Clearwater Paper(CLW) - 2022 Q1 - Quarterly Report

Forward-Looking Statements Forward-looking statements in this report are subject to risks and uncertainties that may cause actual results to differ materially - Forward-looking statements cover areas including COVID-19 impact, strategic projects, cash flows, capital expenditures, operating costs, and debt repayment[2] - Key factors that could cause results to differ include COVID-19 impacts, competitive pricing pressures, customer demand, costs and availability of raw materials and transportation, cyber-security risks, manufacturing disruptions, and debt covenants[3] PART I. FINANCIAL INFORMATION Consolidated Financial Statements (Unaudited) Unaudited consolidated financial statements for Q1 2022 show increased net sales and net income, with a slight decrease in total assets and liabilities, leading to higher stockholders' equity Consolidated Balance Sheets As of March 31, 2022, total assets slightly decreased to $1,683.1 million due to reduced property, plant, and equipment, while total liabilities decreased to $1,153.2 million, leading to increased stockholders' equity Consolidated Balance Sheet Highlights (in millions) | Account | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total current assets | $507.5 | $487.2 | | Property, plant and equipment, net | $1,059.9 | $1,081.8 | | Total assets | $1,683.1 | $1,690.1 | | Total current liabilities | $256.1 | $254.1 | | Long-term debt | $617.7 | $637.6 | | Total liabilities | $1,153.2 | $1,178.3 | | Total stockholders' equity | $530.0 | $511.7 | Consolidated Statements of Operations In Q1 2022, net sales increased by 14.6% to $488.2 million, driving net income up to $16.6 million, or $0.97 per diluted share, compared to the prior year Q1 Operating Results (in millions, except per-share data) | Metric | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Net sales | $488.2 | $425.9 | | Income from operations | $32.9 | $27.1 | | Net income | $16.6 | $12.1 | | Diluted EPS | $0.97 | $0.71 | Consolidated Statements of Cash Flows Net cash from operating activities increased to $41.1 million in Q1 2022, while cash used in investing decreased and cash used in financing significantly increased due to debt repayments Q1 Cash Flow Summary (in millions) | Activity | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Net cash from operating activities | $41.1 | $33.8 | | Net cash used in investing activities | ($7.9) | ($11.1) | | Net cash used in financing activities | ($21.9) | ($1.4) | | Increase in cash | $11.2 | $21.2 | Notes to Consolidated Financial Statements The notes detail the prospective adoption of a new accounting standard, a reduction in debt fair value, an increased effective tax rate, and varied segment performance, with strong results in Pulp and Paperboard but weaker in Consumer Products - The company adopted ASU 2021-10 for government assistance disclosures on January 1, 2022, with no material impact[22] - The effective tax rate for Q1 2022 was 26.6%, higher than the 21% U.S. federal statutory rate, primarily due to state taxes and nondeductible compensation[28] Segment Net Sales and Operating Income (in millions) | Segment | Q1 2022 Net Sales | Q1 2021 Net Sales | Q1 2022 Operating Income | Q1 2021 Operating Income | | :--- | :--- | :--- | :--- | :--- | | Pulp and Paperboard | $266.2 | $219.7 | $50.3 | $25.0 | | Consumer Products | $223.0 | $208.4 | $0.9 | $17.9 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses a 15% increase in Q1 2022 net sales, leading to higher net income and Adjusted EBITDA, driven by strong Pulp and Paperboard performance, while Consumer Products faced significant cost inflation despite price increases Executive Summary In Q1 2022, net sales increased by 15% to $488.2 million, with net income rising to $16.6 million and Adjusted EBITDA increasing to $58.9 million Q1 2022 Key Financial Metrics (vs. Q1 2021) | Metric | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Net Sales | $488.2M | $425.9M | | Net Income | $16.6M | $12.1M | | Adjusted EBITDA | $58.9M | $54.3M | Our Operating Results Operating results varied by segment, with Pulp and Paperboard's operating income doubling due to higher pricing, while Consumer Products' operating income plummeted due to significant cost inflation despite price increases - Pulp and Paperboard operating income increased 100.8% to $50.3 million, and Adjusted EBITDA rose 75.0% to $59.5 million, driven by higher sales prices[56] - Consumer Products operating income decreased 94.8% to $0.9 million, and Adjusted EBITDA fell 53.2% to $16.2 million, primarily due to higher input costs[58][59] - Corporate expenses increased to $17.8 million from $15.5 million year-over-year, mainly due to higher incentive compensation[60] Liquidity and Capital Resources The company's liquidity is primarily from operations and its ABL credit facility, with Q1 2022 generating $41.1 million in operating cash and making $20.4 million in voluntary debt repayments - Net cash from operating activities was $41.1 million for Q1 2022, up from $33.8 million in Q1 2021[67] - The company made voluntary debt repayments of $20.4 million in Q1 2022[69] - Expected capital expenditures for 2022 are approximately $60 million to $70 million[68] - The ABL Credit Agreement provides a $250 million revolving loan commitment, with no borrowings outstanding as of March 31, 2022, and $3.7 million used for letters of credit[70] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is exposure to interest rate fluctuations on its $30.0 million variable-rate debt, including the Term Loan and ABL Credit Agreement - A one percentage point change in interest rates would result in an approximate $0.3 million annual effect on interest expense, based on $30.0 million of variable-rate debt outstanding[72] Controls and Procedures As of March 31, 2022, the CEO and CFO concluded that disclosure controls and procedures are effective, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that disclosure controls and procedures are effective in providing reasonable assurance of timely and accurate material information reporting[74] - No material changes occurred during the quarter affecting the company's internal control over financial reporting[75] PART II. OTHER INFORMATION Legal Proceedings The company is involved in various claims and litigation, but management does not expect their outcomes to have a material adverse effect on financial condition - The company does not expect legal proceedings, in aggregate, to materially adversely affect its financial condition[77] Risk Factors No material changes have occurred to the risk factors previously disclosed in the company's 2021 Annual Report on Form 10-K - No material changes from the risk factors disclosed in the 2021 Form 10-K are reported[78] Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO/CFO certifications and XBRL data files - Exhibits filed include Sarbanes-Oxley Section 302 and 1350 certifications, along with XBRL instance documents and related files[78]