Clearwater Paper Posts Higher 2Q Earnings
July 30, 2009 - Clearwater Paper Corp. today reported financial results for the second quarter ended June 30, 2009. The company reported net earnings for the second quarter of 2009 of $75.4 million, or $6.43 per diluted common share, compared to net earnings of $5.0 million, or $0.44 per diluted common share, for the second quarter of 2008. Net earnings for the second quarter of 2009, excluding income from alternative fuel mixture tax credits, tax benefits from renewable energy tax credits and a reduction in the valuation allowance related to state investment tax credits, and debt retirement costs, were $17.9 million, or $1.52 per diluted common share.
“Our results for the second quarter were very strong, driven by our excellent performance in our Consumer Products segment and improved results in Pulp and Paperboard, plus benefits from the alternative fuel mixture tax credits and other tax benefits that the company received. We continue to expect solid performance, but results for the rest of the year might be somewhat dampened by additional promotional expense, coupled with higher pulp and other commodity costs,” said Gordon Jones, president, chief executive officer and director.
SECOND QUARTER 2009 SEGMENT PERFORMANCE
Operating income for the second quarter of 2009 was $32.2 million, compared with operating income of $7.1 million for the second quarter of 2008. Net sales of $139.4 million for the quarter were 13% higher than second quarter 2008 net sales of $122.9 million.
- The increase in net sales was primarily attributable to 7% higher net selling prices with a similar sales mix, when compared to the second quarter of 2008. The segment shipped a record 51,737 tons of finished goods during the quarter, which were 6% higher than the tons shipped in the prior year’s second quarter. These tons represented 7.3 million cases of product shipped during the second quarter of 2009 versus 6.9 million cases shipped during the second quarter of 2008.
- Excellent production in papermaking, record converting production and lower input costs for pulp, freight, energy and packaging supplies contributed to segment performance during the second quarter of this year.
Pulp and Paperboard
Operating income for the second quarter of 2009 was $87.8 million, compared to operating income of $6.0 million for the second quarter of 2008. Excluding the income recognized for the alternative fuel mixture tax credits, operating income for the second quarter of 2009 was $11.4 million. Net sales of $174.4 million for the quarter were 6% lower than second quarter 2008 net sales of $185.1 million.
- Lower net sales for the quarter were the result of an 8% decline in paperboard shipments, coupled with a 32% decline in market pulp net selling prices compared to the same period in 2008. Partially offsetting the negative comparisons were a 3% higher average net selling price for paperboard and significantly higher market pulp shipments to third parties.
- Operating income for the quarter was favorably affected by lower input costs for wood fiber, chemicals, energy and freight compared to the same quarter in 2008.
- Repair and maintenance costs were $2.5 million higher during the quarter compared to the same period in 2008, attributable to accelerating a portion of the scheduled major maintenance work into the first and second quarters of the current year due to softer-than-expected order backlogs. The remainder of the 2009 major maintenance for the segment is expected to occur in the third quarter at an estimated cost of $5.8 million.
- The company is registered with the Internal Revenue Service as an alternative fuel mixer and has received refundable tax credit payments in connection with its use of “black liquor,” a by-product of the pulp manufacturing process, in an alternative fuel mixture to produce energy at its pulp mills. The amount of the refundable tax credit is equal to $0.50 per gallon of alternative fuel mixture used. The segment recorded $76.4 million of income during the second quarter related to the alternative fuel mixture tax credit. This income was for the period from late January through June 30, 2009. The portion of the alternative fuel mixture tax credit attributable to operations occurring during the second quarter was $45.0 million. Through June 30, the company received refundable tax credit payments totaling $57.6 million.
Operating loss for the second quarter of 2009 was $4.5 million, compared to an operating loss of $3.6 million for the second quarter of 2008. Net sales of $16.6 million for the quarter were 40% lower than second quarter 2008 net sales of $27.7 million.
- Overall lumber net selling prices fell by 17% in the quarter, compared to the second quarter of 2008, due to lower lumber prices and a lower percentage of higher-value cedar product sales.
- Shipment volumes declined by 26% during the quarter compared to the same quarter in 2008.
- Saw log costs were lower in the quarter due to lower log prices and log mix, compared to the second quarter of 2008.
Corporate and Eliminations Expenses
Corporate and eliminations expenses for the second quarter of 2009 were $7.4 million compared to a positive overall adjustment of $1.5 million for the second quarter of 2008. The unfavorable comparison was due largely to higher corporate administration expenses in 2009 associated with being an independent, publicly traded company compared to the portion of Potlatch’s corporate expense allocated to the company’s business segments prior to the spin-off, as well as a positive intra-company inventory adjustment in 2008.
Senior Notes Offering Completion
The company successfully completed the private placement of $150 million aggregate principal amount of senior unsecured notes due 2016. The notes have an interest rate of 10.625% and were issued at a price equal to 98.792% of their face value. Net proceeds from the offering were used to satisfy the company’s payment obligations with respect to principal and interest on $100 million principal amount of credit sensitive debentures. The credit sensitive debentures were originally issued by an affiliate of Potlatch Corporation and, prior to the spin-off from Potlatch, the company retained the obligation to pay all amounts due to the holders. The remaining net proceeds are expected to be used for general corporate purposes.
The company’s effective income tax rate for the second quarter 2009 was approximately 23%. During the quarter, the company was able to take advantage of Internal Revenue Code Section 45, which provides for renewable energy tax credits to owners of electric generation facilities that produce and sell electricity from qualified facilities. This tax credit for the years 2006 through 2008, combined with a reduction in the valuation allowance related to state investment tax credits, caused a significant decrease in the company’s effective tax rate for the quarter.
Clearwater Paper Corporation Separation from Potlatch Corporation
This news release represents the second full quarter reporting for Clearwater Paper Corporation as a stand-alone company. Clearwater Paper Corporation was spun-off from Potlatch Corporation on December 16, 2008. Clearwater Paper is comprised of Potlatch’s former pulp-based manufacturing businesses and the Lewiston, Idaho, lumber mill.
About Clearwater Paper
Clearwater Paper manufactures premium consumer tissue, high-quality bleached paperboard and wood products at six facilities across the country. The company has 2,400 employees and is a premier supplier of private label tissue to major retail grocery chains, and also produces bleached paperboard used by quality-conscious printers and packaging converters.
SOURCE: Clearwater Paper