Clearwater Paper Corp
For the period ended Jun 30, 2024. Filed Aug 6, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2024 · Filed Aug 6, 2024
CLW$13.27-4.5%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-03-31; filed 2024-04-29.
0001504337-24-000025
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-06-30; filed 2024-08-06.
0001504337-24-000042
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 42 previous paragraphs and 52 current paragraphs.
24 unchanged; 15 reworded; 13 added; 2 removed; 1 previous and 0 current paragraphs rearranged.
Tables are not compared: 4 previous and 4 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (13)
Current report
We recorded an increase of 3% in net sales to $1.1 billion for the six months ended June 30, 2024 compared to $1 billion for the six months ended June 30, 2023. We recorded a net loss for the six months ended June 30, 2024 of $8.6 million, or $0.52 per diluted share, compared to net income of $53.5 million or $3.15 per diluted share for the six months ended June 30, 2023. We recorded Adjusted EBITDA for the six months ended June 30, 2024 of $96.8 million compared to $137.2 million for the six months ended June 30, 2023.
Current report
Business Acquisitions
Current report
We apply the principles provided in the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 805, Business Combinations, to determine whether an acquisition involves an asset or a business. In determining whether an acquisition should be accounted for as a business combination or asset acquisition, we first determine whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this is the case, the single identifiable asset or the group of similar assets is accounted for as an asset acquisition. If this is not the case, we then further evaluate whether the single identifiable asset or group of similar identifiable assets and activities includes, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. If so, the transaction is accounted for as a business combination.
Current report
We account for business combinations using the acquisition method of accounting which requires that (i) identifiable assets acquired (including identifiable intangible assets) and liabilities assumed generally be measured and recognized at fair value as of the acquisition date and (ii) the excess of the purchase price over the net fair value of identifiable assets acquired and liabilities assumed be recognized as goodwill, which is not amortized for accounting purposes but is subject to testing for impairment at least annually. We measure and recognize asset acquisitions that are not deemed to be business combinations based on the cost to acquire the assets. Goodwill is not recognized in an asset acquisition with any consideration in excess of net assets acquired allocated to acquired assets on a relative estimated fair value basis. Transaction costs are expensed in a business combination and transaction costs directly attributable to the acquisition are considered a component of the cost of the acquisition in an asset acquisition. See Note 3, "Business Acquisition," in the Notes to Consolidated Financial Statements included in Item 1 of this report for additional information.
Current report
During thesix months ended June 30, 2024, net cash provided by financing activities was$662.1 million. We received net proceeds of $723.5 million from the issuance of long-term debt related to the business acquisition. We used $4.5 million for debt issuance costs, $3.5 million to repurchase stock, and repaid debt of $50.5 million.
Current report
Term Credit Agreement and ABL Credit Agreement
Current report
The Company is a party to a Credit Agreement, dated October 27, 2023, with AgWest Farm Credit, PCA, as administrative agent, and several lenders, as amended and restated on May 1, 2024 (as so amended and restated, the “Term Credit Agreement”) that consists of the following facilities: (i) a term revolver loan commitment in the amount of $270 million (the “Term Revolver Facility”), $150 million of which was borrowed on October 27, 2023 and $120 million of which was borrowed on May 1, 2024, (ii) a term loan commitment in the amount of $400 million (the “Farm Credit Term Loan Facility”), which was fully drawn on May 1, 2024 and (iii) a term loan commitment in the amount of $90 million (the “Commercial Bank Term Loan Facility” and together with the Farm Credit Term Loan Facility, collectively, the “Term Loan Facilities”), which was fully drawn on May 1, 2024. We may also increase commitments under the Term Revolver Facility in an aggregate principal amount of up to $60 million, subject to obtaining commitments from any participating lender and certain other conditions.
Current report
The lending commitment under the Term Revolver Facility is subject to an annual reduction of 2% of the commitments then in effect. The Term Credit Agreement matures and the lending obligations under the Term Revolver Facility terminate on the earlier of (i) in the case of the Term Revolver Facility and the Commercial Bank Term Loan Facility, May 1, 2029, (ii) in the case of the Farm Credit Term Loan Facility, May 1, 2031 and (iii) and the date that is 91 days prior to the maturity of the Company’s 4.750% senior notes due 2028 (the “2020 Notes”), unless during such period of time the outstanding principal amount of the 2020 Notes plus $50 million is less than the sum of our available borrowing liquidity and unrestricted cash.
Current report
We may, at our option, prepay and reborrow any borrowings under the Term Revolver Facility, in whole or in part, at any time and from time to time without premium or penalty (other than prepayments of the initial advance on the Term Revolver Facility of $150 million to the extent made prior to November 1, 2024 and in certain other circumstances). In addition, we must make mandatory prepayments of principal under the Term Revolver Facility upon the occurrence of certain asset sales. We are required to repay a percentage of the aggregate outstanding principal amount of the borrowings under the Term Loan Facilities in quarterly installments on the last day of each March, June, September and December, commencing on the first day of the third full fiscal quarter after May 1, 2024. We may prepay any borrowings under the Term Loan Facilities, in whole or in part, at any time and from time to time without premium or penalty. In addition, we must make mandatory prepayments of principal under the Term Loan Facilities upon the occurrence of certain specified events, including certain asset sales, debt issuances not permitted under the Term Credit Agreement, and of 50% of our quarterly excess cash flows, less any voluntary prepayments of the Term Loan Facilities.
Current report
Under the Term Revolver Facility and the Farm Credit Term Loan Facility, loans generally may bear interest based on the secured overnight financing rate (SOFR) or the agent’s fixed rate, as applicable, plus, in each case, an applicable margin that (i) prior to repayment in full of the Term Loan Facilities, may vary between 2.25% per annum and 4.75% per annum based on our consolidated leverage ratio (as defined under and calculated in accordance with the Term Credit Agreement) and (ii) with respect to the Term Revolver Facility and after payment in full of the Term Loan Facilities, is 3.65% per annum. In the case of the $150 million borrowing disbursed under the Term Revolver Facility on October 27, 2023, the Company previously selected a one-year fixed rate loan bearing interest at an all-in interest rate of 9.13%. Under the Commercial Bank Term Loan Facility, loans generally may bear interest based on SOFR or a base rate, as applicable, plus, in each case, an applicable margin that (x) in the case of SOFR loans, may vary between 1.75% per annum and 4.25% per annum based on the Company’s consolidated leverage ratio and (y) in the case of base rate loans, may vary between 0.75% per annum and 3.25% per annum, in each case, based on the Company’s consolidated leverage ratio.
Current report
Until our consolidated leverage ratio is less than or equal to 3.25 to 1.00 and our debt to capitalization ratio is less than or equal to 60%, in each case, for four consecutive fiscal quarters (or as of the end of a quarter, if earlier, if a disposition is consummated which results in indebtedness being reduced by at least $200 million) we must maintain the following financial covenants under the Term Credit Agreement: (i) a maximum consolidated leverage ratio not greater than (x) commencing with the first fiscal quarter ending at least fifteen (15) months after May 1, 2024 and until the fiscal quarter ending immediately prior to the first fiscal quarter ending at least twenty-four (24) months after May 1, 2024, 4.50 to 1.00, and (y) commencing with the first fiscal quarter ending at least twenty-four (24) months after May 1, 2024 and thereafter, 4.00 to 1.00; and (ii) a minimum current ratio (as defined under and calculated in accordance with Term Credit Agreement) not less than 1.25 to 1.00. In addition, until the Commercial Bank Term Loan Facility is paid in full, we must maintain a maximum debt to capitalization ratio no greater than (1) commencing with the first fiscal quarter ending after May 1, 2024 and until the fiscal quarter ending immediately prior to the first fiscal quarter ending at least twenty-four (24) months after May 1, 2024, 70%, (2) commencing with the first fiscal quarter ending at least twenty-four (24) months after May 1, 2024 and until the fiscal quarter ending immediately prior to the first fiscal quarter ending at least forty-eight (48) months after May 1, 2024, 65%, and (3) commencing with the first fiscal quarter ending at least forty-eight (48) months after May 1, 2024 and thereafter, 60%.
Current report
Under the ABL Credit Agreement, loans may bear interest based on SOFR or an annual base rate, as applicable, plus, in each case, an applicable margin that is based on availability, as calculated under the ABL Credit Agreement that may vary from 1.25% per annum to 1.75% per annum in the case of SOFR loans and 0.25% per annum to 0.75% per annum in the case of annual base rate loans. In addition, a commitment fee based on unused availability is also payable which may vary from 0.25% per annum to 0.375% per annum.
Current report
Both the Term Credit Agreement and the ABL Credit Agreement contain customary representations, warranties, affirmative and negative covenants, and events of default (including with respect to a change of control).
Removed paragraphs (2)
Previous report
See discussion on segment level results regarding net sales, operating results and Adjusted EBITDA in “Our Operating Results” below.
Previous report
Credit Agreements
Reworded paragraphs (15)
Previous wording
We recorded net sales of $496.2 million for the quarter ended March 31, 2024 compared to $525.4 million for the quarter ended March 31, 2023. We recorded net income for the quarter ended March 31, 2024 of $17.2 million, or $1.02 per diluted share, compared to net income of $23.8 million or $1.40 per diluted share for the quarter ended March 31, 2023. We recorded Adjusted EBITDA for the quarter ended March 31, 2024 of $61.5 million compared to $65.7 million for the quarter ended March 31, 2023. During the quarter ended March 31, 2024, we experienced a severe weather event at our Lewiston site which resulted in a loss in excess of $15 million. We expect to receive insurance proceeds to offset a portion of this loss in the quarter ended June 30, 2024.
Current wording
We recorded net sales of $586.4 million for the quarter ended June 30, 2024 compared to $524.6 million for the quarter ended June 30, 2023. We recorded a net loss for the quarter ended June 30, 2024 of $25.8 million, or $1.55 per diluted share, compared to net income of $29.7 million or $1.75 per diluted share for the quarter ended June 30, 2023. We recorded Adjusted EBITDA for the quarter ended June 30, 2024 of $35.3 million compared to $71.5 million for the quarter ended June 30, 2023.
Previous wording
As of March 31, 2024 there have been no significant changes with regard to the critical accounting policies and estimates disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023.
Current wording
For a discussion of our critical accounting policies and estimates, see our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. There have been no material changes to the critical accounting policies and estimates disclosed in our Annual Report except as discussed below.
Previous wording
Sales volumes in our Pulp and Paperboard segment decreased for the quarter ended March 31, 2024 compared to the same period in the prior year due to weaker demand as customers continued to rebalance inventory levels. Sales prices decreased in our Pulp and Paperboard segment for the quarter ended March 31, 2024 compared to the same period in the prior year due to previously announced price decreases and changes in our product mix.
Current wording
Sales volumes in our Pulp and Paperboard segment increased for the quarter and six months ended June 30, 2024 compared to the same period in the prior year due the inclusion of the Augusta operations (see Note 3, "Business Acquisition," in our Notes to our Consolidated Financial Statements). Sales prices decreased in our Pulp and Paperboard segment for the quarter and six months ended June 30, 2024 compared to the same period in the prior year due to previously announced price decreases and changes in our product mix.
Previous wording
Operating income and Adjusted EBITDA decreased for the quarter ended March 31, 2024 as compared to the same period in the prior year primarily due to lower sales prices and the impacts of a significant weather event at our Lewiston Idaho facility, partially offset by lower input costs, specifically in wood, energy and freight.
Current wording
Operating income and Adjusted EBITDA decreased for the quarter ended June 30, 2024 as compared to the same period in the prior year due to lower sales prices and the impacts of our planned major maintenance outage at our Lewiston, Idaho facility, partially offset by lower wood costs and an insurance recovery related to a significant weather event at our Lewiston, Idaho facility which occurred in the first quarter of 2024. The decrease in operating income and Adjusted EBITDA for the six months ended June 30, 2024 as compared to the same period in the prior year was primarily driven by lower sales prices and the impacts of our planned major maintenance outage at our Lewiston, Idaho facility, partially offset by lower wood costs.
Previous wording
Retail sales volumes in our Consumer Products segment increased for the quarter ended March 31, 2024 compared to the same period in the prior year due to the increased demand for private label versus branded products. Retail sales prices decreased in our Consumer Products segment for the quarter ended March 31, 2024 compared to the same period in the prior year due to changes in our product mix and minor reductions resulting from contract pricing indexed to certain cost inputs.
Current wording
Retail sales volumes in our Consumer Products segment increased for the quarter and six months ended June 30, 2024 compared to the same period in the prior year due to the increased demand for private label versus branded products. Retail sales prices decreased in our Consumer Products segment for the quarter and six months ended June 30, 2024 compared to the same period in the prior year due to changes in our product mix and reductions resulting from contract pricing indexed to certain cost inputs.
Previous wording
Operating income and Adjusted EBITDA increased for the quarter ended March 31, 2024 compared to the same period in the prior year predominately due to lower input costs, primarily in pulp and freight.
Current wording
Operating income and Adjusted EBITDA increased for the quarter ended June 30, 2024 compared to the same period in the prior year predominately due to higher volumes and lower raw material costs partially offset by lower sales prices. The increase in operating income and Adjusted EBITDA for the six months ended June 30, 2024 compared to the same period in the prior year was driven by lower input costs, primarily in pulp, freight and energy costs.
Previous wording
Corporate expenses for the quarter ended March 31, 2024 were $18.5 million compared to $20.4 million in the same period in the prior year. The decrease between periods is primarily related to costs associated with business process improvement projects which occurred during 2023 offset by higher wages in 2024. Corporate expenses primarily consist of corporate overhead such as wages and benefits, professional fees, insurance and other expenses for corporate functions including certain executive officers, public company costs, information technology, financial services, environmental and safety, legal, supply management, human resources and other corporate functions not directly associated with the business operations.
Current wording
Corporate expenses for the quarter and six months ended June 30, 2024 were $17.7 million and $36.2 million compared to $20.1 million and $40.6 million in the same period in the prior year. The decrease between periods is primarily related to costs associated with business process improvement projects which occurred during 2023 offset by higher wages in 2024. Corporate expenses primarily consist of corporate overhead such as wages and benefits, professional fees, insurance and other expenses for corporate functions including certain executive officers, public company costs, information technology, financial services, environmental and safety, legal, supply management, human resources and other corporate functions not directly associated with the business operations.
Previous wording
Net cash flows provided by operating activities for the quarter ended March 31, 2024 were $59.2 million compared to net cash flows used in operating activities of $9.1 million for the quarter ended March 31, 2023. This increase was driven by reductions in outflows from trade accounts payable compared to the quarter ended March 31, 2023 due to the major outage that occurred in the fourth quarter of 2022. Accounts receivable and accounts payable agings as of March 31, 2024 have remained relatively consistent with balances as of December 31, 2023.
Current wording
Net cash flows provided by operating activities for the six months ended June 30, 2024 were $80.3 million compared to net cash flows used in operating activities of $36.9 million for the six months ended June 30, 2023. This increase was driven by increases in trade accounts payable compared to the six months ended June 30, 2023 due to the timing of the planned major outages that occurred in the second quarter of 2024 and the fourth quarter of 2022. Accounts receivable and accounts payable agings as of June 30, 2024 have remained relatively consistent with balances as of December 31, 2023.
Previous wording
Net cash flows used in investing activities for the quarter ended March 31, 2024 were $18.5 million compared to $21.5 million in the same period of the prior year. Included in "Accounts payable and accrued liabilities" on our Consolidated Balance Sheets was $10.3 million and $7.0 million related to capital expenditures that had not yet been paid at March 31, 2024 and 2023.
Current wording
Net cash flows used in investing activities for six months ended June 30, 2024 were $744.8 million compared to $34.3 million in the same period of the prior year. This amount includes $708.2 million associated with the acquisition of a paperboard manufacturing facility and associated business, located in Augusta, Georgia (Augusta) from Graphic Packaging International, LLC (the “Augusta Acquisition”). Included in "Accounts payable and accrued liabilities" on our Consolidated Balance Sheets was $35.1 million and $14.0 million related to unpaid capital expenditures at June 30, 2024 and 2023.
Previous wording
During 2024, we expect cash paid for capital expenditures to be approximately $90 million to $100 million.
Current wording
During 2024, we expect cash paid for capital expenditures to be approximately $120 million to $140 million.
Previous wording
During thequarter ended March 31, 2023, net cash used for financing activities was$6.3 million. We used $1.7 million to repurchase stock though our share repurchase program and $4.2 million in connection with income tax withholding requirements associated with our employee stock-based compensation plans. Additionally, we borrowed and repaid $12 million on our ABL credit facility during the quarter to cover short term cash requirements.
Current wording
During thesix months ended June 30, 2023, net cash used for financing activities was$15.3 million. We used $10.1 million to repurchase stock though our share repurchase program and $4.6 million in connection with income tax withholding requirements associated with our employee stock-based compensation plans. Additionally, we borrowed and repaid $12.0 million on our ABL Credit Agreement to cover short term cash requirements.
Previous wording
We are also party to an ABL Credit Agreement (as amended, the “ABL Credit Agreement,” and together with the PCA Credit Agreement, the “Credit Agreements”) that includes a $275 million revolving loan commitment, subject to borrowing base limitations. Borrowings under the ABL Credit Agreement are subject to mandatory prepayment in certain circumstances. We may also increase commitments under the ABL Credit Agreement in an aggregate principal amount of up to $100 million, subject to obtaining commitments from any participating lenders and certain other conditions. We may, at our option, prepay and reborrow any borrowings under the ABL Credit Agreement, in whole or in part, at any time and from time to time without premium or penalty (except in certain circumstances).
Current wording
The Company is also party to a Credit Agreement, dated July 26, 2019, with JPMorgan Chase Bank, N.A., as administrative agent and several lenders, as amended on May 1, 2024 (as so amended, the “ABL Credit Agreement”) that includes a $375 million revolving loan commitment, subject to borrowing base limitations. The revolving commitments terminate, and the ABL Credit Agreement matures, on November 7, 2027. Borrowings under the ABL Credit Agreement are subject to mandatory prepayment in certain circumstances. We may also increase commitments under the ABL Credit Agreement in an aggregate principal amount of up to $100 million, subject to obtaining commitments from any participating lenders and certain other conditions. We may, at our option, prepay and reborrow any borrowings under the ABL Credit Agreement, in whole or in part, at any time and from time to time without premium or penalty (except in certain circumstances).
Previous wording
Both Credit Agreements contain customary representations, warranties, and affirmative and negative covenants. The ABL Credit Agreement also contains a financial covenant which requires us to maintain a consolidated fixed charge coverage ratio of not less than 1.10x to 1.00x, provided that the financial covenant under the ABL Credit Agreement is only applicable during an event of default or if availability, as calculated under the ABL Credit Agreement, is at any time less than or equal to the greater of (i) 10% of the lesser of the borrowing base and the maximum $275 million of current revolving loan commitments and (ii) $19 million.
Current wording
The ABL Credit Agreement also contains a financial covenant, which requires us to maintain a consolidated fixed charge coverage ratio of not less than 1.10x to 1.00x, provided that the financial covenant under the ABL Credit Agreement is only applicable during an event of default or if availability, as calculated under the ABL Credit Agreement, is at any time less than or equal to the greater of (i) 10.0% of the lesser of the borrowing base and the maximum $375 million of current revolving loan commitments and (ii) $25 million.
Previous wording
We are party to a credit agreement (as the same may be amended from time to time, the “PCA Credit Agreement”) that consists of a revolving term loan commitment in the amount of $270 million. The obligations under the PCA Credit Agreement are secured by liens on substantially all of our personal property assets and each of our domestic subsidiaries that are guarantors of the PCA Credit Agreement. We may, at our option, prepay and reborrow any borrowings under the PCA Credit Agreement, in whole or in part, at any time and from time to time without premium or penalty (except in certain circumstances).
Current wording
The obligations under the Term Credit Agreement and the ABL Credit Agreement are secured by liens on substantially all of our personal property assets and each of our domestic subsidiaries that are guarantors.
Previous wording
As of March 31, 2024, we were in compliance with the covenants in the Credit Agreements, and based on our current financial projections, we expect to remain in compliance. However, if our financial position, results of operations or market conditions deteriorate, we may not be able to remain in compliance. There can be no assurance that we will be able to remain in compliance with our Credit Agreements.
Current wording
At June 30, 2024, we were in compliance with the currently applicable covenants associated with our Term Credit Agreement and our ABL Credit Agreement, and based on our current financial projections, we expect to remain in compliance. However, if our financial position, results of operations or market conditions deteriorate, we may not be able to remain in compliance. There can be no assurance that we will be able to remain in compliance with our Term Credit Agreement, our ABL Credit Agreement or other credit agreements.
Rearranged previous paragraphs (1)
Previous report — wording carried elsewhere
During thequarter ended March 31, 2024, net cash used for financing activities was$27.6 million. We used $0.5 million to repurchase stock, $3.1 million in connection with income tax withholding requirements associated with our employee stock-based compensation plans, and repaid debt of $23.5 million, including $3.3 million in commitment fees.