Clearwater Paper Corp
For the period ended Dec 31, 2024. Filed Feb 24, 2025.
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FY2024 · Filed Feb 24, 2025
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Item 8. Financial Statements and Supplementary Data
| ITEM 8. | Financial Statements and Supplementary Data |
|---|
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors Clearwater Paper Corporation:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Clearwater Paper Corporation and subsidiaries (the Company) as of December 31, 2024 and 2023, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2024, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2024, in conformity with U.S. generally accepted accounting principles.
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, 2024, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 24, 2025 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated 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 consolidated 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 consolidated 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 regarding the amounts and disclosures in the consolidated 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 consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Measurement of the pension benefit obligation
As discussed in Notes 1 and 12 to the consolidated financial statements, the Company’s pension benefit obligation was $217.2 million as of December 31, 2024. The measurement of the pension benefit obligation is based on actuarial assumptions that require judgment, which includes the discount rate applied to the pension benefit obligation.
We identified the evaluation of the discount rate used in the measurement of the pension benefit obligation as a critical audit matter. Specialized skills and knowledge were required to evaluate the discount rate used to determine the pension benefit obligation. In addition, there was subjectivity and judgment in applying and evaluating results of the procedures due to the sensitivity of the pension benefit obligation to changes in the discount rate.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain controls over the Company’s pension benefit process. This included a control related to the determination of the discount rate assumption. We considered the change in the discount rate from that used in the prior year, including consideration of the changes in the discount rate in light of published reports of actuarial experts. We involved an actuarial professional with specialized skills and knowledge, who assisted in evaluating the discount rate as determined using the hypothetical bond portfolio model through analyzing the bond selection criteria, the bond ratings, and the cash flow matching of the model.
Valuation of certain machinery and equipment assets in the Augusta Acquisition
As discussed in Note 3 to the consolidated financial statements, the Company completed the acquisition of a paperboard manufacturing facility and associated business, located in Augusta, Georgia (the Augusta Acquisition) for an aggregate purchase price of $708.2 million. The purchase price of the Augusta Acquisition was allocated to assets acquired and liabilities assumed based on the estimated fair values as of the date of the acquisition. Assets acquired included $610.3 million of property, plant, and equipment, which were primarily assigned a fair value using replacement cost.
We identified the evaluation of the fair value measurement of certain property, plant, and equipment acquired in the Augusta Acquisition as a critical audit matter. Specifically, the evaluation of the replacement cost assumptions, including the assessment of whether the replacement cost basis was comparable with the asset being valued, used to determine the fair value of certain property, plant, and equipment required subjective auditor judgment, including the use of specialized skills and knowledge, as changes to the replacement cost assumptions could have a significant impact on the fair value measurement.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of an internal control over the determination of replacement cost assumptions, including the comparability of the replacement cost basis to the property, plant, and equipment acquired. We involved valuation professionals with specialized skills and knowledge, who assisted in assessing the reasonableness of the Company’s estimated replacement cost assumptions, including the comparability of the replacement cost basis with the acquired asset being valued, by:
inquired of the Company’s internal and external specialists to understand the overall operations of the Augusta paperboard manufacturing facility and the Company’s specialist’s development of the replacement cost assumptions
for a selection of acquired property, plant, and equipment, assessing the comparability of assets used to develop the replacement cost assumptions and the acquired property, plant, and equipment by inspecting vendor quotes, estimates prepared by the Company’s internal specialists familiar with the selected property, plant, and equipment, and project budgets of recently purchased property, plant, and equipment
evaluating the qualifications and knowledge, skills, and ability of the Company’s internal and external specialists
/s/ KPMG
We have served as the Company’s auditor since 2007.
Seattle, Washington
February 24, 2025
Consolidated Balance Sheets
| December 31, | ||
|---|---|---|
| (In millions, except share information) | 2024 | 2023 |
| Assets | ||
| Current assets: | ||
| Cash and cash equivalents | $79.6 | $42.0 |
| Receivables, net of allowance for current expected credit losses of $1.6 and $1.2 at December 31, 2024 and 2023 | 188.7 | 96.1 |
| Inventories, net | 258.0 | 161.2 |
| Other current assets | 19.1 | 17.4 |
| Current assets of discontinued operations | — | 247.5 |
| Total current assets | 545.4 | 564.1 |
| Property, plant and equipment | 2,328.4 | 1,608.6 |
| Accumulated depreciation and amortization | (1,305.4) | (1,247.9) |
| Property, plant and equipment, net | 1,023.1 | 360.7 |
| Goodwill and intangible assets, net | 52.9 | 41.5 |
| Other assets, net | 57.9 | 47.6 |
| Long-term assets of discontinued operations | — | 657.9 |
| Total assets | $1,679.2 | $1,671.8 |
| Liabilities and stockholders' equity | ||
| Current liabilities: | ||
| Current portion of long-term debt | $0.6 | $— |
| Accounts payable and accrued liabilities | 319.7 | 195.5 |
| Current liabilities of discontinued operations | — | 90.5 |
| Total current liabilities | 320.4 | 286.0 |
| Long-term debt | 281.6 | 439.9 |
| Liability for pension and other postretirement employee benefits | 52.5 | 54.5 |
| Deferred tax liabilities and other long-term obligations | 170.2 | 84.6 |
| Long-term liabilities of discontinued operations | — | 138.1 |
| Total liabilities | 824.7 | 1,003.0 |
| Stockholders’ equity: | ||
| Preferred stock, par value $0.0001 per share, 5,000,000 shares authorized, no shares issued | — | — |
| Common stock, par value $0.0001 per share, 100,000,000 shares authorized, 16,567,722 and 16,484,550 shares issued | — | — |
| Additional paid-in capital | 11.5 | 14.9 |
| Treasury stock, at cost, and 122,821 and 0 shares | (3.3) | — |
| Retained earnings | 880.8 | 684.5 |
| Accumulated other comprehensive loss, net of tax | (34.5) | (30.7) |
| Total stockholders’ equity | 854.6 | 668.8 |
| Total liabilities and stockholders' equity | $1,679.2 | $1,671.8 |
Consolidated Statements of Operations
| For The Years Ended December 31, | |||
|---|---|---|---|
| (In millions, except per share data) | 2024 | 2023 | 2022 |
| Net sales | $1,383.6 | $1,136.0 | $1,195.0 |
| Costs and expenses: | |||
| Cost of sales | 1,307.5 | 935.3 | 982.5 |
| Selling, general and administrative expenses | 116.7 | 119.4 | 110.0 |
| Other operating charges, net | 24.0 | 3.2 | 3.2 |
| Total operating costs and expenses | 1,448.1 | 1,057.9 | 1,095.7 |
| Income (loss) from continuing operations | (64.5) | 78.1 | 99.3 |
| Interest expense, net | (29.2) | (9.5) | (11.2) |
| Debt retirement costs | (9.1) | (3.1) | (0.5) |
| Other non-operating (expense) income | 1.8 | 0.1 | (5.7) |
| Total non-operating expense | (36.6) | (12.5) | (17.4) |
| Income (loss) from continuing operations before income taxes | (101.1) | 65.6 | 81.9 |
| Income tax provision (benefit) | (27.1) | 16.9 | 29.2 |
| Income (loss) from continuing operations | (74.0) | 48.7 | 52.7 |
| Income (loss) from discontinued operations before income taxes | 73.3 | 78.6 | (8.8) |
| Gain on sale of discontinued operations | 307.2 | — | — |
| Income tax provision (benefit) of discontinued operations | 110.2 | 19.6 | (2.1) |
| Income (loss) from discontinued operations | 270.3 | 59.0 | (6.7) |
| Net income | $196.3 | $107.7 | $46.0 |
| Net income per common share: | |||
| Income (loss) per share from continuing operations - basic | $(4.41) | $2.89 | $3.10 |
| Income per share from discontinued operations - basic | 16.11 | 3.50 | (0.39) |
| Net income per share - basic | $11.70 | $6.39 | $2.71 |
| Income (loss) per share from continuing operations - diluted | (4.41) | 2.85 | 3.07 |
| Income per share from discontinued operations - diluted | 16.11 | 3.45 | (0.39) |
| Net income per share - diluted | $11.70 | $6.30 | $2.68 |
| Average shares of common stock used to compute net income per share (in thousands): | |||
| Basic | 16,781 | 16,863 | 16,985 |
| Diluted | 16,781 | 17,091 | 17,181 |
Consolidated Statements of Comprehensive Income
| For The Years Ended December 31, | |||
|---|---|---|---|
| (In millions) | 2024 | 2023 | 2022 |
| Net income | $196.3 | $107.7 | $46.0 |
| Other comprehensive income (loss), net of tax: | |||
| Defined benefit pension and other postretirement employee benefits: | |||
| Net (gain) loss arising during the period, net of tax of $(1.2), $0.9 and $1.5 | (3.6) | 2.8 | 4.7 |
| Amortization of actuarial (gain) loss included in net periodic cost, net of tax of $(0.1), $(0.1) and $1.6 | (0.3) | (0.2) | 4.7 |
| Other comprehensive income, net of tax | (3.8) | 2.6 | 9.3 |
| Comprehensive income | $192.5 | $110.3 | $55.3 |
Consolidated Statements of Cash Flows
| For The Years Ended December 31, | |||
|---|---|---|---|
| (In millions) | 2024 | 2023 | 2022 |
| Operating activities | |||
| Net income | $196.3 | $107.7 | $46.0 |
| Adjustments to reconcile net income to net cash flows provided by operating activities: | |||
| Depreciation and amortization | 99.8 | 98.6 | 103.3 |
| Equity-based compensation expense | 5.6 | 9.9 | 12.7 |
| Deferred taxes | 39.0 | (14.9) | (7.9) |
| Defined benefit pension and other postretirement employee benefits | (4.2) | (2.0) | 3.0 |
| Gain on business divestiture | (307.2) | — | — |
| Amortization of deferred debt costs and debt retirement | 11.8 | 4.4 | 2.0 |
| Loss on sale or impairment associated with assets | 1.9 | 2.1 | 6.1 |
| Changes in operating assets and liabilities, net of acquisitions and divestitures: | |||
| (Increase) decrease in accounts receivable | (87.2) | (1.3) | (16.9) |
| (Increase) decrease in inventories | 12.4 | 4.0 | (46.3) |
| (Increase) decrease in other current assets | (2.5) | 0.8 | (2.4) |
| Increase (decrease) in accounts payable and accrued liabilities | 98.9 | (21.3) | 49.2 |
| Other, net | (3.0) | 2.6 | 1.5 |
| Net cash flows provided by operating activities | 61.4 | 190.7 | 150.2 |
| Investing activities | |||
| Additions to property, plant and equipment 1 | (116.6) | (73.7) | (33.5) |
| Acquisition of business | (708.2) | — | — |
| Proceeds from business divestiture | 992.5 | — | — |
| Net cash flows provided by (used in) investing activities | 167.7 | (73.7) | (33.5) |
| Financing activities | |||
| Borrowings on long-term debt | 753.4 | 222.0 | — |
| Repayments of long-term debt | (931.1) | (325.6) | (80.9) |
| Taxes paid related to net share settlement of equity awards | (4.1) | (4.7) | (2.5) |
| Repurchases of common stock | (10.0) | (17.9) | (5.0) |
| Payments for debt issuance costs | (5.6) | (3.1) | (0.9) |
| Other, net | 5.9 | — | 0.8 |
| Net cash flows used in financing activities | (191.4) | (129.4) | (88.6) |
| Increase (decrease) in cash and cash equivalents | 37.7 | (12.4) | 28.2 |
| Cash and cash equivalents at beginning of period | 42.0 | 54.4 | 26.2 |
| Cash and cash equivalents at end of period | $79.6 | $42.0 | $54.4 |
| Supplemental disclosures of cash flow information | |||
| Cash paid for interest, net of amounts capitalized | $52.4 | $37.8 | $33.0 |
| Cash paid for income taxes, net of refunds received | $19.0 | $16.6 | $43.0 |
1 Capital expenditures of $25.8 million, $13.0 million and $15.7 million that have not been paid as of December 31, 2024, 2023 and 2022 were excluded from the Statement of Cash Flows.
Consolidated Statements of Stockholders’ Equity
| Common Stock · Additional Paid-In Capital · Treasury Stock · RetainedEarnings · AccumulatedOtherComprehensiveLoss · TotalStockholders'Equity | ||||||||
|---|---|---|---|---|---|---|---|---|
| (In millions, except share amounts which are in thousands) · Shares · Amount · Shares · Amount | ||||||||
| Balance at December 31, 2021 | 16,692 | $— | $23.6 | $— | $— | $530.7 | $(42.6) | $511.7 |
| Net income | — | — | — | — | — | 46.0 | — | 46.0 |
| Stock-based compensation expense | — | — | 11.7 | — | — | — | — | 11.7 |
| Issuance of shares under stock plans, net | 220 | — | (1.8) | — | — | — | — | (1.8) |
| Pension and other postretirement employee benefits, net of tax of $3.1 | — | — | — | — | — | — | 9.3 | 9.3 |
| Repurchases of common stock | (150) | — | (5.0) | — | — | — | — | (5.0) |
| Balance at December 31, 2022 | 16,762 | — | 28.5 | — | — | 576.8 | (33.3) | 572.1 |
| Net income | — | — | — | — | — | 107.7 | — | 107.7 |
| Stock-based compensation expense | — | — | 9.0 | — | — | — | — | 9.0 |
| Issuance of shares under stock plans, net | 266 | — | (4.7) | — | — | — | — | (4.7) |
| Pension and other postretirement employee benefits, net of tax of $0.9 | — | — | — | — | — | — | 2.6 | 2.6 |
| Repurchases of common stock | (543) | — | (17.9) | — | — | — | — | (17.9) |
| Balance at December 31, 2023 | 16,485 | — | 14.9 | — | — | 684.5 | (30.7) | 668.8 |
| Net income | — | — | — | — | — | 196.3 | — | 196.3 |
| Stock-based compensation expense | — | — | 6.0 | — | — | — | — | 6.0 |
| Issuance of shares under stock plans, net | 247 | — | (2.7) | — | — | — | — | (2.7) |
| Pension and other postretirement employee benefits, net of tax benefit of $1.3 | — | — | — | — | — | — | (3.8) | (3.8) |
| Repurchases of common stock | (164) | — | (6.7) | (123) | (3.3) | — | — | (10.0) |
| Balance at December 31, 2024 | 16,568 | $— | $11.5 | (123) | $(3.3) | $880.8 | $(34.5) | $854.6 |
Notes to Consolidated Financial Statements
| PAGENUMBER | ||
|---|---|---|
| NOTE 1 | Summary of Significant Accounting Policies | 42 |
| NOTE 2 | Recently Adopted and New Accounting Standards | 47 |
| NOTE 3 | Business Acquisition | 47 |
| NOTE 4 | Discontinued Operations | 48 |
| NOTE 5 | Fair Value Measurements | 50 |
| NOTE 6 | Leases | 50 |
| NOTE 7 | Goodwill and Intangible Assets | 52 |
| NOTE 8 | Income Taxes | 53 |
| NOTE 9 | Debt | 56 |
| NOTE 10 | Other Operating Charges, net | 58 |
| NOTE 11 | Non-Operating Expense | 59 |
| NOTE 12 | Retirement Plans and Postretirement Benefits | 59 |
| NOTE 13 | Accumulated Other Comprehensive Loss | 65 |
| NOTE 14 | Earnings per Share | 65 |
| NOTE 15 | Stockholders' Equity | 66 |
| NOTE 16 | Commitments and Contingencies | 67 |
| NOTE 17 | Insurance Recovery | 68 |
| NOTE 18 | Segments Disclosure | 68 |
| NOTE 19 | Subsequent Events | 69 |
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