# Clearwater Paper Corp: Form 10-Q for the period ended Sep 30, 2023

- Company: [Clearwater Paper Corp](/companies/clw.md) (CIK 1441236)
- Form: 10-Q
- Filed: 2023-10-30
- Accepted by EDGAR: Oct 30, 2023, 16:15 ET
- Period: 2023-09-30
- Accession: 0001504337-23-000041
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1441236/000150433723000041/clw-20230930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1441236/000150433723000041/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $519.9m | us-gaap:Revenues |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $1.57bn | us-gaap:Revenues |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $427.4m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $1.31bn | us-gaap:CostOfGoodsAndServicesSold |
| Selling, general and administrative | 3 months, 2023-07-01 to 2023-09-30 | $36.4m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2023-01-01 to 2023-09-30 | $111.5m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | $54.4m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | $141.5m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-07-01 to 2023-09-30 | $7.4m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-01-01 to 2023-09-30 | $22.6m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-07-01 to 2023-09-30 | $11.0m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $29.6m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | $36.6m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | $90.1m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | $2.17 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | $5.29 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | $2.20 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | $5.37 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 16,895,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 17,051,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2023-07-01 to 2023-09-30 | $88.2m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | $125.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2023-07-01 to 2023-09-30 | $14.2m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $48.5m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Share repurchases | 3 months, 2023-07-01 to 2023-09-30 | $5.0m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Share repurchases | 9 months, 2023-01-01 to 2023-09-30 | $15.1m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-09-30 | $110.2m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $627.0m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $1.74bn | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $260.9m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $1.09bn | us-gaap:Liabilities |
| Long-term debt | at 2023-09-30 | $564.8m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2023-09-30 | $900.0k | us-gaap:DebtCurrent |
| Shareholders' equity | at 2023-09-30 | $648.5m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 17,082 characters.

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, 2022, 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, 2022.

### OVERVIEW

### Executive Summary

We recorded net sales of $519.9 million for the quarter ended September 30, 2023 compared to $538.8 million for the quarter ended September 30, 2022. We recorded net income for the quarter ended September 30, 2023 of $36.6 million, or $2.17 per diluted share, compared to net income of $20.6 million or $1.21 per diluted share for the quarter ended September 30, 2022. We recorded Adjusted EBITDA for the quarter ended September 30, 2023 of $80.6 million compared to $77.3 million for the quarter ended September 30, 2022.

We recorded an increase of 1% in net sales to $1.6 billion for the nine months ended September 30, 2023 compared to $1.6 billion for the nine months ended September 30, 2022. We recorded net income for the nine months ended September 30, 2023 of $90.1 million, or $5.29 per diluted share, compared to net income of $51.9 million or $3.04 per diluted share for the nine months ended September 30, 2022. We recorded Adjusted EBITDA for the nine months ended September 30, 2023 of $217.6 million compared to $199.2 million for the nine months ended September 30, 2022.

See discussion on segment level results regarding net sales, operating results and Adjusted EBITDA in “Our Operating Results” below.

### 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.

As of September 30, 2023 there have been no significant changes with regard to the critical accounting policies and estimates disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022.

### 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 income from operations before interest expense, net, other non-operating costs, taxes, depreciation and amortization, debt retirement costs, other operating charges, net, and 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 segment basis in this report because we use them as important supplemental measures of our performance and believe that they are 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 also 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. In addition, we use Adjusted EBITDA: (i) as a factor 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 Adjusted EBITDA to measure the company's compliance with certain covenants.

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, income tax provision 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.

*(In millions)*

|  | Quarter Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| Net income | $36.6 | $20.6 | $90.1 | $51.9 |
| Income tax provision | 11.0 | 18.9 | 29.6 | 29.3 |
| Interest expense, net | 6.9 | 8.0 | 22.0 | 27.3 |
| Depreciation and amortization | 24.4 | 26.2 | 73.8 | 77.4 |
| Other operating charges, net | 1.8 | 2.2 | 2.4 | 8.5 |
| Debt retirement costs | — | — | — | 0.5 |
| Other non-operating (income) expense | (0.1) | 1.4 | (0.3) | 4.3 |
| Adjusted EBITDA | $80.6 | $77.3 | $217.6 | $199.2 |
| Pulp and Paperboard segment income | $42.7 | $63.7 | $141.8 | $165.9 |
| Depreciation and amortization | 9.4 | 9.3 | 27.9 | 27.8 |
| Adjusted EBITDA Pulp and Paperboard segment | $52.1 | $73.0 | $169.6 | $193.7 |
| Consumer Products segment income | $31.4 | $5.2 | $60.6 | $9.6 |
| Depreciation and amortization | 14.4 | 16.0 | 44.1 | 46.9 |
| Adjusted EBITDA Consumer Products segment | $45.8 | $21.2 | $104.7 | $56.6 |
| Corporate and other expense | $(18.0) | $(17.8) | $(58.5) | $(53.8) |
| Depreciation and amortization | 0.6 | 0.9 | 1.8 | 2.6 |
| Adjusted EBITDA Corporate and other | $(17.4) | $(16.9) | $(56.7) | $(51.1) |
| Pulp and Paperboard segment | $52.1 | $73.0 | $169.6 | $193.7 |
| Consumer Products segment | 45.8 | 21.2 | 104.7 | 56.6 |
| Corporate and other | (17.4) | (16.9) | (56.7) | (51.1) |
| Adjusted EBITDA | $80.6 | $77.3 | $217.6 | $199.2 |

15

### OUR OPERATING RESULTS

Our operating results for each of our segments are discussed below. See Note 15 "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

*(Dollars in millions, except per unit and paperboard shipments)*

| Sales: | Quarter Ended September 30, 2023 | 2022 | Increase (decrease) | Nine Months Ended September 30, 2023 | 2022 | Increase (decrease) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Paperboard | $253.8 | $292.7 | (13.3)% | $789.7 | $834.6 | (5.4)% |
| Pulp | 5.3 | 4.6 | 14.9% | 15.5 | 18.5 | (16.2)% |
| Other | 2.3 | 3.5 | (33.3)% | 7.2 | 9.7 | (25.8)% |
|  | $261.4 | $300.8 | (13.1)% | $812.4 | $862.8 | (5.8)% |
| Operating income | $42.7 | $63.7 | (32.9)% | $141.8 | $165.9 | (14.6)% |
| Operating margin | 16.3% | 21.2% |  | 17.5% | 19.2% |  |
| Adjusted EBITDA | $52.1 | $73.0 | (28.6)% | $169.6 | $193.7 | (12.4)% |
| Adjusted EBITDA margin | 19.9% | 24.3% |  | 20.9% | 22.5% |  |
| Paperboard shipments (short tons) | 187,944 | 208,298 | (9.8)% | 563,502 | 625,557 | (9.9)% |
| Paperboard sales price (per short ton) | $1,350 | $1,405 | (3.9)% | $1,401 | $1,334 | 5.0% |

Sales volumes in our Pulp and Paperboard segment decreased for the quarter and nine months ended September 30, 2023 compared to the same periods in the prior year due to weaker demand as customers rebalance inventory levels due to reduced consumer spending. Sales prices decreased in our Pulp and Paperboard segment for the quarter ended September 30, 2023 compared to the same period in the prior year due to previously announced price decreases and changes in mix and increased for the nine months ended September 30, 2023 compared to the same period in the prior year due to the impacts of our previously announced price increases.

Overall, the decrease in operating income and Adjusted EBITDA for the quarter ended September 30, 2023 as compared to the same period in the prior year was primarily driven by lower sales volumes and sales prices, planned production downtime to manage inventories, partially offset by lower input costs, specifically in wood, energy, chemicals and freight. The decrease in operating income and Adjusted EBITDA for the nine months ended September 30, 2023 as compared to the same period in the prior year was primarily driven by lower sales volumes and planned production downtime to manage inventory, partially offset by higher sales prices.

### Consumer Products Segment

*(Dollars in millions, except per unit and shipments)*

| Sales: | Quarter Ended September 30, 2023 | 2022 | Increase (decrease) | Nine Months Ended September 30, 2023 | 2022 | Increase (decrease) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Retail tissue | $257.7 | $237.1 | 8.7% | $756.5 | $682.3 | 10.9% |
| Other | 1.7 | 3.8 | (56.3)% | 4.8 | 13.8 | (65.2)% |
|  | $259.3 | $241.0 | 7.6% | $761.3 | $696.1 | 9.4% |
| Operating income | $31.4 | $5.2 | 499.9% | $60.6 | $9.6 | 529.2% |
| Operating margin | 12.1% | 2.2% |  | 8.0% | 1.4% |  |
| Adjusted EBITDA | $45.8 | $21.2 | 115.6% | $104.7 | $56.6 | 85.0% |
| Adjusted EBITDA margin | 17.7% | 8.8% |  | 13.8% | 8.1% |  |
| Shipments (short tons) |  |  |  |  |  |  |
| Retail | 80,588 | 76,938 | 4.7% | 236,108 | 228,968 | 3.1% |
| Other | 1,422 | 2,322 | (38.8)% | 2,542 | 10,010 | (74.6)% |
|  | 82,010 | 79,260 | 3.5% | 238,650 | 238,978 | (0.1)% |
| Sales price (per short ton) |  |  |  |  |  |  |
| Retail | $3,198 | $3,082 | 3.7% | $3,204 | $2,980 | 7.5% |

Retail sales volumes in our Consumer Products segment increased for the quarter and the nine months ended September 30, 2023 compared to the same periods in the prior year due to the increased demand for private label versus branded products. Retail sales prices increased in our Consumer Products segment for the quarter and the nine months ended September 30, 2023 compared to the same periods in the prior year due to our previously announced price increases and improved product mix.

Overall, the increase in operating income and Adjusted EBITDA for the quarter ended September 30, 2023 compared to the same period in the prior year was driven by higher sales prices and lower input costs, primarily in pulp, freight, chemicals and energy costs. The increase in operating income and Adjusted EBITDA for the nine months ended September 30, 2023 compared to the same period in the prior year was driven by higher sales prices partially offset by higher input costs, primarily in freight and energy costs.

### Corporate expenses

Corporate expenses for the quarter and nine months ended September 30, 2023 were $18.0 million and $58.5 million compared to $17.8 million and $53.8 million in the same periods in the prior year. The increase between periods is primarily related to costs associated with business process improvement projects and higher wages. 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 9 "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.

### 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 nine months ended September 30, 2023 were $125.0 million compared to net cash flows provided by operating activities of $132.8 million for the nine months ended September 30, 2022. This decrease was driven by higher cash outflows related to the major outage that occurred in the later portion of 2022 which did not occur in 2021 and higher inventory levels. This was partially offset by improved operating performance. Accounts receivable and accounts payable agings as of September 30, 2022 have remained relatively consistent with balances as of December 31, 2022.

### Investing Activities

Net cash flows used in investing activities for the nine months ended September 30, 2023 were $48.5 million compared to $19.9 million in the same period of the prior year. Included in "Accounts payable and accrued liabilities" on our Consolidated Balance Sheets was $16.5 million and $7.3 million related to capital expenditures that had not yet been paid at September 30, 2023 and 2022.

During 2023, we expect cash paid for capital expenditures to be approximately $70 million to $80 million.

### Financing Activities

During the nine months ended September 30, 2023, net cash used for financing activities was $20.7 million. We used $15.1 million to repurchase stock though our share repurchase program and $4.7 million in connection with income tax withholding requirements associated with our employee stock-based compensation plans. Additionally, we borrowed and repaid $12 million on our ABL credit facility to cover short term cash requirements.

During the nine months ended September 30, 2022, net cash used for financing activities was $87.6 million. We used $50 million to payoff our Term Loan Credit Agreement, $30 million to make open market purchases of our 2014 Notes and $4.9 million for common stock repurchases under our stock repurchase program.

### ABL Credit Agreement

The ABL Credit Agreement includes a $275 million revolving loan commitment, subject to borrowing base limitations. Borrowings under the ABL Credit Agreement are subject to mandatory prepayment in certain circumstances. We may also increase commitments under the ABL Credit Agreement in an aggregate principal amount of up to $100 million, subject to obtaining commitments from any participating lenders and certain other conditions. This agreement contains certain customary representations, warranties, and affirmative and negative covenants.

As of September 30, 2023, we were in compliance with the 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 ABL Credit Agreement.

## Market risk

As filed, 353 characters.

There have been no significant developments with regard to our exposure to market risk for the quarter ended September 30, 2023. 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, 2022.

## Controls and procedures

As filed, 1,262 characters.

As of September 30, 2023, 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 September 30, 2023 that has materially affected, or is likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 261 characters.

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, 2022. See Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022, entitled “Risk Factors.”

Filed Oct 30, 2023.
Source: SEC EDGAR, the filing index for accession 0001504337-23-000041. Last ingested by Listed: Oct 26, 2026, 16:22 ET. No prices; not investment advice.