$ | 1,449 | $ | 1,422 | ||||||
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Condensed Consolidated Statements of Cash Flows | |||||||||||
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(millions of dollars) |
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Six Months Ended | |||||||||||
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Cash Provided by Operating Activities: | |||||||||||
Net income | $ | 14 | $ | 40 | |||||||
Depreciation and amortization | 42 | 42 | |||||||||
Other items to reconcile net income to cash provided by operating activities | 18 | 21 | |||||||||
Changes in working capital and other assets and liabilities | 13 | 48 | |||||||||
87 | 151 | ||||||||||
Cash Used for Investing Activities: | |||||||||||
Capital expenditures | (32 | ) | (38 | ) | |||||||
Other | — | 2 | |||||||||
(32 | ) | (36 | ) | ||||||||
Cash Used for Financing Activities: | |||||||||||
Changes in debt | (2 | ) | (47 | ) | |||||||
Dividends paid - preferred stock | (7 | ) | — | ||||||||
Dividends paid - common stock | (3 | ) | (3 | ) | |||||||
(12 | ) | (50 | ) | ||||||||
Cash and Cash Equivalents: | |||||||||||
Change in cash and cash equivalents | 43 | 65 | |||||||||
Balance, beginning of year | 326 | 101 | |||||||||
Balance, end of period | $ | 369 | $ | 166 | |||||||
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Reconciliation of Non-GAAP Measures | ||||||||||||||||||||
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(millions of dollars) |
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Three Months Ended | Six Months Ended | |||||||||||||||||||
EBITDA (a): |
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Net Income | $ | 5 | $ | 19 | $ | 14 | $ | 40 | ||||||||||||
Depreciation and amortization | 20 | 19 | 43 | 42 | ||||||||||||||||
Interest expense, net | 9 | 9 | 17 | 17 | ||||||||||||||||
Income tax expense | 2 | 11 | 10 | 22 | ||||||||||||||||
EBITDA | $ | 36 | $ | 58 | $ | 84 | $ | 121 | ||||||||||||
Acquisition Related Costs | 8 | — | 8 | — | ||||||||||||||||
Unrealized gain on derivative instrument | (2 | ) | — | (2 | ) | — | ||||||||||||||
Gain on debt extinguishment | — | — | — | (9 | ) | |||||||||||||||
Pro Forma EBITDA | $ | 42 | $ | 58 | $ | 90 | $ | 112 | ||||||||||||
(a) Earnings Before Interest, Taxes, Depreciation and Amortization
(“EBITDA”) is defined by the
Six Months Ended | |||||||||||
Adjusted Free Cash Flows (b): |
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Cash provided by operating activities | $ | 87 | $ | 151 | |||||||
Capital expenditures | (31 | ) | (38 | ) | |||||||
Adjusted Free Cash Flows | $ | 56 | $ | 113 | |||||||
(b) We define adjusted free cash flows as cash provided by operating activities adjusted for capital expenditures excluding strategic capital. 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 | 13 | 9 | |||||||
Long-term debt & capital lease obligation | 769 | 774 | |||||||
Total debt | 782 | 783 | |||||||
Original issue discount and debt issuance costs | 8 | 9 | |||||||
Cash and cash equivalents | (369 | ) | (326 | ) | |||||
Adjusted Net Debt | 421 | 466 | |||||||
(c) We define adjusted net debt as the amount of debt after the consideration of the original issue discount 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.
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Reconciliation of Non-GAAP Measures (Continued) | |||||||||||||||||||||||||||||||||||||||||||||||
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(millions of dollars, except per share information) |
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Three Months Ended | Six Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||
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Pro Forma Net Income (a): | $ |
Per |
$ |
Per |
$ |
Per |
$ |
Per |
$ |
Per |
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Operating Income | $ | 13 | $ | 26 | $ | 39 | $ | 39 | $ | 70 | |||||||||||||||||||||||||||||||||||||
Acquisition related costs | 8 | — | — | 8 | — | ||||||||||||||||||||||||||||||||||||||||||
Pro Forma Operating Income | $ | 21 | $ | 26 | $ | 39 | $ | 47 | $ | 70 | |||||||||||||||||||||||||||||||||||||
Net Income | $ | 5 | $ | 0.03 | $ | 10 | $ | 0.15 | $ | 19 | $ | 0.46 | $ | 14 | $ | 0.18 | $ | 40 | $ | 0.95 | |||||||||||||||||||||||||||
Gain on debt extinguishment | — | — | — | — | — | — | — | — | (9 | ) | $ | (0.21 | ) | ||||||||||||||||||||||||||||||||||
Acquisition related costs | 8 | $ | 0.18 | — | — | — | — | 8 | $ | 0.18 | — | — | |||||||||||||||||||||||||||||||||||
Unrealized gain on derivative instrument | (2 | ) | $ | (0.05 | ) | — | — | — | — | (2 | ) | $ | (0.05 | ) | — | — | |||||||||||||||||||||||||||||||
Tax effects of Pro Forma adjustments | (2 | ) | $ | (0.05 | ) | — | — | — | — | (2 | ) | $ | (0.05 | ) | 3 | $ | 0.08 | ||||||||||||||||||||||||||||||
Pro Forma Net Income | $ | 9 | $ | 0.11 | $ | 10 | $ | 0.15 | $ | 19 | $ | 0.46 | $ | 18 | $ | 0.26 | $ | 34 | $ | 0.82 | |||||||||||||||||||||||||||
(a) Pro forma operating income is defined as operating income adjusted for acquisition related costs. Pro forma net income is defined as net income adjusted net of tax for gain on debt extinguishment, acquisition related costs and unrealized gain on debt extinguishment. Pro forma operating income and pro forma net income are not necessarily indicative of results that may be generated in future periods.
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Selected Financial and Operating Information | |||||||||||||||||
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Three Months Ended | Six Months Ended | ||||||||||||||||
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Sales Volume, thousands of metric tons | |||||||||||||||||
Cellulose specialties | 110 | 113 | 217 | 219 | |||||||||||||
Commodity products | 54 | 55 | 113 | 130 | |||||||||||||
Total | 164 | 168 | 330 | 349 | |||||||||||||
Average Sales Price, $ per metric ton | |||||||||||||||||
Cellulose specialties | $ | 1,434 | $ | 1,548 | $ | 1,453 | $ | 1,551 | |||||||||
Commodity products | $ | 764 | $ | 668 | $ | 740 | $ | 675 | |||||||||
Reconciliation of Guided
Non-GAAP Measures
(millions
of dollars, except per share information)
The following schedules include non-GAAP measures related to management’s performance expectations for the future. While we believe these forward-looking statements are reasonable when made, they 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 that actual results may differ materially from those indicated by these forward-looking statements.
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; however, we do not consider these non-GAAP measures an alternative to financial measures determined in accordance with GAAP. As such, we provide 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.
Minimum | Maximum | ||||||||
2017 Net Income Guidance | $ | 32 | $ | 39 | |||||
Income tax expense (a) | 20 | 23 | |||||||
Acquisition related costs (b) | 12 | 12 | |||||||
Interest expense, net | 37 | 37 | |||||||
Depreciation and amortization | 89 | 89 | |||||||
2017 Pro Forma EBITDA Guidance | 190 | 200 | |||||||
(a) Income tax expense for the full year 2017 is based on an expected effective tax rate of approximately 37.5 percent.
(b) Acquisition costs, net of tax, represents the forecasted legal, due-diligence and consulting costs for the Company and excludes all costs that are contingent upon the closing of the acquisition of Tembec. These costs could vary materially from this estimate.
Minimum | Maximum | ||||||||||
2017 Operating Cash Flows Guidance | $ | 142 | $ | 152 | |||||||
Acquisition related costs, net of tax benefit | 8 | 8 | |||||||||
Capital expenditures | (60 | ) | (60 | ) | |||||||
2017 Adjusted Free Cash Flows Guidance | 90 | 100 | |||||||||
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