Clearwater Paper Corporation — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual filing; the supplied text does not provide separate fourth-quarter results. Clearwater Paper manufactures bleached paperboard and private-label consumer tissue, reported through Pulp and Paperboard and Consumer Products segments.
Financial performance and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Net sales | $1,772.6 million | $1,868.6 million |
| Operating income | $12.0 million | $158.1 million |
| Net income (loss) | $(28.1) million; $(1.67) per diluted share | $77.1 million; $4.61 per diluted share |
| Adjusted EBITDA | $174.6 million | $283.2 million |
| Cash from operations | $96.4 million | $247.0 million |
| Capital expenditures | $38.4 million | $39.6 million |
| Cash and cash equivalents at year-end | $25.2 million | $35.9 million |
| Total debt, including finance leases, face value | $644.1 million | $725.0 million |
Net sales declined 5.1%, while operating income fell to $12.0 million. Operating margin was approximately 0.7%, versus 8.5% in 2020. Adjusted EBITDA declined approximately 38%. Cash from operations decreased by $150.6 million; management attributed this mainly to lower earnings and working-capital changes, including higher inventories. Cash after capital expenditures was approximately $58.0 million, calculated from reported operating cash flow less capital expenditures.
At year-end, current assets were $487.2 million and current liabilities were $254.1 million. The ABL revolver had no borrowings and approximately $243.6 million of availability after borrowing-base limitations and letters of credit. The company reported compliance with its credit agreements; the ABL fixed-charge coverage covenant applies if availability falls below $25 million. Debt carrying value was $639.2 million, including finance leases and net of unamortized debt costs.
Segments and changes versus 2020
- Pulp and Paperboard: Sales rose 7.9% to $946.0 million. Operating income was $125.7 million and Adjusted EBITDA was $161.4 million, both broadly flat year over year. Shipments were nearly unchanged; higher paperboard prices were offset by input-cost inflation and major maintenance outages.
- Consumer Products: Sales declined 18.0% to $835.0 million; operating income fell to $4.0 million from $110.6 million, and Adjusted EBITDA fell to $69.0 million from $179.1 million. Retail tissue shipments declined 19.1%, as demand receded from pandemic-driven 2020 levels and the company reduced production to balance supply and demand. Higher pulp, energy and transportation costs also weighed on results.
- Consolidated results included $57.7 million of other operating charges, versus $14.0 million in 2020. The 2021 total included a $50.0 million charge associated with a mill closure and subsequent asset sale, including $37.2 million of impairment and $12.8 million of severance and related closure costs.
- The company closed its Neenah, Wisconsin facility in July 2021. It also reported a fire at its Las Vegas facility and weather-related shutdowns or curtailments at its Arkansas mill.
Outlook, risks and contingencies
- Management expected $90–$100 million of raw-material, freight and energy inflation in 2022, based on projections available when the filing was prepared. Expected 2022 capital expenditures were $60–$70 million.
- Management said cash on hand, operating cash flows and borrowing capacity were expected to fund the next 12 months’ debt service, operations, capital expenditures and working capital; it also noted uncertainty in future cash generation.
- Some large tissue customer agreements were due for renewal in 2022. The top 10 customers represented 46% of 2021 sales, and one customer represented 11%. The filing identifies customer concentration, pricing competition, tissue capacity growth and the ability to pass on rising costs as significant risks.
- Other key exposures include volatile pulp, wood fiber, chemicals, energy and transportation costs; COVID-19-related demand and supply disruption; manufacturing interruptions; and environmental, climate, labor and cyber risks. Approximately 42% of employees were covered by collective bargaining agreements.
- The company estimated potential withdrawal liability exceeding $90 million in aggregate for its two multiemployer pension plans if it had completely withdrawn in 2021. It reported no current plans to withdraw and had not recognized a withdrawal liability. A potential additional PIUMPF assessment tied to its accumulated funding deficiency is disputed and its enforceability remains unresolved.
- The company did not anticipate paying a cash dividend in 2022. It reported $29.8 million remaining under its stock repurchase authorization, but no obligation to repurchase shares.
- KPMG issued unqualified opinions on the financial statements and internal control over financial reporting. The audit identified measurement of the $310.1 million pension benefit obligation, particularly the discount-rate assumption, as a critical audit matter.
Investor verification priorities
- Assess whether tissue demand, shipments and margins recovered after the 2021 decline, and whether customer agreements were renewed on acceptable terms.
- Track realized inflation against management’s 2022 estimate and the company’s ability to offset higher costs through pricing and productivity.
- Review the mill-closure charge, asset-sale proceeds and any further restructuring or impairment costs.
- Monitor operating cash flow, working capital, debt reduction, ABL availability and compliance with debt covenants.
- Follow the status and potential exposure of the multiemployer pension plans, including PIUMPF’s relief under ARPA and the disputed accumulated-funding-deficiency issue.