October 20, 2016

Clearwater Paper Reports Third Quarter 2016 Results

SPOKANE, Wash.--(BUSINESS WIRE)-- Clearwater Paper Corporation (NYSE:CLW) today reported financial results for the third quarter of 2016.

The company reported net sales of $435.3 million for the third quarter of 2016, down 1.6% compared to net sales of $442.2 million for the third quarter of 2015. Net earnings determined in accordance with generally accepted accounting principles, or GAAP, for the third quarter of 2016 were $0.9 million, or $0.05 per diluted share, compared to $23.1 million, or $1.21 per diluted share, for the third quarter of 2015. Excluding certain items identified in the attached reconciliations to GAAP, third quarter 2016 adjusted net earnings were $2.4 million, or $0.14 per diluted share, compared to third quarter 2015 adjusted net earnings of $24.4 million, or $1.28 per diluted share. The decrease in net earnings was due primarily to $18.0 million of pre-tax planned major maintenance at the company's Lewiston, Idaho pulp and paperboard facility, lower paperboard pricing and shipments, $3.5 million of pre-tax net costs incurred from an unplanned power outage at the Lewiston facility, a $3.5 million pre-tax settlement charge associated with a pension lump sum buyout, and contractual wage increases. These items were partially offset by higher productivity and lower input costs for transportation, chemicals and natural gas.

Earnings before interest, taxes, depreciation and amortization, or EBITDA, was $32.0 million for the third quarter of 2016 compared to $61.3 million for the third quarter of 2015. Adjusted EBITDA for the quarter was $34.3 million, down 45.7% compared to third quarter 2015 Adjusted EBITDA of $63.2 million.

"Clearwater Paper achieved third quarter financial results at the high end of our outlook with increased retail sales volumes in consumer products that helped to mitigate continued challenging paperboard market conditions," said Linda K. Massman, president and chief executive officer. "The team's outstanding focus on implementing our strategic capital projects and operational efficiencies also contributed to our results."

"Through the third quarter, we have purchased approximately 1.1 million shares at an average price of $46.91 as part of our $100 million stock repurchase program we announced last December. Our stock repurchase program reflects our confidence in future cash generation capabilities and a commitment to return capital to shareholders," said Massman.

THIRD QUARTER 2016 SEGMENT PERFORMANCE

Consumer Products

Net sales in the Consumer Products segment were $253.3 million for the third quarter of 2016, up 2.5% compared to third quarter 2015 net sales of $247.0 million. This increase was due to market share gains, which resulted in growth of total tissue volume and a richer product mix that included a 7.0% increase in retail tons sold.

On a GAAP basis, the segment had operating income of $17.2 million in the third quarter of 2016, compared to operating income of $15.5 million in the third quarter of 2015. Adjusted operating income of $15.9 million for the third quarter of 2016 was down from $16.7 million compared to the same period in 2015, after adjusting for a $1.8 million net gain in the third quarter of 2016 resulting from the release of an indemnity escrow related to the sale of the company's former specialty tissue mills, $0.5 million and $0.7 million of costs in the third quarters of 2016 and 2015, respectively, related to the previously announced Long Island, New York facility closure, and $0.5 million of reorganization related expenses in the third quarter of 2015. The adjusted operating margin declined from 6.8% in the third quarter of 2015 to 6.3% in the most recent period due to higher maintenance and wage costs which were partially offset by higher shipment volumes, a richer product mix and lower transportation costs.

  • Total tissue sales volumes of 100,600 tons in the third quarter of 2016 increased by 2.5% and converted product cases shipped were 13.8 million, up 3.0%, each compared to the third quarter of 2015.
  • Average tissue net selling prices increased by a modest 0.04% to $2,516 per ton in the third quarter of 2016, compared to the third quarter of 2015.

Pulp and Paperboard

Net sales in the Pulp and Paperboard segment were $182.0 million for the third quarter of 2016, down 6.8% compared to third quarter 2015 net sales of $195.2 million. The decrease was primarily due to lower paperboard shipments and pricing. Operating income for the quarter decreased $27.4 million to $10.0 million, compared to $37.4 million for the third quarter of 2015, primarily due to $18.0 million of planned major maintenance at the Lewiston, Idaho mill, $3.5 million of net costs incurred from an unplanned power outage at the Lewiston facility, and contractual wage increases. These factors were partially offset by lower input costs for polyethylene, natural gas, and transportation.

  • Paperboard sales volumes decreased 1.1% to 196,271 tons in the third quarter of 2016, compared to 198,535 tons in the third quarter of 2015.
  • Paperboard net selling prices decreased 5.3% to $927 per ton compared to the third quarter of 2015.

Taxes

The company's GAAP tax rate for the third quarter of 2016 was a provision of 48.8% compared to 28.3% in the third quarter of 2015 due to a low level of pre-tax income in the period. On an adjusted basis, the third quarter 2016 tax rate was 41.4%. The company expects its annual GAAP and adjusted tax rate to be approximately 36% plus or minus two percentage points for 2016.

Note Regarding Use of Non-GAAP Financial Measures

In this press release, the company presents certain non-GAAP financial information for the third quarters of 2016 and 2015, including EBITDA, Adjusted EBITDA, adjusted net earnings, adjusted net earnings per diluted share, adjusted operating income, adjusted operating margin and adjusted tax rate. Because these amounts are not in accordance with GAAP, reconciliations to net earnings, net earnings per diluted share, operating income and adjusted tax rate as determined in accordance with GAAP are included 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.

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. Clearwater Paper's employees build shareholder value by developing strong customer partnerships 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 the company's stock repurchase program, cash flow generation, return of capital to shareholders and expected tax rate for 2016. 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 the company's products, including as a result of increased capacity as additional manufacturing facilities are operated by the company's competitors; changes in the U.S. and international economies and in general economic conditions in the regions and industries in which the company operates; changes in customer product preferences and competitors' product offerings; the loss of or changes in prices in regards to a significant customer; cyclical industry conditions; changes in the cost and availability of wood fiber and wood pulp; inability to successfully implement the company's operational efficiencies and expansion strategies; changes in transportation costs and disruptions in transportation services; customer acceptance, timing and quantity of purchases of the company's tissue products; changes in costs for and availability of packaging supplies, chemicals, energy and maintenance and repairs; environmental liabilities or expenditures; labor disruptions; manufacturing or operating disruptions, including IT system and IT system implementation failures, equipment malfunction and damage to the company's manufacturing facilities; changes in expenses and required contributions associated with the company's pension plans; reliance on a limited number of third-party suppliers for raw materials; 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, 2015. 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.

                   
Clearwater Paper Corporation
Consolidated Statements of Operations
Unaudited (Dollars in thousands - except per-share amounts)
 
Three Months Ended Nine Months Ended
September 30, September 30,
      2016       2015     2016       2015    
Net sales     $ 435,320     100 %   $ 442,222     100 % $ 1,309,195     100 %   $ 1,320,806     100 %
Costs and expenses:
Cost of sales (396,605 ) 91 % (373,892 ) 85 % (1,127,103 ) 86 % (1,148,071 ) 87 %
Selling, general and administrative expenses       (29,435 )   7 %     (28,284 )   6 %   (94,885 )   7 %     (85,379 )   6 %
Total operating costs and expenses       (426,040 )   98 %     (402,176 )   91 %   (1,221,988 )   93 %     (1,233,450 )   93 %
Income from operations 9,280 2 % 40,046 9 % 87,207 7 % 87,356 7 %
Interest expense, net       (7,520 )   2 %     (7,882 )   2 %   (22,559 )   2 %     (23,438 )   2 %
Earnings before income taxes 1,760 0 % 32,164 7 % 64,648 5 % 63,918 5 %
Income tax provision       (859 )   0 %     (9,100 )   2 %   (24,437 )   2 %     (19,500 )   1 %
Net earnings     $ 901     0 %   $ 23,064     5 % $ 40,211     3 %   $ 44,418     3 %
Net earnings per common share:
Basic $ 0.05 $ 1.22 $ 2.35 $ 2.33
Diluted

 

0.05 1.21

 

2.33 2.30
Average shares outstanding (in thousands):
Basic 16,845 18,860 17,141 19,088
Diluted 17,060 19,091 17,253 19,284
 

       
Clearwater Paper Corporation
Condensed Consolidated Balance Sheets
Unaudited (Dollars in thousands)
 
September 30, December 31,
      2016     2015
 
ASSETS
Current assets:
Cash and cash equivalents $ 331 $ 5,610
Restricted cash 2,270
Short-term investments 250
Receivables, net 134,384 139,052
Taxes receivable 7,634 14,851
Inventories 252,126 255,573
Other current assets       5,414         9,331  
Total current assets 399,889 426,937
Property, plant and equipment, net 914,945 866,538
Goodwill 209,087 209,087
Intangible assets, net 16,280 19,990
Pension Assets 2,035 596
Other assets, net       5,578         4,221  
TOTAL ASSETS     $ 1,547,814       $ 1,527,369  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 223,803 $ 220,368
Revolving credit facility borrowings 13,012
Current liability for pensions and other postretirement employee benefits       7,559         7,559  
Total current liabilities 244,374 227,927
Long-term debt 569,563 568,987
Liability for pensions and other postretirement employee benefits 85,991 89,057
Other long-term obligations 42,310 46,738
Accrued taxes 1,523 1,676
Deferred tax liabilities 132,850 118,118
Stockholders' equity, excluding accumulated other comprehensive loss, net of tax 524,166 530,414
Accumulated other comprehensive loss, net of tax       (52,963 )       (55,548 )
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY     $ 1,547,814       $ 1,527,369  
 

     
Clearwater Paper Corporation
Consolidated Statements of Cash Flows
Unaudited (Dollars in thousands)
 

Nine Months Ended
September 30,

      2016   2015
 
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 40,211 $ 44,418
Adjustments to reconcile net earnings to net cash flows from operating activities:
Depreciation and amortization 65,921 62,844
Equity-based compensation expense 9,826 2,495
Deferred tax provision (benefit) 12,329 (12,403 )
Employee benefit plans (500 ) 2,122
Deferred issuance costs on long-term debt 637 714
Disposal of plant and equipment, net 30 1,109
Non-cash adjustments to unrecognized taxes (153 ) (1,123 )
Changes in working capital, net 4,045 15,471
Changes in taxes receivable, net 7,217 1,255
Excess tax benefits from equity-based payment arrangements (157 ) (3,848 )
Funding of qualified pension plans (3,179 )
Other, net       (523 )       (2,320 )
Net cash flows from operating activities       138,883         107,555  
 
CASH FLOWS FROM INVESTING ACTIVITIES
Changes in short-term investments, net 250 40,000
Additions to plant and equipment (105,514 ) (78,461 )
Proceeds from sale of assets               587  
Net cash flows from investing activities       (105,264 )       (37,874 )
 
CASH FLOWS FROM FINANCING ACTIVITIES
Purchase of treasury stock (51,528 ) (84,305 )
Borrowings on revolving credit facility 944,844
Repayments of revolving credit facility borrowings (931,832 )
Payment of tax withholdings on equity-based payment arrangements (488 ) (3,129 )
Excess tax benefits from equity-based payment arrangements 157 3,848
Other, net       (51 )       (9 )
Net cash flows from financing activities       (38,898 )       (83,595 )
Decrease in cash and cash equivalents (5,279 ) (13,914 )
Cash and cash equivalents at beginning of period       5,610         27,331  
Cash and cash equivalents at end of period     $ 331       $ 13,417  
 

                 
Clearwater Paper Corporation
Segment Information
Unaudited (Dollars in thousands)
 
Three Months Ended Nine Months Ended
September 30, September 30,
      2016       2015     2016       2015    
Segment net sales:
Consumer Products $ 253,319 58 % $ 247,039 56 % $ 746,249 57 % $ 721,606 55 %
Pulp and Paperboard       182,001     42 %     195,183     44 %   562,946     43 %     599,200     45 %
Total segment net sales     $ 435,320     100 %   $ 442,222     100 % $ 1,309,195     100 %   $ 1,320,806     100 %
 
Operating income (loss):
Consumer Products $ 17,201 185 % $ 15,521 39 % $ 54,135 62 % $ 44,948 51 %
Pulp and Paperboard       9,956     107 %     37,446     94 %   85,151     98 %     81,394     93 %
27,157 52,967 139,286 126,342
Corporate1       (17,877 )   193 %     (12,921 )   32 %   (52,079 )   60 %     (38,986 )   45 %
Income from operations     $ 9,280     100 %   $ 40,046     100 % $ 87,207     100 %   $ 87,356     100 %
 

1

  Corporate expenses for the three and nine months ended September 30, 2016 include a $3.5 million settlement accounting charge associated with a pension lump sum buyout for term-vested participants.
 

           
Clearwater Paper Corporation
Reconciliation of Non-GAAP Financial Measures
EBITDA and Adjusted EBITDA
Unaudited (Dollars in thousands)
 
Three Months Ended Nine Months Ended
September 30, September 30,
      2016   2015 2016   2015
Net earnings $ 901 $ 23,064 $ 40,211 $ 44,418
Add back:
Interest expense, net 7,520 7,882 22,559 23,438
Income tax provision 859 9,100 24,437 19,500
Depreciation and amortization expense       22,747       21,204     65,921       62,844  
EBITDA1     $ 32,027     $ 61,250   $ 153,128     $ 150,200  
 
Directors' equity-based compensation expense (benefit) $ 89 $ (1,914 ) $ 4,425 $ (3,841 )
Pension settlement expense 3,482 3,482
Costs associated with Long Island facility closure 466 728 1,431 2,017
Gain associated with the sale of the specialty mills (1,755 ) (1,755 ) (1,462 )
Legal expenses and settlement costs 1,972 1,972
Reorganization related expenses 1,185 1,185
Costs associated with labor agreement                       1,730  
Adjusted EBITDA2     $ 34,309     $ 63,221   $ 160,711     $ 151,801  
 

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 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 we do not believe are indicative of our core operating performance.

 

           
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 Nine Months Ended
September 30, September 30,
      2016   2015 2016   2015
 
GAAP net earnings $ 901 $ 23,064 $ 40,211 $ 44,418
Special items, after-tax1:
Directors' equity-based compensation expense (benefit) 57 (1,307 ) 2,857 (2,630 )
Pension settlement expense 2,240 2,240
Costs associated with Long Island facility closure 300 497 922 1,384
Gain associated with the sale of the specialty mills (1,129 ) (1,129 ) (1,003 )
Legal expenses and settlement costs 1,346 1,346
Reorganization related expenses 809 809
Costs associated with labor agreement                       1,197  
Adjusted net earnings2     $ 2,369     $ 24,409   $ 45,101     $ 45,521  
 
GAAP net earnings per diluted share $ 0.05 $ 1.21 $ 2.33 $ 2.30
Special items, after-tax1:
Directors' equity-based compensation expense (benefit) (0.07 ) 0.17 (0.14 )
Pension settlement expense 0.13 0.13
Costs associated with Long Island facility closure 0.02 0.03 0.05 0.07
Gain associated with the sale of the specialty mills (0.07 ) (0.07 ) (0.05 )
Legal expenses and settlement costs 0.07 - 0.07
Reorganization related expenses 0.04 - 0.04
Costs associated with labor agreement                 -       0.06  
Adjusted net earnings per diluted share2     $ 0.14     $ 1.28   $ 2.61     $ 2.36  
 

1

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

2

Adjusted net earnings and Adjusted net earnings per diluted share exclude the impact of the items listed that we do not believe are indicative of our 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 Nine Months Ended
September 30, September 30,
      2016   2015 2016   2015
Consumer Products:
Net sales $ 253,319 $ 247,039 $ 746,249 $ 721,606
GAAP operating income 17,201 15,521 54,135 44,948
Depreciation and amortization expense       15,022       14,048     42,984       40,463  
Consumer Products EBITDA1     $ 32,223     $ 29,569   $ 97,119     $ 85,411  
Costs associated with Long Island facility closure 466 728 1,431 2,017
Gain associated with the sale of the specialty mills (1,755 ) (1,755 ) (1,462 )
Costs associated with labor agreement 814
Reorganization related expenses             494           494  
Consumer Products Adjusted EBITDA2     $ 30,934     $ 30,791   $ 96,795     $ 87,274  
Consumer Products EBITDA margin3 12.7 % 12.0 % 13.0 % 11.8 %
Consumer Products Adjusted EBITDA margin4       12.2 %     12.5 %   13.0 %     12.1 %
 
Pulp and Paperboard:
Net sales $ 182,001 $ 195,183 $ 562,946 $ 599,200
GAAP operating income 9,956 37,446 85,151 81,394
Depreciation and amortization expense       6,530       6,535     19,346       20,583  
Pulp and Paperboard EBITDA1     $ 16,486     $ 43,981   $ 104,497     $ 101,977  
Costs associated with labor agreement 916
Reorganization related expenses             239           239  
Pulp and Paperboard Adjusted EBITDA2     $ 16,486     $ 44,220   $ 104,497     $ 103,132  
Pulp and Paperboard EBITDA margin3 9.1 % 22.5 % 18.6 % 17.0 %
Pulp and Paperboard Adjusted EBITDA margin4       9.1 %     22.7 %   18.6 %     17.2 %
 

1

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

2

Segment Adjusted EBITDA excludes the impact of the items listed that we do not believe are indicative of our 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 Nine Months Ended
September 30, September 30,
      2016   2015 2016   2015
Consumer Products:
Net sales $ 253,319 $ 247,039 $ 746,249 $ 721,606
GAAP operating income 17,201 15,521 54,135 44,948
Costs associated with Long Island facility closure 466 728 1,431 2,017
Gain associated with the sale of the specialty mills (1,755 ) (1,755 ) (1,462 )
Costs associated with labor agreement 814
Reorganization related expenses             494           494  
Consumer Products Adjusted operating income1     $ 15,912     $ 16,743   $ 53,811     $ 46,811  
Consumer Products operating margin 6.8 % 6.3 % 7.3 % 6.2 %
Consumer Products Adjusted operating margin2       6.3 %     6.8 %   7.2 %     6.5 %
 
Pulp and Paperboard:
Net sales $ 182,001 $ 195,183 $ 562,946 $ 599,200
GAAP operating income 9,956 37,446 85,151 81,394
Costs associated with labor agreement 916
Reorganization related expenses             239           239  
Pulp and Paperboard Adjusted operating income1     $ 9,956     $ 37,685   $ 85,151     $ 82,549  
Pulp and Paperboard operating margin 5.5 % 19.2 % 15.1 % 13.6 %
Pulp and Paperboard Adjusted operating margin2       5.5 %     19.3 %   15.1 %     13.8 %
 

1

  Segment Adjusted operating income excludes the impact of the items listed that we do not believe are indicative of our core operating performance.

2

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

         
Clearwater Paper Corporation
Reconciliation of Non-GAAP Financial Measures
Adjusted Income Tax Provision
Unaudited (Dollars in thousands)
 
Three Months Ended Nine Months Ended
September 30, September 30,
      2016   2015 2016   2015
 
GAAP income tax provision $ (859 ) $ (9,100 ) $ (24,437 ) $ (19,500 )
Special items, after-tax:
Directors' equity-based compensation (expense) benefit (32 ) 607 (1,568 ) 1,211
Pension settlement expense (1,242 ) (1,242 )
Costs associated with Long Island facility closure (166 ) (231 ) (509 ) (633 )
Gain associated with the sale of the specialty mills 626 626 459
Legal expenses and settlement costs (626 ) (626 )
Reorganization related expenses (376 ) (376 )
Costs associated with labor agreement                       (533 )
Adjusted income tax provision1     $ (1,673 )   $ (9,726 ) $ (27,130 )   $ (19,998 )
Adjusted income tax provision rate1,2 41.4 % 28.5 % 37.5 % 30.5 %
 

1

  Adjusted income tax provision and Adjusted income tax provision rate exclude the impact of the items listed that we do not believe are indicative of our core operating performance.

2

The Adjusted income tax provision rate is defined as [Adjusted income tax provision / (Adjusted income tax provision + Adjusted net earnings)].
 

Clearwater Paper Corporation
(News media)
Matt Van Vleet
509.344.5912
or
(Investors)
Robin Yim
509.344.5906

Source: Clearwater Paper Corporation

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