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Clearwater Paper Reports Second Quarter 2019 Results

July 31, 2019 4:05 PM

SPOKANE, Wash.--(BUSINESS WIRE)-- Clearwater Paper Corporation (NYSE: CLW) today reported financial results for the second quarter of 2019.

The company reported net sales of $452.0 million for the second quarter of 2019, which were $19.9 million or 4.6% higher than net sales of $432.1 million for the second quarter of 2018. The increase was due to record quarterly paperboard shipments and sales, higher retail tissue shipments and higher paperboard and tissue pricing from previously announced price increases. These items were partially offset by lower non-retail tissue shipments primarily resulting from the sale of the company's mill in Ladysmith, Wisconsin in August 2018.

Net loss determined in accordance with generally accepted accounting principles, or GAAP, for the second quarter of 2019 was $0.4 million, or $0.03 per diluted share, compared to net earnings for the second quarter of 2018 of $7.0 million, or $0.42 per diluted share. The decrease in net earnings was due to maintenance costs at the company's Shelby, North Carolina, Cypress Bend, Arkansas and Lewiston, Idaho mills, costs associated with the start-up of the company's new paper machine and converting lines at its North Carolina mill and higher depreciation and interest expense, partially offset by the favorable impact of higher shipment volumes and pricing. Excluding certain non-core items identified in the attached Reconciliation of Non-GAAP Financial Measures, second quarter 2019 adjusted net loss was $0.4 million, or $0.02 per diluted share, compared to second quarter 2018 adjusted net earnings of $7.1 million, or $0.43 per diluted share.

Earnings before interest, taxes, depreciation and amortization, or EBITDA, were $42.3 million for the second quarter of 2019, compared to $42.4 million for the second quarter of 2018. Adjusted EBITDA for the quarter was $43.9 million, compared to second quarter 2018 Adjusted EBITDA of $43.8 million despite the sale of the Ladysmith mill.

“We delivered a solid second quarter with record paperboard shipments and sales, and higher shipments of converted retail tissue, compared to the first quarter of 2019," said Linda K. Massman, president and chief executive officer. "Partially offsetting those results were the start-up costs related to our new paper machine in Shelby, North Carolina, which is progressing well and is expected to reach its full production run rate in late 2020. In addition, we recently completed the refinancing of our secured revolving credit facility with a seven-year Term Loan B and an asset based revolving credit facility, which will provide us the operational flexibility and liquidity needed as we focus on generating free cash flow to de-lever our balance sheet.”

SECOND QUARTER 2019 SEGMENT PERFORMANCE

Consumer Products

Net sales in the Consumer Products segment were $224.3 million for the second quarter of 2019, up 1.2% compared to second quarter 2018 net sales of $221.6 million. This increase was due to higher retail tissue volumes sold, higher average prices for both retail and non-retail tissue products and a favorable mix shift to a higher percentage of retail and ultra-quality products, partially offset by the impact from the divestiture of the Ladysmith, Wisconsin mill in August 2018.

Segment operating loss for the second quarter of 2019 was $5.1 million, compared to an operating loss of $3.6 million in the second quarter of 2018. Adjusted operating loss was $5.1 million for the second quarter of 2019, compared to an adjusted operating loss of $2.6 million for the same period in 2018. The increased operating loss was primarily due to Shelby start-up costs, higher depreciation expense resulting from the completion of the Shelby mill expansion and higher pulp costs, which were partially offset by lower transportation costs. Adjusted EBITDA for the segment was $12.3 million in the second quarter of 2019, up from $11.6 million in the second quarter of 2018. The increase was primarily due to improved retail shipment volumes, pricing and mix, partially offset by the start-up costs for the new paper machine and converting lines at the Shelby mill, planned maintenance at the Shelby mill and the divestiture of the Ladysmith mill.

Tissue Sales Volumes and Prices:

Pulp and Paperboard

Net sales in the Pulp and Paperboard segment reached a record high of $227.7 million for the second quarter of 2019, up 8.1% compared to second quarter 2018 net sales of $210.5 million. The increase was due to record shipment volumes resulting from strong demand and the benefit of higher prices from previously announced increases.

Segment operating income and margin for the second quarter of 2019 were $33.6 million and 14.8%, compared to $34.2 million and 16.2%, respectively, for the second quarter of 2018. Adjusted EBITDA for the segment was $43.1 million in the second quarter of 2019, compared to $43.6 million in the second quarter of 2018. The decrease was primarily due to planned maintenance at the Arkansas mill and unplanned maintenance at the Idaho mill, partially offset by higher shipment volumes and prices.

Paperboard Sales Volumes and Prices:

Taxes

The company's consolidated GAAP tax rate for the second quarter of 2019 was a provision of 114.6%, compared to a provision of 26.5% in the second quarter of 2018. Tax effected items reflecting the cumulative impact of the annual effective tax rate in the second quarter of 2019 have a greater impact on a percentage basis of the $2.9 million of earnings before taxes compared to $9.5 million of pre-tax earnings in the second quarter of 2018.

Note Regarding Use of Non-GAAP Financial Measures

In this press release, the company presents certain non-GAAP financial information for the second quarters of 2019 and 2018, including adjusted net earnings, adjusted net earnings per diluted share, EBITDA, adjusted EBITDA, adjusted operating income and adjusted operating margin. Because these amounts are not in accordance with GAAP, reconciliations to net earnings, net earnings per diluted share and operating income as determined in accordance with GAAP are included in the tables at the end of this press release. The company presents these non-GAAP amounts because management believes they assist investors and analysts in comparing the company's performance across reporting periods on a consistent basis by excluding items that the company does not believe are indicative of its core operating performance. In addition, the company uses EBITDA and Adjusted EBITDA: (i) as factors in evaluating management’s performance when determining incentive compensation, (ii) to evaluate the effectiveness of the company's business strategies, and (iii) because the company's credit agreement and the indentures governing the company's outstanding notes use metrics similar to EBITDA to measure the company's compliance with certain covenants.

WEBCAST INFORMATION

Clearwater Paper Corporation will discuss these results during an earnings conference call that begins at 2:00 p.m. Pacific Time today. A live webcast and accompanying supplemental information will be available on the company's website at http://ir.clearwaterpaper.com. A replay of today's conference call will be available on the website at http://ir.clearwaterpaper.com/results.cfm beginning at 5:00 p.m. Pacific Time today.

ABOUT CLEARWATER PAPER

Clearwater Paper manufactures quality consumer tissue, away-from-home tissue, parent roll tissue, bleached paperboard and pulp at manufacturing facilities across the nation. The company is a premier supplier of private label tissue to major retailers and wholesale distributors, including grocery, drug, mass merchants and discount stores. In addition, the company produces bleached paperboard used by quality-conscious printers and packaging converters, and offers services that include custom sheeting, slitting and cutting. Clearwater Paper's employees build shareholder value by developing strong customer relationships through quality and service.

FORWARD-LOOKING STATEMENTS

This press release contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 as amended, including statements regarding production at the company's Shelby, North Carolina facility, benefits of credit facilities, operational flexibility, liquidity, cash flow, financial leverage, and the company's balance sheet. These forward-looking statements are based on current expectations, estimates, assumptions and projections that are subject to change, and actual results may differ materially from the forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to: competitive pricing pressures for products, including as a result of increased capacity as additional manufacturing facilities are operated by the company’s competitors; the loss of, changes in prices in regard to, or reduction in, orders from a significant customer; changes in customer product preferences and competitors' product offerings; the company’s ability to achieve full production at its new tissue manufacturing operations in Shelby, North Carolina on time and within current cost expectations; customer acceptance and timing and quantity of purchases of the company’s tissue products, including the existence of sufficient demand for and the quality of tissue manufactured at its expanded Shelby, North Carolina operations upon full production; consolidation and vertical integration of converting operations in the paperboard industry; the company’s ability to successfully implement its operational efficiencies and cost savings strategies, along with related capital projects, and achieve the expected operational or financial results of those projects, including from the continuous pulp digester at its Lewiston, Idaho facility; changes in the cost and availability of wood fiber and wood pulp; changes in transportation costs and disruptions in transportation services; labor disruptions; changes in the U.S. and international economies and in general economic conditions in the regions and industries in which the company operates; manufacturing or operating disruptions, including IT system and IT system implementation failures, equipment malfunctions and damage to the company’s manufacturing facilities; changes in costs for and availability of packaging supplies, chemicals, energy and maintenance and repairs; larger competitors having operational and other advantages; cyclical industry conditions; changes in expenses, required contributions and potential withdrawal costs associated with the company’s pension plans; environmental liabilities or expenditures; cyber-security risks; reliance on a limited number of third-party suppliers for raw materials; the company’s ability to attract, motivate, train and retain qualified and key personnel; material weaknesses in the company internal controls over financial reporting; the company’s substantial indebtedness and ability to service its debt obligations; restrictions on the company’s business from debt covenants and terms; and changes in laws, regulations or industry standards affecting the company’s business; and other risks and uncertainties described from time to time in the company's public filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended December 31, 2018. The forward-looking statements are made as of the date of this press release and the company does not undertake to update any forward-looking statements based on new developments or changes in the company's expectations after the date of this press release.

Clearwater Paper Corporation

Consolidated Statements of Operations

Unaudited (Dollars in thousands - except per-share amounts)

Three Months Ended

Six Months Ended

June 30,

June 30,

2019

2018

2019

2018

Net sales

$

451,993

100

%

$

432,099

100

%

$

880,772

100

%

$

869,051

100

%

Costs and expenses:

Cost of sales

(409,825

)

91

%

(387,154

)

90

%

(794,071

)

90

%

(779,587

)

90

%

Selling, general and administrative expenses

(26,827

)

6

%

(26,564

)

6

%

(56,998

)

6

%

(59,544

)

7

%

Total operating costs and expenses

(436,652

)

97

%

(413,718

)

96

%

(851,069

)

97

%

(839,131

)

97

%

Income from operations

15,341

3

%

18,381

4

%

29,703

3

%

29,920

3

%

Interest expense, net

(10,914

)

2

%

(7,723

)

2

%

(19,400

)

2

%

(15,743

)

2

%

Non-operating pension and other postretirement benefit costs

(1,531

)

—

%

(1,187

)

—

%

(2,845

)

—

%

(2,466

)

—

%

Earnings before income taxes

2,896

1

%

9,471

2

%

7,458

1

%

11,711

1

%

Income tax provision

(3,320

)

1

%

(2,510

)

1

%

(4,045

)

—

%

(2,150

)

—

%

Net (loss) earnings

$

(424

)

—

%

$

6,961

2

%

$

3,413

—

%

$

9,561

1

%

Net (loss) earnings per common share:

Basic

$

(0.03

)

$

0.42

$

0.21

$

0.58

Diluted

(0.03

)

0.42

0.21

0.58

Average shares outstanding (in thousands):

Basic

16,539

16,487

16,527

16,491

Diluted

16,539

16,555

16,552

16,573

Clearwater Paper Corporation

Condensed Consolidated Balance Sheets

Unaudited (Dollars in thousands)

June 30,

December 31,

2019

2018

ASSETS

Current assets:

Cash and cash equivalents

$

41,800

$

22,484

Restricted cash

1,440

—

Receivables, net

169,972

145,519

Taxes receivable

7,943

6,301

Inventories

287,863

266,244

Other current assets

10,118

3,399

Total current assets

519,136

443,947

Property, plant and equipment, net

1,293,694

1,269,271

Operating lease right-of-use assets

75,338

—

Goodwill

35,074

35,074

Intangible assets, net

20,510

24,080

Other assets, net

12,095

15,746

TOTAL ASSETS

$

1,955,847

$

1,788,118

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Short-term debt

$

235,000

$

120,833

Accounts payable and accrued liabilities

301,294

321,032

Current liability for pensions and other postretirement employee benefits

7,430

7,430

Total current liabilities

543,724

449,295

Long-term debt

671,676

671,292

Operating lease liabilities

70,194

—

Liability for pensions and other postretirement employee benefits

74,903

78,191

Other long-term obligations

33,498

38,977

Accrued taxes

2,257

2,785

Deferred tax liabilities

125,230

121,182

TOTAL LIABILITIES

1,521,482

1,361,722

Stockholders' equity

434,365

426,396

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

1,955,847

$

1,788,118

Clearwater Paper Corporation

Consolidated Statements of Cash Flows

Unaudited (Dollars in thousands)

Six Months Ended

June 30,

2019

2018

CASH FLOWS FROM OPERATING ACTIVITIES

Net earnings

$

3,413

$

9,561

Adjustments to reconcile net earnings to net cash flows from operating activities:

Depreciation and amortization

54,353

50,344

Equity-based compensation expense

2,070

343

Deferred taxes

5,180

2,649

Deferred issuance costs on debt

938

716

Other non-cash activity, net

(792

)

410

Changes in working capital

(50,146

)

36,317

Changes in taxes receivable

(1,642

)

11,498

Changes in non-current accrued taxes

(528

)

346

Other, net

1,876

(1,296

)

Net cash flows from operating activities

14,722

110,888

CASH FLOWS FROM INVESTING ACTIVITIES

Additions to property, plant and equipment

(108,419

)

(78,600

)

Other, net

4

807

Net cash flows from investing activities

(108,415

)

(77,793

)

CASH FLOWS FROM FINANCING ACTIVITIES

Borrowings on short-term debt

436,927

124,063

Repayments of borrowings on short-term debt

(322,760

)

(119,063

)

Other, net

(1,147

)

(543

)

Net cash flows from financing activities

113,020

4,457

Increase in cash, cash equivalents and restricted cash

19,327

37,552

Cash, cash equivalents and restricted cash at beginning of period

24,947

16,738

Cash, cash equivalents and restricted cash at end of period

$

44,274

$

54,290

Clearwater Paper Corporation

Segment Information

Unaudited (Dollars in thousands)

Three Months Ended

Six Months Ended

June 30,

June 30,

2019

2018

2019

2018

Segment net sales:

Consumer Products

$

224,340

50

%

$

221,585

51

%

$

447,676

51

%

$

460,427

53

%

Pulp and Paperboard

227,653

50

%

210,514

49

%

433,096

49

%

408,624

47

%

Total segment net sales

$

451,993

100

%

$

432,099

100

%

$

880,772

100

%

$

869,051

100

%

Operating income (loss):

Consumer Products

$

(5,133

)

33

%

$

(3,604

)

20

%

$

(3,862

)

13

%

$

(1,975

)

7

%

Pulp and Paperboard

33,587

219

%

34,192

186

%

62,975

212

%

60,346

202

%

28,454

30,588

59,113

58,371

Corporate

(13,113

)

85

%

(12,207

)

66

%

(29,410

)

99

%

(28,451

)

95

%

Income from operations

$

15,341

100

%

$

18,381

100

%

$

29,703

100

%

$

29,920

100

%

Clearwater Paper Corporation

Reconciliation of Non-GAAP Financial Measures

EBITDA and Adjusted EBITDA

Unaudited (Dollars in thousands)

Three Months Ended

Six Months Ended

June 30,

June 30,

2019

2018

2019

2018

Net (loss) earnings

$

(424

)

$

6,961

$

3,413

$

9,561

Add back:

Interest expense, net

10,914

7,723

19,400

15,743

Income tax provision

3,320

2,510

4,045

2,150

Depreciation and amortization expense

28,517

25,177

54,353

50,344

EBITDA1

42,327

42,371

81,211

77,798

Directors' equity-based compensation expense (benefit)

31

(1,990

)

(319

)

(2,699

)

Non-operating pension and other postretirement benefit costs3

1,531

1,187

2,845

2,466

Other reorganization related expenses

52

792

52

792

Reorganization related expenses associated with SG&A cost control measures

—

1,076

—

6,180

Other

—

338

—

338

Adjusted EBITDA2

$

43,941

$

43,774

$

83,789

$

84,875

1

EBITDA is a non-GAAP measure that management uses to evaluate the cash generating capacity of the company. The most directly comparable GAAP measure is net earnings. EBITDA is net (loss) earnings adjusted for net interest expense, income taxes and depreciation and amortization. It should not be considered as an alternative to net earnings computed under GAAP.

2

Adjusted EBITDA excludes the impact of the items listed that the company does not believe are indicative of its core operating performance.

3

In 2018, the Company adopted Accounting Standards Update 2017-07, Compensation - Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which requires all net periodic pension and postretirement costs other than service cost to be presented on a line outside of operating income. Beginning in the first quarter of 2019, the Company is excluding these non-operating costs from the calculation of Adjusted EBITDA. The corresponding prior period amounts have been reclassified to conform with the current period presentation.

Clearwater Paper Corporation

Reconciliation of Non-GAAP Financial Measures

Adjusted Net Earnings and Adjusted Net Earnings Per Diluted Common Share

Unaudited (Dollars in thousands, except per-share amounts)

Three Months Ended

Six Months Ended

June 30,

June 30,

2019

2018

2019

2018

GAAP net (loss) earnings

$

(424

)

$

6,961

$

3,413

$

9,561

Adjustments, after-tax1:

Directors' equity-based compensation expense (benefit)

13

(1,472

)

(316

)

(2,004

)

Other reorganization related expenses

21

586

21

586

Reorganization related expenses associated with SG&A cost control measures

—

796

—

4,624

Other

—

250

—

250

Impact of state tax rate changes

—

—

—

(676

)

Adjusted net (loss) earnings2

$

(390

)

$

7,121

$

3,118

$

12,341

GAAP net (loss) earnings per diluted share

$

(0.03

)

$

0.42

$

0.21

$

0.58

Adjustments, after-tax1:

Directors' equity-based compensation expense (benefit)

—

(0.09

)

(0.02

)

(0.12

)

Other reorganization related expenses

—

0.04

—

0.04

Reorganization related expenses associated with SG&A cost control measures

—

0.04

—

0.28

Other

—

0.02

—

0.02

Impact of state tax rate changes

—

—

—

(0.04

)

Adjusted net (loss) earnings per diluted share2

$

(0.02

)

$

0.43

$

0.19

$

0.74

1

Tax effect was calculated using the estimated annual effective tax rate for the period presented.

2

Adjusted net (loss) earnings and Adjusted net (loss) earnings per diluted share exclude the impact of the items listed that the company does not believe are indicative of its core operating performance.

Clearwater Paper Corporation

Reconciliation of Non-GAAP Financial Measures

Segment EBITDA, Adjusted EBITDA, EBITDA Margin and Adjusted EBITDA Margin

Unaudited (Dollars in thousands)

Three Months Ended

Six Months Ended

June 30,

June 30,

2019

2018

2019

2018

Consumer Products:

Net sales

$

224,340

$

221,585

$

447,676

$

460,427

Operating loss

(5,133

)

(3,604

)

(3,862

)

(1,975

)

Depreciation and amortization expense

17,431

14,220

32,202

28,517

Consumer Products EBITDA1

$

12,298

$

10,616

$

28,340

$

26,542

Reorganization related expenses associated with SG&A cost control measures

—

216

—

1,659

Other reorganization related expenses

—

792

—

792

Consumer Products Adjusted EBITDA2

$

12,298

$

11,624

$

28,340

$

28,993

Consumer Products EBITDA margin3

5.5

%

4.8

%

6.3

%

5.8

%

Consumer Products Adjusted EBITDA margin4

5.5

%

5.2

%

6.3

%

6.3

%

Pulp and Paperboard

Net sales

$

227,653

$

210,514

$

433,096

$

408,624

Operating income

33,587

34,192

62,975

60,346

Depreciation and amortization expense

9,491

9,361

18,976

18,790

Pulp and Paperboard EBITDA1

$

43,078

$

43,553

$

81,951

$

79,136

Reorganization related expenses associated with SG&A cost control measures

—

92

—

383

Pulp and Paperboard Adjusted EBITDA2

$

43,078

$

43,645

$

81,951

$

79,519

Pulp and Paperboard EBITDA margin3

18.9

%

20.7

%

18.9

%

19.4

%

Pulp and Paperboard Adjusted EBITDA margin4

18.9

%

20.7

%

18.9

%

19.5

%

1

Segment EBITDA is segment operating (loss) income adjusted for depreciation and amortization.

2

Segment Adjusted EBITDA excludes the impact of the items listed that the company does not believe are indicative of its core operating performance.

3

Segment EBITDA margin is defined as Segment EBITDA divided by Segment Net sales.

4

Segment Adjusted EBITDA margin is defined as Segment Adjusted EBITDA divided by Segment Net sales.

Clearwater Paper Corporation

Reconciliation of Non-GAAP Financial Measures

Segment Adjusted Operating Income and Operating Margin

Unaudited (Dollars in thousands)

Three Months Ended

Six Months Ended

June 30,

June 30,

2019

2018

2019

2018

Consumer Products:

Net sales

$

224,340

$

221,585

$

447,676

$

460,427

Operating loss

$

(5,133

)

$

(3,604

)

$

(3,862

)

$

(1,975

)

Reorganization related expenses associated with SG&A cost control measures

—

216

—

1,659

Other reorganization related expenses

—

792

—

792

Consumer Products Adjusted operating (loss) income1

$

(5,133

)

$

(2,596

)

$

(3,862

)

$

476

Consumer Products operating margin

(2.3

)%

(1.6

)%

(0.9

)%

(0.4

)%

Consumer Products Adjusted operating margin2

(2.3

)%

(1.2

)%

(0.9

)%

0.1

%

Pulp and Paperboard:

Net sales

$

227,653

$

210,514

$

433,096

$

408,624

Operating income

$

33,587

$

34,192

$

62,975

$

60,346

Reorganization related expenses associated with SG&A cost control measures

—

92

—

383

Pulp and Paperboard Adjusted operating income1

$

33,587

$

34,284

$

62,975

$

60,729

Pulp and Paperboard operating margin

14.8

%

16.2

%

14.5

%

14.8

%

Pulp and Paperboard Adjusted operating margin2

14.8

%

16.3

%

14.5

%

14.9

%

1

Segment Adjusted operating (loss) income excludes the impact of the items listed that the company does not believe are indicative of its core operating performance.

2

Segment Adjusted operating margin is defined as Segment Adjusted operating (loss) income divided by Segment Net sales.

Clearwater Paper Corporation

(News media)

Shannon Myers

509.344.5967

or

(Investors)

Robin S. Yim

Vice President, Investor Relations

509.344.5906

Source: Clearwater Paper Corporation

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