Oct 31, 2016 4:30 PM
Year-to-date 2016 net income was
“We delivered another strong quarter through great execution of our
Transformation Initiative,” said
Third Quarter and Year-to-Date Operating Results
Third quarter 2016 net sales were
Year-to-date 2016 sales were
For the third quarter of 2016, operating income was
The Company realized all of the originally targeted
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 35.2 percent, compared to 32.6 percent during the prior year period. The prior year period reflects the increased impact of the benefit of domestic manufacturing tax deduction and state tax credits as a result of lower pre-tax income.
Cash Flows and Liquidity
Since
Outlook
For 2016, we continue to expect cellulose specialties prices to decline 6 to 7 percent and cellulose specialties sales volumes to decline 4 to 5 percent compared to 2015. Based on contractual commitments for the majority of our acetate volume, 2017 acetate pricing is expected to be approximately 2 percent below 2016. Negotiations for all cellulose specialties grades for other 2017 volumes will conclude over the next few months, consistent with past practices, and may impact 2017 prices and/or volumes. As previously disclosed, our markets remain challenging as a result of suppressed demand, excess production capacity, and the improved cost position of foreign competitors as a result of weak global currencies relative to the U. S. dollar.
We intend to use the funds generated from our Preferred Stock equity issuance to grow and diversify our business. We will look to invest in our Innovation Initiative through which we are seeking to enhance the value of our current products and engineer new products to extend our market reach, diversify through investments in adjacent businesses and fund potential capital requirements of our Transformation Initiative.
Due to the 2016 results of our Transformation Initiative, as well as
beneficial raw material prices, we are raising our 2016 guidance. We
expect 2016 net income of
Boynton concluded, “We are at an exciting stage in our Company’s history. We are rapidly strengthening our culture of continuous improvement allowing us to systematically lower our cost position. Our success allows us to focus on growing our business through market optimization, innovation and the pursuit of external growth opportunities.”
Conference Call Information
A conference call will be held on
About
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 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.
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 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 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 | Nine Months Ended | ||||||||||||||||||||
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2016 | 2016 | 2015 | 2016 | 2015 | |||||||||||||||||
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Cellulose specialties | $ | 173 | $ | 175 | $ | 215 | $ | 513 | $ | 577 | |||||||||||
Commodity products and other | 34 | 39 | 42 | 125 | 123 | ||||||||||||||||
Total |
207 | 214 | 257 | 638 | 700 | ||||||||||||||||
Cost of Sales | 156 | 165 | 187 | 498 | 548 | ||||||||||||||||
Gross Margin | 51 | 49 | 70 | 140 | 152 | ||||||||||||||||
Selling, general & administrative expenses | 10 | 9 | 11 | 26 | 34 | ||||||||||||||||
Other operating expense, net | — | 1 | 1 | 2 | 28 | (a) | |||||||||||||||
Operating Income | 41 | 39 | 58 | 112 | 90 | ||||||||||||||||
Interest and other expense, net | 8 | 9 | 9 | 26 | 27 | ||||||||||||||||
Gain on debt extinguishment | — | — | — | 9 | — | ||||||||||||||||
Income Before Income Taxes | 33 | 30 | 49 | 95 | 63 | ||||||||||||||||
Income tax expense | 11 | 11 | 17 | 33 | 21 | ||||||||||||||||
Net Income | $ | 22 | $ | 19 | $ | 32 | $ | 62 | $ | 42 | |||||||||||
Earnings Per Share of Common Stock | |||||||||||||||||||||
Basic earnings per share | $ | 0.46 | $ | 0.46 | $ | 0.77 | $ | 1.42 | $ | 1.01 | |||||||||||
Diluted earnings per share | $ | 0.44 | $ | 0.46 | $ | 0.76 | $ | 1.38 | $ | 1.00 | |||||||||||
Pro forma net income per share (b) | $ | 0.44 | $ | 0.46 | $ | 0.78 | $ | 1.24 | $ | 1.42 | |||||||||||
Shares Used for Determining | |||||||||||||||||||||
Basic EPS | 42,360,326 | 42,229,476 | 42,199,659 | 42,266,295 | 42,192,956 | ||||||||||||||||
Diluted EPS | 49,336,106 | 42,480,021 | 42,321,022 | 44,724,516 | 42,313,335 | ||||||||||||||||
(a) Other operating expense, net for the nine months ended
(b) Pro forma net income per share is a non-GAAP measure. See Schedule D for a reconciliation to the nearest GAAP measure.
Condensed Consolidated Balance Sheets
(millions of dollars) |
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Assets | ||||||||
Cash and cash equivalents | $ | 320 | $ | 101 | ||||
Other current assets | 209 | 227 | ||||||
Property, plant and equipment, net | 800 | 804 | ||||||
Other assets | 106 | 147 | ||||||
$ | 1,435 | $ | 1,279 | |||||
Liabilities and Stockholders’ Equity | ||||||||
Current maturities of long-term debt | $ | 8 | $ | 8 | ||||
Other current liabilities | 141 | 124 | ||||||
Long-term debt | 775 | 850 | ||||||
Non-current liabilities for disposed operations | 141 | 145 | ||||||
Other non-current liabilities | 158 | 169 | ||||||
Total stockholders’ equity (deficit) | 212 | (17 | ) | |||||
$ | 1,435 | $ | 1,279 | |||||
Condensed Consolidated Statements of Cash Flows
(millions of dollars) |
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Nine Months Ended | ||||||||
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Cash Provided by Operating Activities: | ||||||||
Net income | $ | 62 | $ | 42 | ||||
Depreciation and amortization | 64 | 65 | ||||||
Non-cash impairment charge | — | 28 | ||||||
Other items to reconcile net income to cash provided by operating activities | 42 | 8 | ||||||
Changes in working capital and other assets and liabilities | 13 | 9 | ||||||
181 | 152 | |||||||
Cash Used for Investing Activities: | ||||||||
Capital expenditures | (58 | ) | (60 | ) | ||||
Other | 2 | — | ||||||
(56 | ) | (60 | ) | |||||
Cash Used for Financing Activities: | ||||||||
Issuance of mandatory convertible preferred stock, net | 167 | — | ||||||
Changes in debt | (67 | ) | (52 | ) | ||||
Dividends paid | (6 | ) | (6 | ) | ||||
94 | (58 | ) | ||||||
Cash and Cash Equivalents: | ||||||||
Change in cash and cash equivalents | 219 | 34 | ||||||
Balance, beginning of year | 101 | 66 | ||||||
Balance, end of period | $ | 320 | $ | 100 | ||||
Reconciliation of Non-GAAP Measures
(millions of dollars) |
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Three Months Ended | Nine Months Ended | |||||||||||||||
EBITDA (a): |
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Net Income | $ | 22 | $ | 32 | $ | 62 | $ | 42 | ||||||||
Depreciation and amortization | 23 | 23 | 64 | 65 | ||||||||||||
Interest expense, net | 8 | 9 | 26 | 27 | ||||||||||||
Income tax expense | 11 | 17 | 33 | 21 | ||||||||||||
EBITDA | $ | 64 | $ | 81 | $ | 185 | $ | 155 | ||||||||
Non-cash impairment charge | — | — | — | 28 | ||||||||||||
One-time separation and legal costs | — | 2 | — | 1 | ||||||||||||
Insurance recovery | — | — | — | (1 | ) | |||||||||||
Gain on debt extinguishment | — | — | (9 | ) | — | |||||||||||
Pro Forma EBITDA | $ | 64 | $ | 83 | $ | 176 | $ | 183 | ||||||||
(a) Earnings Before Interest, Taxes, Depreciation and Amortization
(“EBITDA”) is defined by the
Nine Months Ended | ||||||||
Adjusted Free Cash Flows (b): |
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Cash provided by operating activities | $ | 181 | $ | 152 | ||||
Capital expenditures | (58 | ) | (60 | ) | ||||
Adjusted Free Cash Flows | $ | 123 | $ | 92 | ||||
(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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|
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Current maturities of long-term debt | 8 | 8 | ||||
Long-term debt | 775 | 850 | ||||
Total debt | 783 | 858 | ||||
Original issue discount and debt issuance costs | 8 | 11 | ||||
Cash and cash equivalents | (320 | ) | (101 | ) | ||
Adjusted net debt | 471 | 768 | ||||
(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.
Reconciliation of Non-GAAP Measures (Continued)
(millions of dollars, except per share information) |
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Three Months Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||||||||
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Pro Forma Operating Income and Net Income (a): | $ |
Per |
$ |
Per |
$ |
Per |
$ |
Per |
$ |
Per |
||||||||||||||||||||||||||||||
Operating Income | $ | 41 | $ | 39 | $ | 58 | $ | 112 | $ | 90 | ||||||||||||||||||||||||||||||
Non-cash impairment charge | — | — | — | — | 28 | |||||||||||||||||||||||||||||||||||
One-time separation and legal costs | — | — | 2 | — | 1 | |||||||||||||||||||||||||||||||||||
Insurance recovery | — | — | — | — | (1 | ) | ||||||||||||||||||||||||||||||||||
Pro Forma Operating Income | $ | 41 | $ | 39 | $ | 60 | $ | 112 | $ | 118 | ||||||||||||||||||||||||||||||
Net Income | $ | 22 | $ | 0.44 | $ | 19 | $ | 0.46 | $ | 32 | $ | 0.76 | $ | 62 | $ | 1.38 | $ | 42 | $ | 1.00 | ||||||||||||||||||||
Non-cash impairment charge | — | — | — | — | — | — | — | — | 28 | 0.67 | ||||||||||||||||||||||||||||||
One-time separation and legal costs | — | — | — | — | 2 | 0.03 | — | — | 1 | 0.02 | ||||||||||||||||||||||||||||||
Insurance recovery | — | — | — | — | — | — | — | — | (1 | ) | (0.02 | ) | ||||||||||||||||||||||||||||
Gain on debt extinguishment | — | — | — | — | — | — | (9 | ) | (0.21 | ) | — | — | ||||||||||||||||||||||||||||
Tax effects of Pro Forma adjustments | — | — | — | (1 | ) | (0.01 | ) | 3 | 0.07 | (10 | ) | (0.25 | ) | |||||||||||||||||||||||||||
Pro Forma Net Income | $ | 22 | $ | 0.44 | $ | 19 | $ | 0.46 | $ | 33 | $ | 0.78 | $ | 56 | $ | 1.24 | $ | 60 | $ | 1.42 | ||||||||||||||||||||
(a) Pro forma operating income is defined as operating income adjusted for non-cash impairment, one-time separation and legal costs and insurance recovery. Pro forma net income is defined as net income adjusted net of tax for non-cash impairment, one-time separation and legal costs, insurance recovery and 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.
Selected Financial and Operating Information
|
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Three Months Ended | Nine Months Ended | ||||||||||||||
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Sales Volume, thousands of metric tons | |||||||||||||||
Cellulose specialties | 116 | 133 | 335 | 352 | |||||||||||
Commodity products | 49 | 61 | 179 | 174 | |||||||||||
Total | 165 | 194 | 514 | 526 | |||||||||||
Average Sales Price, $ per metric ton | |||||||||||||||
Cellulose specialties | $ | 1,495 | $ | 1,623 | $ | 1,532 | $ | 1,641 | |||||||
Commodity products | $ | 643 | $ | 664 | $ | 666 | $ | 672 | |||||||
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 | ||||||||||
2016 Pro Forma EBITDA Guidance | $ | 215 | $ |
225 |
|||||||
Gain on debt extinguishment | 9 | 9 | |||||||||
2016 EBITDA Guidance | 224 |
234 |
|||||||||
Income tax expense (a) | 35 |
39 |
|||||||||
Interest expense, net | 35 | 35 | |||||||||
Depreciation and amortization | 88 | 88 | |||||||||
2016 Net Income Guidance | 66 |
72 |
|||||||||
(a) Income tax expense for the full year 2016 is based on an expected effective tax rate of approximately 35 percent.
Minimum | Maximum | ||||||
2016 Operating Cash Flows Guidance | $ | 210 | $ | 215 | |||
Capital expenditures | 85 | 85 | |||||
2016 Adjusted Free Cash Flows Guidance | 125 | 130 | |||||
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