Clearwater Paper Corp 10-Q for FY2024 Q2
Clearwater Paper Corp (CLW)
10-Q
2024-08-06
For: 2024-06-30
View Original
Added on
April 06, 2026
About this 10-Q
Clearwater Paper Corp filed this 10-Q on August 6, 2024, covering the quarter ended June 30, 2024 (FY2024 Q2).
Headline figures
Quarter ended June 30, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $586.4M
- up 11.8% from $524.6M a year earlier
- Net loss
- $25.8M
- compared with net income of $29.7M a year earlier
- Diluted EPS
- -$1.55
- compared with $1.75 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |||||
For the quarterly period ended June 30, 2024
or
| Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | |||||
For the transition period from to
Commission File Number: 001-34146
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||||||||
| (Address of principal executive offices) | (Zip Code) | ||||||||||
(509 ) 344-5900
(Registrant’s telephone number, including area code)
__________________________________
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ¨ | ý | ||||||||||||
| Non-accelerated filer | ¨ | Smaller reporting company | ||||||||||||
| Emerging growth company | ||||||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý
The number of shares of common stock of the registrant outstanding as of August 2, 2024 was 16,632,041 .
FORWARD-LOOKING STATEMENTS
Our disclosure and analysis in this report contains, in addition to historical information, certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding the pending sale of our consumer products segment (our tissue business), our recent acquisition of a paperboard manufacturing facility and associated business; accounting standards; our operations and expectations; current and anticipated borrowing and credit facilities; cash flows; capital expenditures; disclosure controls; compliance with our loan and financing agreements; tax rates; debt repayments; operating costs; selling, general and administrative expenses; liquidity; benefit plan funding levels; stockholder equity; interest expenses; and legal proceedings. Words such as “anticipate,” “expect,” “intend,” “plan,” “target,” “project,” “believe,” “schedule,” “estimate,” “may,” and similar expressions are intended to identify such forward-looking statements. These forward-looking statements are based on management’s current expectations, estimates, assumptions and projections that are subject to change. Our actual results of operations may differ materially from those expressed or implied by the forward-looking statements contained in this report. Important factors that could cause or contribute to such differences in operating results include those risks discussed in Item 1A “Risk Factors” in our 2023 Form 10-K, as well as the following:
•one or more closing conditions to the pending consumer products division (tissue business) sale transaction, including certain regulatory approvals, may not be satisfied or waived, on a timely basis or otherwise;
•the pending consumer products division (tissue business) sale transaction may not be completed in the time frame expected by the parties, or at all;
•there may be unexpected costs, charges or expenses resulting from the pending consumer products (tissue business) sale transaction;
•there may be stockholder litigation in connection with the pending consumer products (tissue business) sale transaction or the acquisition of the Augusta, Georgia paperboard manufacturing facility or other settlements or investigations may affect the timing or occurrence of the pending consumer products (tissue business) sale transaction or result in significant costs of defense, indemnification and liability;
•our inability to realize the expected benefits of the Augusta, Georgia paperboard manufacturing facility acquisition because of integration difficulties or other challenges;
•risks relating to the integration of the Augusta, Georgia paperboard manufacturing facility and achievement of anticipated financial results and other benefits of the acquisition;;
•competitive pricing pressures for our products, including as a result of capacity additions, demand reduction and the impact of foreign currency fluctuations on the pricing of products globally;
•changes in the United States and international economies and in general economic conditions in the regions and industries in which we operate;
•cyclical industry conditions;
•manufacturing or operating disruptions, including equipment malfunctions and damage to our manufacturing facilities;
•the loss of, changes in prices in regard to, or reduction in, orders from a significant customer;
•changes in the cost and availability of wood fiber and wood pulp;
•changes in energy, chemicals, packaging and freight costs and disruptions in transportation services impacting our ability to receive inputs or ship products to customers;
•reliance on a limited number of third-party suppliers, vendors and service providers required for the production of our products and our operations;
•changes in customer product preferences and competitors' product offerings;
•labor disruptions;
•cyber-security risks;
•larger competitors having operational, financial and other advantages;
•consolidation and vertical integration of converting operations in the paperboard industry;
•our ability to execute on our growth and expansion strategies and other strategic initiatives;
•our ability to successfully execute capital projects and other activities to operate our assets, including effective maintenance, implement our operational efficiencies and realize higher throughput or lower costs;
•IT system disruptions and IT system implementation failures;
•changes in expenses, required contributions and potential withdrawal costs associated with our pension plans;
•environmental liabilities or expenditures and climate change;
•our ability to attract, motivate, train and retain qualified and key personnel;
•our ability to service our debt obligations and restrictions on our business from debt covenants and terms;
•changes in our banking relations, or in our customer supply chain financing;
•negative changes in our credit agency ratings; and
•changes in laws, regulations or industry standards affecting our business.
Forward-looking statements contained in this report present management’s views only as of the date of this report. Except as required under applicable law, we do not intend to issue updates concerning any future revisions of management’s views to reflect events or circumstances occurring after the date of this report. You are advised, however, to consult any further disclosures we make on related subjects in our quarterly reports on Form 10-Q and current reports on Form 8-K filed with the Securities and Exchange Commission, or SEC.
| Table of Contents | Page Number | |||||||
| PART I. | FINANCIAL INFORMATION | |||||||
| ITEM 1. | Consolidated Financial Statements (Unaudited) | |||||||
| ITEM 2. | ||||||||
| ITEM 3. | ||||||||
| ITEM 4. | ||||||||
| PART II. | OTHER INFORMATION | |||||||
| ITEM 1. | ||||||||
| ITEM 1A. | ||||||||
| ITEM 2. | Unregistered Sales of Equity Securities and Use of Proceeds | |||||||
| ITEM 5. | Other Information | |||||||
| ITEM 6. | ||||||||
Part I: Financial Information
| ITEM 1. | Consolidated Financial Statements | ||||
CLEARWATER PAPER CORPORATION
Consolidated Balance Sheets
(Unaudited)
| (In millions, except share data) | June 30, 2024 | December 31, 2023 | ||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Receivables, net of allowance for current expected credit losses | ||||||||
| Inventories, net | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Goodwill and intangible assets, net | ||||||||
| Other assets, net | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and stockholders' equity | ||||||||
| Current liabilities: | ||||||||
| Current portion of long-term debt | $ | $ | ||||||
| Accounts payable and accrued liabilities | ||||||||
| Total current liabilities | ||||||||
| Long-term debt | ||||||||
| Liability for pension and other postretirement employee benefits | ||||||||
| Deferred tax liabilities and other long-term obligations | ||||||||
| Total liabilities | ||||||||
| Stockholders' equity: | ||||||||
Preferred stock, par value $ | ||||||||
Common stock, par value $ | ||||||||
| Additional paid-in capital | ||||||||
| Retained earnings | ||||||||
| Accumulated other comprehensive loss, net of tax | ( | ( | ||||||
| Total stockholders' equity | ||||||||
| Total liabilities and stockholders' equity | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
2
CLEARWATER PAPER CORPORATION
Consolidated Statements of Operations
(Unaudited)
| Quarter Ended June 30, | Six Months Ended June 30, | ||||||||||||||||
| (In millions, except per-share data) | 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Net sales | $ | $ | $ | $ | |||||||||||||
| Costs and expenses: | |||||||||||||||||
| Cost of sales | |||||||||||||||||
| Selling, general and administrative expenses | |||||||||||||||||
| Other operating (income) charges, net | ( | ||||||||||||||||
| Total operating costs and expenses | |||||||||||||||||
| Income (loss) from operations | ( | ||||||||||||||||
| Interest expense, net | ( | ( | ( | ( | |||||||||||||
| Other non-operating income | |||||||||||||||||
| Total non-operating expense | ( | ( | ( | ( | |||||||||||||
| Income (loss) before income taxes | ( | ( | |||||||||||||||
| Income tax provision (benefit) | ( | ( | |||||||||||||||
| Net income (loss) | $ | ( | $ | $ | ( | $ | |||||||||||
| Net income (loss) per common share: | |||||||||||||||||
| Basic | $ | ( | $ | $ | ( | $ | |||||||||||
| Diluted | ( | ( | |||||||||||||||
| Average shares of common stock used to compute net income (loss) per share (in thousands): | |||||||||||||||||
| Basic | |||||||||||||||||
| Diluted | |||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
3
CLEARWATER PAPER CORPORATION
Consolidated Statements of Comprehensive Income (Loss)
(Unaudited)
| Quarter Ended June 30, | Six Months Ended June 30, | ||||||||||||||||
| (In millions) | 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Net income (loss) | $ | ( | $ | $ | ( | $ | |||||||||||
| Other comprehensive loss: | |||||||||||||||||
| Defined benefit pension and other postretirement employee benefits: | |||||||||||||||||
| Amortization of actuarial gain included in net periodic cost, net of tax | ( | ( | ( | ||||||||||||||
| Other comprehensive loss, net of tax | ( | ( | ( | ||||||||||||||
| Comprehensive income (loss) | $ | ( | $ | $ | ( | $ | |||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
CLEARWATER PAPER CORPORATION
Consolidated Statements of Cash Flows
| (unaudited) | Quarter Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| (In millions) | 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Operating activities | |||||||||||||||||
| Net income (loss) | $ | ( | $ | $ | ( | $ | |||||||||||
| Adjustments to reconcile net income (loss) to net cash flows provided by operating activities: | |||||||||||||||||
| Depreciation and amortization | |||||||||||||||||
| Equity-based compensation expense | |||||||||||||||||
| Deferred taxes | ( | ( | ( | ( | |||||||||||||
| Defined benefit pension and other postretirement employee benefits | ( | ( | ( | ( | |||||||||||||
| Amortization of deferred debt costs | |||||||||||||||||
| Loss on sale or impairment associated with assets | |||||||||||||||||
| Changes in operating assets and liabilities, excluding the effects of acquired business: | |||||||||||||||||
| Increase in accounts receivable | ( | ( | ( | ( | |||||||||||||
| (Increase) decrease in inventories | ( | ||||||||||||||||
| (Increase) decrease in other current assets | |||||||||||||||||
| Increase (decrease) in accounts payable and accrued liabilities | ( | ( | |||||||||||||||
| Other, net | ( | ( | ( | ||||||||||||||
| Net cash flows provided by operating activities | |||||||||||||||||
| Investing activities | |||||||||||||||||
Additions to property, plant and equipment, net 1 | ( | ( | ( | ( | |||||||||||||
| Acquisition of business | ( | ( | |||||||||||||||
| Net cash flows used in investing activities | ( | ( | ( | ( | |||||||||||||
| Financing activities | |||||||||||||||||
| Borrowings on long-term debt | |||||||||||||||||
| Repayments of long-term debt | ( | ( | ( | ( | |||||||||||||
| Repurchases of common stock | ( | ( | ( | ( | |||||||||||||
| Payments of debt issuance costs | ( | ( | ( | ||||||||||||||
| Other, net | ( | ( | ( | ||||||||||||||
| Net cash flows provided by (used in) financing activities | ( | ( | |||||||||||||||
| Increase (decrease) in cash, cash equivalents | ( | ( | ( | ||||||||||||||
| Cash and cash equivalents at beginning of period | |||||||||||||||||
| Cash and cash equivalents at end of period | $ | $ | $ | $ | |||||||||||||
| Supplemental disclosures of cash flow information | |||||||||||||||||
| Cash paid for interest, net of amounts capitalized | $ | $ | $ | $ | |||||||||||||
| Cash paid for income taxes | $ | $ | $ | $ | |||||||||||||
1 Capital expenditures of $35.1 million and $14.0 million that have not been paid as of June 30, 2024 and 2023 were excluded from the Statements of Cash Flows.
The accompanying notes are an integral part of these consolidated financial statements.
5
CLEARWATER PAPER CORPORATION
Consolidated Statements of Stockholders’ Equity
(Unaudited)
| Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Total Stockholders' Equity | ||||||||||||||||
| (In millions, except share amounts which are in thousands) | Shares | Amount | ||||||||||||||||||
Balance at December 31, 2022 | $ | $ | $ | $ | ( | $ | ||||||||||||||
| Net income | — | — | — | — | ||||||||||||||||
| Stock-based compensation expense | — | — | — | — | ||||||||||||||||
| Issuance of shares under stock plans, net | — | ( | — | — | ( | |||||||||||||||
| Pension and other postretirement employee benefits, net of immaterial tax | — | — | — | — | ( | ( | ||||||||||||||
| Repurchases of common stock | ( | — | ( | — | — | ( | ||||||||||||||
Balance at March 31, 2023 | $ | $ | $ | ( | $ | |||||||||||||||
| Net income | — | — | — | — | ||||||||||||||||
| Stock-based compensation expense | — | — | — | — | ||||||||||||||||
| Issuance of shares under stock plans, net | — | ( | — | — | ( | |||||||||||||||
| Pension and other postretirement employee benefits, net of immaterial tax | — | — | — | — | ( | ( | ||||||||||||||
| Repurchases of common stock | ( | — | ( | — | — | ( | ||||||||||||||
Balance at June 30, 2023 | $ | $ | $ | $ | ( | $ | ||||||||||||||
6
| Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Loss | Total Stockholders' Equity | ||||||||||||||||
| (In millions, except share amounts which are in thousands) | Shares | Amount | ||||||||||||||||||
Balance at December 31, 2023 | $ | $ | $ | $ | ( | $ | ||||||||||||||
| Net income | — | — | — | — | ||||||||||||||||
| Stock-based compensation expense | — | — | — | — | ||||||||||||||||
| Issuance of shares under stock plans, net | — | ( | — | — | ( | |||||||||||||||
| Repurchases of common stock | ( | — | ( | — | — | ( | ||||||||||||||
Balance at March 31, 2024 | $ | $ | $ | $ | ( | $ | ||||||||||||||
| Net income (loss) | — | — | — | ( | — | ( | ||||||||||||||
| Stock-based compensation expense | — | — | — | — | ||||||||||||||||
| Issuance of shares under stock plans, net | — | — | — | |||||||||||||||||
| Repurchases of common stock | ( | — | ( | — | — | ( | ||||||||||||||
Balance at June 30, 2024 | $ | $ | $ | $ | ( | $ | ||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
7
Clearwater Paper Corporation
Notes to Consolidated Financial Statements
(Unaudited)
Note 1 Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, in the opinion of management, include all adjustments (consisting of normal recurring adjustments) necessary to present fairly, in all material respects, the consolidated financial position, results of operations, stockholders' equity and cash flows for us and our subsidiaries for the interim periods presented. Results of operations for interim periods are not necessarily indicative of results to be expected for an entire year. These consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2023. All dollar amounts are shown in millions, except per share.
Note 2 Recently Issued Accounting Standards
In December 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2023-09, Income Taxes—Improvements to Income Tax Disclosures (Topic 740), which requires enhanced disclosures primarily related to the rate reconciliation and disaggregation of income taxes paid. This ASU is effective for annual periods beginning after December 15, 2024, with early adoption permitted. Adoption of this ASU will result in additional disclosure, but it will not impact our consolidated financial position, results of operations or cash flows.
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting—Improvements to Reportable Segment Disclosures (Topic 280). This standard requires enhanced disclosures of segment expenses as well as additional information provided to the Chief Operating Decision Maker. This ASU is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The amendments in this ASU should be applied retrospectively to all prior periods presented in the financial statements, with early adoption permitted. Adoption of this ASU will result in additional disclosure, but it will not impact our consolidated financial position, results of operations or cash flows.
Note 3 Business Acquisition
On May 1, 2024, we completed the acquisition of a paperboard manufacturing facility and associated business, located in Augusta, Georgia (Augusta) from Graphic Packaging International, LLC (Augusta Acquisition). The acquisition is being accounted for under Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 805, Business Combination as a business combination as opposed to an asset acquisition. We used borrowings under our credit facilities to fund the acquisition. This acquisition strengthens our position as a premier, independent supplier of paperboard products to converters through improved scale and cost structure. This acquisition is reported within our Pulp and Paperboard segment.
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 acquisition. The excess of the purchase price over the fair value of the net assets acquired was allocated to goodwill, which is expected to be deductible for tax purposes. The allocation of the purchase price shown below remains preliminary and is subject to further adjustment, pending additional refinement and final completion of valuations, including but not limited to valuations of property, plant and equipment. Goodwill is primarily attributed to synergies from future expected economic benefits, including enhanced revenue growth as well as cost savings from reduction of duplicative overhead, streamlined operations and enhanced operational efficiency.
8
The purchase price allocation as of May 1, 2024 is as follows:
| Purchase price | $ | ||||
| Inventory | |||||
| Other current assets | |||||
| Property, plant and equipment | |||||
| Other assets, net | |||||
| Total assets acquired | |||||
| Current portion of long-term debt | ( | ||||
| Accounts payable and accrued liabilities | ( | ||||
| Long-term debt | ( | ||||
| Other long-term obligation | ( | ||||
| Total liabilities assumed | ( | ||||
| Net assets acquired | |||||
| Goodwill | |||||
| Total estimated fair value of net assets acquired | $ | ||||
The Consolidated Statements of Operations includes $81.2 million of Net Sales and $5.8 million of Net Loss for the quarter and six months ended June 30, 2024.
The following unaudited pro forma consolidated financial information for the quarter and six months ended June 30, 2024 combines our results and the unaudited results of the Augusta operations for the corresponding periods. The unaudited pro forma consolidated financial information assumes that the Augusta Acquisition, which closed on May 1, 2024, was completed on January 1, 2023. The pro forma consolidated financial information has been calculated after applying our accounting policies and includes adjustments to reduce previous recorded amortization expense, fair value adjustments for acquired inventory, property, plant and equipment and operating leases. The impact to depreciation expense was de minimis due to the valuation step up being offset by increased useful lives. These pro forma results have been prepared for comparative purposes only and do not purport to be indicative of our operating results that would have been achieved had the Augusta Acquisition actually taken place on January 1, 2023. In addition, these results are not intended to be a projection of future results and do not reflect events that may occur after the Augusta Acquisition, including but not limited to revenue enhancements, cost savings or operating synergies that we may achieve as a result of the Augusta Acquisition.
| Quarter Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||||||
| Net sales | $ | $ | $ | $ | ||||||||||||||||
| Net income (loss) | ( | ( | ||||||||||||||||||
9
Note 4 Receivables
Receivables consist of:
| June 30, 2024 | December 31, 2023 | |||||||
| Trade accounts receivable | $ | $ | ||||||
| Allowance for current expected credit losses | ( | ( | ||||||
| Unbilled receivables | ||||||||
| Taxes receivable | ||||||||
| Other | ||||||||
| $ | $ | |||||||
Note 5 Inventories
Inventories are stated at the lower of net realizable value or current cost using the average cost method and consist of:
| June 30, 2024 | December 31, 2023 | |||||||
| Logs, chips and sawdust | $ | $ | ||||||
| Pulp | ||||||||
| Paperboard and tissue products | ||||||||
| Materials and supplies | ||||||||
| $ | $ | |||||||
Note 6 Property, Plant and Equipment
Property, plant and equipment consist of:
| June 30, 2024 | December 31, 2023 | |||||||
| Land and land improvements | $ | $ | ||||||
| Buildings and improvements | ||||||||
| Machinery and equipment | ||||||||
| Construction in progress | ||||||||
| Less accumulated depreciation and amortization | ( | ( | ||||||
| Property, plant and equipment, net | $ | $ | ||||||
Note 7 Goodwill and Intangibles
Changes in the carrying amounts of goodwill and intangible assets allocated to the pulp and paperboard segment as follows:
| Pulp and Paperboard | |||||||||||
| Goodwill | Intangibles | Total | |||||||||
Balance as of December 31, 2023 | |||||||||||
| Recognized goodwill | — | ||||||||||
| Amortization | — | ( | ( | ||||||||
Balance as of June 30, 2024 | $ | $ | $ | ||||||||
Intangible assets consisted of $5.4 million customer relationships. Outstanding definite-lived intangible assets are amortized over their useful lives of 10 years.
The gross book value and accumulated amortization of definite lived intangible assets at June 30, 2024 was $34.9 million and $29.5 million. The gross book value and accumulated amortization of definite lived intangible assets at December 31, 2023 was $34.9 million and $28.4 million.
10
Note 8 Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consist of:
| June 30, 2024 | December 31, 2023 | |||||||
| Trade payables | $ | $ | ||||||
| Accrued compensation | ||||||||
| Operating lease liabilities | ||||||||
| Other | ||||||||
| $ | $ | |||||||
Included in "Accounts payable and accrued liabilities" are $35.1 million and $13.0 million related to capital expenditures that had not yet been paid as of June 30, 2024 and December 31, 2023.
We maintain a program with a financial institution to provide our vendors with an option to receive payment earlier than our standard payment terms. As of June 30, 2024 and December 31, 2023, $15.1 million and $14.7 million of outstanding obligations under this program were included in "Other" in the table above.
As of June 30, 2024 and December 31, 2023, unrecognized tax benefits, including associated interest, of $28.5 million and $27.4 million were included in "Other" in the table above.
Note 9 Income Taxes
For interim periods, accounting standards require that income tax expense be determined by applying the estimated annual effective income tax rate to year-to-date results, unless this method does not result in a reliable estimate of year-to-date income tax expense. Each period, the income tax accrual is adjusted to the latest estimate and the difference from the previously accrued year-to-date balance is adjusted to the current quarter.
11
Note 10 Debt
Long-term debt at the balance sheet dates consisted of:
| June 30, 2024 | December 31, 2023 | |||||||||||||||||||||||||
Interest Rate at June 30, 2024 | Principal | Unamortized Debt Costs | Total | Principal | Unamortized Debt Costs | Total | ||||||||||||||||||||
| Term Revolving Facility under Term loan Credit Agreement maturing 2029, fixed interest rate | $ | $ | ( | $ | $ | $ | ( | $ | ||||||||||||||||||
| Term Revolving Facility under Term Loan Credit Agreement maturing 2029, variable interest rate | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
| Farm Credit Term Loan Facility under Term Loan Credit Agreement maturing 2031, variable interest rate | ( | |||||||||||||||||||||||||
| Commercial Bank Term Loan Facility under Term Loan Credit Agreement, maturing 2029, variable interest rate | ( | |||||||||||||||||||||||||
| 2020 Notes, maturing 2028, fixed interest rate | ( | ( | ||||||||||||||||||||||||
| Revolving loan facility under ABL Credit Agreement, maturing 2027, variable interest rate | — | — | ||||||||||||||||||||||||
| Finance leases | — | — | ||||||||||||||||||||||||
| Total debt | ( | ( | ||||||||||||||||||||||||
| Less: current portion | ( | ( | ( | — | ( | |||||||||||||||||||||
| Net long-term portion | $ | $ | ( | $ | $ | $ | ( | $ | ||||||||||||||||||
TERM CREDIT AGREEMENTS
On May 1, 2024, the Company entered into an amendment and restatement of our Credit Agreement, dated October 27, 2023, with AgWest Farm Credit, PCA, as administrative agent, and several lenders (as so amended and restated, the “Term Credit Agreement”).
After giving effect to the amendment and restatement, the credit facilities provided under the Term Credit Agreement consist of (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 increase commitments under the Term Revolver Facility in an aggregate principal amount of up to $60 million, subject to obtaining commitments from participating lenders. The Term Credit Agreement matures 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 subject to springing maturity 91 days prior to the maturity of the 2020 Notes, if the outstanding principal amount of the 2020 Notes plus $50 million is less than our available borrowing liquidity and unrestricted cash.
We may prepay and reborrow the 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
12
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 (as disclosed in Note 19), 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.
ABL CREDIT AGREEMENT
On May 1, 2024, the Company entered into an amendment (the “ABL Amendment”) of its Credit Agreement, dated July 26, 2019, with JPMorgan Chase Bank, N.A., as administrative agent and several lenders (as so amended, the “ABL Credit Agreement”). After giving effect to the ABL Amendment, the maximum commitment of the lenders (subject to borrowing base limitations) under the ABL Credit Agreement was increased from $275 million to $375 million, $120 million of which was borrowed as of May 1, 2024 and $3.7 million of which was utilized for outstanding but undrawn letters of credit.
At June 30, 2024, we were in compliance with the currently applicable covenants associated with the Term Credit Agreement and the ABL Credit Agreement.
The fair value of our debt is included in the following table:
| June 30, 2024 | December 31, 2023 | |||||||
| Farm Credit Term Loan Facility under Term Credit agreement, maturing 2031, variable interest rate | $ | $ | ||||||
| 2020 Notes, maturing 2028, fixed interest rate | ||||||||
| Term Revolver Facility under Term Credit Agreement, maturing 2029, fixed interest rate | ||||||||
| Term Revolver Facility under Term Credit Agreement, maturing 2029, variable interest rate | ||||||||
| Commercial Bank Term Loan Facility under Term Credit Agreement, maturing 2029, variable interest rate | ||||||||
| Revolving loan facility under ABL Credit Agreement, maturing 2027, variable interest rate | ||||||||
| $ | $ | |||||||
Note 11 Other Operating Charges
The major components of “Other operating (income) charges, net” in the Consolidated Statements of Operations for the quarter and six months ended June 30, 2024 and 2023 are reflected in the table below and described in the paragraphs following the table. These items are considered outside of our core operations.
| Quarter Ended June 30, | Six Months Ended June 30, | ||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||
| Acquisition and divestiture related costs | $ | $ | $ | $ | |||||||||||||
| Integration costs | |||||||||||||||||
| Loss on sale or impairment associated with assets | |||||||||||||||||
| Directors' equity-based compensation expense | ( | ( | |||||||||||||||
| Other | ( | ( | |||||||||||||||
| $ | $ | ( | $ | $ | |||||||||||||
13
2024
During the second quarter of 2024, we recorded $17.0 million of expense in "Other operating (income) charges, net." The main components of the expense include:
•expense of $10.3 million associated with acquisition and divestiture activities (primarily legal and professional services);
•expense of $4.1 million associated with integration activities (primarily professional services);
•loss of $0.7 million associated with the impairment of property, plant and equipment; and
•expense of $2.0 million relating to directors' equity-based compensation which is remeasured each period based upon changes in our stock price.
During the first quarter of 2024, we recorded $7.9 million of expense in "Other operating (income) charges, net." The main components of the expense include:
•expense of $4.2 million associated with acquisition and divestiture activities (primarily legal and professional services);
•expense of $2.3 million associated with integration activities (primarily professional services);
•loss of $0.2 million associated with the impairment of equipment and related spare parts no longer being used; and
•expense of $1.2 million relating to directors' equity-based compensation which is remeasured each period based upon changes in our stock price.
2023
During the second quarter of 2023, we recorded $0.4 million of income in "Other operating (income) charges, net." The components of the expense include:
•reversal of expense of $0.2 million relating to directors' equity-based compensation which is remeasured each period based upon changes in our stock price.
During the first quarter of 2023, we recorded $1.1 million of expenses in "Other (income) operating charges, net." The components of the expense include:
•loss of $1.1 million associated with the impairment of equipment and related spare parts no longer being used; and
•reversal of expense of $0.2 million relating to directors' equity based compensation which is remeasured each period based upon changes in our stock price.
Note 12 Non-Operating Expense
The components of “Non-operating expense” in the Consolidated Statements of Operations for the quarter and six months ended June 30, 2024 and 2023 are reflected in the table below:
| Quarter Ended June 30, | Six Months Ended June 30, | ||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||
| Interest expense | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||
| Amortization of debt issuance costs and accretion of debt discount | ( | ( | ( | ( | |||||||||||||
| Interest income | |||||||||||||||||
| Interest expense, net | ( | ( | ( | ( | |||||||||||||
| Non-operating pension and other postretirement employee benefits | |||||||||||||||||
| Total non-operating expense | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||
14
Note 13 Retirement Plans and Postretirement Benefits
The following table details the components of net periodic cost of our company-sponsored pension and other postretirement employee benefit plans for the periods presented:
| Quarter Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| Pension Benefit Plans | 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||
| Service cost | $ | $ | $ | $ | ||||||||||||||||||||||
| Interest cost | ||||||||||||||||||||||||||
| Expected return on plan assets | ( | ( | ( | ( | ||||||||||||||||||||||
| Net periodic cost | $ | ( | $ | $ | ( | $ | ||||||||||||||||||||
| Quarter Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||||
| Other Postretirement Employee Benefit Plans | 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||||||||||||||
| Service cost | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Interest cost | ||||||||||||||||||||||||||||||||||||||
| Amortization of actuarial gain | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||
| Net periodic cost | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
Note 14 Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss, net of tax, is comprised of the following:
| Pension Plan Adjustments | Other Post Retirement Employee Benefit Plan Adjustments | Total | |||||||||
| Balance at December 31, 2022 | $ | ( | $ | $ | ( | ||||||
| Amounts reclassified from accumulated other comprehensive loss | ( | ( | |||||||||
| Balance at June 30, 2023 | $ | ( | $ | $ | ( | ||||||
| Balance at December 31, 2023 | $ | ( | $ | $ | ( | ||||||
| Amounts reclassified from accumulated other comprehensive loss | ( | ( | |||||||||
| Balance at June 30, 2024 | $ | ( | $ | $ | ( | ||||||
Note 15 Stockholders' Equity
Common Stock Plans
We have stock-based compensation plans under which restricted stock awards and stock options are outstanding or granted subject to time or performance vesting requirements. At June 30, 2024, approximately 0.5 million shares were available for future issuance under our current plan.
15
| Quarter Ended June 30, | Six Months Ended June 30, | ||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||
| Total stock-based compensation expense | $ | $ | $ | $ | |||||||||||||
| Income tax benefit related to stock-based compensation | $ | $ | $ | $ | |||||||||||||
| Impact on cash flow from proceeds on options exercised | $ | $ | $ | $ | |||||||||||||
| Impact on cash flow due to taxes paid related to net share settlement of equity awards | $ | $ | $ | $ | |||||||||||||
At June 30, 2024, there was $19.0 million of total unrecognized compensation costs related to outstanding restricted stock unit awards.
During the six months ended June 30, 2024, we granted 221,319 restricted stock units (time vesting) at an average grant date fair value of $38.18 per share and 163,310 restricted stock units (performance vesting) at an average grant date fair value of $40.17 per share.
Note 16 Earnings (Loss) per Share
Basic income (loss) per share is based on the weighted-average number of shares of common stock outstanding. Diluted income (loss) per share is based upon the weighted-average number of shares of common stock outstanding plus all potentially dilutive securities that were assumed to be converted into common shares at the beginning of the period under the treasury stock method. This method requires the effect of potentially dilutive common stock equivalents be excluded from the calculation of diluted earnings per share for the periods in which net losses are reported because the effect is anti-dilutive.
| Quarter Ended June 30, | Six Months Ended June 30, | ||||||||||||||||
| (In thousands) | 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Basic weighted-average common shares outstanding | |||||||||||||||||
| Incremental shares due to: | |||||||||||||||||
| Stock-based awards | |||||||||||||||||
| Performance shares | |||||||||||||||||
| Diluted weighted-average common shares outstanding | |||||||||||||||||
Shares excluded from the computation of diluted earnings (loss) per share were 0.4 0.5 million and 0.4 million for the quarter and six months ended June 30, 2023 as they were either antidilutive (not in-the-money) or the required performance conditions were not met.
16
Note 17 Segment Information
We operate in two segments: Pulp and Paperboard and Consumer Products. Our business units have been aggregated into these two segments based upon the similarity of economic characteristics, customers and distribution methods. Our results of operations are summarized below for each of these segments separately. Segment information was prepared in accordance with the same accounting principles as those described in Note 1 of the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2023.
| Quarter Ended June 30, | Six Months Ended June 30, | ||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||
| Segment net sales: | |||||||||||||||||
| Pulp and Paperboard | $ | $ | $ | $ | |||||||||||||
| Consumer Products | |||||||||||||||||
| Eliminations | ( | ( | ( | ||||||||||||||
| Net sales | $ | $ | $ | $ | |||||||||||||
| Operating income (loss): | |||||||||||||||||
| Pulp and Paperboard | $ | ( | $ | $ | $ | ||||||||||||
| Consumer Products | |||||||||||||||||
| Corporate and eliminations | ( | ( | ( | ( | |||||||||||||
| Other operating (income) charges, net | ( | ( | ( | ||||||||||||||
| Income (loss) from operations | $ | ( | $ | $ | $ | ||||||||||||
| June 30, 2024 | December 31, 2023 | |||||||
| Assets: | ||||||||
| Pulp and Paperboard | $ | $ | ||||||
| Consumer Products | ||||||||
| Corporate | ||||||||
| Total Assets | $ | $ | ||||||
Net sales, classified by major products, were as follows:
| Quarter Ended June 30, | Six Months Ended June 30, | ||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||
| Major products: | |||||||||||||||||
| Paperboard | $ | $ | $ | $ | |||||||||||||
| Retail tissue | |||||||||||||||||
| Pulp | |||||||||||||||||
| Other | |||||||||||||||||
| Eliminations | ( | ( | ( | ||||||||||||||
| Total net sales | $ | $ | $ | $ | |||||||||||||
Note 18 Insurance Recovery
17
Note 19 Subsequent Event - Business Divestiture
On July 21, 2024, the Company entered into a Membership Interest Purchase Agreement and an Asset Purchase Agreement with Sofidel America Corp. (“Sofidel”), a wholly owned subsidiary of Sofidel S.p.A., pursuant to which, among other things, the Company agreed to sell our consumer products division (tissue business) to Sofidel for approximately $1.06 billion in cash, subject to adjustments for debt, cash, transaction expenses and net working capital (the “Tissue Divestiture”). The Company expects net proceeds from the Tissue Divestiture of approximately $850 million, which we intend to use to meaningfully de-lever our balance sheet. The Tissue Divestiture is expected to close in the fourth quarter of 2024, subject to regulatory approvals and other customary closing conditions.
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| ITEM 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | ||||
The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto included herein and our audited Consolidated Financial Statements and Notes thereto for the year ended December 31, 2023, as well as the information under the heading “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” that are part of our Annual Report on Form 10-K for the year ended December 31, 2023.
OVERVIEW
Executive Summary
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.
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.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements in accordance with generally accepted accounting principles (GAAP) requires our management to select and apply accounting policies that best provide the framework to report our results of operations and financial position. The selection and application of those policies requires management to make difficult, subjective and complex judgments concerning reported amounts of revenue and expenses during the reporting period and the reported amounts of assets and liabilities at the date of the financial statements. As a result, it is possible that materially different amounts would be reported under different conditions or using different assumptions.
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.
Business Acquisitions
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.
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.
19
NON-GAAP MEASURES
In evaluating our business, we utilize several non-GAAP financial measures. A non-GAAP financial measure is generally defined by the SEC as one that purports to measure historical or future financial performance, financial position or cash flows, but excludes or includes amounts that would not be so excluded or included under applicable GAAP guidance. In this report on Form 10-Q, we disclose overall and segment earnings from operations before interest expense, net, non-operating pension and other post employment benefit costs, income tax expense, depreciation and amortization, other operating charges, net, and debt retirement costs as Adjusted EBITDA which is a non-GAAP financial measure. Adjusted EBITDA is not a substitute for the GAAP measure of net income or for any other GAAP measures of operating performance.
We have included Adjusted EBITDA on a consolidated and business segment basis in this report because we use it as important supplemental measures of our performance and believe that it is frequently used by securities analysts, investors and other interested persons in the evaluation of companies in our industry, some of which present Adjusted EBITDA when reporting their results. We use Adjusted EBITDA to evaluate our performance as compared to other companies in our industry that have different financing and capital structures and/or tax rates. It should be noted that companies calculate Adjusted EBITDA differently and, therefore, our Adjusted EBITDA measures may not be comparable to Adjusted EBITDA reported by other companies. Our Adjusted EBITDA measures have material limitations as performance measures because they exclude interest expense, net, income tax (benefit) expense and depreciation and amortization which are necessary to operate our business or which we otherwise incur or experience in connection with the operation of our business. In addition, we exclude other income and expense items which are outside of our core operations.
The following table provides our Adjusted EBITDA for the periods presented, as well as a reconciliation to net income and segment operating income.
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| Quarter Ended June 30, | Six Months Ended June 30, | ||||||||||||||||
| (In millions) | 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Net income (loss) | $ | (25.8) | $ | 29.7 | $ | (8.6) | $ | 53.5 | |||||||||
| Income tax provision (benefit) | (9.4) | 10.2 | (2.4) | 18.6 | |||||||||||||
| Interest expense, net | 16.0 | 7.5 | 22.6 | 15.1 | |||||||||||||
| Depreciation and amortization | 30.9 | 24.6 | 54.1 | 49.4 | |||||||||||||
| Inventory revaluation on acquired business | 6.8 | — | 6.8 | — | |||||||||||||
| Other operating (income) charges, net | 17.0 | (0.4) | 25.0 | 0.6 | |||||||||||||
| Other non-operating income | (0.3) | (0.1) | (0.7) | (0.2) | |||||||||||||
| Adjusted EBITDA | $ | 35.3 | $ | 71.5 | $ | 96.8 | $ | 137.2 | |||||||||
| Pulp and Paperboard segment income (loss) | $ | (12.2) | $ | 42.0 | $ | 13.1 | $ | 99.1 | |||||||||
| Inventory revaluation on acquired business | 6.8 | — | 6.8 | — | |||||||||||||
| Depreciation and amortization | 16.5 | 9.3 | 24.8 | 18.5 | |||||||||||||
| Adjusted EBITDA Pulp and Paperboard segment | $ | 11.1 | $ | 51.3 | $ | 44.8 | $ | 117.6 | |||||||||
| Consumer Products segment income | $ | 27.4 | $ | 25.0 | $ | 59.0 | $ | 29.2 | |||||||||
| Depreciation and amortization | 14.0 | 14.7 | 28.2 | 29.7 | |||||||||||||
| Adjusted EBITDA Consumer Products segment | $ | 41.4 | $ | 39.7 | $ | 87.1 | $ | 58.9 | |||||||||
| Corporate and other expense | $ | (17.7) | $ | (20.1) | $ | (36.2) | $ | (40.6) | |||||||||
| Depreciation and amortization | 0.5 | 0.6 | 1.1 | 1.2 | |||||||||||||
| Adjusted EBITDA Corporate and other | $ | (17.2) | $ | (19.5) | $ | (35.1) | $ | (39.3) | |||||||||
| Pulp and Paperboard segment | $ | 11.1 | $ | 51.3 | $ | 44.8 | $ | 117.6 | |||||||||
| Consumer Products segment | 41.4 | 39.7 | 87.1 | 58.9 | |||||||||||||
| Corporate and other | (17.2) | (19.5) | (35.1) | (39.3) | |||||||||||||
| Adjusted EBITDA | $ | 35.3 | $ | 71.5 | $ | 96.8 | $ | 137.2 | |||||||||
21
OUR OPERATING RESULTS
Our operating results for each of our segments are discussed below. See Note 17, "Segment Information," of the Notes to the Consolidated Financial Statements included in Item 1 of this report for further information regarding our segments.
Pulp and Paperboard Segment
| Quarter Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||
| (Dollars in millions, except per unit and paperboard shipments) | 2024 | 2023 | Increase (decrease) | 2024 | 2023 | Increase (decrease) | |||||||||||||||||||||||
| Net Sales: | |||||||||||||||||||||||||||||
| Paperboard | $ | 331.5 | $ | 263.0 | 26.1 | % | $ | 571.9 | $ | 536.4 | 6.6 | % | |||||||||||||||||
| Pulp | 0.2 | 7.0 | (97.8) | % | 2.5 | 10.3 | (75.7) | % | |||||||||||||||||||||
| Other | 2.0 | 2.3 | (14.4) | % | 3.7 | 4.3 | (14.0) | % | |||||||||||||||||||||
| $ | 333.6 | $ | 272.3 | 22.5 | % | $ | 578.1 | $ | 551.0 | 4.9 | % | ||||||||||||||||||
| Operating income (loss) | $ | (12.2) | $ | 42.0 | (129.1) | % | $ | 13.1 | $ | 99.1 | (86.8) | % | |||||||||||||||||
| Operating margin | (3.7) | % | 15.4 | % | 2.3 | % | 18.0 | % | |||||||||||||||||||||
| Adjusted EBITDA | $ | 11.1 | $ | 51.3 | (78.4) | % | $ | 44.8 | $ | 117.6 | (61.9) | % | |||||||||||||||||
| Adjusted EBITDA margin | 3.3 | % | 18.8 | % | 7.7 | % | 21.3 | % | |||||||||||||||||||||
| Paperboard shipments (short tons) | 272,585 | 186,160 | 46.4 | % | 459,888 | 375,558 | 22.5 | % | |||||||||||||||||||||
| Paperboard sales price (per short ton) | $ | 1,216 | $ | 1,413 | (13.9) | % | $ | 1,244 | $ | 1,428 | (12.9) | % | |||||||||||||||||
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.
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.
22
Consumer Products Segment
| Quarter Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||
| (Dollars in millions, except per unit and shipments) | 2024 | 2023 | Increase (decrease) | 2024 | 2023 | Increase (decrease) | |||||||||||||||||||||||
| Net Sales: | |||||||||||||||||||||||||||||
| Retail tissue | $ | 252.0 | $ | 252.8 | (0.3) | % | $ | 502.8 | $ | 498.8 | 0.8 | % | |||||||||||||||||
| Other | 0.8 | 0.8 | 2.6 | % | 3.1 | 3.2 | (3.1) | % | |||||||||||||||||||||
| $ | 252.8 | $ | 253.6 | (0.3) | % | $ | 505.9 | $ | 502.0 | 0.8 | % | ||||||||||||||||||
| Operating income | $ | 27.4 | $ | 25.0 | 9.7 | % | $ | 59.0 | $ | 29.2 | 101.8 | % | |||||||||||||||||
| Operating margin | 10.9 | % | 9.9 | % | 11.7 | % | 5.8 | % | |||||||||||||||||||||
| Adjusted EBITDA | $ | 41.4 | $ | 39.7 | 4.3 | % | $ | 87.1 | $ | 58.9 | 47.9 | % | |||||||||||||||||
| Adjusted EBITDA margin | 16.4 | % | 15.7 | % | 17.2 | % | 11.7 | % | |||||||||||||||||||||
| Shipments (short tons) | |||||||||||||||||||||||||||||
| Retail | 81,196 | 78,672 | 3.2 | % | 161,125 | 155,520 | 3.6 | % | |||||||||||||||||||||
| Other | 374 | 103 | 263.1 | % | 2,625 | 1,120 | 134.4 | % | |||||||||||||||||||||
| 81,570 | 78,775 | 3.5 | % | 163,750 | 156,640 | 4.5 | % | ||||||||||||||||||||||
| Sales price (per short ton) | |||||||||||||||||||||||||||||
| Retail | $ | 3,104 | $ | 3,214 | (3.4) | % | $ | 3,121 | $ | 3,207 | (2.7) | % | |||||||||||||||||
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.
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.
Corporate expenses
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.
Other operating charges
See Note 11, "Other operating charges," of the Notes to the Consolidated Financial Statements included in Item 1 of this report for additional information.
Potential impairments
We review from time to time possible dispositions or reorganization of various assets in light of current and anticipated economic and industry conditions, our strategic plan and other relevant factors. Because a determination to dispose or reorganize particular assets may require management to make assumptions regarding the transaction structure of the disposition or reorganization and to estimate the net sales proceeds, which may be less than previous estimates of undiscounted future net cash flows, we may be required to record impairment charges in connection with decisions to dispose of assets.
23
LIQUIDITY AND CAPITAL RESOURCES
Our principal sources of liquidity are existing cash, cash generated by our operations and our ability to borrow under such credit facilities as we may have in effect from time to time. At times, we may also issue equity, debt or hybrid securities or engage in other capital market transactions. Due to the competitive and cyclical nature of the markets in which we operate, there is uncertainty regarding the amount of cash flows we will generate during the next twelve months. However, we believe that our cash flows from operations, our cash on hand and our borrowing capacity under our credit agreements will be adequate to fund debt service requirements and provide cash to support our ongoing operations, capital expenditures and working capital needs for the next twelve months.
Our principal uses of liquidity are paying the costs and expenses associated with our operations, servicing outstanding indebtedness and making capital expenditures. We may also from time to time prepay or repurchase outstanding indebtedness or shares or acquire assets or businesses that are complementary to our operations. Any such repurchases may be commenced, suspended, discontinued or resumed, and the method or methods of affecting any such repurchases may be changed at any time or from time to time without prior notice.
Operating Activities
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.
Investing Activities
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.
During 2024, we expect cash paid for capital expenditures to be approximately $120 million to $140 million.
Financing Activities
During the six 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.
During the six 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.
Term Credit Agreement and ABL Credit Agreement
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.
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.
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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.
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.
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%.
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).
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.
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.
25
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.
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).
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.
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| ITEM 3. | Quantitative and Qualitative Disclosures About Market Risk | ||||
There have been no significant developments with regard to our exposure to market risk for the quarter ended June 30, 2024. For a discussion of certain market risks to which we may be exposed, see Part II, “Item 7A, Quantitative and Qualitative Disclosures about Market Risk,” of our Annual Report on Form 10-K for the year ended December 31, 2023.
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| ITEM 4. | Controls and Procedures | ||||
As of June 30, 2024, our Chief Executive Officer (CEO) and Chief Financial Officer (CFO) have carried out, with the participation of our Disclosure Committee and management, an evaluation of the effectiveness of our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the Act). Based upon this evaluation, the CEO and CFO have concluded that our disclosure controls and procedures are effective to provide reasonable assurance that material information required to be disclosed by us in reports we file under the Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms and that information required to be disclosed by us in the reports we file or submit under the Act is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the quarter ended June 30, 2024 that has materially affected, or is likely to materially affect, our internal control over financial reporting.
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Part II
| ITEM 1. | Legal Proceedings | ||||
We may from time to time be involved in claims, proceedings and litigation arising from our business and property ownership. We believe, based on currently available information, that the results of such proceedings, in the aggregate, will not have a material adverse effect on our financial condition.
CERCLA/EPCRA Reporting:
In November 2023, the United States Environmental Protection Agency (EPA) alleged that the Company had violated the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) and Emergency Planning and Community Right-to-Know Act (EPCRA) by failing to timely report certain chlorine releases that occurred at the Company’s facility in Lewiston, Idaho in 2019, 2020, and 2021 to the National Response Center and State Response Center. Although the Company reported each of the releases to the respective response centers, the EPA alleged that the Company should have reported sooner. In June 2024, the Company, without admitting any wrongdoing, settled the matter with the EPA and agreed to pay a $322,088 civil penalty.
| ITEM 1A. | Risk Factors | ||||
Except as set forth below, there are no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023. See Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023, entitled “Risk Factors.”
RISKS RELATING TO THE SALE OF OUR CONSUMER PRODUCTS DIVISION (OUR TISSUE BUSINESS)
We may fail to complete the divestiture of our consumer products division (our tissue business), and a completed divestiture may disrupt our remaining business or not achieve its intended benefits.
On July 21, 2024, the Company entered into a Membership Interest Purchase Agreement and an Asset Purchase Agreement with Sofidel America Corp. (“Sofidel”), a wholly owned subsidiary of Sofidel S.p.A., pursuant to which, among other things, the Company agreed to sell our consumer products division (the “Tissue Business”) to Sofidel (the “Tissue Divestiture”). The Tissue Divestiture is expected to close in the fourth quarter of 2024, subject to regulatory approvals and other customary closing conditions. A number of risks and challenges may arise in consummating the Tissue Divestiture, including, among others:
•one or more closing conditions to the Tissue Divestiture, including certain regulatory approvals, may not be satisfied or waived, on a timely basis or otherwise;
•the Tissue Divestiture may not be completed in the time frame expected by the parties, or at all;
•there may be unexpected costs, charges or expenses resulting from the Tissue Divestiture; and
•there may be stockholder litigation in connection with the Tissue Divestiture or other settlements or investigations may affect the timing or occurrence of the Tissue Divestiture or result in significant costs of defense, indemnification and liability.
In addition, the Tissue Divestiture could cause disruption in our remaining business, including potential adverse changes to relationships with customers, employees, suppliers or other parties resulting from the divestiture process. The Tissue Divestiture may also be disruptive to our regular operations, diverting the attention of our workforce and management team from the day-to-day operation of our business, making the execution of business and other potential strategies more difficult, and could result in increased undesired workforce turnover, including of key leaders or other personnel.
Even if we are successful at separating and divesting our Tissue Business, we may not realize some or all of the anticipated benefits from the Tissue Divestiture with respect to the anticipated performance of our remaining business. The Tissue Divestiture may result in continued financial exposure to the Tissue Business through the retention of certain liabilities, including, for example, with respect to certain environmental claims. The Tissue Divestiture may not enhance long-term stockholder value as anticipated and/or the efforts required to complete the divestiture process may be more costly or time-consuming than expected. Any of the foregoing could result in the imposition of obligations that could have a material adverse effect on our remaining business, operating results or financial condition.
29
| ITEM 2. | Unregistered Sales of Equity Securities and Use of Proceeds. | ||||
On December 15, 2015, we announced that our Board of Directors had approved a stock repurchase program authorizing the repurchase of up to $100 million of our common stock. The repurchase program authorizes purchases of our common stock from time to time through open market purchases, negotiated transactions or other means, including accelerated stock repurchases and 10b5-1 trading plans in accordance with applicable securities laws and other restrictions. We have no obligation to repurchase stock under this program and may suspend or terminate the program at any time.
| Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Program | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program | ||||||||||
| April 1, 2024 to April 30, 2024 | 22,000 | $ | 41.13 | 22,000 | $ | 5.5 | ||||||||
| May 1, 2024 to May 31, 2024 | 23,000 | $ | 49.15 | 23,000 | $ | 4.3 | ||||||||
| June 1, 2024 to June 30, 2024 | 19,000 | $ | 51.03 | 19,000 | $ | 3.4 | ||||||||
| Total | 64,000 | $ | 46.95 | 64,000 | ||||||||||
Shares of common stock withheld as payment of withholding taxes and exercise prices in connection with the vesting or exercise of equity awards are not required to be disclosed under Item 703 of Regulation S-K and accordingly are excluded from the amounts in the table above.
| ITEM 5. | Other Information. | ||||
During the quarter ended June 30, 2024, none
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ITEM 6. Exhibits
The following exhibits are filed as part of, or are incorporated by reference in, this report:
| Incorporated by Reference | |||||||||||||||||
| EXHIBIT | EXHIBIT DESCRIPTION | Filed herewith? | Form | Exhibit No. | Date Filed | ||||||||||||
| 31* | X | ||||||||||||||||
| 32* | X | ||||||||||||||||
| 2.1** | 8-K | 2.1 | July 22, 2024 | ||||||||||||||
| 2.2** | 8-K | 2.2 | July 22, 2024 | ||||||||||||||
| 3.1 | 8-K | 3.1 | May 15, 2024 | ||||||||||||||
| 3.2 | 8-K | 3.2 | May 15, 2024 | ||||||||||||||
| 10.1 | 8-K | 10.1 | May 1, 2024 | ||||||||||||||
| 10.2 | 8-K | 10.2 | May 1, 2024 | ||||||||||||||
| 101.INS | XBRL Instance Document | ||||||||||||||||
| 101.SCH | XBRL Taxonomy Extension Schema. | ||||||||||||||||
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase. | ||||||||||||||||
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase. | ||||||||||||||||
| 101.LAB | XBRL Taxonomy Extension Label Linkbase. | ||||||||||||||||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase. | ||||||||||||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | ||||||||||||||||
* | In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release No. 34-47986, the certifications furnished in Exhibit 32 hereto are deemed to accompany this Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Exchange Act. Such certifications will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act. | ||||
| ** | Certain schedules, annexes and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company agrees to furnish supplementally a copy of such schedules, annexes and exhibits, or any section thereof, to the SEC upon request. | ||||
31
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| CLEARWATER PAPER CORPORATION | ||||||||||||||
| (Registrant) | ||||||||||||||
| August 6, 2024 | By: | /s/ ARSEN S. KITCH | ||||||||||||
| Arsen S. Kitch | ||||||||||||||
| President, Chief Executive Officer and Director (Principal Executive Officer) | ||||||||||||||
| August 6, 2024 | By: | /s/ SHERRI J. BAKER | ||||||||||||
| Sherri J. Baker | ||||||||||||||
| Senior Vice President, Chief Financial Officer (Principal Financial Officer) | ||||||||||||||
32
Exhibit (31)
CERTIFICATION
I, Arsen S. Kitch, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of Clearwater Paper Corporation;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 6, 2024 | /s/ ARSEN S. KITCH | |||||||||||||
| Arsen S. Kitch | ||||||||||||||
| President and Chief Executive Officer | ||||||||||||||
CERTIFICATION
I, Sherri J. Baker, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of Clearwater Paper Corporation;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: August 6, 2024 | /s/ SHERRI J. BAKER | |||||||||||||
| Sherri J. Baker | ||||||||||||||
| Senior Vice President, Chief Financial Officer | ||||||||||||||
Exhibit (32)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Arsen S. Kitch, President and Chief Executive Officer of Clearwater Paper Corporation (the “Company”), certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1)the Quarterly Report of the Company on Form 10-Q for the period ended June 30, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, and
(2)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| /s/ ARSEN S. KITCH | ||
| Arsen S. Kitch | ||
| President and Chief Executive Officer | ||
| August 6, 2024 | ||
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Sherri J. Baker, Senior Vice President, Chief Financial Officer of Clearwater Paper Corporation (the “Company”), certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1)the Quarterly Report of the Company on Form 10-Q for the period ended June 30, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, and
(2)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| /s/ SHERRI J. BAKER | ||
| Sherri J. Baker | ||
| Senior Vice President, Chief Financial Officer | ||
| August 6, 2024 | ||
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.