Attached files

file filename
EX-10.12 - EXHIBIT 10.12 - RAYONIER ADVANCED MATERIALS INC.ex1012.htm
EX-32 - EXHIBIT 32 - RAYONIER ADVANCED MATERIALS INC.ex32q4-201710xq.htm
EX-31.2 - EXHIBIT 31.2 - RAYONIER ADVANCED MATERIALS INC.ex312q4-201710xq.htm
EX-31.1 - EXHIBIT 31.1 - RAYONIER ADVANCED MATERIALS INC.ex311q4-201710xq.htm
EX-24 - EXHIBIT 24 - RAYONIER ADVANCED MATERIALS INC.ex24201710-k.htm
EX-23.2 - EXHIBIT 23.2 - RAYONIER ADVANCED MATERIALS INC.ex2322017.htm
EX-23.1 - EXHIBIT 23.1 - RAYONIER ADVANCED MATERIALS INC.ex2312017.htm
EX-21 - EXHIBIT 21 - RAYONIER ADVANCED MATERIALS INC.exhibit212017.htm
EX-12 - EXHIBIT 12 - RAYONIER ADVANCED MATERIALS INC.ex12.htm
EX-10.18 - EXHIBIT 10.18 - RAYONIER ADVANCED MATERIALS INC.ex1018.htm
EX-10.15 - EXHIBIT 10.15 - RAYONIER ADVANCED MATERIALS INC.ex1015.htm
EX-10.10 - EXHIBIT 10.10 - RAYONIER ADVANCED MATERIALS INC.ex1010.htm


UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
    
For the transition period from              to             
Commission File Number 001-36285
ryam-logoa27.jpg
Incorporated in the State of Delaware
I.R.S. Employer Identification No. 46-4559529
1301 RIVERPLACE BOULEVARD, SUITE 2300
JACKSONVILLE, FL 32207
(Principal Executive Office)
Telephone Number: (904) 357-4600
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of exchange on which registered
Common stock, par value $0.01 per share
New York Stock Exchange
8.00% Series A Mandatory Convertible Preferred Stock, par value $0.01 per share
New York Stock Exchange
Securities to be registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
YES x       NO o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
YES o       NO x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES x       NO o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YES x       NO o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer  x
 
Accelerated filer  o
Non-accelerated filer  o
 
Smaller reporting company o
 
 
Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES o        NO  x

The aggregate market value of the Common Stock of the registrant held by non-affiliates at the close of business on June 24, 2017 was $643,689,895 based on the closing sale price as reported on the New York Stock Exchange.

The registrant had 51,681,748 shares of Common Stock, $.01 par value per share, outstanding as of February 20, 2018.

Portions of the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission in connection with the 2018 annual meeting of the stockholders of the registrant scheduled to be held May 21, 2018, are incorporated by reference in Part III hereof.




Table of Contents

Item
 
 
Page
 
 
Part I
 
1.
 
1A.
 
1B.
 
2.
 
3.
 
4.
 
 
 
Part II
 
5.
 
6.
 
7.
 
7A.
 
8.
 
9.
 
9A.
 
9B.
 
 
 
Part III
 
10.
 
11.
 
12.
 
13.
 
14.
 
 
 
Part IV
 
15.
 
16.
 

i


Index to Financial Statements

 
Page
 
 
 
 
Index to Financial Statement Schedules
 
All other financial statement schedules have been omitted because they are not applicable, the required matter is not present, or the required information has been otherwise supplied in the financial statements or the notes thereto.
 
 


ii


Part I
When we refer to “we,” “us,” “our,” “the Company,” or “Rayonier Advanced Materials” we mean Rayonier Advanced Materials Inc. and its consolidated subsidiaries. References herein to “Notes to Financial Statements” refer to the Notes to the Consolidated Financial Statements of Rayonier Advanced Materials Inc. included in Item 8 of this Report.
Note 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. The risk factors contained in Item 1A — Risk Factors, among others, could cause actual results or events to differ materially from the Company’s historical experience and those expressed in forward-looking statements made in this document.
Risks Relating to the Business
The businesses we operate are highly competitive and many of them are cyclical, which may result in fluctuations in pricing and volume that can adversely impact our financial condition and results of operations.
Our ten largest customers represent approximately 38 percent of our pro forma 2017 revenue, and the loss of all or a substantial portion of our revenue from these large customers could have a material adverse effect on our business.
A material disruption at one of our major manufacturing facilities could prevent us from meeting customer demand, reduce our sales and profitability, increase our cost of production and capital needs, or otherwise adversely affect our business, financial condition and results of operation.
Changes in raw material and energy availability and prices could affect our results of operations and financial condition.
The availability of, and prices for, wood fiber may significantly impact our business, results of operations and financial condition.
We are subject to risks associated with doing business outside of the United States.
Our operations require substantial capital.
Currency fluctuations may have a negative impact on our business, financial condition and results of operations.
Restrictions on trade through tariffs, countervailing and anti-dumping duties, quotas and other trade barriers, in the United States and internationally, could adversely affect our ability to access certain markets.
We depend on third parties for transportation services and increases in costs and the availability of transportation could adversely affect our business.
Our business is subject to extensive environmental laws, regulations and permits that may restrict or adversely affect our ability to conduct our business.
The impacts of climate-related initiatives remain uncertain at this time.
Our failure to maintain satisfactory labor relations could have a material adverse effect on our business.
We are dependent upon attracting and retaining key personnel, the loss of whom could adversely affect our business.
Failure to develop new products or discover new applications for our existing products, or our inability to protect the intellectual property underlying such new products or applications, could have a negative impact on our business.
Risk of loss of the Company’s intellectual property and sensitive business information, or disruption of its manufacturing operations, in each case due to cyberattacks or cyber security breaches, could adversely impact the Company.
We may need to make significant additional cash contributions to our retirement benefit plans if investment returns on pension assets are lower than expected or interest rates decline, and/or due to changes to regulatory, accounting and actuarial requirements.
We have debt obligations that could adversely affect our business and our ability to meet our obligations.
Challenges in the commercial and credit environments may materially adversely affect our future access to capital.
We may need additional financing in the future to meet our capital needs or to make acquisitions, and such financing may not be available on favorable terms, if at all, and may be dilutive to existing stockholders.
The inability to effectively integrate the Tembec Inc. (“Tembec”) acquisition, and any future acquisitions we may make, may affect our results.
We may not achieve the benefits anticipated from our announced transformation plan.

1


Risks Related to the Company’s Common Stock and Certain Corporate Matters
Your percentage of ownership in the Company may be diluted in the future.
Our common stock ranks junior to our Mandatory Convertible Preferred Stock, Series A (the “Preferred Stock”) with respect to dividends and amounts payable in the event of our liquidation.
Certain provisions of the Preferred Stock could prevent or delay an acquisition of the Company, which could decrease the price of our common stock.
Certain provisions in our amended and restated certificate of incorporation and bylaws, and of Delaware law, could prevent or delay an acquisition of the Company, which could decrease the price of our common stock.
Our amended and restated certificate of incorporation designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could discourage lawsuits against the Company and our directors and officers.
There could be significant liability if the distribution of common stock of the Company that occurred as a result of its spin-off from Rayonier Inc. is determined to be a taxable transaction.
Forward-looking statements are only as of the date they are made, and the Company undertakes no duty to update its forward-looking statements except as required by law. You are advised, however, to review any further disclosures we have made or may make in our filings and other submissions to the U.S. Securities and Exchange Commission (the “SEC”), including those on Forms 10-Q, 10-K, 8-K and other reports. Specifically, more details on each of the above risk factors are more specifically described in Item 1A - Risk Factors.
Note About Non-GAAP Financial Measures
This document contains certain non-GAAP financial measures, including Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”), adjusted EBITDA, and adjusted free cash flows. These non-GAAP measures are reconciled to each of their respective most directly comparable U.S. Generally Accepted Accounting Principles (“GAAP”) financial measures in Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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 non-GAAP measures an alternative to financial measures determined in accordance with GAAP. The principal limitation of these non-GAAP financial measures is they may exclude significant expense 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 expense and income items are excluded or included in determining these non-GAAP financial measures. In order to compensate for these limitations, reconciliations of the non-GAAP financial measures we use to their most directly comparable GAAP measures are provided. 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.
Item 1.
Business
Prior to June 27, 2014, we consisted of Rayonier Inc.’s (“Rayonier’s”) wholly-owned performance fibers business, the global leader in the production of cellulose specialties. On that date, holders of Rayonier common shares received one share of our common stock for every three Rayonier common shares held on the record date. This resulted in our separation from Rayonier and the start of our business as an independent, publicly traded company.
We are transforming our business and growing EBITDA to drive long-term value for our stockholders. Our plan focuses on the following four strategic pillars:
Cost Transformation - driving sustainable cost reductions by fostering a culture of continuous improvement
New Products - expanding our business by developing next generation cellulose fibers and other value-added product utilizing our cellulose processing technology, expertise and co-products. We have made significant progress in developing and applying proprietary technologies to new products in many of the end-market segments we serve.
Market Optimization - maximizing the profitability of our existing products and assets by optimizing the intersection of our customers’ needs, our manufacturing capabilities and transportation costs to drive higher value for our customers and our Company.

2


Disciplined Capital Allocation - delivering a capital allocation strategy that maximizes our risk adjusted returns. Our first priority is to delever our balance sheet through EBITDA growth and repayment of indebtedness in order to reach our target net leverage ratio of 2.5 times EBITDA. We will allocate capital across high return investments in our facilities, acquisitions and other external investments to grow profitability, as well as return capital to stockholders through buybacks and dividends.

On November 17, 2017, we acquired Tembec which was engaged in the manufacture of cellulose specialties, commodity products, forest products and pulp & paper (the “Acquisition”). The Acquisition created a combined company with leading positions in acetate, ethers, high-strength viscose, filtration and other cellulose specialties, as well as adding complementary assets in the forest products and pulp & paper businesses. Consequently, we now operate in the following business segments:
High Purity Cellulose
Forest Products
Pulp & Paper
The following describes each of these segments. Additionally, see Note 19Segment and Geographical Information of our consolidated financial statements for more information.
High Purity Cellulose
The High Purity Cellulose segment, and in particular the cellulose specialties product line, is the primary driver of our profitability. Cellulose specialties are natural polymers, used as raw materials to manufacture a broad range of consumer-oriented products such as cigarette filters, liquid crystal displays, impact-resistant plastics, thickeners for food products, pharmaceuticals, cosmetics, high-tenacity rayon yarn for tires and industrial hoses, food casings, paints and lacquers. We manufacture products tailored to the precise and demanding chemical and physical specifications of our customers, achieving industry-leading purity and product functionality. Our ability to consistently manufacture high-quality cellulose specialties products is the result of our proprietary production processes, intellectual property, technical expertise and knowledge of cellulosic chemistry.
Additionally, a significant portion of our production capacity is dedicated to manufacturing high-purity commodity products for viscose and absorbent materials applications. Commodity viscose is a raw material required for the manufacture of viscose staple fibers which are used in woven applications such as rayon textiles for clothing and other fabrics, and in non-woven applications such as baby wipes, cosmetic and personal wipes, industrial wipes and mattress ticking. Absorbent materials, typically referred to as fluff fibers, are used as an absorbent medium in products such as disposable baby diapers, feminine hygiene products, incontinence pads, convalescent bed pads, industrial towels and wipes and non-woven fabrics. Cellulose specialties typically contain over 95 percent cellulose, while commodity products typically contain less than 95 percent cellulose.
Products
Cellulose Specialties
Cellulose specialties are a natural polymer primarily derived from either wood or cotton and are used as a raw material to manufacture a broad range of products. Cellulose specialties generally command a price premium and earn higher margins relative to other commodity wood pulp products. Typically, product pricing is set annually in the fourth quarter for the following year based on discussions with customers and the terms of contractual arrangements.
Derived from wood, our cellulose specialties require high levels of purity, consistency and process knowledge. Our products play a significant role in our customers’ manufacturing processes, which require cellulose specialties of high purity and uniformity for efficient production. Therefore, our customers demand products of the highest quality. As a result, our products are custom-engineered and manufactured to each customers’ unique specifications and require a stringent qualification process; our quality and consistency allow our customers to operate more efficiently and cost-effectively.
One of our key competitive advantages is our unique ability to leverage our global manufacturing asset base to provide our customers a greater security of supply for cellulose specialties fibers. With our four facilities and five manufacturing lines capable of producing cellulose specialties, we are the only cellulose specialties producer with manufacturing facilities that provide flexibility to use both hardwood and softwood fibers, kraft and sulfite cooking processes, and a variety of proprietary chemical treatments to provide customized product functionality. Additionally, we possess significant process knowledge: the understanding of wood fiber properties and their modification under a sequence of chemical processes, accumulated and developed over 90 years of practical application to satisfy a variety of customer needs. This process knowledge, combined with our

3


manufacturing scale and flexibility and knowledge of customers’ applications and specifications, makes us the industry’s most adaptable and capable modifier of cellulose fibers.
Commodity Products
Our High Purity Cellulose manufacturing assets can easily be shifted between commodity viscose and absorbent materials production to take advantage of market conditions and generate the most attractive margins.
Commodity viscose is primarily sold to producers of viscose staple fibers which in turn are used primarily to manufacture rayon fibers which are widely used in the clothing and textile industries. Shifts in fashion styles and textile fiber blending have increased demand for viscose staple fibers. Additionally, variability in cotton linter supply and increasing environmental concerns about cotton production have resulted in viscose staple producers shifting volume away from cotton linter pulp to wood-based dissolving pulp.
Absorbent materials, or fluff fibers, are typically used in consumer products such as baby diapers. These fibers provide a medium for fluid acquisition, distribution and retention in the products in which they are incorporated. Pricing for commodity products is typically referenced to published indexes or based on publicly available spot market prices.
Competition
Cellulose Specialties
Significant intellectual property, capital investment and technical expertise are needed to design and manufacture customized cellulose specialties fibers to exacting customer specifications. The product must be formulated to achieve the desired characteristics including parameters for purity, viscosity, brightness, reactivity and other physical properties. Product qualification time can be lengthy, extending six to twenty-four months. Resulting customer relationships are typically long-term, based on an understanding of our customers’ production processes and technical expertise which we utilize to solve customers’ production issues and support new product development. Further, establishing a production line and obtaining the necessary production technologies requires substantial capital and ongoing maintenance expenditures.
Product performance, technical service and price are principal methods of competition in cellulose specialties. Product performance is primarily determined by the purity and uniformity of the cellulose specialties. Our processes, which are a key element of our intellectual property, are capable of generating cellulose specialties purity levels in excess of 98 percent.
We compete with both domestic and foreign producers in cellulose specialties. Competitors include GP Cellulose, Borregaard, Bracell, Sappi, Nippon, Cosmo Specialty Fibers and Aditya Birla Group. Some competitors use both wood and cotton linter fibers, as a source of cellulose fibers.
Commodity Products
The principal method of competition in commodity products is price, as purity and uniformity are less critical differentiators. We compete with both domestic and foreign producers of commodity products.
For commodity viscose, many competitors derive their commodity viscose from either wood or cotton. Although cellulose specialties can generally be sold to meet commodity viscose demand, the reverse is not typically true. For commodity viscose, major competitors include Sappi, Aditya Birla Group, Lenzing and Bracell.
For absorbent materials, major competitors include GP Cellulose, Domtar and International Paper.
Forest Products
We manufacture and market primarily high-quality construction-grade lumber in North America through our seven sawmills located in Canada.

Approximately 56 percent of our sales are exported from Canada to the U.S. On November 25, 2016, a petition for the imposition of countervailing and anti-dumping duties (“CVD” and “ADD”) on softwood lumber from Canada was filed with the U.S. International Trade Commission by the Committee Overseeing Action for Lumber International Trade Investigations or Negotiations. On December 28, 2017, the United States Department of Commerce (“USDOC”) issued an amended final determination for CVD and ADD of 14.2 percent and 6.0 percent, respectively, on imports of softwood lumber from Canada. On January 3, 2018, the USDOC issued its ADD and CVD orders to the United States Customs and Border Protection to collect the above duties on softwood lumber imports from Canada effective.
Products

4


We manufacture finished dimensional lumber (2 by 4’s, 2 by 8’s, etc.) primarily made of spruce, pine, or fir, used in the construction of residential and multi-family homes, light industrial and commercial facilities, and the home repair and remodel markets. Wood chips, a by-product of the lumber manufacturing process, are used as raw materials in our High Purity Cellulose and Pulp & Paper facilities in Canada.
Competition
The principal method of competition in the Forest Products segment is price, which is based on individual sawmill efficiency, the availability of competitively-priced raw materials, demand for wood products used in the construction of residential and multifamily homes and the repair and remodel of existing homes. Residential and multifamily home construction is influenced by demographic factors such as population growth, employment, consumer confidence, consumer income, availability of financing and interest rate levels, and the supply and pricing of existing homes on the market. Repair and remodel activity is affected by the size and age of existing housing inventory and access to home equity financing and other credit.

Significant competitors include West Fraser Timber Ltd., Resolute Forest Products, Weyerhauser, Canfor and Eacom.
Pulp & Paper
Through our four production facilities in Canada, we manufacture and distribute pulp and paper products consisting of paperboard, high-yield pulp and newsprint.
Products
Products in the Pulp & Paper business include the following:

Paperboard, produced in the Temiscaming plant, is used for packaging, printing documents, brochures, promotional materials, paperback book or catalog covers, file folders, tags and tickets.

High-yield pulps are produced at the Matane and Temiscaming plants, primarily from hardwood aspen and maple furnish. These pulps are used by paper manufacturers to produce paperboard products, printing and writing papers and a variety of other paper grades.

Newsprint, produced in the Kapuskasing plant, is a paper grade used to print newspapers, advertising materials and other publications. In January of 2018, the USDOC announced preliminary countervailing duties applicable against Canadian newsprint producers, with our preliminary countervailing duty rate of 6.5 percent. Preliminary anti-dumping duties, if any, could be assigned prior to the close of the first quarter of 2018.
Competition
The principal method of competition in the Pulp & Paper segment is price. Price is impacted by the balance between supply and demand as affected by global economic conditions, changes in consumption and capacity, the level of customer and producer inventories, and fluctuations in currency exchange rates. To a lesser extent, quality and service are also considered competitive determinants, particularly for paperboard.
For paperboard, significant competitors include Westrock, Clearwater, SAPPI, Metso and Verso.

For high-yield pulp, significant competitors include Millar Western, West Fraser, Paper Excellence, Estonia Cell and Winstone.

For newsprint, significant competitors include Resolute Forest Products, Whitebirch Paper and Kruger.
Raw Materials and Input Costs
All our manufacturing operations, require significant amounts of wood fiber, in the form of logs or wood chips, as a raw material and energy to produce our products. Additionally, our High-Purity Cellulose and Pulp & Paper manufacturing processes require significant amounts of chemicals. These raw materials and input costs are subject to significant changes in prices as a result of weather conditions, supply and demand. To control cost, we continually pursue reductions in usage and costs of key supplies, services and raw materials. We do not foresee any material constraints in the near term from pricing or availability.
Wood

5


Our Canadian Forest Products operations rely on the consistent supply of substantial quantities of logs. Substantially all timberlands in Canada are government-owned and the right to harvest timber is acquired through provincially-granted licenses. Licenses grant the holder the right to harvest, for a fee, up to a specified quantity of timber annually. Government objectives in granting licenses include responsible management of timber, soils, wildlife, water and fish resources and the preservation of biodiversity and the protection of cultural values. The objectives also include achieving the fullest possible economic utilization of the forest resources and employment in local communities. In addition, license holders are required to replant the trees harvested to ensure re-establishment of the forest after harvesting. Reforestation projects are planned and supervised by our forest resource management staff and subject to approval by relevant government authorities. Our timber harvesting operations are performed directly or carried out by independent contractors under our forest resource management supervision.
In Canada, the High Purity Cellulose and Pulp & Paper plants are supplied with wood chips produced as a by-product from the lumber manufacturing process.
In the U.S. and France, we supply wood chips to our High Purity Cellulose plants through the purchase of chips from lumber producers or produce chips through our wood chipping facilities.
Chemicals
Chemicals, which include caustic soda (sodium hydroxide), sulfuric acid, ammonia, sodium chlorate and various specialty chemicals, are purchased under negotiated supply agreements with third parties. The prices for these products are impacted by various factors including supply and demand, environmental regulation, energy prices and overall economic conditions.
Energy
Our energy is primarily produced through the burning of lignin and other residual biomass in recovery and power boilers located at our plants. However, our manufacturing facilities still utilize significant amounts of fuel oil, natural gas and purchased electricity to supplement their energy requirements. In addition, energy prices impact our transportation costs for delivery of raw materials to our manufacturing facilities and delivery of our finished products to customers.
Intellectual Property
Substantially all of our intellectual property relates to our High Purity Cellulose segment. We own patents, trademarks and trade secrets, and have developed significant know-how, particularly in the production of high purity cellulose, which we deem important to our operations. We intend to protect our intellectual property, including, when appropriate, filing patent applications for inventions that are deemed important to our business and operations. Our U.S. patents generally have a duration of 20 years from the date of filing. We also require key employees to enter into non-compete agreements as appropriate.
Seasonality
Our results are not significantly affected by seasonal changes.
Customers
See Note 19Segment and Geographical Information of our consolidated financial statements for more information on on our major customers.
Research and Development
Research and development capabilities and activities are focused on the High Purity Cellulose segment. The quality and consistency of our cellulose specialties and research and development capabilities create a significant competitive advantage; they are important factors in achieving an optimal value for our cellulose specialties products. Our research and development efforts are primarily directed at further developing products and technologies, improving the quality of cellulose fiber grades, improving manufacturing efficiency and environmental controls and reducing fossil fuel consumption. We continue to grow our research and development activities to develop and market additional new products and applications.
We spent $4 million, $4 million and $3 million on research and development for the years ended December 31, 2017, 2016 and 2015, respectively.

6


Environmental Matters
Our manufacturing operations are subject to significant federal, state, provincial and local environmental regulations. For a more detailed discussion, see Item 1A — Risk Factors, Item 3 — Legal Proceedings, Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Environmental Regulation. Additionally, see Note 9Liabilities for Disposed Operations and Note 20Commitments and Contingencies of our consolidated financial statements for more information.
Employee Relations
We currently employ approximately 4,200 people in the United States, Canada and France. See Note 20Commitments and Contingencies of our consolidated financial statements for more information. We believe relations with our employees are satisfactory.
Availability of Reports and Other Information
Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and amendments to those reports filed or furnished pursuant to Sections 13(a) or 14 of the Securities Exchange Act of 1934 are made available to the public free of charge in the Investor Relations section of our website www.rayonieram.com, shortly after we electronically file such material with, or furnish them to, the SEC. Our corporate governance guidelines and charters of all committees of our board of directors are also available on our website.
Item 1A.
Risk Factors
Our operations are subject to a number of risks and events 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 this Report and our other filings and submissions to the SEC. If any of the events described in the following risk factors actually occur, our business, financial condition or operating results, as well as the market price of our securities, could be materially adversely affected.
Business and Operating Risks
The businesses we operate are highly competitive and many of them are cyclical, which may result in fluctuations in pricing and volume that can adversely affect our business, financial condition and results of operations.
Competition, demand fluctuations and cyclicality are the most significant drivers of sales volumes and pricing for our products. We face significant competition from domestic and foreign producers in virtually all of our businesses. For example, our cellulose specialties business has seen increased cellulose specialties production capacity from our competitors, some of whom have lower raw material, wood and production costs than us, combined with demand weakness, particularly in the acetate grades, which have collectively driven cellulose specialties sales prices down substantially over the past several years. Likewise, volumes have declined meaningfully over the past two years due to these factors. There can be no assurance these declines will not continue into the near future.
With respect to demand for cellulose specialties, and in particular our acetate grades, the majority of these grades are used to manufacture acetate tow, which is used to make the filter component of a cigarette. Significant increases in cigarette costs and potential actions taken by the United States and other countries to discourage smoking, such as tax increases on tobacco products, policy changes and future legislation, may have a material adverse effect on the demand for tobacco products. For example, actions by the Chinese government to curb corruption and limit smoking in public buildings have had some impact on cigarette consumption. Additionally, increased use of e-cigarettes, electronically heated tobacco products and smokeless tobacco products, by way of example, may affect demand for traditional cigarettes.
Our lumber, paper, high yield pulp and paper-related commodity businesses are cyclical and influenced by a variety of factors. These include periods of excess product supply due to industry capacity increases, periods of decreased demand due to reduced economic activity or market conditions, inventory de-stocking by customers and fluctuations in currency exchange rates. To address these factors, we have in the past, and may in the future, elect to schedule production curtailments and shutdowns to address, for example, unfavorable economic conditions, reduced demand for our products or the end products of our customers, lack of economically viable fiber in Canada, reduced market prices and other factors. In particular, our lumber and newsprint businesses have been the subject of curtailments and shutdowns in the past.

7


In sum, continued competitive pressures and demand weakness, as well as the cyclicality of our commodity businesses, may have a material impact on our future sales prices and volumes and, therefore, our business, financial condition and results of operations.
Our ten largest customers represent approximately 38 percent of our pro forma 2017 revenue, and the loss of all or a substantial portion of our revenue from these large customers could have a material adverse effect on our business.
While we are not dependent on any single customer or group of customers, our ten largest customers accounted for approximately 38 percent of pro forma revenue in 2017. Due to the highly competitive nature of our businesses, we regularly bid for new business and to retain/renew existing business and, as such, we are subject to the potential for meaningful revenue and volume gains and losses.
In addition, some of the industries in which our end-use customers participate, such as construction, home building, publishing, packaging, automotive and textiles, are cyclical in nature, thus posing risks to us which are beyond our control. These industries are highly competitive and may experience overcapacity and reductions in end use demand, each of which may affect demand for and pricing of our products. The consequences of this could include the reduction, delay or cancellation of customer orders.
We are also subject to credit risk associated with these customers. If one or more of our ten largest customers were to become bankrupt, insolvent or otherwise were unable to pay for its products, we may incur significant write-offs of accounts that may have a material adverse effect on our business, financial condition and results of operations.
Although we continue to strive to broaden and diversify our customer base, a significant portion of our revenue is derived from these ten customers, and the loss of all or a substantial portion of sales to any of these customers, or significant, unfavorable changes to pricing or terms contained in contracts with them, could materially affect our business, financial condition or results of operations. See Note 19Segment and Geographical Information of our consolidated financial statements for more information on our major customers.
A material disruption at one of our major manufacturing facilities could prevent us from meeting customer demand, reduce our sales and profitability, increase our cost of production and capital needs, or otherwise adversely affect our business, financial condition and results of operation.
Any of our major manufacturing facilities, or a significant portion of any of these facilities, could cease operations unexpectedly or suffer a material disruption to all or a portion of its operations due to a number of events, including:
Unscheduled outages or downtime due to the need for unexpected maintenance or equipment failure, such as for portions of our facilities that produce steam and electricity (such as boilers and turbines), pollution control equipment, and equipment directly used to manufacture our products;
prolonged power interruptions or failures;
explosion of a boiler or other pressure vessel;
interruptions in the supply of raw materials, including chemicals and wood fiber;
disruptions to or failures of the transportation infrastructure, such as roads, bridges, railroad tracks and tunnels, as well as lack of availability of rail, trucking and ocean shipping equipment and service from third party transportation providers;
interruption or material reduction of water supply;
a chemical spill or release or other event causing risks to the environment or human health and safety;
information technology system failures and cybersecurity incidents;
fires, floods, windstorms, earthquakes, hurricanes or other similar catastrophes, such as the hurricanes which impacted our Jesup, Georgia and Fernandina, Florida plants in 2017;
labor interruptions, such as the strike at our Temiscaming, Quebec facility in 2014;
terrorism or threats of terrorism; and
other operational problems resulting from these and other risks.

Some of these matters are discussed in more detail in other sections of these Risk Factors. Depending on the nature, extent and length of any operational interruption, the event could materially affect our business, financial condition and results of operations.
Changes in raw material and energy availability and prices could affect our results of operations and financial condition.
Raw material costs and energy, such as chemicals, oil and natural gas and electricity are a significant operating expense. The cost of these inputs can be volatile and are susceptible to rapid and substantial increases due to factors beyond our control, such as lack of availability, changing economic and weather conditions, political or other unrest or instability in energy-producing

8


nations, and supply and demand considerations. For example, caustic soda, a key manufacturing input, has historically had significant price volatility. Similarly, the price of oil and natural gas (including its pipeline transportation element) is subject to fluctuations based on market and other factors. In contracts for certain of our products, pricing is set annually or otherwise not subject to change for a contractually-agreed period of time, so in some cases we may have limited ability to pass along fluctuations in these input costs once the contract price for the relevant period has been established. In addition, industrial and other policies of the governments and governmental agencies having jurisdiction over our facilities may change, due to changes in political leadership or otherwise, which also could adversely impact the cost of energy and its transportation. While we often use various strategies to mitigate the potential impact of this pricing volatility, such as long term contracting and the purchase of derivative commodity contracts, the impact of raw material and energy pricing increases could materially adversely affect our business, financial condition and results of operations.
The availability of, and prices for, wood fiber may significantly impact our business, results of operations and financial condition.
Wood fiber is the single largest raw material in the manufacturing process for virtually all of our products. Many factors can impact its availability and pricing: One key factor is whether the land on which the timber is grown is owned by private parties or governmental entities. For example, fiber for our U.S. and French facilities is primarily harvested from privately-held lands, while fiber for our Canadian facilities is primarily harvested from lands owned or controlled by the governments of the provinces of Ontario and Quebec, respectively, which are often referred to as “Crown lands”. In fiscal 2017, approximately 90 percent of the Company’s fiber requirements in Canada were sourced from Crown lands. The Company’s current agreements with provincial authorities grant timber “tenures” for terms varying from five to 20 years and may be subject to renewals every five years. In Canada, the Company currently manages approximately 25 million acres (ten million hectares) of Crown lands for timber production. The price and availability of this Canadian fiber depends, in large part, on the Company’s ability to replace or renew these agreements on acceptable terms or enter into acceptable alternative fibre supply arrangements with provincial authorities. The terms of any replacement, renewal or alternative arrangement are based on legislative and regulatory provisions as well as governmental policy. Therefore, changes in legislation, regulatory regimes or policy in the provinces in which we operate may reduce the availability of fiber and increase costs through the imposition of additional and more stringent harvesting, rehabilitation and silvicultural standards or the alteration of fee structures. Although we expect these agreements to be extended in the ordinary course as they come up for renewal, there can be no assurance that they will be renewed, extended or replaced in the future on acceptable terms, or at all, or that the amount of timber that the Company is allowed to harvest will not decrease.
Also, Aboriginal communities in Canada, often referred to as “First Nations”, have claimed substantial portions of land in various provinces based on claims of aboriginal title or traditional/historical interest. Canadian courts have recognized that Aboriginal people may possess rights in respect of land used or occupied by their ancestors and have encouraged the federal and provincial governments and Aboriginal people to resolve rights claims through the negotiation of treaties. We operate in territories in which Aboriginal people assert these types of rights and interests. To accommodate the traditional activities of these communities during forestry planning and operations, the Company has concluded agreements with many First Nations communities and other agreements are in development. These agreements support an approach of active engagement with Aboriginal communities that serves to ensure the identification of issues and facilitates constructive problem-solving.
In addition, regulatory developments and environmental litigation have caused, and may cause in the future, significant reductions in the amount of timber available for commercial harvest from non-Crown lands in Canada and privately-owned lands in the U.S. and France, thereby increasing prices for these sources of wood fiber. In Canada, for example, future legislation and policy changes, litigation advanced by environmental groups and Aboriginal communities concerning rights and limitations on harvesting and use of timberlands, the protection of endangered species, the promotion of forest diversity and the response to and prevention of wildfires could also affect wood fiber supply and pricing.
Finally, natural conditions, such as weather, timber growth cycles and restrictions on access to timberlands for harvesting (for example, due to prolonged wet or cold conditions) may also limit the availability and increase the price of wood (and, in particular, hardwood species), as may other factors, including damage by fire, insect infestation, disease, prolonged drought and natural disasters such as wind storms and hurricanes.
In sum, any sustained decrease in harvestable lands or wood supply, or increase in fiber prices, whether sourced from Crown lands in Canada or from private parties in Canada, the U.S. or France, could materially increase our costs and thereby materially impact our business, financial condition and results of operations.
We are subject to risks associated with doing business outside of the United States.
We have significant manufacturing facilities outside of the United States, in Canada and France, and a significant portion of our sales are to customers and customer locations outside of the United States, including Canada, China, Japan, South Korea, the European Union and other international markets. Sales to customers outside of the United States made up approximately 65

9


percent of our revenue in 2017. The manufacture and sale of our products in non-U.S. markets results in risks that are inherent in conducting business under international laws, regulations and customs. We expect international sales will continue to contribute significantly to our financial condition and future growth. The risks associated with our business outside the United States include:

maintaining and governing international subsidiaries and managing international operations;
the need to comply with, changes in and reinterpretations of, the laws, regulations and enforcement priorities of the countries in which we manufacture and sell our products;
responsibility to comply with anti-bribery laws such as the U.S. Foreign Corrupt Practices Act and similar anti-bribery laws in other jurisdictions;
trade protection laws, policies and measures and other regulatory requirements affecting trade and investment, including loss or modification of exemptions for taxes and tariffs, imposition of new tariffs and duties and import and export licensing requirements, as discussed below in more detail;
repatriating cash from foreign countries to the United States;
changes in tax laws and their interpretations in the countries in which we do business, including the potential impact on the value of recorded or future deferred tax assets and liabilities;
product damage or losses incurred during shipping;
political instability and actual or anticipated military or political conflicts;
economic instability, inflation, recessions and interest rate and currency exchange rate fluctuations, as discussed below in more detail;
uncertainties regarding non-U.S. judicial systems, rules and procedures; and
minimal or limited protection of intellectual property in some countries.
These and other risks of doing business outside of the United States could adversely affect our business, financial condition and results of operations.
Our operations require substantial capital.
We require substantial capital for ongoing maintenance, repair and replacement of existing facilities and equipment. Although we maintain our production equipment with regular scheduled maintenance, key pieces of equipment and systems, some of which are large in scale, may need to be repaired or replaced periodically. Moreover, some of the facilities we acquired as part of the Tembec acquisition in 2017 have seen some capital expenditures deferred due to Tembec’s cash flows limitations in recent years, which may require the Company to make additional investments. The costs of repairing or replacing such equipment and the associated downtime of the affected production line could adversely affect our financial condition and results of operations. In addition, new or existing environmental regulations at times require additional capital expenditures for compliance. We believe our capital resources are currently adequate to meet our current projected operating needs, capital expenditures and other cash requirements. However, if for any reason we are unable to provide for our operating needs, capital expenditures and other cash requirements on reasonable economic terms, we could experience an adverse effect on our business, financial condition and results of operations.
Currency fluctuations may have a negative impact on our business, financial condition and results of operations.
We have manufacturing operations in the United States, Canada and France. The Company also sells its products all over the world, in either U.S dollars, Canadian dollars or Euros. As a result, the Company is exposed to movements in foreign currency exchange rates, and its earnings are affected by increases or decreases in the value of the U.S. dollar and in the value of the Canadian dollar and Euro relative to the U.S. dollar. In addition to ordinary course currency fluctuations, specific events such as Brexit have had, and could in the future have, impact on currency valuation. The Company’s risk management policy allows management, with oversight from the Audit Committee of its Board of Directors, to hedge a significant portion of its exposure to fluctuations in foreign currency exchange rates. To accomplish this, the Company has used, and may in the future continue to use, derivative instruments, such as currency options and foreign exchange forward contracts, to mitigate its exposure to fluctuations in foreign currency exchange rates, but there can be no assurance that the Company will be protected against substantial foreign currency fluctuations or that such fluctuations will not have a material adverse impact on our business, financial condition and results of operations.
Restrictions on trade through tariffs, countervailing and anti-dumping duties, quotas and other trade barriers, in the United States and internationally, could adversely affect our ability to access certain markets.
We manufacture our products in the United States, Canada and France, and sell them into more than 35 countries. Our financial results are highly dependent on our ability to sell our products globally. Trade barriers such as tariffs, countervailing and dumping duties, quotas and similar restrictions on trade have in the past, and could in the future, result in materially reduced revenues and profitability. For example:

10


In April of 2014, China’s Ministry of Commerce (“MOFCOM”) issued a final determination assessing a 17.2 percent duty on imports of our lower purity commodity viscose into China from our Jesup, Georgia and Fernandina Beach, Florida plants in the United States, and a 13 percent duty for similar imports into China from our plant in Temiscaming (Quebec), Canada).This product is primarily utilized to produce viscose staple fiber for use in the manufacture of fabrics. We expect MOFCOM’s final determination to remain in place for five years, but it may be extended for an additional five years at the discretion of MOFCOM. MOFCOM’s duty could have an adverse effect on our sales of commodity viscose into China.
The United States and Canada have a history dating to the early 1980s of trade disputes relating to the export of softwood lumber from Canada into the United States. Each dispute has been resolved via agreement or litigation, which generally involved some combination of duties and/or quotas as well as a return of all or most of the duties previously paid by Canadian softwood lumber producers. The Company operates six softwood lumber mills in Ontario and Quebec, Canada and, in 2017, sold approximately $226 million of softwood lumber into the United States from Canada. In October of 2015, a ten-year Softwood Lumber Agreement (the “SLA”) between the United States and Canada, which resolved the 2001-2006 lumber dispute between the countries, expired. No agreement was reached to extend or renew it, and as a result, after a one-year cooling off period the United States commenced a dumping investigation of lumber exports from Canada into the U.S. In 2017, anti-dumping and countervailing duties were assessed by the United States Department of Commerce (“Commerce”) on lumber exported into the United States, with the Company being assigned an anti-dumping duty rate of 6 percent and a countervailing duty rate of 14.1 percent. These duties are being legally challenged by Canada under both the North American Free Trade Agreement (“NAFTA”) and World Trade Organization (“WTO”) dispute resolution processes. The Company paid approximately $11 million in lumber duties in 2017, but expects to eventually receive most of these duties back in the event of a favorable ruling under the NAFTA or WTO process or a settlement of the dispute. Because the imposition of duties, together with strong lumber demand, has resulted in favorable lumber pricing in the United States in 2017, these duties have not yet had a material adverse impact on the Company’s business. However, no assurances can be given that the duties will be overturned or repaid through the legal process or a negotiated settlement, or that lumber pricing in the United States will continue to be sufficient to substantially offset their impact.
Separately, Commerce has also commenced an anti-dumping and countervailing duty investigation of imports of Canadian uncoated groundwood paper (including newsprint) into the United States, spurred by the complaints of a single company, North Pacific Paper Company, which owns one mill in Longview, Washington. The Company operates a newsprint mill in Kapuskasing, Ontario and, in 2017, sold $51 million of newsprint into the United States. In January of 2018, Commerce announced preliminary countervailing duties applicable against Canadian newsprint producers, with Company being assigned a preliminary countervailing duty rate of 6.5 percent. Preliminary anti-dumping duties, if any, could be assigned prior to the close of the first quarter of 2018. It is expected that Canada will appeal these duties through either or both of the NAFTA and WTO processes. It is also expected that these duties will result in increased newsprint prices in the United States, which would be expected to partially offset the duties, but the expected financial impact of the duties on the Company’s future newsprint sales into the United States will not be known until the investigation is completed and final duties are assessed. The Company cannot provide assurances concerning the potential impact of any final duties assessed, if any, or the likelihood of success of any appeal.
In 2017, the United States, Mexico and Canada began a process for the renegotiation of the North American Free Trade Agreement (“NAFTA”), which is expected to conclude in 2018. The Company manufactures various products in the United States and Canada, sells various products to customers in all three countries, and purchases various products and services from suppliers and contractors in all three countries. Until the outcome is clear, the Company can provide no assurances concerning the potential impact, if any, of this renegotiation on the business, financial condition or results of operations of the Company.
We depend on third parties for transportation services and increases in costs and the availability of transportation could adversely affect our business.
Our business depends on transportation services provided by third parties, both domestically and internationally. We rely on these providers for transportation of the products we manufacture as well as delivery of raw materials to our manufacturing facilities. A significant portion of the products we manufacture and raw materials we use are transported by railroad or trucks, and internationally by ship.
If any of our transportation providers were to fail to deliver the goods we manufacture in a timely manner, or damaged them during transport, we may be unable to sell those products at full value, or at all. Similarly, if any of these providers were to fail to deliver raw materials to us in a timely manner, we may be unable to timely manufacture our products in response to customer demand. Finally, if any of the ports we commonly use for international shipping, or the port system generally, were to suffer work stoppages, slowdowns or strikes, we could be adversely impacted.

11


Our business is subject to extensive environmental laws, regulations and permits that may restrict or adversely affect our ability to conduct our business.
Our plants are subject to stringent environmental laws, regulations and permits that may limit operations and production. Many of our operations are subject to stringent environmental laws, regulations and permits that contain conditions governing how we operate our facilities including how much and, in some cases, what types of products we can produce. These laws, regulations and permits, now and in the future, may restrict our current production, limit our ability to increase production and impose significant costs on our operations with respect to environmental compliance. It is expected that, overall, costs will likely increase over time as environmental laws, regulations and permit conditions become more stringent, and as the expectations of the communities in which we operate become more demanding.
Environmental laws, regulations and permits are constantly changing and are generally becoming more restrictive. Laws, regulations, permits and related judicial decisions and administrative interpretations affecting our business are subject to change, and new laws and regulations are frequently enacted. These laws and regulations may limit, prohibit or affect, among other things, air emissions, wastewater discharges, receiving water quality, remedial standards for contaminated property and groundwater, and the type of chemicals we use in our manufacturing processes. Over time, the complexity and stringency of these laws and regulations have increased and the enforcement of these laws and regulations has intensified. EPA has pursued a number of initiatives that, if implemented, could impose additional operational and pollution control obligations on industrial facilities like ours, especially in the area of air emissions and wastewater and storm water control. See Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Environmental Regulation for further information.  Environmental laws and regulations will likely continue to become more restrictive and over time could adversely affect our business, financial condition and results of operations.
Environmental groups, Aboriginal communities (in Canada) and interested individuals may seek to delay or prevent a variety of operations. We expect that environmental groups, Aboriginal communities and interested individuals will intervene with increasing frequency in the regulatory processes in areas where we operate plants and manage and operate timberlands. External engagement with these groups and communities are requirements of our licenses to manage and operate timberlands in Quebec and Ontario, and in the case of Aboriginal communities are often required by treaty. Delays, restrictions and increased cost caused by the intervention of these groups or interested individuals could adversely affect our operating results. In addition to intervention in regulatory proceedings, interested groups and individuals may file or threaten to file lawsuits that seek to prevent us from obtaining permits, implementing capital improvements or pursuing operating plans. For example, in March 2014, litigation was commenced in federal court by the Altamaha Riverkeeper (“ARK”) alleging violations of federal and state environmental laws relating to permitted wastewater discharges from our Jesup plant (although it was dismissed by the court on summary judgment in 2015), and in January of 2016 the same group brought an action in the Georgia Office of Administrative Hearings against the Georgia Environmental Protection Division of the Natural Resources (“EPD”) in opposition to the issuance by EPD of a renewed wastewater treatment permit for our Jesup plant (an adverse decision was reversed by the Georgia Superior Court in 2017 and our permit was issued, which decision has been appealed by ARK to the Georgia Court of Appeals). See Item 3 - Legal Proceedings for a description of the pending legal proceedings with the Altamaha Riverkeeper.
We currently own or may acquire properties that require environmental remediation or otherwise are subject to environmental and other liabilities. We currently own, may have liability at formerly operated manufacturing facilities that we do not currently own, and may acquire additional facilities in the future, which are subject to environmental liabilities, such as remediation of soil, sediment and groundwater contamination and other liabilities. The cost of assessment and remediation of contaminated properties could be substantial and adversely affect financial results. These costs could include, without limitation, costs of investigation and assessment, corrective measures, installation of pollution control equipment and other remediation and closure costs, as well as third-party claims for property damage and personal injury as a result of alleged violations of, or liabilities arising out of, environmental laws and regulations. Although we believe we currently have adequate liabilities recorded, legal requirements relating to assessment and remediation of contaminated properties continue to become more stringent and there can be no assurance actual expenditures will not exceed current liabilities and forecasts, or that other presently unknown liabilities will not be discovered in the future. See Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Environmental Regulation and Note 9 - Liabilities for Disposed Operations.
The impacts of climate-related initiatives remain uncertain at this time.
There are numerous international, federal and state-level initiatives and proposals to address domestic and global climate issues. Within the United States, Canada and France, most of these would or currently regulate and/or tax, in one fashion or another, the production of carbon dioxide and other “greenhouse gases” to facilitate the reduction of carbon compound emissions to the atmosphere, and provide tax and other incentives to produce and use more “clean energy.”

12


In 2015, EPA issued its final Clean Power Plan rule to regulate greenhouse gas (“GHG”) emissions from electric power plants. The regulation is not directed at industry generally, but has very broad requirements that could affect fuel and energy prices for industrial energy consumers. Further, the rule directs states to customize their regulations, which could lead to different results in different states and create additional uncertainty. The rule was legally challenged by a number of states, industry groups and environmental organizations. In February of 2016, the U.S. Supreme Court granted a stay of its implementation while the rule is reviewed by lower courts. In October of 2017, EPA took steps to begin the regulatory process to repeal the Clean Power Plan. If not otherwise repealed or invalidated by the courts, it is unclear what impact this rule would have on our operations.
In December of 2015, the United States signed the Paris Agreement on climate change (the “Paris Agreement”), which was entered into under the auspices of the 1992 U.N. Framework Convention on Climate Change (the “UN Framework”), a treaty signed by the U.S. and ratified by the U.S. Senate. The Paris Agreement includes national targets for greenhouse gas emissions reductions and other provisions designed to reduce greenhouse gas emissions worldwide and provide financial incentives to developing nations to discourage greenhouse gas emissions. As of December 31, 2017, 197 countries have signed the Paris Agreement and approximately 175 have ratified it, but on June 1, 2017 President Trump announced that the United States would withdraw from the agreement, a process that will take four years.
The federal government of Canada has indicated its intent to regulate priority air pollutants and GHGs under the Clean Air Act and the Canadian Environmental Protection Act. Under the proposed targets, The Company’s Canadian pulp and paper mills may be required to reduce air pollutants, such as particulate matter (“PM”), sulphur oxides (“SOx”) emissions, nitrogen oxides (“NOx”) and GHGs. While industry consultations are ongoing with the federal government, the cost of making any such reductions is currently unknown; however, the requirements associated with PM, SOx and NOx are not expected to be material to the Company given its current operations and pollution control systems. In lieu of the Canadian federal programs, both Ontario and Quebec (as well as France) have recently implemented “cap and trade” programs and, at this time, only the Company’s Temiscaming site in Québec was a net purchaser of credits under these programs in 2017. In addition, the impact of these GHG credits to suppliers to the Company may be reflected in the cost of wood, other raw materials and energy purchased by the Company. To date, the cost of GHG credits purchased by our business has not been material, though no assurances can be given that they will not substantially increase in the future, and especially in Canada after 2020, because the law and cost of GHG credits after such date is currently not known..
Additional regulatory initiatives may be implemented to address GHG emissions and other climate-change-related concerns. If such initiatives are implemented we may be required to incur additional capital expenditures, operating costs or mitigating expenses, such as carbon taxes or other charges, to comply with any such initiatives. No assurance can be given that the increased costs associated with compliance of future GHG-related requirements will not have a material adverse effect on our business, financial condition and results of operations.
Our failure to maintain satisfactory labor relations could have a material adverse effect on our business.
As of December 31, 2017, approximately 74 percent of our global work force is unionized. As a result, we are required to negotiate the wages, benefits and other terms of employment with these employees collectively. Our financial results could be adversely affected if labor negotiations resulted in substantially higher compensation costs or materially restricted how we run our operations. In addition, our inability to negotiate acceptable contracts with any of these unions as existing agreements expire could result in strikes or work stoppages by the affected workers. Ten of our collective bargaining agreements, representing approximately 43 percent of our employees, either have expired in 2017 or are scheduled to expire in 2018 in their ordinary course, and negotiations relating to new agreements have commenced or will commence shortly. While we do not expect any significant labor interruptions, if our unionized employees were to engage in a strike or other work stoppage at one or more of our major facilities, we could experience a significant disruption of our operations, which could materially affect our business, financial condition and results of operations.
We are dependent upon attracting and retaining key personnel, the loss of whom could adversely affect our business.
We believe our success depends, to a significant extent, upon our ability to attract and retain key senior management and operations management personnel. Changing demographics and labor work force trends may result in the loss of knowledge and skills as experienced workers retire. Furthermore, some of our facilities are in relatively remote locations, which can adversely impact our ability to recruit and retain employees. Our failure to retain these key personnel and recruit qualified replacements for retiring employees could adversely affect our business, financial condition or results of operations.
Failure to develop new products or discover new applications for our existing products, or our inability to protect the intellectual property underlying such new products or applications, could have a negative impact on our business.
We have an active research and development program to develop new products and new applications for our existing products. However, there can be no assurance this program will be successful, either from a product development or commercialization

13


perspective, or that any particular invention, product or development, or the program as a whole, will lead to significant revenue or profit generation. Moreover, some of our new products and new applications may not contain intellectual property that can be protected under applicable law. Failure to generate meaningful revenue and profit from our research and product development efforts could adversely affect our business, financial condition and results of operations in the future.
The risk of loss of the Company’s intellectual property and sensitive business information, or disruption of its manufacturing operations, in each case due to cyberattacks or cyber security breaches, could adversely impact the Company.
Like most companies, the Company has been, and expects in the future to continue to be, subject to attempted cyberattacks. Cyberattacks or cyber security breaches could compromise the Company’s intellectual property and confidential business information, cause a disruption to the Company’s operations, or harm the Company’s reputation. For example, our Jesup facility purchases some of its electricity from the grid and, therefore, any cyberattack on the electricity transmission system could adversely impact Jesup’s operations, or a cyberattack could target valuable intellectual property relating to our products or operations. While the Company has implemented and maintains what it believes to be appropriate cyber security policies, programs and systems, there can be no assurance a cyberattack would not be successful, or that such a cyber security breach will not occur. Such an event could have a material adverse impact on the Company’s results of operations and financial condition.
We may need to make significant additional cash contributions to our retirement benefit plans if investment returns on pension assets are lower than expected or interest rates decline, and/or due to changes to regulatory, accounting and actuarial requirements.
We have a qualified non-contributory defined benefit pension plan, which covers many of our salaried and hourly employees in the United States. The Federal Pension Protection Act of 2006 requires certain capitalization levels be maintained in each of these benefit plans. Our non-U.S. pension plans, while currently fully funded, will also require periodic contributions to ensure that applicable legal requirements are met. Because it is unknown what the investment return on pension assets will be in future years or what interest rates may be at any point in time, no assurances can be given that applicable law will not require us to make future material plan contributions. In addition, it is possible new or additional accounting rules and changes to actuarial requirements (for example, if life expectancy assumptions for participants are increased) may also result in the need for additional contributions to the plans. Any such contributions could adversely affect our financial condition. See Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Use of Estimates for additional information about these plans, including funding status.
We have debt obligations that could adversely affect our business and our ability to meet our obligations.
As of December 31, 2017, our total combined indebtedness was $1,241 million. This significant amount of debt could have important consequences to us and our investors, including:
requiring a substantial portion of our cash flows from operations to make interest payments on this debt;
making it more difficult to satisfy debt service and other obligations;
increasing the risk of a future credit ratings downgrade of our debt, which could increase future debt costs and limit the future availability of debt financing;
increasing our vulnerability to general adverse economic and industry conditions;
reducing the cash flows available to fund capital expenditures and other corporate purposes and to grow our business;
limiting our flexibility in planning for, or reacting to, market or other changes in our businesses and industry;
placing us at a competitive disadvantage to our competitors that may not be as highly leveraged with debt; and
limiting our ability to borrow additional funds as needed or take advantage of business opportunities as they arise, pay cash dividends or repurchase common stock.
To the extent we incur additional indebtedness, the risks described above could increase. In addition, our actual cash requirements in the future may be greater than expected. Our cash flows from operations may not be sufficient to repay all of the outstanding debt as it becomes due, and we may not be able to borrow money, sell assets or otherwise raise funds on acceptable terms, or at all, to refinance our debt.
Challenges in the commercial and credit environments may materially adversely affect our future access to capital.
Our ability to issue debt or equity or enter into other financing arrangements on acceptable terms could be materially adversely affected if there is a material decline in the pricing or sales volume for our products, or if significantly unfavorable changes in economic conditions occur. Volatility in the world financial markets could increase borrowing or other costs of capital or affect our ability to gain access to the capital markets, which could have a material adverse effect on our competitive position, business, financial condition, results of operations and cash flows.

14


We may need additional financing in the future to meet our capital needs or to make acquisitions, and such financing may not be available on favorable terms, if at all, and may be dilutive to existing stockholders.
We may need to seek additional financing for general corporate purposes. For example, we may need to increase our investment in research and development activities, make strategic investments in our facilities or require funding to invest in joint ventures or make acquisitions. We may be unable to obtain desired additional financing on terms favorable to us, if at all. For example, during periods of volatile credit markets, there is a risk that lenders, even those with strong balance sheets and sound lending practices, could fail or refuse to honor their credit commitments and obligations, including but not limited to extending credit up to the maximum permitted by a credit facility and otherwise accessing capital and/or honoring loan commitments. If our lenders are unable to fund borrowings under their loan commitments or we are unable to borrow, it could be difficult to replace such loan commitments on similar terms or at all. If adequate funds are not available on acceptable terms, we may be unable to fund growth opportunities, successfully develop or enhance products or respond to competitive pressures, any of which could negatively affect our business. If we raise additional funds through the issuance of equity securities, our stockholders will experience dilution of their ownership interest. If we raise additional funds by issuing debt, it may be subject to limitations on our operations and ability to pay dividends due to restrictive covenants in addition to those that are expected to be in place pursuant to our existing indebtedness.
The inability to effectively integrate the Tembec acquisition, and any future acquisitions we may make, may affect our results.
As part of our growth strategy, we may pursue acquisitions of complementary businesses and product lines, such as the November 2017 acquisition of Tembec Inc., and invest in joint ventures. The ability to grow through acquisitions or other investments depends upon our ability to identify, negotiate, complete and integrate suitable acquisitions or joint venture arrangements. For example, we have disclosed our synergy and business objectives relating to our acquisition of Tembec Inc. and achievement of these synergies and objectives is subject to a number of uncertainties, including risks attendant to successfully and effectively consolidating each company’s technologies, organizations, processes, controls, policies and operations. If we fail to successfully integrate the acquisition of Tembec Inc., or any future acquisition we may make, our business, financial condition and results of operations could be materially adversely affected.
We may not achieve the benefits anticipated from our announced transformation plan.
We are three years into a previously announced four-year plan to significantly reduce costs and increase cash flows. See Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Overview for more information. While we are on track to achieve our plan, failure to achieve the remaining anticipated benefits could adversely affect our financial condition and results of operations.
Risks Related to the Company’s Common Stock and Certain Corporate Matters
Your percentage of ownership in the Company may be diluted in the future.
In the future, your percentage ownership in the Company may be diluted because of equity issuances for acquisitions, capital market transactions or other corporate purposes, including equity awards we will grant to our directors, officers and employees. Our employees have options to purchase shares of our common stock and we anticipate our compensation committee will grant additional stock options or other stock-based awards to our employees. Such awards will have a dilutive effect on our earnings per share, which could adversely affect the market price of our common stock. From time to time, we will issue additional options or other stock-based awards to our employees under our employee benefits plans.
In addition, our amended and restated certificate of incorporation authorizes us to issue, without the approval of our stockholders, one or more classes or series of preferred stock having such designation, powers, preferences and relative, participating, optional and other special rights, including preferences over our common stock respecting dividends and distributions, as our board of directors generally may determine. The terms of one or more classes or series of preferred stock could dilute the voting power or reduce the value of our common stock. For example, we could grant the holders of preferred stock the right to elect some number of our directors in all events or on the happening of specified events or the right to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences we could assign to holders of preferred stock could affect the residual value of the common stock. In particular, note that, on August 10, 2016, the Company issued 1,725,000 shares of Mandatory Convertible Preferred Stock, Series A (the “Preferred Stock”), as more fully described in that certain Registration Statement on Form S-3 (File No. 333-209747) and Prospectus filed with the SEC on February 26, 2016, as amended by that certain Prospectus Supplement dated August 4, 2016 (the “Prospectus Supplement”). As a result of this offering, unless earlier converted, the Preferred Stock will automatically convert to common stock of the Company on a mandatory conversion date expected to be August 15, 2019, at a conversion rate described in the Prospectus Supplement. See Note 12 - Stockholders' Equity (Deficit) of our consolidated financial statements for more information on the Preferred Stock.

15


Our common stock ranks junior to the Preferred Stock with respect to dividends and amounts payable in the event of our liquidation.
Our common stock ranks junior to our Preferred Stock with respect to the payment of dividends and amounts payable in the event of our liquidation, dissolution or winding-up. This means, unless full cumulative dividends have been paid or set aside for payment on all outstanding Preferred Stock for all past dividend periods and the then current dividend period, subject to certain exceptions, no dividends may be declared or paid on our common stock. Likewise, in the event of our voluntary or involuntary liquidation, dissolution or winding-up, no distribution of our assets may be made to holders of our common stock until we have paid to Preferred Stock holders a liquidation preference equal to $100.00 per share plus accrued and unpaid dividends.
Certain provisions of the Preferred Stock could prevent or delay an acquisition of the Company, which could decrease the price of our common stock.
Certain terms of our Preferred Stock could make it more difficult or more expensive for a third party to acquire the Company. For example, as more fully described in the Prospectus Supplement, if a fundamental change (including, certain consolidation or merger involving us) were to occur on or prior to August 15, 2019, holders of our Preferred Stock may have the right to convert their Preferred Stock, in whole or in part, at a fundamental change conversion rate and be entitled to receive a fundamental change dividend make-whole amount equal to the present value of all remaining dividend payments on their Preferred Stock, plus accumulated and unpaid dividends, if any. These features of the Preferred Stock could increase the cost of acquiring us or otherwise discourage a third party from acquiring the Company.
Certain provisions in our amended and restated certificate of incorporation and bylaws, and of Delaware law, could prevent or delay an acquisition of the Company, which could decrease the trading price of our common stock.
Our amended and restated certificate of incorporation and amended and restated bylaws contain, and Delaware law contain, provisions intended to deter coercive takeover practices and inadequate takeover bids by making such practices or bids unacceptably expensive to the bidder and to encourage prospective acquirers to negotiate with our board of directors rather than to attempt a hostile takeover. These provisions include, among others:
the inability of our stockholders to call a special meeting;
rules regarding how stockholders may present proposals or nominate directors for election at stockholder meetings;
the right of our board to issue preferred stock without stockholder approval;
the division of our board of directors into three classes of directors, with each class serving a staggered three-year term, and this classified board provision could have the effect of making the replacement of incumbent directors more time consuming and difficult;
a provision that stockholders may only remove directors with cause;
the ability of our directors, and not stockholders, to fill vacancies on our board of directors; and
the requirement that the affirmative vote of stockholders holding at least 80 percent of our voting stock is required to amend certain provisions in our amended and restated certificate of incorporation and our amended and restated bylaws relating to the number, term and election of our directors, the filling of board vacancies, the calling of special meetings of stockholders and director and officer indemnification provisions.
In addition, because we have not chosen to be exempt from Section 203 of the Delaware General Corporation Law (“DGCL”), this provision could also delay or prevent a change of control you may favor. Section 203 provides, subject to limited exceptions, persons that acquire, or are affiliated with a person that acquires, more than 15 percent of the outstanding voting stock of a Delaware corporation shall not engage in any business combination with that corporation, including by merger, consolidation or acquisitions of additional shares, for a three-year period following the date on which that person or its affiliates becomes the holder of more than 15 percent of the corporation’s outstanding voting stock.
We believe these provisions protect our stockholders from coercive or otherwise unfair takeover tactics by requiring potential acquirers to negotiate with our board of directors and by providing our board of directors with more time to assess any acquisition proposal. These provisions are not intended to make the Company immune from takeovers. However, these provisions will apply even if the offer may be considered beneficial by some stockholders and could delay or prevent an acquisition that our board of directors determines is not in the best interests of the Company and our stockholders. These provisions may also prevent or discourage attempts to remove and replace incumbent directors.
Our amended and restated certificate of incorporation designates the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could discourage lawsuits against the Company and our directors and officers.

16


Our amended and restated certificate of incorporation provides that unless the board of directors otherwise determines, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for any derivative action or proceeding brought on behalf of the Company, any action asserting a claim of breach of a fiduciary duty owed by any director or officer of the Company to the Company or its stockholders, creditors or other constituents, any action asserting a claim against the Company or any director or officer of the Company arising pursuant to any provision of the DGCL, or our amended and restated certificate of incorporation or bylaws, or any action asserting a claim against the Company or any director or officer of the Company governed by the internal affairs doctrine. However, if the Court of Chancery of the State of Delaware dismisses any such action for lack of subject matter jurisdiction, the action may be brought in another court sitting in the State of Delaware. This exclusive forum provision may limit the ability of our stockholders to bring a claim in a judicial forum that such stockholders find favorable for disputes with the Company or its directors or officers, which may discourage such lawsuits against the Company and its directors and officers. Alternatively, if a court were to find this exclusive forum provision inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings described above, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business, financial condition or results of operations.
There could be significant liability if the distribution of common stock of the Company that occurred as a result of its spin-off from Rayonier Inc. is determined to be a taxable transaction.
The Company was spun off from its former parent, Rayonier Inc. (“Rayonier”), on June 27, 2014 (the “Separation”). In connection with the Separation, Rayonier received a private letter ruling from the Internal Revenue Service (“IRS”) to the effect that, among other things, the Separation and the distribution of the Company‘s common stock will qualify as a transaction that is tax-free for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Internal Revenue Code, and it was a condition to the distribution that this private letter ruling shall not be revoked or modified in any material respect. In addition, Rayonier received an opinion from outside tax counsel to the effect that, with respect to certain requirements for tax-free treatment under Section 355 of the Code on which the IRS will not rule, such requirements will be satisfied. The ruling and the opinion rely on certain facts, assumptions, representations and undertakings from Rayonier and the Company regarding the past and future conduct of the companies’ respective businesses and other matters. If any of these facts, assumptions, representations or undertakings are incorrect or not satisfied, Rayonier and its shareholders may not be able to rely on the ruling or the opinion of tax counsel and could be subject to significant tax liabilities.
Notwithstanding a private letter ruling from the IRS and opinion of tax counsel, the IRS could determine on audit the Separation is taxable if it determines any of these facts, assumptions, representations or undertakings are not correct or have been violated or if it disagrees with the conclusions in the opinion that are not covered by the private letter ruling, or for other reasons, including as a result of certain significant changes in the share ownership of Rayonier or the Company after the separation. If the Separation is determined to be taxable for U.S. federal income tax purposes, Rayonier and its shareholders that are subject to U.S. federal income tax could incur significant U.S. federal income tax liabilities and the Company could incur significant liabilities. In connection with the Separation, Rayonier and the Company entered into a tax matters agreement, which describes the sharing of any such liabilities between Rayonier and the Company.
Item 1B.
Unresolved Staff Comments
None.

17


Item 2.
Properties
The following table details the significant properties we owned or leased at December 31, 2017:
Segment/Location
 
Production Capacity
 
Owned/Leased
High Purity Cellulose Facilities (a):
 
Jesup, Georgia, United States
 
330,000 metric tons of cellulose specialties or commodity products
245,000 metric tons of commodity products
 
Owned
 
Fernandina Beach, Florida, United States
 
155,000 metric tons of cellulose specialties or commodity products
 
Owned
 
Temiscaming, Quebec, Canada
 
150,000 metric tons of cellulose specialties or commodity products
 
Owned
 
Tartas, France
 
140,000 metric tons of cellulose specialties or commodity products
 
Owned
Forest Products Group Facilities (b):
 
La Sarre, Quebec, Canada
 
135,000 thousand board feet of lumber
 
Owned
 
Bearn, Quebec, Canada
 
110,000 thousand board feet of lumber
 
Owned
 
Chapleau, Ontario, Canada
 
135,000 thousand board feet of lumber
 
Owned
 
Cochrane, Ontario, Canada
 
160,000 thousand board feet of lumber
 
Owned
 
Hearst, Ontario, Canada
 
110,000 thousand board feet of lumber
 
Owned
 
Huntsville, Ontario, Canada
 
15,000 thousand board feet of lumber
 
Owned
 
Kapuskasing, Ontario, Canada
 
105,000 thousand board feet of lumber
 
Owned
Pulp & Paper Facilities (a):
 
Temiscaming, Quebec, Canada
 
300,000 metric tons of high-yield pulp
 
Owned
 
Temiscaming, Quebec, Canada
 
180,000 metric tons of paperboard
 
Owned
 
Matane, Quebec, Canada
 
270,000 metric tons of high-yield pulp
 
Owned
 
Kapuskasing, Ontario, Canada
 
205,000 metric tons of newspaper
 
Owned
Wood Chipping Facilities (a):
 
Offerman, Georgia
 
880,000 short green tons of wood chips
 
Owned
 
Collins, Georgia
 
780,000 short green tons of wood chips
 
Owned
 
Eastman, Georgia
 
350,000 short green tons of wood chips
 
Owned
 
Barnesville, Georgia
 
350,000 short green tons of wood chips
 
Owned
 
Quitman, Georgia
 
200,000 short green tons of wood chips
 
Owned
Corporate and Other:
 
Jacksonville, Florida
 
Corporate Headquarters
 
Leased
(a)
During 2017, these facilities produced at or near capacity levels for most of the year.

(b)
Capacity represents targeted production for these facilities. On average, these facilities produce at approximately 85 percent of capacity due to economic conditions, wood availability, and downtime.

Our manufacturing facilities are maintained through ongoing capital investments, regular maintenance and equipment upgrades. As a result, production capacities may vary from the amounts listed above.
Item 3.
Legal Proceedings
The Company is engaged in various legal and regulatory actions and proceedings, and has been named as a defendant in various lawsuits and claims arising in the ordinary course of its business. While the Company has procured reasonable and customary insurance covering risks normally occurring in connection with its businesses, the Company has in certain cases retained some risk through the operation of self-insurance, primarily in the areas of workers’ compensation, property insurance, business interruption and general liability. While there can be no assurance, the ultimate outcome of these actions, either individually or in

18


the aggregate, is not expected to have a material adverse effect on the Company’s financial position, results of operations or cash flows, except as may be noted below.
Jesup Plant Permit
On January 27, 2016, the Altamaha Riverkeeper (“ARK”) filed a Petition for Hearing in the Office of Administrative Hearings for the State of Georgia, captioned Altamaha Riverkeeper, Inc. v. Environmental Protection Division (“EPD”), Georgia Department of Natural Resources, in which ARK appealed the issuance by EPD to the Company of a new permit for the treatment and discharge of waste water from the Jesup mill, which was to go into effect March 1, 2016. In the petition, ARK claims, among other things, that the issuance of the permit by EPD would violate Georgia’s narrative water quality standard, a rule promulgated by the Georgia Natural Resources Board pursuant to certain provisions of the Clean Water Act and the Georgia Water Quality Control Act. The petition seeks to have the permit invalidated and modified as demanded by ARK. On February 16, 2016, the Company moved to legally intervene, as a party-in-interest, in this matter (because EPD, as the permit issuer, is the named defendant) and its petition was granted by the administrative law judge (“ALJ”). The trial was held in June of 2016, and on September 30, 2016 the ALJ issued her decision. While the ALJ rejected many of ARK’s claims, she held there existed a reasonable potential for the Company’s treated effluent discharged to the Altamaha River to cause a violation of Georgia’s narrative water quality standard, but only under low (rather than “normal”) river flow conditions. As such, the ALJ reversed the issuance of the new permit by EPD and remanded the matter back to EPD for consideration and issuance of a permit that comports with this ruling.
The Company strongly disagreed with the decision and appealed it, as did EPD. The appeal was heard in the Superior Court of Wayne County, Georgia and on March 17, 2017 the Superior Court Judge issued an order reversing ALJ’s decision and ordering the permit affirmed as issued by EPD. As such, the Jesup plant is currently operating under the new permit. On April 13, 2017, ARK filed an application with the Georgia Court of Appeals in which it requested that the Court hear its appeal of the Superior Court decision, as the decision to hear such an appeal is discretionary on the part of the Court. The Court has granted the application and ARK has appealed the Superior Court decision. The Company believes the decision of the Superior Court is legally sound, and anticipates a decision from the Georgia Court of Appeals sometime in 2018.
Stockholder Lawsuit
On August 17, 2017, the City of Warren General Employees’ Retirement System filed a putative class action complaint against the Company, Paul Boynton, and Frank Ruperto in the United States District Court, Middle District of Tennessee, Nashville Division. The plaintiffs allege the Company made false statements in filings with the U.S. Securities and Exchange Commission (“SEC”) and other public statements related to certain litigation with Eastman Chemical, a customer of the Company, in third quarter and fourth quarter 2015, in violation of §§10(b) and 20(a) of the Exchange Act, causing unspecified damages to stockholders of the Company who purchased stock in the Company between October 29, 2014 and August 19, 2015. The applicable Eastman litigation was resolved via settlement in 2015. The Company was served with the complaint on August 28, 2017. On November 13, 2017, the Court appointed the Michigan Carpenters’ Pension Fund and Local 295 IBT Employer Group Pension Trust Fund as lead plaintiff, and a law firm to act as lead counsel. On January 10, 2018, the Company and the individual defendants filed a motion to dismiss the case for improper venue or, in the alternative, asked the court to transfer it to the U. S. District Court for the Middle District of Florida. Per the court scheduling order, the lead plaintiff filed a consolidated amended complaint (the “CAC”) on January 12, 2018. The CAC added Benson Woo, former CFO of the Company, as an additional defendant. The Company strongly disagrees with the allegations set forth in the complaint, believes the lawsuit is without merit and will continue to vigorously defend itself in this matter.
Item 4.
Mine Safety Disclosures
Not applicable.


19


Part II

Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Prices of our Common Stock; Dividends
The table below reflects, for the quarters indicated, the dividends declared per share of common stock and the range of market prices of our common stock as reported in the consolidated transaction reporting system of the New York Stock Exchange, the only exchange on which our stock is listed, under the trading symbol RYAM.
 
High (a)
 
Low (a)
 
Dividends
2017
 
 
 
 
 
Fourth Quarter
$
20.71

 
$
13.57

 
$
0.07

Third Quarter
15.99

 
13.24

 
0.07

Second Quarter
17.39

 
12.18

 
0.07

First Quarter
17.13

 
12.31

 
0.07

 
 
 
 
 
 
2016
 
 
 
 
 
Fourth Quarter
16.07

 
11.93

 
0.07

Third Quarter
15.83

 
10.72

 
0.07

Second Quarter
14.40

 
9.34

 
0.07

First Quarter
9.84

 
6.00

 
0.07

a) High and low market prices are based on daily close values.
On February 23, 2018, our board of directors declared a first quarter cash dividend of $0.07 per share of common stock. The common stock dividend is payable March 30, 2018, to stockholders of record on March 16, 2018. There were approximately 51,681,748 shares of stock outstanding and 4,813 record holders on February 20, 2018. On January 16, 2018 our board of directors declared a cash dividend of $2.00 per share of our Preferred Stock. The dividend was paid on February 15, 2018 to holders of record of our Preferred Stock as of February 1, 2018.
The declaration and payment of future dividends on our common stock will be at the discretion of our board of directors and will be dependent upon our financial condition, results of operations, capital requirements, and other factors our board of directors deems relevant. Certain of our debt facilities may also restrict the declaration and payment of dividends, depending upon our then current compliance with certain covenants. In addition, the terms of our Preferred Stock provide that, unless full cumulative dividends have been paid or set aside for payment on all outstanding Preferred Stock for all prior dividend periods, no dividends may be declared or paid on our common stock. Dividends on our Preferred Stock are payable on a cumulative basis if and when they are declared by our board of directors. If declared, dividends will be paid at an annual rate of 8 percent of the liquidation preference of $100 per share. Dividend payment dates are February 15, May 15, August 15 and November 15 of each year, through August 15, 2019. Dividends may be paid in cash or, subject to certain limitations, in shares of common stock or any combination of cash and shares of common stock. See Item 1A — Risk Factors and Note 12Stockholders' Equity (Deficit) of our consolidated financial statements for more information about our Preferred Stock.

20


Issuer Purchases of Equity Securities
The following table provides information regarding our purchases of Rayonier Advanced Materials common stock during the quarter ended December 31, 2017:
Period
Total Number of Shares Purchased (a)
 
Average Price Paid per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
 
Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
September 24 to October 28
345

 
$
13.94

 

 

October 29 to November 25

 

 

 

November 26 to December 31

 

 

 

Total
345

 
 
 

 
 
(a)
Repurchased to satisfy the minimum tax withholding requirements related to the vesting of restricted stock under the Rayonier Advanced Materials Incentive Stock Plan.
Securities Authorized for Issuance under Equity Compensation Plans
See Part III, Item 12 of this report for information relating to our equity compensation plans.
Stock Performance Graph
The following graph compares the performance of Rayonier Advanced Material’s common stock (assuming reinvestment of dividends) with a broad-based market index, Standard & Poor’s (“S&P”) Small Cap 600, and an industry-specific index, the S&P 500 Materials Index. The initial date on the graph, June 27, 2014, reflects the date we separated from our former parent Rayonier. The table and related information shall not be deemed to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except to the extent that we specifically incorporate it by reference into such filing.
a2017perfgraphforimagecumtot.jpg

21


The data in the following table was used to create the previous graph:
 
 
6/27/2014
 
12/31/2014
 
12/31/2015
 
12/31/2016
 
12/31/2017
Rayonier Advanced Materials
 
$100
 
$61
 
$27
 
$44
 
$60
S&P Small Cap 600
 
$100
 
$103
 
$101
 
$128
 
$144
S&P 500 Materials Index
 
$100
 
$99
 
$91
 
$106
 
$131
Item 6.
Selected Financial Data
The following financial data should be read in conjunction with our consolidated financial statements. Prior to 2014, the following selected financial data consists of Rayonier’s performance fibers business for the years presented. For 2014, the balance sheet represents our financial position as of December 31, 2014 and the statement of income and statement of cash flows are presented as if the performance fibers business had been combined with us for the year ended December 31, 2014.
(millions of dollars except per share amounts)
2017
 
2016
 
2015
 
2014
 
2013
Statement of Income Data:
 
 
 
 
 
 
 
 
 
Net Sales
$
961

 
$
869

 
$
941

 
$
958

 
$
1,047

Gross margin
139

 
182

 
202

 
224

 
333

Operating income
57

 
138

 
120

 
63

 
289

Net income
325

 
73

 
55

 
32

 
220

Diluted earnings per share of common stock (a)
5.81

 
1.55

 
1.30

 
0.75

 
5.21

Dividends declared per share of common stock
0.28

 
0.28

 
0.28

 
0.14

 

Balance Sheet Data:
 
 
 
 
 
 
 
 
 
Total assets
$
2,643

 
$
1,422

 
$
1,279

 
$
1,293

 
$
1,120

Property, plant and equipment, net
1,408

 
801

 
804

 
843

 
846

Total debt
1,241

 
783

 
858

 
934

 

Stockholders’ equity (deficit)
694

 
212

 
(17
)
 
(62
)
 
968

Statement of Cash Flows Data:
 
 
 
 
 
 
 
 
 
Cash provided by operating activities
$
130

 
$
232

 
$
202

 
$
188

 
$
258

Cash used for investing activities
(277
)
 
(87
)
 
(78
)
 
(90
)
 
(251
)
Cash provided by (used in) financing activities
(84
)
 
80

 
(89
)
 
(31
)
 
(7
)
Capital expenditures
(75
)
 
(89
)
 
(78
)
 
(75
)
 
(96
)
Non GAAP Measures (b):
 
 
 
 
 
 
 
 
 
EBITDA
$
480

 
$
235

 
$
209

 
$
149

 
$
363

Adjusted EBITDA
$
212

 
$
226

 
$
238

 
$
267

 
$
369

Adjusted Free Cash Flows
$
91

 
$
147

 
$
124

 
$
113

 
$
143

(a)
In conjunction with the Separation, 42,176,565 shares of our common stock were distributed to Rayonier shareholders on June 27, 2014. For comparative purposes, this amount has been assumed to be outstanding as of the beginning of each period prior to the separation from Rayonier in the calculation of Basic Earnings Per Share. For the years ended December 31, 2016 and 2017, basic and diluted earnings per share include the impact of dividends on the Company’s Preferred Stock. See Note 12 Stockholders' Equity (Deficit) of our consolidated financial statements for more information.
(b)
EBITDA, adjusted EBITDA and adjusted free cash flows are non-GAAP measures. See “Note about Non-GAAP Financial Measures” on page two for limitations associated with non-GAAP measures. Also see Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Performance and Liquidity Indicators for definitions of these non-GAAP measures as well as a reconciliation of EBITDA, adjusted EBITDA and adjusted free cash flows to their most directly comparable GAAP financial measure.

22


Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
We are transforming our business and growing EBITDA to drive long-term value for our stockholders. Our plan centers on the following four strategic pillars:
Cost Transformation - driving sustainable cost reductions by fostering a culture of continuous improvement
New Products - expanding our business by developing next generation cellulose fibers and other value-added product utilizing our cellulose processing technology, expertise and co-products. We have made significant progress in developing and applying proprietary technologies to new products in many of the end-market segments we serve.
Market Optimization - maximizing the profitability of our existing products and assets by optimizing the intersection of our customers’ needs, our manufacturing capabilities and transportation costs to drive higher value for our customers and our Company.
Disciplined Capital Allocation - delivering a capital allocation strategy that maximizes our risk adjusted returns. Our first priority is to delever our balance sheet through EBITDA growth and repayment of indebtedness in order to reach our target net leverage ratio of 2.5 times EBITDA. We will allocate capital across high return investments in our facilities, acquisitions and other external investments to grow profitability, as well as return capital to stockholders through buybacks and dividends.

On November 17, 2017, we acquired Tembec which was engaged in the manufacture of cellulose specialties, commodity products, forest products and pulp & paper. The Acquisition created a combined company with leading positions with acetate and ethers high purity cellulose end-use markets, as well as, a more diversified earnings stream given the addition of the forest products, pulp and paper businesses. Consequently, we now operate in the following business segments:
High Purity Cellulose
Forest Products
Pulp & Paper
High Purity Cellulose
We are the leading global producer of cellulose specialties. Pricing for our cellulose specialties products is typically set annually in the fourth quarter for the following year based on discussions with customers and the terms of contractual arrangements. We also produce commodity products, primarily commodity viscose and absorbent materials. Pricing for commodity products is typically referenced to published indexes or based on publicly available spot market prices.
Our four production facilities have a combined annual production capacity of approximately 775,000 metric tons of cellulose specialties or commodity products. Additionally, we have dedicated approximately 245,000 metric tons of production to commodity products.
Wood fiber, chemicals, and energy represent approximately 35 percent, 15 percent and 5 percent, respectively, of the per metric ton cost of sales. Labor, manufacturing and maintenance supplies, depreciation, manufacturing overhead and transportation costs represent the remaining cost of sales.
Forest Products
Pricing for lumber is typically referenced to published indexes marketed through our internal sales team. Our seven production facilities have a targeted capacity of approximately 770 million board feet of lumber.
Wood and energy represents approximately 47 percent and 5 percent, respectively, of the per million board feet cost of sales. Labor, manufacturing and maintenance supplies, depreciation, manufacturing overhead and transportation costs represent the remaining cost of sales.
Pulp & Paper

23


Pricing for paperboard, high-yield pulp and newsprint is typically referenced to published indices marketed through our internal sales team. Our four production facilities have the capacity to produce 180,000 metric tons of paperboard, 570,000 metric tons of high-yield pulp and 205,000 metric tons of newsprint.
Wood fiber, chemicals, and energy represent approximately 36 percent, 15 percent and 12 percent, respectively, of the per metric ton cost of sales. Labor, manufacturing and maintenance supplies, depreciation, manufacturing overhead and transportation costs represent the remaining cost of sales.
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. We believe our 2018 acetate pricing is now consistent with our competition. Demand for ethers and other cellulose specialties continues to show strength and will provide opportunities for us to expand sales in these faster growing end-uses. Additionally, our expanded capabilities in ethers and its enhanced innovation footprint should allow us to further diversify its portfolio of products.

Forest Products

Increased demand from the steady growth of the U.S. housing market is expected to result in record lumber prices in 2018. Our business is currently operating under countervailing and anti-dumping duties on lumber sold into the U.S. These duties are anticipated to affect approximately 58 percent of its sales in this segment and reduce operating income and EBITDA by approximately $25 million during 2018, but should not impact sales volumes.

Pulp & 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 throughout 2018. In paperboard, markets are expected to remain stable but 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

We are anticipating to spend approximately $100 to $110 million in maintenance capital expenditures across our businesses in 2018. In addition, we have identified approximately $90 million of potential strategic capital expenditures in its facilities with attractive payback periods of 1 to 3 years which may be acted upon over the next 3 years. These capital investment opportunities are predominantly in the High Purity Cellulose and Forest Products segments. We currently anticipate spending approximately $45 million on high-return projects in 2018, with an average pay-back of less than 2 years.
Reconciliation of Non-GAAP measures
For a reconciliation of EBITDA to net income, see Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Performance and Liquidity Indicators.
Critical Accounting Policies and Use of Estimates
The preparation of financial statements requires us to make estimates, assumptions and judgments that affect our assets, liabilities, revenues and expenses, and to disclose contingent assets and liabilities in our consolidated financial statements. We base these estimates and assumptions on historical data and trends, current fact patterns, expectations and other sources of information we believe are reasonable. Actual results may differ from these estimates.
Revenue Recognition
We generally recognizes sales when the following criteria are met: (i) persuasive evidence of an agreement exists, (ii) delivery has occurred, (iii) the price to the buyer is fixed and determinable and (iv) collectibility is reasonably assured. Generally, title passes upon delivery to the agreed upon location. Based on the time required to reach each location, customer orders are generally received in one period with the corresponding revenue recognized in a subsequent period. As such, there could be substantial

24


variation in orders received and revenue recognized from period to period. Payments from customers made in advance of the recognition of revenue are included in accrued customer incentives and prepayments.
Property, Plant & Equipment
Depreciation expense is computed using the units-of-production method for our High Purity Cellulose and Pulp & Paper plant and equipment and the straight-line method on all other property, plant and equipment over the useful economic lives of the assets involved. The total units of production used to calculate depreciation expense is determined by factoring annual production days, based on normal production conditions, by the economic useful life of the asset involved. The physical life of equipment, however, may be shortened by economic obsolescence caused by environmental regulation, competition or other causes. We depreciate our non-production assets, including office, lab and transportation equipment, using the straight-line depreciation method over 3 to 25 years. Buildings and land improvements are depreciated using the straight-line method over 15 to 35 years and 5 to 30 years, respectively. We believe these depreciation methods are the most appropriate, versus other generally accepted accounting methods, as they most closely match revenues with expenses.
Gains and losses on the retirement of assets are included in operating income. Long-lived assets are reviewed annually for impairment or whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of assets that are held and used is measured by net undiscounted cash flows expected to be generated by the asset. Property, plant and equipment are grouped for purposes of evaluating recoverability at the combined plant level, the lowest level for which independent cash flows are identifiable. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying value exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
Environmental liabilities associated with disposed operations
At December 31, 2017, we had $164 million of accrued liabilities for environmental costs relating to disposed operations. Numerous cost assumptions are used in estimating these obligations. Factors affecting these estimates include changes in the nature or extent of contamination, changes in the content or volume of the material discharged or treated in connection with one or more impacted sites, requirements to perform additional or different assessment or remediation, changes in technology that may lead to additional or different environmental remediation strategies, approaches and work-plans, discovery of additional or unanticipated contaminated soil, groundwater or sediment on or off-site, changes in remedy selection, changes in law or interpretation of existing law and the outcome of negotiations with governmental agencies or non-governmental parties. We periodically review our environmental liabilities and also engage third-party consultants to assess our ongoing remediation of contaminated sites. Quarterly, we review our environmental liabilities related to assessment activities and remediation costs and adjust them as necessary. Liabilities for financial assurance, monitoring and maintenance activities and other activities are assessed annually. A significant change in any of these estimates could have a material effect on the results of our operations. See Note 9Liabilities for Disposed Operations of our consolidated financial statements for more information.
Determining the adequacy of pension and other postretirement benefit assets and liabilities
Our defined benefit pension and postretirement plans for employees in the U.S., Canada and France require numerous estimates and assumptions to determine the proper amount of pension and postretirement liabilities and annual expense to record in our financial statements. The key assumptions include discount rate, return on assets, salary increases, health care cost trends, mortality rates, longevity and service lives of employees. Although authoritative guidance on how to select most of these assumptions exists, we exercise some degree of judgment when selecting these assumptions based on input from our actuary and other advisors. Different assumptions, as well as actual versus expected results, would change the periodic benefit cost and funded status of the benefit plans recognized in the financial statements.
Our long-term return plan assets assumption was established based on historical long-term rates of return on broad equity and bond indices, discussions with our actuary and investment advisors and consideration of the actual historical annualized rate of returns. In determining future pension obligations, we select a discount rate based on information supplied by our actuary. The actuarial rates are developed by models which incorporate high-quality (AA rated), long-term corporate bond rates into their calculations. The discount rate decreased from 3.88 percent at December 31, 2016 to 3.55 percent at December 31, 2017.
Our defined pension plans were underfunded by $139 million at December 31, 2017. Excluding the impact of the acquisition of Tembec, the funded status improved in 2017 due to actual investment performance and a $10 million voluntary contribution to the pension plan in the current year offset by a decrease in the discount rate. Excluding the Tembec pension plans, we did not have any mandatory contributions in 2017, 2016 or 2015. In September 2017 and July 2016, we made $10 million voluntary contributions to the pension plan. There were no voluntary contributions to our qualified pension plan in 2015. Future contribution requirements will vary depending on actual investment performance, changes in valuation assumptions, interest rates and legal requirements to maintain a certain funding status.

25


In 2018, we expect pension expense to increase due to the Acquisition and lower discount rates. Future pension expense will be impacted by many factors including actual investment performance, changes in discount rates, timing of contributions and other employee related matters. See Note 16Employee Benefit Plans of our consolidated financial statements for more information.
The sensitivity of pension expense and projected benefit obligation related to our pension plans to changes in economic assumptions is highlighted below:
 
Impact on (in millions):
Change in Assumption
Annual Pension Expense
 
Projected Benefit
Obligation
50 bp decrease in discount rate
6
 
71
50 bp increase in discount rate
(5)
 
(63)
50 bp decrease in long-term return on assets
5
 
 
50 bp increase in long-term return on assets
(5)
 
 
Realizability of both recorded and unrecorded tax assets and tax liabilities
We have recorded certain deferred tax assets we believe will be realized in future periods. The recognition of these tax assets is based on our historical profitability and unlimited carryforward periods on a majority of our deferred tax assets. These assets are reviewed periodically in order to assess their realizability. This review requires management to make assumptions and estimates about future profitability affecting the realization of these tax assets. If the review indicates the realizability may be less than likely, a valuation allowance is recorded.
Our income tax returns are subject to examination by U.S. federal and state taxing authorities as well as foreign jurisdictions, including Canada and France. In evaluating the tax benefits associated with various tax filing positions, we record a tax benefit for an uncertain tax position if it is more-likely-than-not to be realized upon ultimate settlement of the issue. We record a liability for an uncertain tax position that does not meet this criterion. The liabilities for unrecognized tax benefits are adjusted in the period in which it is determined the issue is settled with the taxing authorities, the statute of limitations expires for the relevant taxing authority to examine the tax position or when new facts or information become available. See Note 18Income Taxes of our consolidated financial statements for more information.
Business Combinations

We allocate the total purchase price of assets acquired and liabilities assumed based on their estimated fair value as of the business combination date. In developing estimates of fair values for long-lived assets, including identifiable intangible assets, we utilize a variety of inputs including forecasted cash flows, anticipated growth rates, discount rates, estimated replacement costs and depreciation and obsolescence factors. Determining the fair value for specifically identified intangible assets such as customer lists and trade-names involves judgment. We may refine our estimates and make adjustments to the assets acquired and liabilities assumed over a measurement period, not to exceed one year. Upon the conclusion of the measurement period or the final determination of the values of assets acquired and liabilities assumed, whichever comes first, any subsequent adjustments are charged to the consolidated statements of income. Subsequent actual results of the underlying business activity supporting the specifically identified intangible assets could change, requiring us to record impairment charges or adjust their economic lives in future periods.
New Accounting Standards
See Note 1Nature of Operations and Basis of Presentation of our consolidated financial statements for a discussion of recently issued accounting pronouncements that may affect our financial results and disclosures in future periods.

26


Summary of our results of operations for the three years ended December 31:
Financial Information (in millions)
2017
 
2016
 
2015
Net Sales
 
 
 
 
 
High Purity Cellulose
$
867

 
$
869

 
$
941

Forest Products
34

 

 

Pulp & Paper
65

 

 

Eliminations
(5
)
 

 

Total Net Sales
961

 
869

 
941

 
 
 
 
 
 
Cost of Sales
(822
)
 
(687
)
 
(739
)
Gross Margin
139

 
182

 
202

Selling, general and administrative expenses
(80
)
 
(38
)
 
(48
)
Other operating expense, net
(2
)
 
(6
)
 
(34
)
Operating Income
57

 
138

 
120

Interest expense and other, net
(37
)
 
(35
)
 
(37
)
Gain on bargain purchase
317

 

 

Gain on derivative instrument
8

 

 

Gain on debt extinguishment

 
9

 

Income Before Income Taxes
345

 
112

 
83

Income Tax Expense
(20
)
 
(39
)
 
(28
)
Net Income
$
325

 
$
73

 
$
55

 
 
 
 
 
 
Other Data
 
 
 
 
 
Average Sales Prices:
 
 
 
 
 
High Purity Cellulose ($ per metric ton):
 
 
 
 
 
Cellulose specialties
$
1,460

 
$
1,525

 
$
1,641

Commodity products
733

 
668

 
671

Forest Products ($ per thousand board feet):
460

 

 

Pulp & Paper ($ per metric ton):
 
 
 
 
 
Paperboard
1,132

 

 

High-Yield pulp
616

 

 

Newsprint
513

 

 

 
 
 
 
 
 
Sales Volumes:
 
 
 
 
 
High Purity Cellulose (thousands of metric tons):
 
 
 
 
 
Cellulose specialties
453

 
456

 
467

Commodity products
250

 
249

 
247

Forest Products (millions of board feet):
56

 

 

Pulp & Paper (thousands of metric tons):
 
 
 
 
 
Paperboard
17

 

 

High-Yield pulp
58

 

 

Newsprint
21

 

 

 
 
 
 
 
 
Gross Margin %
14.5
%
 
20.9
%
 
21.5
%
Operating Margin %
5.9
%
 
15.9
%
 
12.8
%
Effective Tax Rate %
5.7
%
 
34.9
%
 
33.3
%

27


Results of Operations, Year Ended December 31, 2017 versus December 31, 2016
 
2016
 
Changes Attributable to:
 
2017
Net Sales (in millions)
Price
 
Volume/Mix
 
Acquisition
 
High Purity Cellulose:
 
 
 
 
 
 
 
 
 
Cellulose specialties
$
695

 
$
(28
)
 
$
(30
)
 
$
25

 
$
662

Commodity products and other
174

 
16

 
(5
)
 
20

 
205

Forest Products

 

 

 
34

 
34

Pulp & Paper

 

 

 
65

 
65

Eliminations

 

 

 
(5
)
 
$
(5
)
Total Net Sales
$
869

 
$
(12
)
 
$
(35
)
 
$
139

 
$
961

For the year ended December 31, 2017, sales were $961 million compared to $869 million in the prior year, an increase of $92 million, or 11 percent. Excluding the impact of Tembec sales of $139 million since closing November 17, 2017, sales decreased $47 million or 5 percent compared to the prior year. The $47 million decrease in net sales was driven by a decline in cellulose specialties sales prices of 4 percent, as expected, and a 4 percent decline in cellulose specialties sales volumes primarily due to the impacts of Hurricane Irma and an operational disruption at a major customer. Additionally, commodity sales volumes decreased 3 percent due to discrete production issues and the impact of Hurricane Irma. These declines were partially offset by improved commodity sales prices due to stronger commodity markets resulting in higher sales prices for both commodity viscose and absorbent materials.
Operating Income (in millions)
 
Gross Margin Changes Attributable to (a):
 
 
 
 
 
 
 
2016
Price
 
Volume/
Sales Mix
 
Cost
 
Acquisition
 
SG&A and other
 
2017
Operating Income
$
138

 
(12
)
 
(21
)
 
(17
)
 

 
(31
)
 
$
57

Operating Margin %
15.9
%
 
(1.2
)%
 
(1.9
)%
 
(2.1
)%
 
(1.6
)%
 
(3.2
)%
 
5.9
%
(a)
Computed based on contribution margin.
For the year ended December 31, 2017, operating income was $57 million compared to $138 million in the prior year, a decrease of $81 million. The decrease reflects lower cellulose specialties sales prices, lower cellulose specialties and commodity sales volumes, and higher commodity product sales prices, as previously discussed. Costs increased $17 million as savings from cost transformation were more than offset by costs incurred to achieve additional future savings, higher production expenses due to sales mix, chemical prices and production issues, as well as, investments in customer product development. The operating income from Tembec was break-even since closing November 17, 2017, due to the inventory write-up to fair value of $23 million and Acquisition related costs of $3 million. Selling, general and administrative expenses and other increased as a result of approximately $31 million of Acquisition related costs.
Interest expense and other, net was $37 million for 2017, compared to $35 million in the prior year. Interest expense increased in 2017 due to lower average debt balances, more than offset by higher LIBOR interest rates on floating rate debt and the increased amortization of deferred financing costs as a result of the refinancing of the Company’s term loans. See Note 8Debt and Capital Leases of our consolidated financial statements for more information.
In connection with the acquisition of Tembec, we recognized a gain on bargain purchase primarily as a result of the elimination of Tembec’s valuation allowance associated with certain deferred tax assets. As a result of the refinancing of Tembec’s debt, we expect future taxable income would be adequate to realize the benefit of the tax assets. See Note 3Recent Acquisition of our consolidated financial statements for more information.
In connection with the acquisition of Tembec, we entered into a foreign currency collar, a derivative, as an economic hedge of the anticipated cash flows denominated in Canadian dollars. The derivative was not deemed a hedge for accounting purposes and, as a result, we recorded a realized gain on derivative instrument of $8 million in 2017. See Note 3Recent Acquisition of our consolidated financial statements for more information.
Our effective tax rate for 2017 was 5.7 percent compared to 34.9 percent in 2016. The decrease is primarily due to the non-taxable gain on bargain purchase partially offset by the impact of the U.S. tax reform legislation and certain non-deductible acquisition related costs. See Note 18Income Taxes of our consolidated financial statements for more information.

28


Results of Operations, Year Ended December 31, 2016 versus December 31, 2015
 
2015
 
Changes Attributable to:
 
2016
Sales (in millions)
Price
 
Volume/Mix
 
Cellulose specialties
$
767

 
$
(53
)
 
$
(19
)
 
$
695

Commodity products and other
174

 
(1
)
 
1

 
174

Total sales
$
941

 
$
(54
)
 
$
(18
)
 
$
869

Total net sales were $72 million lower, or approximately 8 percent, in 2016, primarily due to a 7 percent decline in cellulose specialties prices which reflects the anticipated declines from the prior year. Additionally, cellulose specialties sales volumes decreased approximately 11 thousand tons, or 2 percent as a result of weak market conditions. This decrease was slightly less than expected due to the timing of revenue recognition in the fourth quarter of 2016.
Operating Income (in millions)
 
Gross Margin Changes Attributable to (a):
 
 
 
 
 
2015
Price
 
Volume/ Sales Mix
 
Cost
 
SG&A and other
 
2016
Operating Income
$
120

 
$
(54
)
 
$
(14
)
 
$
46

 
$
40

 
$
138

Operating Margin %
12.8
%
 
(5.3
)%
 
(1.5
)%
 
5.3
%
 
4.6
%
 
15.9
%
(a)
Computed based on contribution margin.
In 2016, operating income and margin percentage increased $18 million and 3.1 percentage points versus prior year. Lower cellulose specialties prices and sales volumes were partially offset by lower costs driven by the Company’s cost improvements. Selling, general and administrative and other expenses decreased $40 million primarily as a result of the Jesup asset impairment recognized in the second quarter of 2015. Additionally, lower professional fees, stock compensation expense and pension expense in 2016 compared to 2015 contributed to the decrease in SG&A and other.
We incurred $35 million of interest expense in 2016 compared with $37 million of interest expense in 2015. The decrease in interest expense reflects the repurchase of Senior Notes in the first quarter of 2016, partially offset by higher LIBOR rates on floating rate debt. See Note 8 Debt and Capital Leases of our consolidated financial statements for more information.
Our effective tax rate for 2016 was 34.9 percent, compared with 33.3 percent for 2015. The increase from the prior year period reflects the impact of the domestic manufacturing tax deduction being limited in the current year. The Company had no taxable income for 2016 as a result of higher tax depreciation and a tax accounting method change related to the deductibility of certain repair expenditures. As the manufacturing deduction is limited by taxable income, there is no benefit recognized in the current year. See Note 18Income Taxes of our consolidated financial statements for more information.
Liquidity and Capital Resources
Cash flows from operations have historically been our primary source of liquidity and capital resources. We believe our cash flows and availability under our revolving credit facility, as well as our ability to access the capital markets, if necessary or desirable, will be adequate to fund our operations and anticipated long-term funding requirements, including capital expenditures, dividend payments, defined benefit plan contributions and repayment of debt maturities.
During 2017, our Board of Directors has declared, and we have paid, cash dividends on our Preferred Stock of approximately $13.8 million. Additionally, our Board of Directors has declared, and we have paid, cash dividends of $0.07 per share on our common stock for the first, second, third and fourth quarters.
The declaration and payment of future preferred and common stock dividends will be at the discretion of the Board of Directors and will be dependent upon our financial condition, results of operations, capital requirements and other factors the Board of Directors deems relevant. In addition, certain of our debt facilities may restrict the declaration and payment of dividends, depending upon our then current compliance with certain covenants.
On January 29, 2018, the Board of Directors authorized a $100 million share buyback. While we do not expect to immediately use this authorization, we believe this provides another option to maximize long-term shareholder value as we execute on a disciplined and balanced capital allocation strategy.

29



In connection with the Acquisition, we entered into an amended and restated credit agreement that refinanced, restated and replaced the credit facilities under our previous credit agreements. The amended and restated credit facility consists of a $230 million senior secured five-year term loan, a $450 million senior secured seven-year term loan, a $100 million revolving credit facility and a multi-currency revolving credit facility in a U.S. Dollar equivalent amount of $150 million (collectively, the "Credit Facilities"). The lenders under the Credit Facilities have a first priority security interest in substantially all present and future material U.S. assets, excluding the Fernandina Beach plant’s real property and the assets of certain non-guarantors subsidiaries. The non-guarantors of the Credit Facilities had assets of $1,410 million, revenue of $138 million, covenant EBITDA of $227 and liabilities of $1,086 million as of and for the year ended December 31, 2017. The Credit Facilities agreements contain various customary covenants. At December 31, 2017, we were in compliance with all covenants. See Note 8 Debt and Capital Leases of our consolidated financial statements for more information.
A summary of liquidity and capital resources is shown below (in millions of dollars):
 
As of December 31,
 
2017
 
2016
 
2015
Cash and cash equivalents (a)
$
96

 
$
326

 
$
101

Availability under the Revolving Credit Facility (b)
216

 
229

 
236

Total long-term debt (c)
1,241

 
783

 
858

Stockholders’ equity (deficit)
694

 
212

 
(17
)
Total capitalization (total debt plus equity)
1,935

 
995

 
841

Debt to capital ratio
64
%
 
79
%
 
102
%
(a)
Cash and cash equivalents consisted of cash, money market deposits and time deposits with original maturities of 90 days or less.
(b)
Availability under the revolving credit facility is reduced by standby letters of credit of approximately $34 million, $21 million and $14 million at December 31, 2017, 2016 and 2015, respectively. See Note 20 Commitments and Contingencies of our consolidated financial statements for more information.
(c)
See Note 8 Debt and Capital Leases of our consolidated financial statements for more information.
Cash Flows (in millions of dollars)
The following table summarizes our cash flows from operating, investing and financing activities for each of the three years ended December 31:
Cash Provided by (Used for):
2017
 
2016
 
2015
Operating activities
$
130

 
$
232

 
$
202

Investing activities
(277
)
 
(87
)
 
(77
)
Financing activities
(84
)
 
80

 
(89
)
Cash Provided by Operating Activities
Cash provided by operating activities in 2017 decreased $102 million primarily due to decreased net income after the non-cash reduction to net income from the gain on bargain purchase, as well as an increase in working capital requirements. Cash provided by operating activities in 2016 increased $30 million as lower cellulose specialties sales prices and volumes were offset by the impact of our Cost Transformation and improvements in working capital driven primarily by lower receivables and inventory balances.
Cash Used for Investing Activities
Cash used for investing activities during 2017 increased $190 million as a result of the Acquisition, partly offset by a decrease in capital spending and a gain on derivative instrument. Cash used for investing activities in 2016 increased $10 million primarily due to the timing of capital asset purchases.

30


Cash Provided by (Used for) Financing Activities
Cash used for financing activities increased $164 million in 2017 primarily due to the payoff of our old credit facilities and the payment of Tembec’s senior notes, partially offset by cash provided by the issuance of new debt in conjunction with the Acquisition. Cash provided by financing activities in 2016 increased $169 million primarily due to the issuance of the Preferred Stock partially offset by Preferred Stock dividend payments and higher debt repayments in 2016 including the Company’s first quarter 2016 repurchase of senior notes. See Note 8 Debt and Capital Leases of our consolidated financial statements for more information.
Performance and Liquidity Indicators
The discussion below is presented to enhance the reader’s understanding of our operating performance, liquidity, ability to generate cash and satisfy rating agency and creditor requirements. This information includes the following measures of financial results: EBITDA, adjusted EBITDA and adjusted free cash flows. These measures are not defined by U.S. Generally Accepted Accounting Principles (“GAAP”) and the discussion of EBITDA, adjusted EBITDA and adjusted free cash flows is not intended to conflict with or change any of the GAAP disclosures described above. Management considers these measures, in addition to operating income, to be important to estimate the enterprise and stockholder values of the Company, and for making strategic and operating decisions. In addition, analysts, investors and creditors use these measures when analyzing our operating performance, financial condition and cash generating ability. Management uses EBITDA and adjusted EBITDA as performance measures and adjusted free cash flows as a liquidity measure. See “Note about Non-GAAP Financial Measures” on page two for limitations associated with non-GAAP measures.
EBITDA is defined by SEC rule as earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA is defined by the Company as EBITDA before acquisition related costs, inventory write-up to fair value, gain on bargain purchase, gain on derivative instrument, non-cash impairment, one-time separation and legal costs, insurance recovery, environmental liability adjustments and gain on debt extinguishment. EBITDA and adjusted EBITDA are not necessarily indicative of results that may be generated in future periods.
Below is a reconciliation of Net Income to EBITDA and adjusted EBITDA for the five years ended December 31 (in millions of dollars):
Net Income to EBITDA Reconciliation
2017
 
2016
 
2015
 
2014
 
2013
Net Income
$
325

 
$
73

 
$
55

 
$
32

 
$
220

Depreciation and amortization
97

 
88

 
89

 
86

 
74

Interest expense, net
38

 
35

 
37

 
22

 

Income tax expense
20

 
39

 
28

 
9

 
69

EBITDA
480

 
235

 
209

 
149

 
363

Acquisition related costs
34

 

 

 

 

Inventory write-up to fair value
23

 

 

 

 

Gain on bargain purchase
(317
)
 

 

 

 

Gain on derivative instrument
(8
)
 

 

 

 

Non-cash impairment charge

 

 
28

 

 

One-time separation and legal costs

 

 
2

 
26

 
6

Insurance recovery

 

 
(1
)
 
(3
)
 

Environmental reserve adjustments

 

 

 
95

 

Gain on debt extinguishment

 
(9
)
 

 

 

Adjusted EBITDA
212

 
226

 
238

 
267

 
369

EBITDA for 2017 increased compared to 2016 primarily due to the gains on bargain purchase and a derivative instrument partially offset by acquisition related costs, the inventory write-up to fair value and EBITDA from the Acquisition. Adjusted EBITDA for 2017 decreased from 2016 primarily due to lower net income driven by lower sales prices and volumes for our cellulose specialties and commodity products volumes and increased costs, partially offset by the impact of EBITDA from the Acquisition.

31


EBITDA for 2016 increased compared to 2015 primarily from the non-cash impairment charge which occurred in 2015. Adjusted EBITDA for 2016 decreased from 2015 due to lower cellulose specialties sales prices and volumes partially offset by cost improvements from the Company’s Cost Transformation.
Adjusted free cash flows is defined as cash provided by operating activities adjusted for capital expenditures excluding strategic capital expenditures, acquisition related costs, net of tax, and subsequent tax benefits to exchange the Alternative Fuel Mixture Credit (“AFMC”) for the Cellulosic Biofuel Producer Credit (“CBPC”). Adjusted free cash flows, 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 capital expenditures and acquisitions and repurchase of the Company’s common stock. Adjusted free cash flows is not necessarily indicative of the adjusted free cash flows that may be generated in future periods.
Below is a reconciliation of cash flows from operations to adjusted free cash flows for the five years ended December 31 (in millions of dollars):
Cash Flows from Operations to Adjusted Free Cash Flows Reconciliation
2017
 
2016
 
2015
 
2014
 
2013
Cash flows from operations
$
130

 
$
232

 
$
202

 
$
188

 
$
258

Capital expenditures (a)
(65
)
 
(85
)
 
(78
)
 
(75
)
 
(96
)
Acquisition related costs, net of tax
26

 

 

 

 

Tax benefit due to exchange of AFMC for CBPC

 

 

 

 
(19
)
Adjusted Free Cash Flows
$
91

 
$
147

 
$
124

 
$
113

 
$
143

(a)
Capital expenditures exclude strategic capital expenditures which we deem discretionary. Strategic capital for the years ended December 31, 2017 and 2016 were $11 million and $4 million, respectively, for our LignoTech Florida joint venture. There was no strategic capital expenditures for the year ended December 31, 2015. Strategic capital totaled $13 million for the purchase of timber deeds and $2 million for the purchase of land for the year ended December 31, 2014. Strategic capital totaled $141 million for the Cellulose Specialties Expansion project for the year ended December 31, 2013.
Adjusted free cash flows in 2017 decreased from 2016 primarily due to decreased cash flows from operations, as previously described, were partially offset by reduced capital expenditures.
Adjusted free cash flows in 2016 increased over 2015 as increased cash flows from operations, as previously described, were partially offset by increased capital expenditures.
Off Balance Sheet Arrangements
We utilize off-balance sheet arrangements to provide credit support for certain suppliers and vendors in case of their default on critical obligations, collateral for certain self-insurance programs we maintain and guarantees for the completion of our remediation of environmental liabilities. These arrangements consist of standby letters of credit and surety bonds. As part of our ongoing operations, we also periodically issue guarantees to third parties. Off-balance sheet arrangements are not considered a source of liquidity or capital resources and do not expose us to material risks or material unfavorable financial impacts. See Note 20Commitments and Contingencies of our consolidated financial statements for more information.
Contractual Financial Obligations
See Note 20Commitments and Contingencies of our consolidated financial statements for details on the letters of credit, surety bonds and other guarantees as of December 31, 2017.

32


The following table aggregates our contractual financial obligations as of December 31, 2017 and anticipated cash spending by period:
Contractual Financial Obligations (in millions)
Total
 
Payments Due by Period
2018
 
2019-2020
 
2021-2022
 
Thereafter
Long-term debt, including current maturities
$
1,244

 
$
9

 
$
42

 
$
224

 
$
969

Interest payments on long-term debt and capital lease obligations (a)
377

 
62

 
122

 
116

 
77

Purchase obligations (b)
445

 
103

 
101

 
74

 
167

Purchase orders (c)
7

 
7

 

 

 

Postretirement obligations
26

 
3

 
6

 
6

 
11

Capital lease obligations
4

 
1

 
1

 
1

 
1

Operating leases (d)
7

 
3

 
3

 
1

 

Total contractual cash obligations
$
2,110

 
$
188

 
$
275

 
$
422

 
$
1,225

(a)
Projected interest payments for variable-rate debt were calculated based on outstanding principal amounts and interest rates as of December 31, 2017. See Note 8 Debt and Capital Leases for additional information.
(b)
Purchase obligations primarily consist of payments expected to be made on natural gas, steam energy and wood chip purchase contracts.
(c)
Purchase orders represent non-cancellable purchase agreements entered into in the normal course of business with various suppliers that specify a fixed or minimum quantity that we must purchase.
(d)
Operating leases primarily consist of the office lease for our corporate headquarters and machinery and equipment.
Environmental Regulation
We are subject to stringent environmental laws and regulations concerning air emissions, wastewater discharges, waste handling and disposal, and assessment and remediation of environmental contamination, which impact both our current ongoing operations and 18 former operating facilities or third party-owned sites classified as disposed operations. These include the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act of 1980 and similar state laws and regulations impacting U.S. facilities, as well as requirements relating to ancillary matters such as financial assurance of the Company’s legal obligations for facility closure and post-closure care. Similar laws and legal requirements also impact currently and former operating sites in Canada and France, respectively. Management closely monitors our environmental responsibilities and believes we are in material compliance with current requirements. In addition to ongoing compliance with laws and regulations, our facilities operate in accordance with various permits, which are issued by state and federal environmental agencies. Many of these permits impose operating conditions on us which require significant expenditures to ensure compliance. Upon renewal and renegotiation of these permits, the issuing agencies often seek to impose new or additional conditions in response to new environmental laws and regulations, or more stringent interpretations of existing laws and regulations. In addition, under many federal environmental laws, private citizens and organizations, such as environmental advocacy groups, have the right to legally challenge permitting and other decisions made by regulatory agencies.
Our operations are subject to constantly changing environmental requirements, and interpretations of existing requirements, which are often impacted by new policy initiatives, new and amended legislation and regulation, negotiations involving state and federal governmental agencies and various other stakeholders, as well as, at times, litigation. For additional information, see Item 1A — Risk Factors for a discussion of the potential impact of environmental risks on our business, and Item 3 — Legal Proceedings, for a discussion of any environmental-related litigation.

33


Ongoing Operations
During 2017, 2016 and 2015, we spent the following for capital projects related to environmental compliance for ongoing operations:
(in millions)
2017
 
2016
 
2015
Boiler MACT (a)
$

 
$
10

 
$
18

(a)
Represents spending required as a result of a regulation originally promulgated in 2012 (and later re-promulgated after litigation), which imposes more stringent emissions limits on certain air pollutants from industrial boilers. This project was completed in 2016.
The Company’s future spending requirements in the area of environmental compliance could change significantly based on the passage of new environmental laws and regulations.
Disposed Operations
For information and details relating to our disposed operations and estimated liabilities relating thereto, see Item 1A — Risk Factors and Note 9Liabilities for Disposed Operations of our consolidated financial statements for more information.
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk
Market and Other Economic Risks
We are exposed to various market risks, primarily changes in interest rates, currency and commodity prices. Our objective is to minimize the economic impact of these market risks. We use derivatives in accordance with policies and procedures approved by the Audit Committee of our Board of Directors. Derivatives are managed by a senior executive committee whose responsibilities include initiating, managing and monitoring resulting exposures. See Note 10Derivative Instruments for additional information.
We manage our foreign currency exposures by balancing certain assets and liabilities denominated in foreign currencies and through the use, from time to time, of foreign currency forward contracts. The principal objective of such contracts is to minimize the potential volatility and financial impact of changes in foreign currency exchange rates. The counterparties to these contractual agreements are major financial institutions with which we generally have other financial relationships. We are exposed to credit loss in the event of nonperformance by these counterparties. However, given their size and financial strength, we do not anticipate nonperformance by the counterparties. We do not utilize financial instruments for trading or other speculative purposes.

The prices, sales volumes and margins of the commodity products of our High Purity Cellulose segment and all the products of the Forest Product and Pulp & Paper segments have historically been cyclically affected by economic and market shifts, fluctuations in capacity, and changes in foreign currency exchange rates. In general, these products are commodities that are widely available from other producers; because these products have few distinguishing qualities from producer to producer, competition is based primarily on price, which is determined by supply relative to demand. The overall levels of demand for the products we manufacture, and consequently our sales and profitability, reflect fluctuations in end user demand. Our cellulose specialties product prices are impacted by market supply and demand, raw material and processing costs, changes in global currencies and other factors. They are not directly correlated to commodity paper pulp prices. In addition, a majority of our cellulose specialties products are under long-term volume contracts that expire between 2018 and 2020.
As of December 31, 2017, we had $636 million of variable rate debt which is subject to interest rate risk. At this borrowing level, a hypothetical one-percentage point increase/decrease in interest rates would result in a corresponding increase/decrease of approximately $6 million in interest payments and expense over a 12 month period. Our primary interest rate exposure on variable rate debt results from changes in LIBOR. We have entered into interest rate swap agreements to reduce the volatility of financing costs, achieve a desired proportion of fixed-rate versus floating-rate debt and to hedge the variability in cash flows attributable to interest rate risks caused by changes in the LIBOR benchmark.
The fair market value of our long-term fixed interest rate debt is also subject to interest rate risk. However, we intend to hold most of our debt until maturity. The estimated fair value of our fixed-rate debt at December 31, 2017 was $611 million compared to the $607 million principal amount. We use quoted market prices to estimate the fair value of our fixed-rate debt. Generally, the fair market value of fixed-rate debt will increase as interest rates fall and decrease as interest rates rise.

34


We may periodically enter into commodity forward contracts to fix some of our energy costs that are subject to price volatility caused by weather, supply conditions, political and economic variables and other unpredictable factors. Such forward contracts partially mitigate the risk of changes to our gross margins resulting from an increase or decrease in these costs. Forward contracts which are derivative instruments are reported in the consolidated balance sheets at their fair values, unless they qualify for the normal purchase normal sale ("NPNS") exception and such exception has been elected. If the NPNS exception is elected, the fair values of such contracts are not recognized on the balance sheet.
Item 8.
Financial Statements and Supplementary Data
See Index to Financial Statements on page ii.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None
Item 9A.
Controls and Procedures
Disclosure Controls and Procedures
Rayonier Advanced Materials management is responsible for establishing and maintaining adequate disclosure controls and procedures. Disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) are designed with the objective of ensuring that information required to be disclosed in reports filed under the Exchange Act, such as this annual report on Form 10-K, is (1) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (2) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Because of the inherent limitations in all control systems, no control evaluation can provide absolute assurance all control exceptions and instances of fraud have been prevented or detected on a timely basis. Even systems determined to be effective can provide only reasonable assurance their objectives are achieved.
Based on an evaluation of our disclosure controls and procedures as of the end of the period covered by this annual report on Form 10-K, our management, including the Chief Executive Officer and Chief Financial Officer, concluded the design and operation of the disclosure controls and procedures were effective as of December 31, 2017.
Internal Control over Financial Reporting
With regard to our internal control over financial reporting as defined in paragraph (f) of Rule 13a-15(f), see Management’s Report on Internal Control over Financial Reporting on page F-1, followed by the Reports of Independent Registered Public Accounting Firm on pages F-2 and F-4, included in Item 8 — Financial Statements and Supplementary Data of this annual report on Form 10-K.
As a result of our November 2017 acquisition of Tembec, the Company implemented internal controls over significant processes specific to the acquisition that management believes are appropriate in consideration of related integration of operations, systems, control activities, and accounting for the acquisition and acquisition-related transactions.
Except as described above, for the year ended December 31, 2017, based upon the evaluation required by paragraph (d) of Rule 13a-15, there were no changes in our internal control over financial reporting that would materially affect or are reasonably likely to materially affect our internal control over financial reporting.
Item 9B.
Other Information
None.

35


Part III
Certain information required by Part III is incorporated by reference from the Company’s definitive Proxy Statement to be filed with the SEC in connection with the solicitation of proxies for the Company’s 2018 Annual Meeting of Stockholders (the “Proxy Statement”). We will make the Proxy Statement available on our website at www.rayonieram.com as soon as it is filed with the SEC.
Item 10.
Directors, Executive Officers and Corporate Governance
The information required by this Item with respect to directors, executive officers and corporate governance is incorporated by reference from the sections entitled “Election of Directors,” “Corporate Governance,” “Executive Officers” and “Report of the Audit Committee” in the Proxy Statement. The information required by this Item with respect to disclosure of any known late filing or failure by an insider to file a report required by Section 16 of the Exchange Act is incorporated by reference to the section entitled “Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy Statement.
Our Standard of Ethics and Code of Corporate Conduct, which is applicable to our principal executive officer and financial and accounting officers, is available on our website, www.rayonieram.com. Any amendments to or waivers of the Standard of Ethics and Code of Corporate Conduct will also be disclosed on our website.
Item 11.
Executive Compensation
The information called for by Item 11 is incorporated herein by reference from the section and subsections entitled “Compensation Discussion and Analysis,” “Summary Compensation Table,” “Grants of Plan-Based Awards,” “Outstanding Equity Awards at Fiscal Year-End,” “Option Exercises and Stock Vested,” “Pension Benefits,” “Nonqualified Deferred Compensation,” “Potential Payments Upon Termination or Change in Control,” “Agreements with our NEOs,” “Director Compensation,” “Corporate Governance — Compensation Committee Interlocks and Insider Participation; Processes and Procedures” and “Compensation Discussion and Analysis — Report of the Compensation and Management Development Committee” in the Proxy Statement.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information called for by Item 12 is incorporated herein by reference from the sections entitled “Security Ownership of Certain Beneficial Owners,” “Stock Ownership of Directors and Executive Officers” and “Equity Compensation Plan Information” in the Proxy Statement.
Item 13.
Certain Relationships and Related Transactions, and Director Independence
The information called for by Item 13 is incorporated herein by reference from the section and subsections entitled “Election of Directors,” “Corporate Governance — Director Independence” and “Corporate Governance — Related Person Transactions” in the Proxy Statement.
Item 14.
Principal Accounting Fees and Services
The information called for by Item 14 is incorporated herein by reference from the subsection entitled “Report of the Audit Committee — Information Regarding Independent Registered Public Accounting Firm” in the Proxy Statement.

36


Part IV
Item 15.
Exhibits, Financial Statement Schedules
(a)    Documents filed as a part of this report:
(1)
See Index to Financial Statements on page ii for a list of the financial statements filed as part of this report.
(2)
See Schedule II — Valuation and Qualifying Accounts. All other financial statement schedules have been omitted because they are not applicable, the required matter is not present or the required information has otherwise been supplied in the financial statements or the notes thereto.
(3)
See Exhibit Index for a list of the exhibits filed or incorporated herein as part of this report. Exhibits that are incorporated by reference to documents filed previously by the Company under the Securities Exchange Act of 1934, as amended, are filed with the SEC under File No. 1-6780.
(b)    Exhibits:
See Item 15 (a)(3).
(c) Financial Statement Schedules:
See Item 15 (a)(2).
Item 16.
Form 10-K Summary
None.


37


Management’s Report on Internal Control over Financial Reporting
To Our Stockholders:
The management of Rayonier Advanced Materials Inc. and its subsidiaries is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended). Our system of internal controls over financial reporting is designed to provide reasonable assurance to the Company’s management and Board of Directors regarding the preparation and fair presentation of the financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
Because of the inherent limitations of internal control over financial reporting, misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Rayonier Advanced Materials Inc.’s management, under the supervision of the Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2017. In making this assessment, we used the framework included in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework). Based on our evaluation under the criteria set forth in Internal Control — Integrated Framework, management concluded that our internal control over financial reporting was effective as of December 31, 2017.
On November 17, 2017, we acquired Tembec, Inc (“Tembec”). Due to the timing of the acquisition, management has excluded from its assessment of the effectiveness of Rayonier Advanced Materials Inc.’s internal control over financial reporting as of December 31, 2017, certain components of Tembec’s internal control over financial reporting. Those certain components of the acquired Tembec operations represent 59 percent of total assets, 14 percent of sales and 0 percent of net income, as reported in the Company's consolidated financial statements as of and for the year ended December 31, 2017.
Grant Thornton LLP, the independent registered public accounting firm that audited the Company’s consolidated financial statements, has issued an attestation report on the Company’s internal control over financial reporting as of December 31, 2017. The report on the Company’s internal control over financial reporting as of December 31, 2017, is on page F-3.

 
RAYONIER ADVANCED MATERIALS INC.
 
 
By:
/s/ PAUL G. BOYNTON
 
Paul G. Boynton
Chairman, President and Chief Executive Officer
 
March 1, 2018
 
 
By:
/s/ FRANK A. RUPERTO
 
Frank A. Ruperto
Chief Financial Officer and Senior Vice President, Finance and Strategy
(Duly Authorized Officer and Principal Financial Officer)
 
March 1, 2018


F- 1


Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders of Rayonier Advanced Materials Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of Rayonier Advanced Materials Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2017 and 2016, the related consolidated statements of income and comprehensive income, and cash flows for each of the two years in the period ended December 31, 2017 , and the related notes and schedule (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in the 2013 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated March 1, 2018 expressed an unqualified opinion.
Other matter
We also have audited the adjustments to the 2015 financial statements to retrospectively apply the change in reporting segments resulting from the acquisition of Tembec, Inc. on November 17, 2017, as described in Note 19. In our opinion, such adjustments are appropriate and have been properly applied. We were not engaged to audit, review, or apply any procedures to the 2015 financial statements of the Company other than with respect to such adjustments and, accordingly, we do not express an opinion or any other form of assurance on the 2015 financial statements taken as a whole.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2016.
Jacksonville, Florida
March 1, 2018

F- 2


Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders of Rayonier Advanced Materials Inc.
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of Rayonier Advanced Materials Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2017, based on criteria established in the 2013 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in the 2013 Internal Control-Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31, 2017, and our report dated March 1, 2018 expressed an unqualified opinion on those financial statements.
Basis for opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting (“Management’s Report”). Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Our audit of, and opinion on, the Company’s internal control over financial reporting does not include the internal control over financial reporting of Tembec Inc. and subsidiaries (“Tembec”), a wholly-owned subsidiary, whose financial statements reflect total assets and revenues constituting 59% and 14% percent, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2017. As indicated in Management’s Report, Tembec was acquired during 2017. Management’s assertion on the effectiveness of the Company’s internal control over financial reporting excluded internal control over financial reporting of Tembec.
Definition and limitations of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ GRANT THORNTON LLP
Jacksonville, Florida
March 1, 2018

F- 3


Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of Rayonier Advanced Materials Inc.

We have audited, before the effects of the adjustments to retrospectively apply the changes in segment reporting for corporate operations described in Note 19, the consolidated statements of income and comprehensive income, and cash flows of Rayonier Advanced Materials Inc. (“the Company”) for the year ended December 31, 2015 (the 2015 consolidated financial statements before the effects of the adjustments discussed in Note 19 are not presented herein). Our audit also included the financial statement schedule listed in the Index at Item 15(a). The 2015 financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and schedule based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the 2015 financial statements, before the effects of the adjustments to retrospectively apply the changes in segment reporting for corporate operations described in Note 19, present fairly, in all material respects, the consolidated results of its operations and its cash flows for the year ended December 31, 2015 in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

We were not engaged to audit, review, or apply any procedures to the adjustments to retrospectively apply the changes in segment reporting for corporate operations described in Note 19 and, accordingly, we do not express an opinion or any other form of assurance about whether such adjustments are appropriate and have been properly applied. Those adjustments were audited by Grant Thornton LLP.


/s/ Ernst & Young LLP
Certified Public Accountants
Jacksonville, Florida
February 26, 2016


F- 4



Rayonier Advanced Materials Inc.
Consolidated Statements of Income and Comprehensive Income
For the Years Ended December 31,
(Dollars in thousands, except per share amounts)

 
2017
 
2016
 
2015
Net Sales
$
961,333

 
$
868,731

 
$
941,384

Cost of Sales
(822,088
)
 
(687,458
)
 
(738,930
)
Gross Margin
139,245

 
181,273

 
202,454

 
 
 
 
 
 
Selling, general and administrative expenses
(80,016
)
 
(37,942
)
 
(47,662
)
Other operating expense, net (Note 17)
(2,213
)
 
(5,684
)
 
(35,269
)
Operating Income
57,016

 
137,647

 
119,523

Interest expense
(40,447
)
 
(34,627
)
 
(36,869
)
Interest income and other, net
3,791

 
737

 
210

Gain on bargain purchase (Note 3)
316,555

 

 

Gain on derivative instrument (Note 10)
7,780

 

 

Gain on debt extinguishment

 
8,844

 

Income Before Income Taxes
344,695

 
112,601

 
82,864

Income tax expense (Note 18)
(19,731
)
 
(39,315
)
 
(27,607
)
Net Income Attributable to Rayonier Advanced Materials Inc.
324,964

 
73,286

 
55,257

Mandatory convertible stock dividends
(13,800
)
 
(5,404
)
 

Net Income Available to Rayonier Advanced Materials Inc.
Common Stockholders
$
311,164

 
$
67,882

 
$
55,257

 
 
 
 
 
 
Earnings Per Share of Common Stock (Note 14)
 
 
 
 
 
Basic earnings per share
$
7.17

 
$
1.61

 
$
1.31

Diluted earnings per share
$
5.81

 
$
1.55

 
$
1.30

 
 
 
 
 
 
Dividends Declared Per Share
$
0.28

 
$
0.28

 
$
0.28


Comprehensive Income:
 
 
 
 
 
Net Income
$
324,964

 
$
73,286

 
$
55,257

Other Comprehensive Income (Loss), net of tax (Note 13)
 
 
 
 
 
Foreign currency translation adjustments
4,868

 

 

Unrealized gain on derivative instruments
619

 

 

Net gain (loss) from pension and postretirement plans
28,442

 
(460
)
 
(6,176
)
Total other comprehensive income (loss)
33,929

 
(460
)
 
(6,176
)
Comprehensive Income
$
358,893

 
$
72,826

 
$
49,081







See Notes to Consolidated Financial Statements.

F- 5


Rayonier Advanced Materials Inc.
Consolidated Balance Sheets
As of December 31,
(Dollars in thousands)

 
2017
 
2016
Assets
Current Assets
 
 
 
Cash and cash equivalents
$
96,235

 
$
326,655

Accounts receivable, net (Note 4)
181,298

 
37,626

Inventory (Note 5)
302,086

 
118,368

Prepaid and other current assets
66,918

 
36,859

Total current assets
646,537

 
519,508

 
 
 
 
Property, Plant and Equipment, Net (Note 6)
1,407,762

 
801,039

Deferred Tax Assets (Note 18)
402,846

 
51,246

Intangible Assets, Net
59,869

 

Other Assets
125,597

 
50,146

Total Assets
$
2,642,611

 
$
1,421,939

Liabilities and Stockholders’ Equity
Current Liabilities
 
 
 
Accounts payable
$
157,925

 
$
36,379

Accrued and other current liabilities (Note 7)
127,040

 
67,226

Current maturities of long-term debt (Note 8)
9,425

 
9,593

Current liabilities for disposed operations (Note 9)
13,181

 
13,781

Total current liabilities
307,571

 
126,979

 
 
 
 
Long-Term Debt (Note 8)
1,232,179

 
773,689

Non-Current Liabilities for Disposed Operations (Note 9)
150,905

 
139,129

Pension and Other Postretirement Benefits (Note 16)
212,810

 
161,729

Deferred Tax Liabilities (Note 18)
32,607

 

Other Non-Current Liabilities
12,783

 
8,664

 
 
 
 
Commitments and Contingencies (Note 20)

 

 
 
 
 
Stockholders’ Equity (Note 12)
 
 
 
Preferred stock, 10,000,000 shares authorized at $0.01 par value, 1,725,000 and 1,725,000 issued and outstanding as of December 31, 2017 and 2016, respectively, aggregate liquidation preference $172,500
17

 
17

Common stock, 140,000,000 shares authorized at $0.01 par value, 51,717,142 and 43,261,905 issued and outstanding, as of December 31, 2017 and 2016, respectively
517

 
433

Additional paid-in capital
392,353

 
242,402

Retained earnings
377,020

 
78,977

Accumulated other comprehensive loss (Note 13)
(76,151
)
 
(110,080
)
Total Stockholders’ Equity
693,756

 
211,749

Total Liabilities and Stockholders’ Equity
$
2,642,611

 
$
1,421,939


See Notes to Consolidated Financial Statements.

F- 6


Rayonier Advanced Materials Inc.
Consolidated Statements of Cash Flows
For the Years Ended December 31,
(Dollars in thousands)

 
2017
 
2016
 
2015
Operating Activities
 
 
 
 
 
Net income
$
324,964

 
$
73,