Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
ý
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2017
or
¨
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from                      to                     
Commission File Number: 001-34146
CLEARWATER PAPER CORPORATION
(Exact name of registrant as specified in its charter)
 
 
 
 
Delaware
 
20-3594554
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
601 West Riverside, Suite 1100
Spokane, Washington
 
99201
(Address of principal executive offices)
 
(Zip Code)
(509) 344-5900
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  ý     No  ¨    
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
ý
  
Accelerated filer
 
¨
Non-accelerated filer
 
¨  (Do not check if a smaller reporting company)
  
Smaller reporting company
 
¨
 
 
 
 
Emerging growth company
 
¨


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ¨    No  ý    
The number of shares of common stock of the registrant outstanding as of October 27, 2017 was 16,433,415.




CLEARWATER PAPER CORPORATION
Index to Form 10-Q
 
 
 
 
 
 
Page Number
 
 
 
PART I.
 
 
 
 
ITEM 1.
 
 
 
 
 
 
 
 
 
 
 
6 - 21
 
 
 
ITEM 2.
22 - 33
 
 
 
ITEM 3.
 
 
 
ITEM 4.
 
 
 
PART II.
 
 
 
 
ITEM 1.
 
 
 
ITEM 1A.
 
 
 
ITEM 2.
 
 
 
ITEM 6.
 
 




Part I
ITEM 1.
 
Consolidated Financial Statements
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,
 
2017
 
2016
 
2017
 
2016
Net sales
$
426,504

 
$
435,320

 
$
1,293,692

 
$
1,309,195

Costs and expenses:
 
 
 
 
 
 
 
Cost of sales
(386,581
)
 
(396,605
)
 
(1,154,344
)
 
(1,127,103
)
Selling, general and administrative expenses
(34,472
)
 
(29,435
)
 
(93,674
)
 
(94,885
)
Total operating costs and expenses
(421,053
)
 
(426,040
)
 
(1,248,018
)
 
(1,221,988
)
Income from operations
5,451

 
9,280

 
45,674

 
87,207

Interest expense, net
(7,683
)
 
(7,520
)
 
(23,399
)
 
(22,559
)
(Loss) earnings before income taxes
(2,232
)
 
1,760

 
22,275

 
64,648

Income tax benefit (provision)
3,095

 
(859
)
 
(5,860
)
 
(24,437
)
Net earnings
$
863

 
$
901

 
$
16,415

 
$
40,211

Net earnings per common share:
 
 
 
 
 
 
 
Basic
$
0.05

 
$
0.05

 
$
1.00

 
$
2.35

Diluted
0.05

 
0.05

 
0.99

 
2.33

The accompanying condensed notes are an integral part of these consolidated financial statements.

2



Clearwater Paper Corporation
Consolidated Statements of Comprehensive Income
Unaudited (Dollars in thousands)
 
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2017
 
2016
 
2017
 
2016
Net earnings
$
863

 
$
901

 
$
16,415

 
$
40,211

Other comprehensive income:
 
 
 
 
 
 
 
Defined benefit pension and other postretirement employee benefits:
 
 
 
 
 
 
 
Amortization of actuarial loss included in net periodic cost, net of tax of $319, $248, $967 and $1,113
487

 
384

 
1,475

 
1,723

Amortization of prior service credit included in net periodic cost, net of tax of $(152), $(165), $(454) and $(497)
(230
)
 
(257
)
 
(691
)
 
(770
)
Settlement, net of tax of $ -, $1,054, $ - and $1,054

 
1,632

 

 
1,632

Other comprehensive income, net of tax
257

 
1,759

 
784

 
2,585

Comprehensive income
$
1,120

 
$
2,660

 
$
17,199

 
$
42,796

The accompanying condensed notes are an integral part of these consolidated financial statements.


3



Clearwater Paper Corporation
Consolidated Balance Sheets
Unaudited (Dollars in thousands – except per-share amounts)
 
 
September 30,
2017
 
December 31,
2016
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
8,478

 
$
23,001

Receivables, net
135,946

 
147,074

Taxes receivable
14,578

 
9,709

Inventories
257,833

 
258,029

Other current assets
6,450

 
8,682

Total current assets
423,285

 
446,495

Property, plant and equipment, net
1,014,835

 
945,328

Goodwill
244,283

 
244,283

Intangible assets, net
34,528

 
40,485

Other assets, net
12,080

 
7,751

TOTAL ASSETS
$
1,729,011

 
$
1,684,342

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Borrowings under revolving credit facilities
$
110,000

 
$
135,000

Accounts payable and accrued liabilities
263,148

 
223,699

Current liability for pensions and other postretirement employee benefits
7,821

 
7,821

Total current liabilities
380,969

 
366,520

Long-term debt
570,331

 
569,755

Liability for pensions and other postretirement employee benefits
78,440

 
81,812

Other long-term obligations
40,942

 
41,776

Accrued taxes
2,557

 
2,434

Deferred tax liabilities
169,410

 
152,172

TOTAL LIABILITIES
1,242,649

 
1,214,469

Stockholders’ equity:
 
 
 
Preferred stock, par value $0.0001 per share, 5,000,000 authorized shares, no shares
  issued

 

Common stock, par value $0.0001 per share, 100,000,000 authorized
  shares-16,433,415 and 24,223,191 shares issued
2

 
2

Additional paid-in capital

 
347,080

Retained earnings
537,329

 
569,861

Treasury stock, at cost, common shares-0 and 7,736,255 shares

 
(395,317
)
Accumulated other comprehensive loss, net of tax
(50,969
)
 
(51,753
)
TOTAL STOCKHOLDERS' EQUITY
486,362

 
469,873

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
1,729,011

 
$
1,684,342

The accompanying condensed notes are an integral part of these consolidated financial statements.

4



Clearwater Paper Corporation
Consolidated Statements of Cash Flows
Unaudited (Dollars in thousands)
 
Nine Months Ended
 
September 30,
 
2017
 
2016
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net earnings
$
16,415

 
$
40,211

Adjustments to reconcile net earnings to net cash flows from operating activities:
 
 
 
Depreciation and amortization
79,468

 
65,921

Equity-based compensation expense
2,523

 
9,826

Deferred tax provision
14,602

 
12,329

Employee benefit plans
(2,999
)
 
(500
)
Disposal of plant and equipment, net
3,755

 
30

Other, net
874

 
484

Changes in working capital, net
43,846

 
4,045

Changes in taxes receivable, net
(4,869
)
 
7,217

Other, net
(1,439
)
 
(680
)
Net cash flows from operating activities
152,176

 
138,883

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Additions to property, plant and equipment
(136,650
)
 
(105,514
)
Other, net
753

 
250

Net cash flows from investing activities
(135,897
)
 
(105,264
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Purchase of treasury stock
(4,875
)
 
(51,528
)
Borrowings on revolving credit facilities
185,000

 
944,844

Repayments of borrowings on revolving credit facilities
(210,000
)
 
(931,832
)
Other, net
(927
)
 
(382
)
Net cash flows from financing activities
(30,802
)
 
(38,898
)
Decrease in cash and cash equivalents
(14,523
)
 
(5,279
)
Cash and cash equivalents at beginning of period
23,001

 
5,610

Cash and cash equivalents at end of period
$
8,478

 
$
331

 
 
 
 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
 
 
 
Cash paid for interest, net of amounts capitalized
$
27,867

 
$
27,240

Cash paid for income taxes
2,367

 
16,050

Cash received from income tax refunds
5,988

 
10,543

SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING
  ACTIVITIES
 
 
 
Changes in accrued property, plant and equipment
$
2,173

 
$
3,834

Other changes to property, plant and equipment
4,500

 

The accompanying condensed notes are an integral part of these consolidated financial statements.

5



Clearwater Paper Corporation
Condensed Notes to Consolidated Financial Statements
Unaudited
NOTE 1 Nature of Operations and Basis of Presentation
GENERAL
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 relationships through quality and service.
On December 16, 2016, we acquired Manchester Industries, an independently-owned paperboard sales, sheeting and distribution supplier to the packaging and commercial print industries, for total consideration of $71.7 million. The addition of Manchester Industries' customers to our paperboard business extends our reach and service platform to small and mid-sized folding carton plants, by offering a range of converting services that include custom sheeting, slitting, and cutting. These converting operations include five strategically located facilities in Virginia, Pennsylvania, Indiana, Texas, and Michigan. Goodwill was recorded in the acquisition of Manchester Industries based on the preliminary purchase price allocation. We are continuing to collect information to determine the fair values included in the purchase price in association with the final tax basis of acquired intangibles and fixed assets used in the determination of deferred tax liabilities at the acquisition date, which could affect our goodwill allocation for this transaction.
On March 31, 2017, we closed our Oklahoma City, Oklahoma converting facility. Notwithstanding the closure, we remain subject to the terms of a long-term master lease applicable to the facility.  In October 2017, we transferred to a third party substantially all of the remaining fixed assets and supplies inventory located at this facility and subleased the facility to the third party for the remaining term of the master lease for the facility.  In connection with the transfer of fixed assets, we recorded a loss of $4.3 million in the third quarter of 2017 related primarily to the writedown of the transferred assets to their held for sale value. This loss is included in “Selling, general and administrative expenses” in our Consolidated Statement of Operations. We expect to record a loss of approximately $3 million in the fourth quarter of 2017 related to the execution of the sublease agreement. The sublease agreement is expected to substantially reduce our cash requirements under the master lease over the term of the sublease.
Additionally, we have incurred $0.8 million and $6.8 million of closure-related costs associated with the Oklahoma City facility for the three and nine months ended September 30, 2017, respectively, which are included in "Cost of goods sold" in our Consolidated Statement of Operations.
FINANCIAL STATEMENT PREPARATION AND PRESENTATION
The accompanying Consolidated Balance Sheets at September 30, 2017 and December 31, 2016, the related Consolidated Statements of Operations and Comprehensive Income for the three and nine months ended September 30, 2017 and 2016, and the Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and 2016, have been prepared in conformity with accounting principles generally accepted in the United States of America, or GAAP. We believe that all adjustments necessary for a fair statement of the results of the interim periods presented have been included. The results of operations for any interim period are not necessarily indicative of the results of operations to be expected for the full year.
This Quarterly Report on Form 10-Q should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2016, as filed with the Securities and Exchange Commission, or SEC, on February 22, 2017.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SIGNIFICANT ESTIMATES
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of net sales and expenses during the reporting periods. Significant areas that may require the use of estimates and measurement of uncertainty include determination of net realizable value for deferred tax assets, uncertain tax positions, assessment of impairment of long-lived assets, goodwill and intangibles, assessment of environmental matters, equity-based compensation and pension and postretirement obligation assumptions. Actual results could differ from those estimates and assumptions.

6



CASH AND CASH EQUIVALENTS
We consider all highly liquid instruments with maturities of three months or less to be cash equivalents.
TRADE ACCOUNTS RECEIVABLE
Trade accounts receivable are stated at the amount we expect to collect. Trade accounts receivable do not bear interest. The allowance for doubtful accounts is our best estimate of the losses we expect will result from the inability of our customers to make required payments. We generally determine the allowance based on a combination of actual historical write-off experience and an analysis of specific customer accounts. As of September 30, 2017 and December 31, 2016, we had allowances for doubtful accounts of $1.3 million and $1.5 million, respectively.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost, including any interest costs capitalized, less accumulated depreciation. Depreciation of buildings, equipment and other depreciable assets is determined using the straight-line method. Assets we acquire through business combinations have estimated lives that are typically shorter than the assets we construct or buy new. Accumulated depreciation totaled $1,617.5 million and $1,582.0 million at September 30, 2017 and December 31, 2016, respectively.
For the nine months ended September 30, 2017, we capitalized $3.0 million of interest expense associated with the construction of a continuous pulp digester at our Lewiston, Idaho pulp and paperboard facility and $0.5 million associated with the construction of a paper machine at our Shelby, North Carolina consumer products facility. For the nine months ended September 30, 2016, we capitalized $1.6 million of interest expense associated with the continuous pulp digester project. In June 2017, we received land with a fair market value of $4.2 million from the City of Shelby, North Carolina and Cleveland County. We must fulfill certain obligations within five years or pay the value of the land or return the title to the land. This balance is included in "Property, plant, and equipment, net," with an associated amount in "Other long-term obligations" on our Consolidated Balance Sheet as of September 30, 2017.
Consistent with authoritative guidance, we assess the carrying amount of long-lived assets with definite lives that are held-for-use and evaluate them for recoverability whenever events or changes in circumstances indicate that we may be unable to recover the carrying amount of the assets.
STOCKHOLDERS’ EQUITY
On December 15, 2015, we announced that our Board of Directors had approved a stock repurchase program authorizing the repurchase of up to $100 million of our common stock. The repurchase program authorizes purchases of our common stock from time to time through open market purchases, negotiated transactions or other means, including accelerated stock repurchases and 10b5-1 trading plans in accordance with applicable securities laws and other restrictions. We have no obligation to repurchase stock under this program and may suspend or terminate the program at any time. In total, we have repurchased 1,440,696 shares of our outstanding common stock as of September 30, 2017, pursuant to this repurchase program, of which 84,750 shares were repurchased during the first quarter of 2017 at an average price of $57.53 per share. We did not repurchase shares during the second or third quarters of 2017. As of September 30, 2017, we had up to $29.8 million of authorization remaining pursuant to this stock repurchase program.
During the third quarter of 2017, we retired 7,821,005 treasury shares. The impact of this retirement was reflected within the stockholders' equity line items on our Consolidated Balance Sheet.
DERIVATIVES
We had no activity during the three and nine months ended September 30, 2017 and 2016 that required hedge or derivative accounting treatment. However, to help mitigate our exposure to market risk for changes in utility commodity pricing, we use firm price contracts to supply a portion of the natural gas requirements for our manufacturing facilities. As of September 30, 2017, these contracts covered approximately 30% of our expected average monthly natural gas requirements for the remainder of 2017, and a lesser amount for 2018. Historically, these contracts have qualified for treatment as “normal purchases or normal sales” under authoritative guidance and thus required no mark-to-market adjustment.



7



NOTE 2 Recently Adopted and New Accounting Standards
RECENTLY ADOPTED
In January 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2017-04, Simplifying the Test for Goodwill Impairment (Topic 350). This ASU eliminates step two of the impairment test, the performance of a hypothetical purchase price allocation to measure goodwill impairment. Instead, impairment will be measured using the difference between the carrying amount and the fair value of the reporting unit. We adopted this standard on January 1, 2017 and will apply this standard during our annual impairment test as of November 1, 2017, if applicable. The adoption of this standard is not expected to have a material impact on our consolidated financial statements.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. This ASU clarifies the definition of a business and provides a screen to determine when an integrated set of assets and activities is not a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the asset is not a business. We adopted this standard on January 1, 2017. This standard did not have a material impact on our consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting (Topic 718),(ASU 2016-09), which simplifies several aspects of accounting for share-based payment transactions, including income tax consequences, award classification, cash flows reporting, and forfeiture rate application. Specifically, the update requires all excess tax benefits and tax deficiencies to be recognized as income tax expense or benefit in the income statement. The update also allows excess tax benefits to be classified along with other income tax cash flows as an operating activity on the statement of cash flows. In addition, when accruing compensation cost, an entity can make an entity-wide accounting policy election to either estimate the number of awards expected to vest or to account for forfeitures as they occur. Lastly, the update requires cash paid by an employer when directly withholding shares for tax-withholding purposes to be classified as a financing activity on the statement of cash flows, consistent with our historical practice. We adopted ASU 2016-09 in the first quarter of 2017. We have not changed our method of estimating forfeitures as a result of our adoption of this standard, however, we are currently evaluating the possibility of changing our tax-withholding policy to allow for more withholding of employee shares for tax purposes. As a result of adopting this standard, excess tax benefits are classified along with other income tax cash flows as an operating activity on the statement of cash flows on a prospective basis and $1.0 million was charged to our income tax provision in the nine months ending September 30, 2017, resulting in a $0.06 earnings per share impact.
NEW ACCOUNTING STANDARDS
In May 2017, the FASB issued ASU 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting to clarify when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. The ASU will be effective prospectively for annual periods beginning after December 15, 2017, including interim periods within those annual periods. We plan to adopt this standard on January 1, 2018. We do not expect the adoption of this ASU to have a material impact on our consolidated financial statements.
In March 2017, the FASB issued ASU 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. The amendments in this ASU require that an employer disaggregate the service cost component from the other components of net benefit cost. The amendments also provide explicit guidance on how to present the service cost component and other components of net benefit cost in the income statement and allow only the service cost component of net benefit cost to be eligible for capitalization. This ASU will be effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. We plan to adopt this standard on January 1, 2018. The amendments in this update require retrospective presentation in the income statement. Changes to the capitalized portion of both service cost and the other components of net benefit cost within inventory will be applied prospectively. For the full year of 2016, net periodic pension and other postretirement employee benefit cost reported within operating income totaled $5.3 million, of which $1.8 million represented service cost.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. We expect the adoption of this ASU will increase both our assets and liabilities presented on our Consolidated Balance Sheets to reflect the ROU assets and corresponding lease liabilities, as well as increase our leasing disclosures. We plan to adopt this standard on January 1, 2019. We are continuing our assessment and review of existing leases, which may identify other impacts, and are addressing necessary policy and process changes in preparation for adoption.

8



In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The core principle of the new standard is for companies to recognize revenue in a manner that depicts the transfer of goods or services to customers in amounts that reflect the consideration, or payment, to which the company expects to be entitled in exchange for those goods or services. The standard will also result in enhanced disclosures about revenue, provide guidance for transactions that were not previously addressed comprehensively, such as service revenue and contract modifications, and clarify guidance for multiple-element arrangements. This standard was originally issued as effective for fiscal years and interim periods within those years beginning after December 15, 2016, with early adoption prohibited. However, in July 2015, the FASB approved deferring the effective date by one year to December 15, 2017 for annual reporting periods beginning after that date. In its approval, the FASB also permitted the early adoption of the standard, but not before the original effective date of fiscal years beginning after December 15, 2016. The standard may be applied under either a retrospective or cumulative effect adoption method. We plan on adopting the standard on the deferred effective date under the cumulative effect adoption method. Additionally, the new guidance requires enhanced disclosures, including revenue recognition policies to identify performance obligations to customers and significant judgments in measurement and recognition. Based on our assessments to-date, which have included review of our core revenue streams and contracts with key customers under the new standard, we do not anticipate the adoption of this standard will have a material impact on our consolidated financial statements. We anticipate enhancing our disclosures upon the adoption of this standard as well as certain of our internal controls and processes. We are continuing our assessment, internal control considerations and internal process analysis, which may identify other impacts.
We reviewed all other new accounting pronouncements issued in the period and concluded that they are not applicable to our business.
NOTE 3 Inventories
Inventories at the balance sheet dates consist of:

(In thousands)
September 30, 2017
 
December 31, 2016
Pulp, paperboard and tissue products
$
158,075

 
$
154,460

Materials and supplies
85,246

 
82,005

Logs, pulpwood, chips and sawdust
14,512

 
21,564

 
$
257,833

 
$
258,029

NOTE 4 Intangible Assets
Intangible assets at the balance sheet dates are comprised of the following:
 
September 30, 2017
(Dollars in thousands, lives in years)
Weighted Average Useful
Life
 
Historical
Cost
 
Accumulated
Amortization
 
Net
Balance
Customer relationships
9.3
 
$
62,401

 
$
(32,387
)
 
$
30,014

Trade names and trademarks
7.4
 
6,786

 
(2,743
)
 
4,043

Non-compete agreements
5.0
 
574

 
(558
)
 
16

Other intangibles
6.0
 
572

 
(117
)
 
455

 
 
 
$
70,333

 
$
(35,805
)
 
$
34,528

 
 
 
 
 
 
 
 
  
December 31, 2016
(Dollars in thousands, lives in years)
Weighted Average Useful
Life

 
Historical
Cost
 
Accumulated
Amortization
 
Net
Balance
Customer relationships
9.3
 
$
62,401

 
$
(27,364
)
 
$
35,037

Trade names and trademarks
7.4
 
6,786

 
(1,972
)
 
4,814

Non-compete agreements
5.0
 
574

 
(512
)
 
62

Other intangibles
6.0
 
572

 

 
572

 
 
 
$
70,333

 
$
(29,848
)
 
$
40,485


For the three months ended September 30, 2017 and 2016, intangible assets amortization expense was $2.0 million and $1.1 million, respectively. For the nine months ended September 30, 2017 and 2016, intangible assets amortization expense was $6.0

9



million and $3.2 million, respectively. The increase in the 2017 periods was due to the additional amortization expense attributable to intangible assets associated with the acquisition of Manchester Industries in December 2016.
NOTE 5 Income Taxes
Consistent with authoritative guidance, our estimated annual effective tax rate is used to allocate expected annual income tax expense to interim periods. The rate is the ratio of estimated annual income tax expense to estimated pre-tax ordinary income, and excludes "discrete items," which are significant, unusual or infrequent items reported separately net of their related tax effect. The estimated annual effective tax rate is applied to the current interim period's ordinary income to determine the income tax expense allocated to the interim period. The income tax effects of discrete items are then determined separately and recognized in the interim period in which the income or expense items arise.
Our estimated annual effective tax rate applied to the third quarter of 2017 is approximately 34%, compared with approximately 36% for the same period in 2016. The decrease in the rate is due to an increase in the benefit from federal and state tax credits.
The tax benefit in the current quarter is comprised of a benefit driven by the pre-tax loss for the quarter increased by a benefit from federal credits of $2.4 million.
NOTE 6 Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities at the balance sheet dates consist of:
(In thousands)
September 30, 2017
 
December 31, 2016
Trade accounts payable
$
189,940

 
$
128,106

Accrued wages, salaries and employee benefits
34,174

 
49,871

Accrued discounts and allowances
11,292

 
10,291

Accrued utilities
6,993

 
6,712

Accrued taxes other than income taxes payable
6,570

 
6,946

Accrued interest
5,582

 
12,149

Accrued transportation
2,208

 
1,761

Other
6,389

 
7,863

 
$
263,148

 
$
223,699

NOTE 7 Debt
REVOLVING CREDIT FACILITIES
As of September 30, 2017, there was an aggregate of $110.0 million in borrowings outstanding under the credit facilities and $6.8 million of the credit facilities was being used to support outstanding standby letters of credit. As of December 31, 2016, there was an aggregate of $135.0 million in borrowings outstanding under the credit facilities.
Our two senior secured revolving credit facilities provide in the aggregate, on a combined basis, for the extension of up to $300 million in revolving loans under: (i) a $200 million credit agreement with Wells Fargo Bank, National Association, as administrative agent, and the lenders party thereto (the Commercial Credit Agreement); and (ii) a $100 million credit agreement with Northwest Farm Credit Services, PCA, as administrative agent, and the lenders party thereto (the Farm Credit Agreement). We refer to both of these credit agreements collectively as the Credit Agreements. The revolving credit facilities provided under the Credit Agreements mature on October 31, 2021.
Revolving loans borrowed under the Commercial Credit Agreement bear interest, at our option, at a LIBOR rate or at a base rate, plus an applicable margin, which for LIBOR rate loans may range from 1.25% per annum to 2.00% per annum, based on the Company’s consolidated total leverage ratio. The applicable margin for base rate loans under the Commercial Credit Agreement is 1.00% per annum less than for LIBOR rate loans. Revolving Loans borrowed under the Farm Credit Agreement are calculated in substantially the same manner as under the Commercial Credit Agreement, however, the applicable margin under the Farm Credit Agreement is 0.25% per annum higher than the Commercial Credit Agreement, and the prime rate used in the calculation of base rate loans is based upon the prime rate published by the Wall Street Journal. In addition, under the Farm Credit Agreement, we have the option to elect fixed rate periods of interest which bear interest at an applicable margin equal to the LIBOR rate. We also pay commitment fees on the unused portion of the revolving loan commitments under the Credit Agreements, which range from 0.20% per annum to 0.35% per annum.

10



We receive patronage refunds under the Farm Credit Agreement. Patronage refunds are distributions of profits from banks in the farm credit system, which are cooperatives that are required to distribute profits to their members. Patronage refunds are accrued as earned and recorded as offsets to interest expense.
The borrowings outstanding under the revolving credit facilities as of September 30, 2017, consisted of short-term base and LIBOR rate loans and are classified as current liabilities in our Consolidated Balance Sheet. As of September 30, 2017, we would have been permitted to draw an additional $183.2 million under the credit facilities.
NOTE 8 Other Long-Term Obligations
Other long-term obligations at the balance sheet dates consist of: 
(In thousands)
September 30, 2017
 
December 31, 2016
Long-term lease obligations, net of current portion
$
23,426

 
$
23,152

Deferred proceeds
5,966

 
9,013

Deferred compensation
5,168

 
7,219

Other
6,382

 
2,392

 
$
40,942

 
$
41,776

NOTE 9 Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss, net of tax, is comprised of the following:
(In thousands)
Pension and Other Post Retirement Employee Benefit Plan Adjustments
Balance at December 31, 2016
$
(51,753
)
Other comprehensive income, net of tax1
784

Balance at September 30, 2017
$
(50,969
)
 
 
(In thousands)
Pension and Other Post Retirement Employee Benefit Plan Adjustments
Balance at December 31, 2015
$
(55,548
)
Other comprehensive income before reclassifications
953

Amounts reclassified from accumulated other comprehensive loss2
$
1,632

Other comprehensive income, net of tax1
2,585

Balance at September 30, 2016
$
(52,963
)
1 
Included in other comprehensive income are net periodic costs associated with our pension and other postretirement employee benefit (OPEB) plans that were reclassified from accumulated other comprehensive loss. For the nine months ended September 30, 2017 and 2016, actuarial loss amortization of $1.5 million and $1.7 million, respectively, as well as $0.7 million and $0.8 million, respectively, of prior service credit amortization were reclassified. These amounts are net of tax totaling $0.5 million and $0.6 million for each respective period. These accumulated other comprehensive loss components are included in the computation of net periodic pension and OPEB costs in Note 10, “Pension and Other Postretirement Employee Benefit Plans.”
2 
Included in "Amounts reclassified from accumulated other comprehensive loss" above for the nine months ended September 30, 2016 is settlement expense of $3.5 million associated with the remeasurement of our salaried pension plan, which is discussed further in Note 10, “Pension and Other Postretirement Employee Benefit Plans.” The remeasurement resulted in a settlement loss of $0.8 million recorded to the pension liability and reclassified from accumulated other comprehensive loss. The settlement expense and corresponding remeasurement are net of tax totaling $1.1 million.

11



NOTE 10 Pension and Other Postretirement Employee Benefit Plans
The following table details the components of net periodic cost of our company-sponsored pension and OPEB plans for the periods presented:
 
Three Months Ended September 30,
(In thousands)
2017
 
2016
 
2017
 
2016
 
Pension Benefit Plans
 
Other Postretirement
Employee  Benefit Plans
Service cost
$
518

 
$
391

 
$
41

 
$
62

Interest cost
3,288

 
3,518

 
688

 
730

Expected return on plan assets
(4,691
)
 
(4,847
)
 

 

Amortization of prior service cost (credit)
2

 
6

 
(384
)
 
(428
)
Amortization of actuarial loss (gain)
2,468

 
2,865

 
(1,662
)
 
(2,233
)
Settlement

 
3,482

 

 

Net periodic cost
$
1,585

 
$
5,415

 
$
(1,317
)
 
$
(1,869
)
 
Nine months ended September 30,
(In thousands)
2017
 
2016
 
2017
 
2016
 
Pension Benefit Plans
 
Other Postretirement
Employee  Benefit Plans
Service cost
$
1,552

 
$
1,171

 
$
122

 
$
187

Interest cost
9,862

 
10,779

 
2,059

 
2,306

Expected return on plan assets
(14,073
)
 
(14,608
)
 
(1
)
 
(1
)
Amortization of prior service cost (credit)
6

 
17

 
(1,151
)
 
(1,284
)
Amortization of actuarial loss (gain)
7,405

 
8,510

 
(4,963
)
 
(5,674
)
Settlement

 
3,482

 

 

Net periodic cost
$
4,752

 
$
9,351

 
$
(3,934
)
 
$
(4,466
)
During the nine months ended September 30, 2017 and 2016, we made no contributions to our qualified pension plans. We do not expect, nor are we required, to make contributions in 2017.
During the nine months ended September 30, 2017, we made contributions of $0.2 million to our company-sponsored non-qualified pension plan. We estimate contributions will total $0.4 million in 2017. We do not anticipate funding our OPEB plans in 2017 except to pay benefit costs as incurred during the year by plan participants.
During the three and nine months ended September 30, 2017, $0.2 million and $0.5 million, respectively, of net periodic pension and OPEB costs were charged to "Cost of sales" and $0.1 million and $0.3 million, respectively, were charged to "Selling, general and administrative expenses" in the accompanying Consolidated Statements of Operations.
During the three and nine months ended September 30, 2016, less than $0.1 million and $0.8 million, respectively, of net periodic pension and OPEB costs were charged to "Cost of sales" and $0.1 million and $0.6 million, respectively, were charged to "Selling, general and administrative expenses" in the accompanying Consolidated Statements of Operations.
In 2016, we announced a voluntary, limited-time opportunity for former employees who are vested participants in certain of our qualified pension plans to request early payment of their entire pension plan benefit in the form of a single lump sum payment. Based on the level of payments made, settlement accounting rules applied to our salaried plan and resulted in a remeasurement of that plan.
As a result of settlement accounting, we recognized a pro-rata portion of the unamortized net actuarial loss, after remeasurement, resulting in a $3.5 million non-cash charge to our earnings in the third quarter of 2016. This settlement charge was recorded to "Cost of sales" and "Selling, general and administrative expenses" for $1.9 million and $1.6 million, respectively, in our Consolidated Statement of Operations for the three and nine months ended September 30, 2016.

12



NOTE 11 Earnings per Common Share
Basic earnings per share are based on the weighted average number of shares of common stock outstanding. Diluted earnings per share are based upon the weighted average number of shares of common stock outstanding plus all potentially dilutive securities that were assumed to be converted into common shares at the beginning of the period under the treasury stock method.
The following table reconciles the number of common shares used in calculating the basic and diluted net earnings per share:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
Basic average common shares outstanding1
16,457,991

 
16,844,920

 
16,466,325

 
17,141,329

Incremental shares due to:
 
 
 
 
 
 
 
Restricted stock units
42,122

 
54,796

 
37,021

 
35,853

Performance shares
50,506

 
104,476

 
42,914

 
74,604

Stock options
16,265

 
55,466

 
26,347

 
1,148

Diluted average common shares outstanding
16,566,884

 
17,059,658

 
16,572,607

 
17,252,934

 
 
 
 
 
 
 
 
Basic net earnings per common share
$
0.05

 
$
0.05

 
$
1.00

 
$
2.35

Diluted net earnings per common share
0.05

 
0.05

 
0.99

 
2.33

 
 
 
 
 
 
 
 
Anti-dilutive shares excluded from calculation
468,624

 
5,783

 
525,655

 
502,293

1 
Basic average common shares outstanding include restricted stock awards that are fully vested, but are deferred for future issuance.
NOTE 12 Equity-Based Compensation
We recognize equity-based compensation expense for all equity-based payment awards made to employees and directors, including restricted stock units, or RSUs, performance shares and stock options, based on estimated fair values.
EMPLOYEE AWARDS
Employee equity-based compensation expense was recognized as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(In thousands)
2017
 
2016
 
2017
 
2016
Restricted stock units
$
429

 
$
352

 
$
1,224

 
$
1,012

Performance shares
567

 
877

 
1,793

 
2,313

Stock options
659

 
792

 
1,974

 
2,076

Total employee equity-based compensation expense
$
1,655

 
$
2,021

 
$
4,991

 
$
5,401

As provided in the Clearwater Paper Corporation 2008 Stock Incentive Plan, the performance measure used to determine the number of performance shares ultimately issuable for awards granted in 2016 and 2015, and for 40% of performance shares granted in 2017, is a comparison of the percentile ranking of our total stockholder return compared to the stockholder return of a selected peer group. In 2017, for 60% of the performance share awards granted, a return on invested capital performance measure is used to determine the number of performance shares ultimately issuable. The number of shares actually issued, as a percentage of the amount subject to the performance share award, could range from 0%-200%.
On December 31, 2016, the service and performance period for 45,953 outstanding shares granted in 2014 ended. Those performance shares were settled and distributed in the first quarter of 2017. The number of shares actually settled, as a percentage of the outstanding amount, was 89.0%. After adjusting for the related minimum tax withholdings, a net 27,878 shares were issued in the first quarter of 2017.
During the first nine months of 2017, 5,000 RSUs were settled and distributed. After adjusting for minimum tax withholdings, a net 3,351 shares were issued. In connection with the issued performance shares and RSUs, the minimum tax withholding payments made during the nine months ended September 30, 2017 totaled $0.8 million.
During the nine months ended September 30, 2017, we had 3,594 stock option awards expire with a weighted-average exercise price of $66.97. At September 30, 2017, we had 134,266 stock option awards that were exercisable with a weighted-average exercise price of $66.85.

13



The following table summarizes the number of share-based awards granted under the Clearwater Paper Corporation 2008 Stock Incentive Plan during the nine months ended September 30, 2017 and the grant-date fair value of the awards: 
 
Nine Months Ended
 
September 30, 2017
 
Number of
Shares Subject to Award
 
Average Fair
Value of Award Per Share
Restricted stock units
66,774

 
$
56.45

Performance shares
33,907

 
58.58

Stock options
158,484

 
18.82

DIRECTOR AWARDS
Annually, each outside member of our Board of Directors receives deferred equity-based awards that are measured in units of our common stock and ultimately settled in cash at the time of payment. Accordingly, the compensation expense associated with these awards is subject to fluctuations each quarter based on mark-to-market adjustments at each reporting period in line with changes in the market price of our common stock. As a result of the mark-to-market adjustment, we recorded director equity-based compensation expense of $0.5 million and $0.1 million for the three months ended September 30, 2017 and 2016, respectively. For the nine months ended September 30, 2017 and 2016, we recorded director equity-based compensation benefit of $2.5 million and compensation expense of $4.4 million, respectively.
As of September 30, 2017, the liability amounts associated with director equity-based compensation included in "Other long-term obligations" and "Accounts payable and accrued liabilities" on the accompanying Consolidated Balance Sheet were $3.8 million and $2.5 million, respectively. At December 31, 2016, the liability amounts associated with director equity-based compensation included in "Other long-term obligations" and "Accounts payable and accrued liabilities" totaled $7.9 million and $3.2 million, respectively.
NOTE 13 Fair Value Measurements
The estimated fair values of our financial instruments at the dates presented below are as follows: 
 
September 30,
 
December 31,
 
2017
 
2016
 
Carrying
 
Fair
 
Carrying
 
Fair
(In thousands)
Amount
 
Value
 
Amount
 
Value
Cash and cash equivalents (Level 1)
$
8,478

 
$
8,478

 
$
23,001

 
$
23,001

Borrowings under revolving credit facilities (Level 1)
110,000

 
110,000

 
135,000

 
135,000

Long-term debt (Level 2)
575,000

 
568,639

 
575,000

 
567,875

Accounting guidance establishes a framework for measuring the fair value of financial instruments, providing a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities, or “Level 1” measurements, followed by quoted prices of similar assets or observable market data, or “Level 2” measurements, and the lowest priority to unobservable inputs, or “Level 3” measurements.
The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used should seek to maximize the use of observable inputs and minimize the use of unobservable inputs.

14



NOTE 14 Business Interruption and Insurance Recovery
On November 14, 2016, there was a fire at our Las Vegas, Nevada facility. There was minimal disruption to the converting operations at that facility. However, certain components of our paper machine were damaged, and we incurred approximately 17 days of paper machine downtime while repairs were being made. We were unable to produce through-air-dried parent rolls during this period at the Las Vegas facility. We were able to replace a portion of this lost production capacity by shipping parent rolls from our Shelby, North Carolina facility, in addition to making open market purchases. We maintain property and business interruption insurance and filed a claim with our insurance provider in the fourth quarter of 2016 to recover the cost of repairs to the equipment and estimated lost profits due to the disruption of the operations during the repair period. The total insurance claim for this event, net of policy deductible, was $3.3 million. In the fourth quarter of 2016, we recognized $1.5 million of insurance recovery associated with this claim in "Cost of sales" in our Consolidated Statement of Operations, which represented the insurance recovery for the cost of equipment repairs performed in the fourth quarter of 2016. Upon final resolution of this claim, in 2017 we recognized an additional $1.4 million in "Cost of sales" in our Consolidated Statement of Operations, which represented insurance recovery for estimated lost profits due to the disruption of operations resulting from this event.
On January 28, 2017, there was a fire at our Shelby, North Carolina facility warehouse. Although the building sustained minimal damage, the smoke and water damage to raw material and finished goods inventory was more significant. Operations were impacted during the clean-up and repair period. We filed a claim with our peril and stock insurance providers to recover the cost of repairs to the equipment and estimated lost profits and inventory due to the disruption of the operations during the repair and cleanup period. Net of policy deductibles, the insurance claim for this event totaled $2.9 million, and was settled in its entirety in the first quarter of 2017. These proceeds are included in “Cost of sales” in our consolidated Statement of Operations for the nine months ended September 30, 2017.
NOTE 15 Segment Information
The table below presents information about our reportable segments: 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(In thousands)
2017
 
2016
 
2017
 
2016
Segment net sales:
 
 
 
 
 
 
 
Consumer Products
$
232,916

 
$
253,319

 
$
707,251

 
$
746,249

Pulp and Paperboard
193,588

 
182,001

 
586,441

 
562,946

Total segment net sales
$
426,504

 
$
435,320

 
$
1,293,692

 
$
1,309,195

 
 
 
 
 
 
 
 
Operating income (loss):
 
 
 
 
 
 
 
Consumer Products1
$
4,436

 
$
17,201

 
$
21,159

 
$
54,135

Pulp and Paperboard
15,023

 
9,956

 
63,866

 
85,151

 
19,459

 
27,157

 
85,025

 
139,286

Corporate2
(14,008
)
 
(17,877
)
 
(39,351
)
 
(52,079
)
Income from operations
$
5,451

 
$
9,280

 
$
45,674

 
$
87,207

 
 
 
 
 
 
 
 
Depreciation and amortization:
 
 
 
 
 
 
 
Consumer Products1
$
16,073

 
$
15,022

 
$
50,607

 
$
42,984

Pulp and Paperboard
8,328

 
6,530

 
24,789

 
19,346

Corporate
1,455

 
1,195

 
4,072

 
3,591

Total depreciation and amortization
$
25,856

 
$
22,747

 
$
79,468

 
$
65,921


1 
Operating income for the Consumer Products segment for the three and nine months ended September 30, 2017 includes $5.1 million and $11.1 million, respectively, of costs associated with the closure of the Oklahoma City facility. These costs for the three and nine months ended September 30, 2017 include $4.3 million of loss on the writedown of assets to their held for sale value. Depreciation and amortization expense for the nine months ended September 30, 2017 includes $3.7 million of accelerated depreciation associated with the Oklahoma City facility closure.

2 
For the three and nine months ended September 30, 2016, corporate expenses include $3.5 million of settlement expense associated with a lump sum buyout for term-vested participants of our salaried plan, which is discussed further in Note 10, "Pension and Other Postretirement Employee Benefit Plans."


15



NOTE 16 Supplemental Guarantor Financial Information
All of our subsidiaries that are 100% directly or indirectly owned by Clearwater Paper, guarantee our $275 million aggregate principal amount of 4.5% senior notes issued in January 2013 and due 2023, which we refer to as the 2013 Notes, on a full and unconditional, and joint and several basis. There are no significant restrictions on the ability of the guarantor subsidiaries to make distributions to Clearwater Paper, the issuer of the 2013 Notes. The following tables present the results of operations, financial position and cash flows of Clearwater Paper and its subsidiaries, the guarantor subsidiaries, and the eliminations necessary to arrive at the information for Clearwater Paper on a consolidated basis.
Clearwater Paper Corporation
Consolidating Statement of Operations and Comprehensive Income
Three Months Ended September 30, 2017
 
 
 
 
 
 
 
 
 
 
 
Guarantor
 
 
 
 
(In thousands)
Issuer
 
Subsidiaries
 
Eliminations
 
Total
Net sales
$
423,712

 
$
55,894

 
$
(53,102
)
 
$
426,504

Cost and expenses:
 
 
 
 
 
 
 
Cost of sales
(387,696
)
 
(51,052
)
 
52,167

 
(386,581
)
Selling, general and administrative expenses
(24,676
)
 
(9,796
)
 

 
(34,472
)
Total operating costs and expenses
(412,372
)
 
(60,848
)
 
52,167

 
(421,053
)
Income (loss) from operations
11,340

 
(4,954
)
 
(935
)
 
5,451

Interest expense, net
(7,407
)
 
(276
)
 

 
(7,683
)
Earnings (loss) before income taxes
3,933

 
(5,230
)
 
(935
)
 
(2,232
)
Income tax (provision) benefit
(1,847
)
 
4,589

 
353

 
3,095

Equity in loss of subsidiary
(641
)
 

 
641

 

Net earnings (loss)
$
1,445

 
$
(641
)
 
$
59

 
$
863

Other comprehensive income, net of tax
257

 

 

 
257

Comprehensive income (loss)
$
1,702

 
$
(641
)
 
$
59

 
$
1,120


Clearwater Paper Corporation
Consolidating Statement of Operations and Comprehensive Income
Nine Months Ended September 30, 2017
 
 
 
 
 
 
 
 
 
 
 
Guarantor
 
 
 
 
(In thousands)
Issuer
 
Subsidiaries
 
Eliminations
 
Total
Net sales
$
1,263,467

 
$
196,399

 
$
(166,174
)
 
$
1,293,692

Cost and expenses:
 
 
 
 
 
 
 
Cost of sales
(1,137,931
)
 
(178,732
)
 
162,319

 
(1,154,344
)
Selling, general and administrative expenses
(71,445
)
 
(22,229
)
 

 
(93,674
)
Total operating costs and expenses
(1,209,376
)
 
(200,961
)
 
162,319

 
(1,248,018
)
Income (loss) from operations
54,091

 
(4,562
)
 
(3,855
)
 
45,674

Interest expense, net
(22,981
)
 
(418
)
 

 
(23,399
)
Earnings (loss) before income taxes
31,110

 
(4,980
)
 
(3,855
)
 
22,275

Income tax (provision) benefit
(11,857
)
 
4,582

 
1,415

 
(5,860
)
Equity in loss of subsidiary
(398
)
 

 
398

 

Net earnings (loss)
$
18,855

 
$
(398
)
 
$
(2,042
)
 
$
16,415

Other comprehensive income, net of tax
784

 

 

 
784

Comprehensive income (loss)
$
19,639

 
$
(398
)
 
$
(2,042
)
 
$
17,199


16



Clearwater Paper Corporation
Consolidating Statement of Operations and Comprehensive Income
Three Months Ended September 30, 2016
 
 
 
 
 
 
 
 
(In thousands)
Issuer
 
Guarantor
Subsidiaries
 
Eliminations
 
Total
Net sales
$
421,617

 
$
70,912

 
$
(57,209
)
 
$
435,320

Cost and expenses:
 
 
 
 
 
 
 
Cost of sales
(388,817
)
 
(64,997
)
 
57,209

 
(396,605
)
Selling, general and administrative expenses
(27,453
)
 
(1,982
)
 

 
(29,435
)
Total operating costs and expenses
(416,270
)
 
(66,979
)
 
57,209

 
(426,040
)
Income from operations
5,347

 
3,933

 

 
9,280

Interest expense, net
(7,411
)
 
(109
)
 

 
(7,520
)
(Loss) earnings before income taxes
(2,064
)
 
3,824

 

 
1,760

Income tax benefit (provision)
661

 
(1,520
)
 

 
(859
)
Equity in income of subsidiary
2,304

 

 
(2,304
)
 

Net earnings
$
901

 
$
2,304

 
$
(2,304
)
 
$
901

Other comprehensive income, net of tax
1,759

 

 

 
1,759

Comprehensive income
$
2,660

 
$
2,304

 
$
(2,304
)
 
$
2,660


Clearwater Paper Corporation
Consolidating Statement of Operations and Comprehensive Income
Nine Months Ended September 30, 2016
 
 
 
 
 
 
 
 
(In thousands)
Issuer
 
Guarantor
Subsidiaries
 
Eliminations
 
Total
Net sales
$
1,266,300

 
$
216,361

 
$
(173,466
)
 
$
1,309,195

Cost and expenses:
 
 
 
 
 
 
 
Cost of sales
(1,102,229
)
 
(198,340
)
 
173,466

 
(1,127,103
)
Selling, general and administrative expenses
(85,107
)
 
(9,778
)
 

 
(94,885
)
Total operating costs and expenses
(1,187,336
)
 
(208,118
)
 
173,466

 
(1,221,988
)
Income from operations
78,964

 
8,243

 

 
87,207

Interest expense, net
(22,427
)
 
(132
)
 

 
(22,559
)
Earnings before income taxes
56,537

 
8,111

 

 
64,648

Income tax provision
(20,933
)
 
(3,504
)
 

 
(24,437
)
Equity in income of subsidiary
4,607

 

 
(4,607
)
 

Net earnings
$
40,211

 
$
4,607

 
$
(4,607
)
 
$
40,211

Other comprehensive income, net of tax
2,585

 

 

 
2,585

Comprehensive income
$
42,796

 
$
4,607

 
$
(4,607
)
 
$
42,796



17



Clearwater Paper Corporation
Consolidating Balance Sheet
At September 30, 2017
 
 
 
 
 
 
 
 
(In thousands)
Issuer
 
Guarantor
Subsidiaries
 
Eliminations
 
Total
ASSETS
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
Cash and cash equivalents
$
8,478

 
$

 
$

 
$
8,478

Receivables, net
116,392

 
19,554

 

 
135,946

Taxes receivable
14,543

 
35

 

 
14,578

Inventories
221,233

 
40,455

 
(3,855
)
 
257,833

Other current assets
5,846

 
604

 

 
6,450

Total current assets
366,492

 
60,648

 
(3,855
)
 
423,285

Property, plant and equipment, net
898,859

 
115,976

 

 
1,014,835

Goodwill
244,283

 

 

 
244,283

Intangible assets, net
2,351

 
32,177

 

 
34,528

Intercompany receivable (payable)
(4,041
)
 
186

 
3,855

 

Investment in subsidiary
144,691

 

 
(144,691
)
 

Other assets, net
11,787

 
3,466

 
(3,173
)
 
12,080

TOTAL ASSETS
$
1,664,422

 
$
212,453

 
$
(147,864
)
 
$
1,729,011

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
Borrowings under revolving credit facilities
$
110,000

 
$

 
$

 
$
110,000

Accounts payable and accrued liabilities
241,938

 
21,210

 

 
263,148

Current liability for pensions and
  other postretirement employee benefits
7,821

 

 

 
7,821

Total current liabilities
359,759

 
21,210

 

 
380,969

Long-term debt
570,331

 

 

 
570,331

Liability for pensions and
  other postretirement employee benefits
78,440

 

 

 
78,440

Other long-term obligations
40,800

 
142

 

 
40,942

Accrued taxes
1,721

 
836

 

 
2,557

Deferred tax liabilities
127,009

 
45,574

 
(3,173
)
 
169,410

TOTAL LIABILITIES
1,178,060

 
67,762

 
(3,173
)
 
1,242,649

Stockholders’ equity excluding
accumulated other comprehensive loss
537,331

 
144,691

 
(144,691
)
 
537,331

Accumulated other comprehensive loss, net of tax
(50,969
)
 

 

 
(50,969
)
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
1,664,422

 
$
212,453

 
$
(147,864
)
 
$
1,729,011



18



Clearwater Paper Corporation
Consolidating Balance Sheet
At December 31, 2016
 
 
 
 
 
 
 
 
(In thousands)
Issuer
 
Guarantor
Subsidiaries
 
Eliminations
 
Total
ASSETS
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
Cash and cash equivalents
$
19,586

 
$
3,415

 
$

 
$
23,001

Receivables, net
130,098

 
27,252

 
(10,276
)
 
147,074

Taxes receivable
15,143

 
35

 
(5,469
)
 
9,709

Inventories
208,472

 
51,432

 
(1,875
)
 
258,029

Other current assets
8,161

 
521

 

 
8,682

Total current assets
381,460

 
82,655

 
(17,620
)
 
446,495

Property, plant and equipment, net
802,064

 
143,264

 

 
945,328

Goodwill
244,283

 

 

 
244,283

Intangible assets, net
3,135

 
37,350

 

 
40,485

Intercompany receivable (payable)
30,034

 
(31,909
)
 
1,875

 

Investment in subsidiary
145,089

 

 
(145,089
)
 

Other assets, net
8,433

 
2,853

 
(3,535
)
 
7,751

TOTAL ASSETS
$
1,614,498

 
$
234,213

 
$
(164,369
)
 
$
1,684,342

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
Borrowings under revolving credit facilities
$
135,000

 
$

 
$

 
$
135,000

Accounts payable and accrued liabilities
202,187

 
37,257

 
(15,745
)
 
223,699

Current liability for pensions and
  other postretirement employee benefits
7,821

 

 

 
7,821

Total current liabilities
345,008

 
37,257

 
(15,745
)
 
366,520

Long-term debt
569,755

 

 

 
569,755

Liability for pensions and
  other postretirement employee benefits
81,812

 

 

 
81,812

Other long-term obligations
41,424

 
352

 

 
41,776

Accrued taxes
1,614

 
820

 

 
2,434

Deferred tax liabilities
105,012

 
50,695

 
(3,535
)
 
152,172

TOTAL LIABILITIES
1,144,625

 
89,124

 
(19,280
)
 
1,214,469

Stockholders’ equity excluding
accumulated other comprehensive loss
521,626

 
145,089

 
(145,089
)
 
521,626

Accumulated other comprehensive loss, net of tax
(51,753
)
 

 

 
(51,753
)
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
1,614,498

 
$
234,213

 
$
(164,369
)
 
$
1,684,342



19



Clearwater Paper Corporation
Consolidating Statement of Cash Flows
Nine Months Ended September 30, 2017
 
 
 
 
 
 
 
 
(In thousands)
Issuer
 
Guarantor
Subsidiaries
 
Eliminations
 
Total
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
 
 
 
 
Net earnings (loss)
$
18,855

 
$
(398
)
 
$
(2,042
)
 
$
16,415

Adjustments to reconcile net earnings (loss) to
  net cash flows from operating activities:
 
 
 
 
 
 
 
Depreciation and amortization
56,642

 
22,826

 

 
79,468

Equity-based compensation expense
2,523

 

 

 
2,523

Deferred tax provision (benefit)
19,531

 
(4,929
)
 

 
14,602

Employee benefit plans
(2,999
)
 

 

 
(2,999
)
Disposal of plant and equipment, net
481

 
3,274

 

 
3,755

Other, net
874

 

 

 
874

Changes in working capital, net
32,501

 
3,896

 
7,449

 
43,846

Changes in taxes receivable, net
600

 

 
(5,469
)
 
(4,869
)
Other, net
(413
)
 
(1,026
)
 

 
(1,439
)
Net cash flows from operating activities
128,595

 
23,643

 
(62
)
 
152,176

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
 
 
 
 
Additions to property, plant and equipment
(132,725
)
 
(3,925
)
 

 
(136,650
)
Other, net
283

 
470

 

 
753

Net cash flows from investing activities
(132,442
)
 
(3,455
)
 

 
(135,897
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
 
 
 
 
Purchase of treasury stock
(4,875
)
 

 

 
(4,875
)
Borrowings on revolving credit facilities
185,000

 

 

 
185,000

Repayments of borrowings on revolving credit facilities
(210,000
)
 

 

 
(210,000
)
Investment from (to) parent
23,541

 
(23,603
)
 
62

 

Other, net
(927
)
 

 

 
(927
)
Net cash flows from financing activities
(7,261
)
 
(23,603
)
 
62

 
(30,802
)
Decrease in cash and cash equivalents
(11,108
)
 
(3,415
)
 

 
(14,523
)
Cash and cash equivalents at beginning of period
19,586

 
3,415

 

 
23,001

Cash and cash equivalents at end of period
$
8,478

 
$

 
$

 
$
8,478


20



Clearwater Paper Corporation
Consolidating Statement of Cash Flows
Nine Months Ended September 30, 2016
 
 
 
 
 
 
 
 
(In thousands)
Issuer
 
Guarantor Subsidiaries
 
Eliminations
 
Total
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
 
 
 
 
Net earnings
$
40,211

 
$
4,607

 
$
(4,607
)
 
$
40,211

Adjustments to reconcile net earnings to net
  cash flows from operating activities:
 
 
 
 
 
 
 
Depreciation and amortization
50,214

 
15,707

 

 
65,921

Equity-based compensation expense
9,826

 

 

 
9,826

Deferred tax provision (benefit)
11,641

 
1,826

 
(1,138
)
 
12,329

Employee benefit plans
(500
)
 

 

 
(500
)
Disposal of plant and equipment, net
30

 

 

 
30

Other, net
471

 
13

 

 
484

Changes in working capital, net
1,961

 
4,531

 
(2,447
)
 
4,045

Changes in taxes receivable, net
6,178

 
(1,408
)
 
2,447

 
7,217

Other, net
(1,205
)
 
(613