Feb 5, 2018

Clearwater Paper Reports Fourth Quarter and Full Year 2017 Results

SPOKANE, Wash.--(BUSINESS WIRE)--Feb. 5, 2018-- Clearwater Paper Corporation (NYSE:CLW) today reported financial results for the fourth quarter and full year of 2017.

The company reported net sales of $436.7 million for the fourth quarter of 2017, up 2.6% compared to net sales of $425.6 million for the fourth quarter of 2016. Net earnings determined in accordance with generally accepted accounting principles, or GAAP, for the fourth quarter of 2017 were $80.9 million, or $4.88 per diluted share, compared to net earnings for the fourth quarter of 2016 of $9.3 million, or $0.56 per diluted share. The increase in net earnings primarily consisted of a benefit related to recent tax law changes. Excluding this tax benefit and certain other non-core items identified in the attached Reconciliation of Non-GAAP Financial Measures, fourth quarter 2017 adjusted net earnings were $14.4 million, or $0.87 per diluted share, compared to fourth quarter 2016 adjusted net earnings of $13.8 million, or $0.82 per diluted share.

Earnings before interest, taxes, depreciation and amortization, or EBITDA, were $52.2 million for the fourth quarter of 2017 compared to $49.3 million for the fourth quarter of 2016. Adjusted EBITDA for the quarter was $57.5 million, up 6.3% compared to fourth quarter 2016 Adjusted EBITDA of $54.1 million. The $3.4 million increase in Adjusted EBITDA in the fourth quarter of 2017 was primarily a result of higher paperboard pricing and volumes, improved consumer product mix, and lower general maintenance costs. Additional factors for the increase included lower wage and benefits expense resulting from warehouse automation projects at several of the company's facilities, the shutdown of two higher cost tissue machines at the company's Neenah, Wisconsin mill at the end of 2016 and the closure of the company's Oklahoma City converting facility in March 2017. These factors were partially offset by lower non-retail tissue shipment volumes and higher input costs for pulp, transportation and energy.

"We had a strong finish to 2017 due to improved operating efficiencies resulting from the completion of our three-year strategic capital projects, including warehouse automation and the continuous pulp digester at our Lewiston, Idaho mill,” said Linda K. Massman, president and chief executive officer. "We also had increased paperboard sales and shipments and ultra-quality tissue sales, partially offset by very competitive market conditions in the retail industry and higher transportation costs.

"Throughout 2018, we will remain focused on efforts to increase our margins and ultimately cash flow to build a solid foundation for our long-term success and create shareholder value," said Massman. "Our efforts include the vital work of realigning portions of our company in both tissue and paperboard, and investing in our business to meet customer needs as reflected in the ongoing investment in our Shelby, North Carolina facility."

FOURTH QUARTER2017SEGMENT PERFORMANCE

Consumer Products

Net sales in the Consumer Products segment were $234.7 million for the fourth quarter of 2017, down 3.1% compared to fourth quarter 2016 net sales of $242.1 million. This decrease was due primarily to lower parent roll sales resulting from the shutdown of the two higher cost paper machines at the Neenah, Wisconsin mill at the end of 2016 and a 3.3% decrease in retail tons sold in the fourth quarter of 2017.

Operating income and margin for the fourth quarter of 2017 decreased to $7.5 million and 3.2%, compared to $13.8 million and 5.7%, respectively, in the fourth quarter of 2016. After adjusting for certain non-core items identified in the attached Reconciliation of Non-GAAP Financial Measures, adjusted operating income and margin of $11.4 million and 4.9% for the fourth quarter of 2017 were down from $17.0 million and 7.0% for the same period in 2016. Adjusted EBITDA for the segment decreased from $32.0 million in the fourth quarter of 2016 to $25.8 million in the fourth quarter of 2017. These decreases were due to higher input costs for external pulp, transportation and packaging supplies with partial offsets from lower maintenance costs as well as lower labor costs due to the implementation of warehouse automation and the previously mentioned paper machine shutdowns at the Neenah mill and facility closure in Oklahoma City.

Tissue Sales Volumes and Prices:

  • Total tissue sales volumes of 87,313 tons in the fourth quarter of 2017 decreased by 9.9% and converted product cases shipped were 12.7 million, down 1.7%, each compared to the fourth quarter of 2016.
  • Average tissue net selling prices increased 6.2% or $155 per ton in the fourth quarter of 2017, compared to the fourth quarter of 2016, due to improved product mix.

Pulp and Paperboard

Net sales in the Pulp and Paperboard segment were $202.1 million for the fourth quarter of 2017, up 10.2% compared to fourth quarter 2016 net sales of $183.4 million. The increase was primarily due to higher paperboard prices and shipment volume, including sales from the operations of Manchester Industries acquired in December 2016.

Operating income for the fourth quarter of 2017 increased $7.0 million to $34.6 million, compared to operating income of $27.6 million for the fourth quarter of 2016. Pulp and paperboard's operating margin increased to 17.1% in the fourth quarter of 2017 from 15.0% in the fourth quarter of 2016. Adjusted EBITDA for the segment was $44.5 million in the fourth quarter of 2017, compared to $35.0 million in the fourth quarter of 2016. These increases were primarily due to lower costs for wood fiber, lower maintenance costs at Arkansas, lower wage and benefits expense and lower operating supply costs. These items were partially offset by higher priced purchased pulp, higher electricity usage due to a turbine generator outage and higher chemical and transportation costs.

Paperboard Sales Volumes and Prices:

  • Paperboard sales volumes increased 5.4% to 210,098 tons in the fourth quarter of 2017, compared to 199,415 tons in the fourth quarter of 2016.
  • Paperboard net selling prices increased 4.6% to $962 per ton compared to the fourth quarter of 2016.

Taxes

The company's consolidated GAAP tax rate and adjusted tax rate for the fourth quarter of 2017 were a benefit of 333.2% and a provision of 39.9%, respectively, compared to provisions of 41.7% and 37.8%, respectively, in the fourth quarter of 2016. On a GAAP basis, the benefit for the fourth quarter of 2017 was primarily driven by a $70 million tax benefit resulting from the remeasurement of the company's net deferred tax liabilities following passage of the Tax Cuts and Jobs Act ("Act") signed into law on December 22, 2017. The company expects its GAAP and adjusted tax rate for 2018 to be approximately 26%, due to the reduced federal corporate income tax rate of 21% under the Act.

Given the significant changes resulting from and complexities associated with the Act, the impact on the company's 2018 estimated effective and adjusted tax rates is subject to further analysis, interpretation and clarification of the Act, which could result in changes to these estimates during 2018.

Note Regarding Use of Non-GAAP Financial Measures

In this press release, the company presents certain non-GAAP financial information for the fourth quarters of 2017 and 2016, including adjusted net earnings, adjusted net earnings per diluted share, EBITDA, adjusted EBITDA, adjusted operating income, adjusted operating margin, adjusted income tax provision and adjusted tax rate. Because these amounts are not in accordance with GAAP, reconciliations to net earnings, net earnings per diluted share, operating income, income tax provision and tax rate 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.

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 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 statements regarding the company's long-term strategic plan, margins, cash flow, operational efficiency projects, cost management, market conditions, customers, benefits of the company's Shelby, NC facility, and expected tax rates for 2018. 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; the loss of or changes in prices in regards to a significant customer; changes in customer product preferences and competitors' product offerings; the company's ability to successfully implement its operational efficiencies and cost savings strategies; the company's ability to execute on its growth and expansion strategies, including on-time completion of the company's planned new tissue manufacturing and converting operations in Shelby, N.C.; 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 produced by the expanded Shelby, N.C. operations when they are completed; changes in the U.S. and international economies and in general economic conditions in the regions and industries in which the company operates; labor disruptions; changes in transportation costs and disruptions in transportation services; changes in the cost and availability of wood fiber and wood pulp; manufacturing or operating disruptions, including IT system and IT system implementation failures, equipment malfunction and damage to the company's manufacturing facilities; changes in costs for and availability of packaging supplies, chemicals, energy and maintenance and repairs; cyclical industry conditions; changes in expenses and required contributions 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 inability to service its debt obligations; restrictions on the company’s business from debt covenants and terms; 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, 2016. 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 Twelve Months Ended
December 31, December 31,
  2017       2016   2017       2016  
Net sales $ 436,716   100 % $ 425,568   100 % $ 1,730,408   100 % $ 1,734,763   100 %
Costs and expenses:
Cost of sales (375,277 ) 86 % (368,524 ) 87 % (1,529,621 ) 88 % (1,495,627 ) 86 %
Selling, general and administrative expenses (34,785 ) 8 % (32,934 ) 8 % (128,459 ) 7 % (127,819 ) 7 %
Total operating costs and expenses (410,062 ) 94 % (401,458 ) 94 % (1,658,080 ) 96 % (1,623,446 ) 94 %
Income from operations 26,654 6 % 24,110 6 % 72,328 4 % 111,317 6 %
Interest expense, net (7,975 ) 2 % (8,092 ) 2 % (31,374 ) 2 %

(30,651

) 2 %
Earnings before income taxes 18,679 4 % 16,018 4 % 40,954 2 % 80,666 5 %
Income tax benefit (provision) 62,245   14 % (6,675 ) 2 % 56,385   3 % (31,112 ) 2 %
Net earnings $ 80,924   19 % $ 9,343   2 % $ 97,339   6 % $ 49,554   3 %
Net earnings per common share:
Basic $ 4.92 $ 0.56 $ 5.91 $ 2.91
Diluted 4.88 0.56 5.88 2.90
Average shares outstanding (in thousands):
Basic 16,458 16,578 16,464 17,001
Diluted 16,568 16,781 16,556 17,106
 

 
Clearwater Paper Corporation
Condensed Consolidated Balance Sheets
Unaudited (Dollars in thousands)
       
December 31, December 31,
  2017 2016
ASSETS
Current assets:
Cash and cash equivalents $ 15,738 $ 23,001
Receivables, net 142,065 147,074
Taxes receivable 20,282 9,709
Inventories 266,043 258,029
Other current assets 8,661   8,682
Total current assets 452,789   446,495
Property, plant and equipment, net 1,050,982 945,328
Goodwill 244,161 244,283
Intangible assets, net 32,542 40,485
Other assets, net 21,778   7,751
TOTAL ASSETS $ 1,802,252   $ 1,684,342
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Borrowings under revolving credit facilities $ 155,000 $ 135,000
Accounts payable and accrued liabilities 256,621 223,699
Current liability for pensions and other postretirement employee benefits 7,631   7,821
Total current liabilities 419,252   366,520
Long-term debt 570,524 569,755
Liability for pensions and other postretirement employee benefits 72,469 81,812
Other long-term obligations 43,275 41,776
Accrued taxes 2,770 2,434
Deferred tax liabilities 118,528   152,172
TOTAL LIABILITIES 1,226,818   1,214,469
 
Stockholders' equity 575,434   469,873
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,802,252   $ 1,684,342
 

 
Clearwater Paper Corporation
Consolidated Statements of Cash Flows
Unaudited (Dollars in thousands)
   
Twelve Months Ended
December 31,
  2017     2016
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 97,339 $ 49,554
Adjustments to reconcile net earnings to net cash flows from operating activities:
Depreciation and amortization 104,990 91,090
Equity-based compensation expense 3,620 12,385
Deferred taxes (40,589 ) 18,327
Employee benefit plans (4,371 ) (1,979 )
Deferred issuance costs on debt 1,199 1,242
Disposal of plant and equipment, net 4,053 1,381

Other non-cash activities

1,750

758

Changes in working capital, net of acquisition 21,761 (3,462 )
Changes in taxes receivable, net (10,573 ) 5,142

Other, net

(1,509 ) (1,687 )
Net cash flows from operating activities 177,670   172,751  
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (199,748 ) (155,349 )
Acquisition of Manchester Industries, net of cash acquired (67,443 )
Other, net 951   286  
Net cash flows from investing activities (198,797 ) (222,506 )
CASH FLOWS FROM FINANCING ACTIVITIES
Purchase of treasury stock (4,875 ) (65,327 )
Borrowings on revolving credit facilities 298,308 1,273,959
Repayments of borrowings on revolving credit facilities (278,308 ) (1,138,959 )
Payments for debt issuance costs (1,906 )
Payment of tax withholdings on equity-based payment arrangements (1,127 ) (933 )
Other, net (134 ) 312  
Net cash flows from financing activities 13,864   67,146  
Decrease in cash and cash equivalents (7,263 ) 17,391
Cash and cash equivalents at beginning of period 23,001   5,610  
Cash and cash equivalents at end of period $ 15,738   $ 23,001  
 

 
Clearwater Paper Corporation
Segment Information
Unaudited (Dollars in thousands)
       
Three Months Ended Twelve Months Ended
December 31, December 31,
  2017       2016   2017       2016  
Segment net sales:
Consumer Products $ 234,656 54 % $ 242,131 57 % $ 941,907 54 % $ 988,380 57 %
Pulp and Paperboard 202,060   46 % 183,437   43 % 788,501   46 % 746,383   43 %
Total segment net sales $ 436,716   100 % $ 425,568   100 % $ 1,730,408   100 % $ 1,734,763   100 %
 
Operating income (loss):
Consumer Products1 $ 7,457 28 % $ 13,781 57 % $ 28,616 40 % $ 67,916 61 %
Pulp and Paperboard 34,642   130 % 27,581   114 % 98,508   136 % 112,732   101 %
42,099 41,362 127,124 180,648
Corporate2 (15,445 ) 58 % (17,252 ) 72 % (54,796 ) 76 % (69,331 ) 62 %
Income from operations $ 26,654   100 % $ 24,110   100 % $ 72,328   100 % $ 111,317   100 %
 
1     Consumer Products operating income for the three and twelve months ended December 31, 2017 includes $3.6 million and $14.7 million, respectively, of costs associated with the closure of the Oklahoma City facility. Consumer Products operating income for the three and twelve months ended December 31, 2016 includes $1.7 million of costs associated with the closure of the Oklahoma City facility.
2 Corporate expenses for the twelve months ended December 31, 2017 include $0.2 million of expenses associated with the December 2016 acquisition of Manchester Industries, as well as $2.7 million of associated expenses for the three and twelve months ended December 31, 2016. Corporate expenses for the twelve months ended December 31, 2016 also 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 Twelve Months Ended
December 31, December 31,
  2017     2016 2017     2016
Net earnings $ 80,924 $ 9,343 $ 97,339 $ 49,554
Add back:

Interest expense, net3

7,975 8,092 31,374 30,651
Income tax (benefit) provision (62,245 ) 6,675 (56,385 ) 31,112
Depreciation and amortization expense4 25,522   25,169   104,990   91,090  
EBITDA1 $ 52,176   $ 49,279   $ 177,318   $ 202,407  
 
Directors' equity-based compensation (benefit) expense $ (363 ) $ 354 $ (2,833 ) $ 4,779
Costs associated with Oklahoma City facility closure5 3,649 318 11,055 318
Reorganization expenses associated with SG&A cost control measures 1,783 2,263
Costs associated with Long Island facility closure 298 460 1,443 1,891
Manchester Industries acquisition related expenses 2,665 220 2,665
Write-off of assets as a result of Warehouse Automation project 41
Costs associated with Neenah paper machines shutdown 1,049 1,049
Pension settlement expense 3,482
Gain associated with the sale of the specialty mills, net       (1,755 )
Adjusted EBITDA2 $ 57,543   $ 54,125   $ 189,507   $ 214,836  
 
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 (including debt retirement costs), 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.

3 Interest expense, net for the three and twelve months ended December 31, 2016 includes debt retirement costs of $0.4 million.
4 Depreciation and amortization expense for the twelve months ended December 31, 2017 includes accelerated depreciation of $3.7 million associated with the Oklahoma City facility closure, $0.6 million associated with the closed Long Island facility and $0.4 million as a result of the warehouse automation project. Depreciation and amortization expense for the three and twelve months ended December 31, 2016 includes $1.3 million of accelerated depreciation associated with the Oklahoma City facility closure.
5

Costs associated with the Oklahoma City facility closure for the three and twelve months ended December 31, 2017 include $3.2 million of expenses associated with the execution of a sublease for the facility. Costs associated with the Oklahoma City facility closure for the twelve months ended December 31, 2017 also include $4.3 million of loss on the write-down of assets to their held for sale value.

 
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 Twelve Months Ended
December 31, December 31,
  2017     2016 2017 2016
GAAP net earnings $ 80,924 $ 9,343 $ 97,339 $ 49,554
Adjustments, after-tax1:
Federal tax rate change3 (70,055 ) (70,055 )
Directors' equity-based compensation (benefit) expense (242 ) 229 (1,881 ) 3,086
Costs associated with Oklahoma City facility closure 2,434 1,073 9,741 1,073
Reorganization expenses associated with SG&A cost control measures 1,189 1,506
Costs associated with Long Island facility closure 199 297 1,349 1,219
Accelerated depreciation of assets as a result of Warehouse Automation project 240
Manchester Industries acquisition related expenses 2,200 146 2,200
Write-off of assets as a result of Warehouse Automation project 27
Pension settlement expense 2,240
Costs associated with Neenah paper machines shutdown 678 678
Gain associated with the sale of the specialty mills, net       (1,129 )

Adjusted net earnings2

$ 14,449   $ 13,820   $ 38,412   $ 58,921  
 
GAAP net earnings per diluted share $ 4.88 $ 0.56 $ 5.88 $ 2.90
Adjustments, after-tax1:
Federal tax rate change3 (4.23 ) (4.23 )
Directors' equity-based compensation (benefit) expense (0.01 ) 0.01 (0.11 ) 0.18
Costs associated with Oklahoma City facility closure 0.15 0.06 0.59 0.06
Reorganization expenses associated with SG&A cost control measures 0.07 0.09
Costs associated with Long Island facility closure 0.01 0.02 0.08 0.07
Accelerated depreciation of assets as a result of Warehouse Automation project 0.01
Manchester Industries acquisition related expenses 0.13 0.01 0.13
Write-off of assets as a result of Warehouse Automation project
Pension settlement expense 0.13
Costs associated with Neenah paper machines shutdown 0.04 0.04
Gain associated with the sale of the specialty mills, net       (0.07 )
Adjusted net earnings per diluted share2 $ 0.87   $ 0.82   $ 2.32   $ 3.44  
 
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.

3

The federal tax rate change in 2017 is primarily due to the remeasurement of deferred tax liabilities as a result of the Act signed into law on December 22, 2017. The resulting net tax benefit is excluded from our adjusted non-GAAP earnings.

 
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 Twelve Months Ended
December 31, December 31,
  2017     2016 2017     2016
Consumer Products:
Net sales $ 234,656 $ 242,131 $ 941,907 $ 988,380
Operating income 7,457 13,781 28,616 67,916
Depreciation and amortization expense5 14,400   16,391   65,007   59,375  
Consumer Products EBITDA1 $ 21,857   $ 30,172   $ 93,623   $ 127,291  
Costs associated with Oklahoma City facility closure6 3,649 318 11,055 318
Costs associated with Long Island facility closure 298 460 1,443 1,891
Write-off of assets as a result of Warehouse Automation project 41
Reorganization expenses associated with SG&A cost control measures 20 20
Gain associated with the sale of the specialty mills, net (1,755 )
Costs associated with Neenah paper machines shutdown   1,049     1,049  
Consumer Products Adjusted EBITDA2 $ 25,824   $ 31,999   $ 106,182   $ 128,794  
Consumer Products EBITDA margin3 9.3 % 12.5 % 9.9 % 12.9 %
Consumer Products Adjusted EBITDA margin4 11.0 % 13.2 % 11.3 % 13.0 %
Pulp and Paperboard:
Net sales $ 202,060 $ 183,437 $ 788,501 $ 746,383
Operating income 34,642 27,581 98,508 112,732
Depreciation and amortization expense 9,686   7,395   34,474   26,741  
Pulp and Paperboard EBITDA1 $ 44,328   $ 34,976   $ 132,982   $ 139,473  
Reorganization expenses associated with SG&A cost control measures 132     132    

Pulp and Paperboard Adjusted EBITDA2

$ 44,460   $ 34,976   $ 133,114   $ 139,473  
Pulp and Paperboard EBITDA margin3 21.9 % 19.1 % 16.9 % 18.7 %
Pulp and Paperboard Adjusted EBITDA margin4 22.0 % 19.1 % 16.9 % 18.7 %
 
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.

5 Depreciation and amortization expense for the Consumer Products segment for the twelve months ended December 31, 2017 includes accelerated depreciation of $3.7 million associated with the Oklahoma City facility closure, $0.6 million associated with the Long Island facility and $0.4 million as a result of the warehouse automation project. Consumer Products depreciation and amortization expense for the three and twelve months ended December 31, 2016 includes $1.3 million of accelerated depreciation associated with the Oklahoma City facility closure.
6

Costs associated with the Oklahoma City facility closure for the three and twelve months ended December 31, 2017 include $3.2 million of expenses associated with the execution of a sublease for the facility. Costs associated with the Oklahoma City facility closure for the twelve months ended December 31, 2017 also include $4.3 million of loss on the write-down of assets to their held for sale value.

 
Clearwater Paper Corporation
Reconciliation of Non-GAAP Financial Measures
Segment Adjusted Operating Income and Operating Margin
Unaudited (Dollars in thousands)
           
Three Months Ended Twelve Months Ended
December 31, December 31,
  2017     2016 2017 2016
Consumer Products:
Net sales $ 234,656 $ 242,131 $ 941,907 $ 988,380
Operating income 7,457 13,781 28,616 67,916
Costs associated with Long Island facility closure3 298 460 2,034 1,891
Costs associated with Oklahoma City facility closure4 3,649 1,662 14,718 1,662
Accelerated depreciation of assets as a result of Warehouse Automation project 361
Write-off of assets as a result of Warehouse Automation project 41
Reorganization expenses associated with SG&A cost control measures 20 20
Costs associated with Neenah paper machines shutdown 1,049 1,049
Gain associated with sale of the specialty mills, net       (1,755 )
Consumer Products Adjusted operating income1 $ 11,424   $ 16,952   $ 45,790   $ 70,763  
Consumer Products operating margin 3.2 % 5.7 % 3.0 % 6.9 %
Consumer Products Adjusted operating margin2 4.9 % 7.0 % 4.9 % 7.2 %
 
Pulp and Paperboard:
Net sales $ 202,060 $ 183,437 $ 788,501 $ 746,383
Operating income 34,642 27,581 98,508 112,732
Reorganization expenses associated with SG&A cost control measures 132     132    
Pulp and Paperboard Adjusted operating income $ 34,774   $ 27,581   $ 98,640   $ 112,732  
Pulp and Paperboard operating margin 17.1 % 15.0 % 12.5 % 15.1 %
Pulp and Paperboard Adjusted operating margin2 17.2 % 15.0 % 12.5 % 15.1 %
 
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.

3 Costs associated with the closed Long Island facility include $0.6 million of accelerated depreciation for the twelve months ended December 31, 2017.
4

Costs associated with the Oklahoma City facility closure for the three and twelve months ended December 31, 2017 include $3.2 million of expenses associated with the execution of a sublease for the facility. Costs associated with the Oklahoma City facility closure for the twelve months ended December 31, 2017 also include $4.3 million of loss on the write-down of assets to their held for sale value and $3.7 million of accelerated depreciation.

 
Clearwater Paper Corporation
Reconciliation of Non-GAAP Financial Measures
Adjusted Income Tax Provision
Unaudited (Dollars in thousands)
           
Three Months Ended Twelve Months Ended
December 31, December 31,
  2017     2016 2017 2016
GAAP income tax benefit (provision) $ 62,245 $ (6,675 ) $ 56,385 $ (31,112 )
Adjustments, tax impact:
Federal tax rate change3 (70,055 ) (70,055 )
Directors' equity-based compensation benefit (expense) 121 (125 ) 952 (1,693 )
Costs associated with Oklahoma City facility closure (1,215 ) (589 ) (4,977 ) (589 )
Reorganization expenses associated with SG&A cost control measures (594 ) (757 )
Costs associated with Long Island facility closure (99 ) (163 ) (686 ) (672 )
Accelerated depreciation of assets as a result of warehouse automation project (121 )
Manchester Industries acquisition related expenses (465 ) (74 ) (465 )
Write-off of assets as a result of warehouse automation project (14 )
Pension settlement expense (1,242 )
Costs associated with Neenah paper machines shutdown (371 ) (371 )
Gain associated with the sale of the specialty mills, net       626  
Adjusted income tax benefit (provision)1 $ (9,597 ) $ (8,388 ) $ (19,347 ) $ (35,518 )
Adjusted income tax rate1,2 39.9 % 37.8 % 33.5 % 37.6 %
 
1    

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

3 The federal tax rate change in 2017 is primarily due to the remeasurement of deferred tax liabilities as a result of the Act signed into law on December 22, 2017. The resulting net tax benefit is excluded from our adjusted non-GAAP earnings.

Source: Clearwater Paper Corporation

Clearwater Paper Corporation
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