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JACKSONVILLE, Fla.--Aug 2,2017--Rayonier Advanced Materials Inc. (the “Company”) (NYSE:RYAM) today reported second quarter 2017 net income of $5 million, or $0.03 per diluted common share compared to $19 million, or $0.46 per diluted common share in the second quarter of 2016. Second quarter 2017 pro forma net income was $9 million, or $0.11 per diluted common share, compared to $19 million, or $0.46 per diluted common share in the second quarter of 2016. Second quarter 2017 pro forma net income and diluted earnings per share are adjusted for transaction costs and an unrealized gain on derivative instrument both associated with the pending acquisition of Tembec. Additionally, the 2017 earnings per diluted common share amount reflects the impact of the Mandatory Preferred Stock issuance in the third quarter of 2016.

Year-to-date net income was $14 million, or $0.18 per diluted common share compared to $40 million, or $0.95 per diluted common share in 2016. Year to date pro forma net income was $18 million, or $0.26 per diluted common share, compared to $34 million, or $0.82 per diluted common share in 2016. In addition to the 2017 impact of the pro forma adjustments mentioned above, 2016 pro forma net income and diluted earnings per common share reflect an adjustment for a gain on debt extinguishment associated with the repurchase of Senior Notes.

“We continue to execute well against our 2017 objectives and are on track to achieve the high-end of our full year EBITDA guidance,” said Paul Boynton, Chairman, President and Chief Executive Officer. “We remain focused on our four strategic pillars and are investing to drive meaningful future growth. In particular, we continue to achieve significant results from our cost transformation, with year to date savings of $15 million and cumulative savings to date of $100 million.”

Second Quarter and Year-to-Date Operating Results

Second quarter 2017 sales were $201 million compared to $214 million in the prior year, a decrease of $13 million or 6 percent. Year-to-date sales were $403 million compared to $431 million in the prior year, a decrease of $28 million or 7 percent. The decrease in net sales was driven by a decline in cellulose specialties sales prices of 7 and 6 percent for the second quarter and year-to-date periods, respectively, and slightly lower cellulose specialties sales volumes. Cellulose specialties sales price declines in both periods are due to sales mix. As previously announced, the Company expects year-over-year cellulose specialties price declines of 3 to 4 percent. Cellulose specialties volume commitments remain unchanged with sales in the second half of 2017 more heavily weighted toward higher priced products. As a result, cellulose specialties pricing for the second half of 2017 is anticipated to improve relative to the first half. Full year cellulose specialties sales volumes are expected to be flat with prior year. During the periods, commodity products sales volumes decreased and prices increased due to a shift in production from fluff to commodity viscose, improving profitability due to relatively more attractive viscose markets. Overall, commodity products sales volumes are expected to be lower than prior year due to the mix shift and timing of sales.

Second quarter and year-to-date 2017 operating income was $13 million and $39 million, respectively, $26 million and $31 million less than the prior year respective comparable periods. Excluding the impact of the costs associated with the pending acquisition of Tembec, second quarter and year-to-date 2017 pro forma operating income was $21 million and $47 million, respectively, $18 million and $23 million less than prior year respective comparable periods. The second quarter and year-to-date 2017 results reflect lower cellulose specialties sales prices and lower cellulose specialties and commodity product sales volumes, partially offset by higher commodity product sales prices, as previously discussed. Savings from the Cost Transformation were offset by costs incurred to achieve additional future savings, higher production expenses due to sales mix, chemical prices, and depreciation, as well as, investments in customer product development. Selling, general and administrative expenses also increased primarily due to higher stock compensation expense and increased costs related to New Product development activities.

Year-to-date 2017, the Company has realized approximately $15 million in gross cost savings against its Cost Transformation target of $30 million, primarily due to cost improvements in supply chain, chemical usage and wood optimization. Savings from the Cost Transformation pillar now total $100 million since inception.

The Company expects second half pro forma operating income to improve significantly as the mix of cellulose specialties sales will reflect a higher percentage of higher value products, lower costs and no planned maintenance outages.

Interest and Other Expense, Net

Interest expense, net of interest income and other expense, was $17 million for 2017, comparable to the prior year as a result of lower outstanding debt offset by higher LIBOR interest rates on floating rate debt and higher cash balances.

Income Tax Expense

The year-to-date effective tax rate was 42 percent, compared to 36 percent during the prior year period. The current period effective tax rate reflects the accounting impact of the write-off of the deferred tax asset associated with the 2014 employee incentive stock grant, which did not vest.

Cash Flows and Liquidity

Year-to-date, the Company generated operating cash flows of $87 million and adjusted free cash flows of $56 million in the period. As a result, debt was reduced $1 million, to $782 million, while net debt was reduced $45 million to $421 million. With strong adjusted free cash flows, the Company ended the second quarter with $369 million of cash and $612 million of total liquidity, including $243 million available under the revolving credit facility after taking into account outstanding letters of credit.

Guidance

The Company expects net income of $32 to $39 million and EBITDA at the high-end of our initial guidance of $190 to $200 million. Cash flow from operations and adjusted free cash flows are anticipated to be $142 to $152 million and $90 to $100 million, respectively. The Company anticipates capital expenditures of approximately $60 million, including our investment in the LignoTech Florida project.

Tembec Acquisition

On May 25, 2017, the Company announced that it entered into an agreement to acquire all of the outstanding common shares of Tembec Inc. (“Tembec”). Tembec is a leading manufacturer of forest products including lumber, paper pulp, paper, commodity products and cellulose specialties with operations in Canada and France. On July 23, 2017, the agreement was amended. Under the terms of the amendment, Tembec shareholders at their choice will receive C$4.75 in cash or 0.2542 shares of the Company’s common stock, subject to proration to ensure that no more than 66.8 percent of the aggregate Tembec shares will receive the per share cash consideration and no more than 33.2 percent of the aggregate Tembec shares will receive the per share stock consideration. The purchase price of approximately $870 million, which includes approximately $481 million of Tembec net debt, is based on the Company’s closing stock price and currency exchange rate as of June 24, 2017. The transaction is expected to be funded with cash on-hand, committed bank financing and the issuance of approximately 8.4 million shares of Company stock. Completion of the transaction is subject to certain closing conditions, including approval by Tembec’s shareholders, which was obtained at its shareholder meeting on July 27, approval by Canadian courts, which is expected on August 7, 2017, and remaining approvals by antitrust regulators in Canada and China, which are anticipated to occur in the fourth quarter.

“We continue to reshape our business by lowering our cost position, engineering new products and optimizing the approach to the markets we serve,” Boynton concluded. “The pending acquisition of Tembec will further our goal to diversify our product mix, cash flows, customer base and geographic presence. Combined, the companies will have improved scale leading to new opportunities to create value for stockholders.”

Conference Call Information

Rayonier Advanced Materials will host a conference call on Thursday, August 3, 2017 at 11 a.m. EDT to discuss these results. Supplemental materials and access to the live audio webcast will be available at www.rayonieram.com. A replay of this webcast will be archived on the Company’s website shortly after the call. Investors may listen to the conference call by dialing 877-407-8293, no passcode required. For international parties, dial 201-689-8349. The replay of the teleconference will be available one hour after the call ends until 6:00 p.m. EDT on Thursday, August 17, 2017. The replay dial-in number within the U.S. is 877-660-6853, international is 201-612-7415, Conference ID: 13666595.

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