Clearwater Paper(CLW) - 2021 Q1 - Quarterly Report

Forward-Looking Statements This section outlines the company's forward-looking statements, which are subject to various risks and may differ from actual results - The report contains forward-looking statements regarding capital expenditures, product demand, COVID-19 impact, inventory levels, input costs, major maintenance, and other operational and financial expectations. These statements are based on management's current expectations and are subject to change, with actual results potentially differing materially due to various risk factors[2] PART I. Financial Information This part presents the company's unaudited consolidated financial statements and detailed notes ITEM 1. Consolidated Financial Statements This section presents the company's unaudited consolidated financial statements and detailed notes for the specified periods Consolidated Balance Sheets This section presents the company's consolidated balance sheets, detailing assets, liabilities, and equity at specific dates Consolidated Balance Sheet Summary | (In millions) | March 31, 2021 | December 31, 2020 | | :------------------------------------- | :------------- | :---------------- | | ASSETS | | | | Cash and cash equivalents | $57.1 | $35.9 | | Receivables, net | $134.9 | $160.6 | | Inventories | $293.1 | $263.3 | | Total current assets | $500.4 | $474.9 | | Property, plant and equipment, net | $1,173.2 | $1,191.5 | | TOTAL ASSETS | $1,803.9 | $1,800.4 | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | Current portion of long-term debt | $1.7 | $1.7 | | Accounts payable and accrued liabilities | $233.5 | $243.1 | | Total current liabilities | $235.3 | $244.8 | | Long-term debt | $716.3 | $716.4 | | TOTAL LIABILITIES | $1,267.8 | $1,279.3 | | TOTAL STOCKHOLDERS' EQUITY | $536.1 | $521.1 | | TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $1,803.9 | $1,800.4 | Consolidated Statements of Operations This section presents the company's consolidated statements of operations, detailing revenues, expenses, and net income Consolidated Statements of Operations Summary | (In millions, except per-share data) | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Net sales | $425.9 | $477.9 | | Cost of sales | $370.6 | $423.0 | | Selling, general and administrative expenses | $27.8 | $27.5 | | Total operating costs and expenses | $398.8 | $459.1 | | Income from operations | $27.1 | $18.8 | | Interest expense, net | $(9.3) | $(12.8) | | Income before income taxes | $15.3 | $4.1 | | Income tax provision (benefit) | $3.2 | $(6.2) | | Net income | $12.1 | $10.3 | | Net income per common share: | | | | Basic | $0.73 | $0.62 | | Diluted | $0.71 | $0.62 | Consolidated Statements of Comprehensive Income (Loss) This section presents the company's consolidated statements of comprehensive income (loss), including net income and other comprehensive income Consolidated Statements of Comprehensive Income (Loss) Summary | (In millions) | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :---------------------------------------------------------------------------------------------------- | :-------------------------------- | :-------------------------------- | | Net income | $12.1 | $10.3 | | Other comprehensive income, net of tax (Amortization of actuarial loss) | $1.9 | $1.8 | | Comprehensive income | $14.0 | $12.1 | Consolidated Statements of Cash Flows This section presents the company's consolidated statements of cash flows, detailing cash movements from operating, investing, and financing activities Consolidated Statements of Cash Flows Summary | (In millions) | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :---------------------------------------------------------------------------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash flows provided by operating activities | $33.8 | $11.7 | | Net cash flows used in investing activities | $(11.1) | $(10.5) | | Net cash flows provided by (used in) financing activities | $(1.4) | $38.1 | | Increase in cash, cash equivalents and restricted cash | $21.2 | $39.3 | | Cash, cash equivalents and restricted cash at end of period | $58.2 | $61.8 | Consolidated Statements of Stockholders' Equity This section presents the company's consolidated statements of stockholders' equity, detailing changes in equity components Consolidated Statements of Stockholders' Equity Summary | (In millions, except share amounts in thousands) | Balance at Dec 31, 2020 | Net Income | Stock-based Comp. Expense | Issuance of Shares | Stock Option Exercise | Amortization of Actuarial Loss | Balance at Mar 31, 2021 | | :----------------------------------------------- | :---------------------- | :--------- | :------------------------ | :----------------- | :-------------------- | :----------------------------- | :---------------------- | | Common Shares | 16,572 | — | — | 92 | 13 | — | 16,678 | | Additional Paid-In Capital | $16.6 | — | $2.0 | $(1.6) | $0.5 | — | $17.6 | | Retained Earnings | $558.8 | $12.1 | — | — | — | — | $570.9 | | Accumulated Other Comprehensive Loss | $(54.3) | — | — | — | — | $1.9 | $(52.4) | | Total Stockholders' Equity | $521.1 | $12.1 | $2.0 | $(1.6) | $0.5 | $1.9 | $536.1 | Notes to Consolidated Financial Statements This section provides detailed notes explaining the basis of presentation, accounting policies, and financial account breakdowns NOTE 1 Basis of Presentation This note provides detailed information on basis of presentation - The unaudited consolidated financial statements are prepared in accordance with Form 10-Q instructions and include all necessary normal recurring adjustments. Interim results are not necessarily indicative of full-year results and should be read in conjunction with the 2020 Form 10-K[24] NOTE 2 Recently Adopted and New Accounting Standards This note provides detailed information on recently adopted & new accounting standards - The company adopted ASU 2019-12, 'Income Taxes (Topic 740) - Simplifying the Accounting for Income Taxes,' effective January 1, 2021, which did not have a material impact on the consolidated financial statements[25] NOTE 3 Fair Value Measurements This note provides detailed information on fair value measurements Fair Value of Debt Instruments | Debt Instrument | March 31, 2021 | December 31, 2020 | | :-------------------------------- | :------------- | :---------------- | | Term loan maturing 2026 (variable) | $129.0 | $129.6 | | 2014 Notes maturing 2025 (fixed) | $316.9 | $325.1 | | 2020 Notes maturing 2028 (fixed) | $276.0 | $285.3 | NOTE 4 Receivables This note provides detailed information on receivables Receivables Breakdown | Receivables Component | March 31, 2021 | December 31, 2020 | | :------------------------------------- | :------------- | :---------------- | | Trade accounts receivable | $121.5 | $139.0 | | Allowance for current expected credit losses | $(1.6) | $(1.6) | | Unbilled receivables | $8.1 | $5.1 | | Taxes receivable | $4.8 | $16.0 | | Other | $2.1 | $2.1 | | Total Receivables | $134.9 | $160.6 | NOTE 5 Inventories This note provides detailed information on inventories Inventories Breakdown | Inventory Component | March 31, 2021 | December 31, 2020 | | :-------------------------------- | :------------- | :---------------- | | Logs, chips and sawdust | $14.9 | $17.2 | | Pulp | $20.1 | $11.5 | | Paperboard and tissue products | $159.7 | $137.0 | | Materials and supplies | $98.3 | $97.7 | | Total Inventories | $293.1 | $263.3 | NOTE 6 Accounts Payable and Accrued Liabilities This note provides detailed information on accounts payable & accrued liabilities Accounts Payable and Accrued Liabilities Breakdown | Accounts Payable Component | March 31, 2021 | December 31, 2020 | | :------------------------------------- | :------------- | :---------------- | | Trade payables | $151.9 | $143.4 | | Accrued compensation | $30.3 | $41.7 | | Operating lease liabilities | $15.6 | $15.3 | | Accrued interest | $5.4 | $12.6 | | Accrued taxes other than income | $13.4 | $10.5 | | Other accrued liabilities | $16.9 | $19.6 | | Total Accounts Payable and Accrued Liabilities | $233.5 | $243.1 | - Included in accounts payable and accrued liabilities are $8.5 million and $12.1 million related to capital expenditures that had not yet been paid as of March 31, 2021 and December 31, 2020, respectively[30] NOTE 7 Income Taxes This note provides detailed information on income taxes Income Tax Provision (Benefit) | Income Tax | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Income tax provision (benefit) | $3.2 | $(6.2) | | Effective tax rate (2020) | Comparable to statutory | Varied from 21% due to $7.3M CARES Act benefit | NOTE 8 Other Operating Charges This note provides detailed information on other operating charges Other Operating Charges, Net | Other Operating Charges | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Reorganization expenses | — | $2.8 | | Union settlement | — | $6.6 | | Gain on divested assets | — | $(1.4) | | Directors' equity-based compensation expense | $0.4 | $0.2 | | Other | — | $0.4 | | Total Other Operating Charges, net | $0.4 | $8.6 | - The significant decrease in other operating charges from $8.6 million in Q1 2020 to $0.4 million in Q1 2021 was primarily due to the absence of reorganization expenses and union settlement retroactive wage payments in 2021, which were present in 2020[35] NOTE 9 Non-Operating Income (Expense) This note provides detailed information on non-operating income (expense) Non-Operating Income (Expense) Details | Non-Operating Item | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :------------------------------------- | :-------------------------------- | :-------------------------------- | | Interest expense | $(9.2) | $(12.2) | | Amortization of debt issuance costs | $(0.5) | $(0.6) | | Interest income | $0.3 | — | | Interest expense, net | $(9.3) | $(12.8) | | Non-operating pension and other postretirement employee benefits expense | $(2.5) | $(1.9) | | Total non-operating expense | $(11.8) | $(14.7) | NOTE 10 Pension and Postretirement Employee Benefit Plans This note provides detailed information on pension & postretirement employee benefit plans Net Periodic Pension and Postretirement Costs | Pension Benefit Plans | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Service cost | $0.5 | $0.6 | | Interest cost | $2.1 | $2.6 | | Expected return on plan assets | $(2.6) | $(3.7) | | Amortization of actuarial loss | $2.6 | $2.4 | | Net periodic cost | $2.5 | $1.9 | | Other Postretirement Employee Benefit Plans Net periodic cost | $0.5 | $0.6 | - The service component of net periodic cost is recorded in 'Cost of sales' and 'Selling, general, and administrative expenses,' while non-service components are recorded in 'Other non-operating expense.'[39] NOTE 11 Accumulated Other Comprehensive Loss This note provides detailed information on accumulated other comprehensive loss Accumulated Other Comprehensive Loss Adjustments | (In millions) | Pension Plan Adjustments | Other Postretirement Employee Benefit Plan Adjustments | Total | | :---------------------------------------------------------------------------------------------------- | :----------------------- | :----------------------------------------------------- | :------ | | Balance at December 31, 2020 | $(54.5) | $0.2 | $(54.3) | | Amounts reclassified from accumulated other comprehensive loss | $1.9 | — | $1.9 | | Balance at March 31, 2021 | $(52.6) | $0.2 | $(52.4) | NOTE 12 Stockholders' Equity This note provides detailed information on stockholders' equity Stockholders' Equity Related Items | Stockholders' Equity Item | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :---------------------------------------------------------------------------------------------------- | :-------------------------------- | :-------------------------------- | | Total stock-based compensation expense | $2.4 | $1.5 | | Income tax benefit related to stock-based compensation | $0.6 | $0.4 | | Impact on cash flow due to taxes paid related to net share settlement of equity awards and proceeds from sale of stock under employee awards | $1.1 | $0.7 | - As of March 31, 2021, approximately 1.1 million shares were available for future issuance under the current stock plan, and $17.4 million of compensation cost related to unvested restricted stock units and performance awards had not yet been recognized[41] NOTE 13 Earnings Per Share This note provides detailed information on earnings per share Earnings Per Share Calculation | (In thousands) | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :------------------------------------- | :-------------------------------- | :-------------------------------- | | Basic weighted-average common shares outstanding | 16,647 | 16,555 | | Incremental shares due to: | | | | Stock-based awards | 238 | 60 | | Performance shares | 94 | — | | Diluted weighted-average common shares outstanding | 16,979 | 16,615 | - Anti-dilutive shares excluded from the calculation were 0.2 million and 0.9 million for the three months ended March 31, 2021 and 2020, respectively[43] NOTE 14 Segment Information This note provides detailed information on segment information Segment Net Sales and Operating Income | (In millions) | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Segment net sales: | | | | Consumer Products | $208.4 | $262.5 | | Pulp and Paperboard | $219.7 | $223.1 | | Eliminations | $(2.2) | $(7.8) | | Total segment net sales | $425.9 | $477.9 | | Operating income: | | | | Consumer Products | $17.9 | $14.6 | | Pulp and Paperboard | $25.0 | $26.2 | | Corporate and eliminations | $(15.5) | $(13.4) | | Other operating charges, net | $(0.4) | $(8.6) | | Income from operations | $27.1 | $18.8 | Major Products Net Sales | Major Products Net Sales (In millions) | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :------------------------------------- | :-------------------------------- | :-------------------------------- | | Retail tissue | $195.1 | $248.0 | | Paperboard | $212.4 | $210.7 | | Non-retail tissue | $13.2 | $13.9 | | Pulp | $3.5 | $10.9 | | Other | $3.9 | $2.1 | | Eliminations | $(2.2) | $(7.8) | | Total net sales | $425.9 | $477.9 | ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's analysis of financial condition, operating results, future expectations, and liquidity for the period Overview This section provides an executive summary, outlines critical accounting policies, and defines non-GAAP measures Executive Summary This section provides a high-level summary of the company's key financial performance metrics for the period Key Financial Metrics Summary | Financial Metric | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | Change (%) | | :----------------- | :-------------------------------- | :-------------------------------- | :--------- | | Net Sales | $425.9 million | $477.9 million | (11)% | | Net Income | $12.1 million | $10.3 million | 17.5% | | Diluted EPS | $0.71 | $0.62 | 14.5% | | Adjusted EBITDA | $54.3 million | $55.4 million | (2.0)% | Critical Accounting Policies and Estimates This section addresses the company's critical accounting policies and estimates, noting any significant changes - There have been no significant changes to the critical accounting policies and estimates disclosed in the Annual Report on Form 10-K for the year ended December 31, 2020[50] Non-GAAP Measures This section defines and reconciles non-GAAP financial measures used by management to assess performance - Adjusted EBITDA is used as a supplemental measure of performance, defined as earnings (loss) from operations before interest expense, net, non-operating pension and other postretirement benefit costs, taxes, depreciation and amortization, and other operating charges, net[51] Adjusted EBITDA Reconciliation | (In millions) | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :---------------------------------------------------------------------------------------------------- | :-------------------------------- | :-------------------------------- | | Net income | $12.1 | $10.3 | | Income tax provision (benefit) | $3.2 | $(6.2) | | Interest expense, net | $9.3 | $12.8 | | Depreciation and amortization | $26.8 | $28.0 | | Other operating charges, net | $0.4 | $8.6 | | Other non-operating expense | $2.5 | $1.9 | | Adjusted EBITDA | $54.3 | $55.4 | | Adjusted EBITDA Consumer Products segment | $34.7 | $31.9 | | Adjusted EBITDA Pulp and Paperboard segment | $34.0 | $35.5 | | Adjusted EBITDA Corporate and other | $(14.4) | $(11.9) | Our Operating Results This section details the operating performance and financial results of the company's business segments Consumer Products Segment This section analyzes the financial performance of the Consumer Products segment, including sales, operating income, and Adjusted EBITDA Consumer Products Segment Performance | (Dollars in millions, except per unit) | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | Increase (decrease) (%) | | :------------------------------------- | :-------------------------------- | :-------------------------------- | :---------------------- | | Sales | $208.4 | $262.5 | (20.6)% | | Operating income | $17.9 | $14.6 | 22.6% | | Operating margin | 8.6% | 5.6% | | | Adjusted EBITDA | $34.7 | $31.9 | 8.8% | | Adjusted EBITDA margin | 16.6% | 12.1% | | | Shipments (short tons) | 80,185 | 99,793 | (19.6)% | | Retail sales price (per short ton) | $2,758 | $2,732 | 1.0% | | Non-retail sales price (per short ton) | $1,404 | $1,548 | (9.3)% | - Sales volumes decreased due to slowing consumer demand and customer inventory rebalancing following COVID-19 panic buying in 2020. Operating income and Adjusted EBITDA increased due to lower input costs (packaging, chemical) and improved operating efficiencies, despite lower sales volume[56] Pulp and Paperboard Segment This section analyzes the financial performance of the Pulp and Paperboard segment, including sales, operating income, and Adjusted EBITDA Pulp and Paperboard Segment Performance | (Dollars in millions, except per ton amounts) | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | Increase (decrease) (%) | | :-------------------------------------------- | :-------------------------------- | :-------------------------------- | :---------------------- | | Sales | $219.7 | $223.1 | (1.5)% | | Operating income | $25.0 | $26.2 | (4.4)% | | Operating margin | 11.4% | 11.7% | | | Adjusted EBITDA | $34.0 | $35.5 | (4.1)% | | Adjusted EBITDA margin | 15.5% | 15.9% | | | Shipments (short tons) | 206,712 | 207,916 | (0.6)% | | Sales price (per short ton) | $1,028 | $1,013 | 1.5% | - Sales volumes decreased slightly due to product availability issues from weather-related production interruptions. Sales prices increased due to changes in product mix and initial impacts of a recently announced price increase. Operating income and Adjusted EBITDA decreased due to significant cost increases from a major winter storm, including higher natural gas and raw material costs, partially offset by higher sales prices[58] Corporate expenses This section details the company's corporate overhead expenses not directly attributable to business segments Corporate Expenses Summary | Corporate Expenses (In millions) | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :------------------------------- | :-------------------------------- | :-------------------------------- | | Corporate expenses | $15.5 | $13.4 | - Corporate expenses primarily consist of overhead costs such as wages, benefits, professional fees, insurance, and other expenses for corporate functions not directly associated with business operations[59] Other operating charges This section provides details on other operating charges, including non-recurring or unusual expenses - Refer to Note 8 for detailed information on other operating charges, which were significantly lower in Q1 2021 compared to Q1 2020[60] Interest expense This section details the company's interest expense, net, and its impact on financial results - Interest expense for the three months ended March 31, 2021, was $3.5 million lower than the prior year period, primarily due to lower debt outstanding[61] Potential impairments This section discusses the company's policy and considerations regarding potential asset impairment charges - The company periodically reviews possible dispositions or reorganizations of assets, which may require recording impairment charges if estimated net sales proceeds are less than previous estimates of undiscounted future net cash flows[62][63] Expectations for the Second Quarter of 2021 This section outlines management's financial and operational expectations for the upcoming second quarter of 2021 - In the Consumer Products segment, significant declines in customer order patterns are expected to continue in Q2 2021 due to high customer and consumer inventory levels from 2020's COVID-19 panic buying, leading to reduced production[64] - Both segments are expected to face significant cost inflation, particularly in pulp prices, as well as chemicals, packaging, and freight[64] - A major planned maintenance outage in Q2 2021 is anticipated to impact Adjusted EBITDA by approximately $21 million to $24 million[64] Liquidity and Capital Resources This section analyzes the company's liquidity position, cash flow generation, and capital resources Operating Activities This section details cash flows generated from the company's primary operating activities Cash Flow from Operating Activities | Cash Flow from Operating Activities (In millions) | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :------------------------------------------------ | :-------------------------------- | :-------------------------------- | | Net cash flows provided by operating activities | $33.8 | $11.7 | - The increase in net cash flows from operating activities was primarily driven by a net reduction in working capital[67] Investing Activities This section details cash flows used in the company's investing activities, primarily capital expenditures Cash Flow from Investing Activities | Cash Flow from Investing Activities (In millions) | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :------------------------------------------------ | :-------------------------------- | :-------------------------------- | | Net cash flows used in investing activities | $11.1 | $10.5 | - Cash paid for capital expenditures is expected to be approximately $55 million to $60 million for the full year 2021[68] Financing Activities This section details cash flows provided by or used in the company's financing activities, including debt and equity transactions Cash Flow from Financing Activities | Cash Flow from Financing Activities (In millions) | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :------------------------------------------------ | :-------------------------------- | :-------------------------------- | | Net cash flows provided by (used in) financing activities | $(1.4) | $38.1 | - The shift from cash provided to cash used in financing activities was primarily due to the absence of borrowings in the first three months of 2021 compared to the corresponding period in 2020[69] Credit Agreements This section provides an overview of the company's credit agreements and compliance with financial covenants - The ABL Credit Agreement, maturing on July 26, 2024, includes a $250 million revolving loan commitment. As of March 31, 2021, $229.2 million was available under the line, with no outstanding borrowings and $3.6 million utilized for letters of credit[70] - The company's consolidated fixed charge coverage ratio was approximately 5.46x as of March 31, 2021, well above the covenant requirement of 1.10 to 1.00[70] ITEM 3. Quantitative and Qualitative Disclosures About Market Risk This section outlines the company's exposure to market risks, specifically focusing on interest rate risk associated with its financial instruments Interest Rate Risk This section details the company's exposure to interest rate fluctuations and their potential impact on financial results - As of March 31, 2021, the company had $129.3 million in borrowings outstanding under its credit agreements. A one percentage point increase or decrease in interest rates would result in an approximate $1.3 million annual effect on interest expense[72] ITEM 4. Controls and Procedures This section details the evaluation of the company's disclosure controls and procedures and reports on any changes in internal control over financial reporting Disclosure Controls and Procedures This section reports on the effectiveness of the company's disclosure controls and procedures - As of March 31, 2021, the CEO and CFO concluded that the company's disclosure controls and procedures were effective in providing reasonable assurance that material information is recorded, processed, summarized, and reported in a timely manner[74] Changes in Internal Control Over Financial Reporting This section reports on any material changes in the company's internal control over financial reporting - There were no changes in internal control over financial reporting during the three months ended March 31, 2021, that materially affected, or are likely to materially affect, the company's internal control over financial reporting[75] PART II. Other Information This part presents other required information not included in the financial statements, such as legal proceedings and risk factors ITEM 1. Legal Proceedings This section addresses the company's involvement in legal claims, proceedings, and litigation - The company believes that the results of current legal proceedings, in the aggregate, will not have a material adverse effect on its financial condition[77] ITEM 1A. Risk Factors This section refers to the risk factors that could affect the company's business and financial results - There are no material changes from the risk factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2020[78] ITEM 6. Exhibits This section lists the exhibits filed as part of the Form 10-Q - Exhibits include Rule 13a-14(a)/15d-14(a) Certifications, furnished statements of the CEO and CFO under 18 U.S.C Section 1350, and various XBRL Taxonomy Extension documents[80] Signatures This section contains the required signatures for the Form 10-Q, certifying its accuracy and completeness - The report is duly signed on behalf of Clearwater Paper Corporation by Arsen S. Kitch, President, Chief Executive Officer and Director, and Michael J. Murphy, Senior Vice President, Finance and Chief Financial Officer, on May 5, 2021[82][83]