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 March 31, 2019
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 every Interactive Data File required to be submitted 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 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
 
¨  

  
Accelerated filer
 
ý

Non-accelerated filer
 
¨  
  
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    
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.0001 per share
CLW
New York Stock Exchange
The number of shares of common stock of the registrant outstanding as of May 6, 2019 was 16,515,156.




CLEARWATER PAPER CORPORATION
Index to Form 10-Q
 
 
 
 
 
 
Page Number
 
 
 
PART I.
 
 
 
 
ITEM 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
7 - 24
 
 
 
ITEM 2.
25 - 33
 
 
 
ITEM 3.
 
 
 
ITEM 4.
 
 
 
PART II.
 
 
 
 
ITEM 1.
 
 
 
ITEM 1A.
 
 
 
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
 
March 31,
 
2019
 
2018
Net sales
$
428,779

 
$
436,952

Costs and expenses:
 
 
 
Cost of sales
(384,246
)
 
(392,433
)
Selling, general and administrative expenses
(30,171
)
 
(32,980
)
Total operating costs and expenses
(414,417
)
 
(425,413
)
Income from operations
14,362

 
11,539

Interest expense, net
(8,486
)
 
(8,020
)
Non-operating pension and other postretirement benefit costs
(1,314
)
 
(1,279
)
Earnings before income taxes
4,562

 
2,240

Income tax (provision) benefit
(725
)
 
360

Net earnings
$
3,837

 
$
2,600

Net earnings per common share:
 
 
 
Basic
$
0.23

 
$
0.16

Diluted
0.23

 
0.16

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
 
March 31,
 
2019
 
2018
Net earnings
$
3,837

 
$
2,600

Other comprehensive income:
 
 
 
Defined benefit pension and other postretirement employee benefits:
 
 
 
Amortization of actuarial loss included in net periodic cost, net of tax of $442 and $617
1,239

 
1,728

Amortization of prior service credit included in net periodic cost, net of tax of $- and $(110)

 
(309
)
Other comprehensive income, net of tax
1,239

 
1,419

Comprehensive income
$
5,076

 
$
4,019

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)
 
 
March 31,
2019
 
December 31,
2018
ASSETS
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
12,160

 
$
22,484

Restricted cash
1,440

 

Receivables, net
168,093

 
145,519

Taxes receivable
6,981

 
6,301

Inventories
285,909

 
266,244

Other current assets
12,237

 
3,399

Total current assets
486,820

 
443,947

Property, plant and equipment, net
1,292,002

 
1,269,271

Operating lease right-of-use assets
77,479

 

Goodwill
35,074

 
35,074

Intangible assets, net
22,295

 
24,080

Other assets, net
14,608

 
15,746

TOTAL ASSETS
$
1,928,278

 
$
1,788,118

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Short-term debt
$
212,216

 
$
120,833

Accounts payable and accrued liabilities
295,574

 
321,032

Current liability for pensions and other postretirement employee benefits
7,430

 
7,430

Total current liabilities
515,220

 
449,295

Long-term debt
671,484

 
671,292

Operating lease liabilities
72,647

 

Liability for pensions and other postretirement employee benefits
76,507

 
78,191

Other long-term obligations
33,859

 
38,977

Accrued taxes
3,111

 
2,785

Deferred tax liabilities
123,206

 
121,182

TOTAL LIABILITIES
1,496,034

 
1,361,722

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
  -16,515,156 and 16,482,345 shares issued
2

 
2

Additional paid-in capital
7,175

 
6,403

Retained earnings
491,176

 
487,339

Accumulated other comprehensive loss, net of tax
(66,109
)
 
(67,348
)
TOTAL STOCKHOLDERS' EQUITY
432,244

 
426,396

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
1,928,278

 
$
1,788,118

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)
 
Three Months Ended
 
March 31,
 
2019
 
2018
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net earnings
$
3,837

 
$
2,600

Adjustments to reconcile net earnings to net cash flows from operating activities:
 
 
 
Depreciation and amortization
25,836

 
25,167

Equity-based compensation expense
828

 
781

Deferred taxes
914

 
(240
)
       Other non-cash activity, net
(564
)
 
648

Changes in working capital, net
(62,131
)
 
1,244

Changes in taxes receivable, net
(680
)
 
1,463

Other, net
2,561

 
(803
)
Net cash flows from operating activities
(29,399
)
 
30,860

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Additions to property, plant and equipment
(71,588
)
 
(48,430
)
Other, net

 
768

Net cash flows from investing activities
(71,588
)
 
(47,662
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Borrowings on short-term debt
290,362

 
87,325

Repayments of borrowings on short-term debt
(198,979
)
 
(73,825
)
Other, net
(716
)
 
(365
)
Net cash flows from financing activities
90,667

 
13,135

Decrease in cash, cash equivalents, and restricted cash
(10,320
)
 
(3,667
)
Cash, cash equivalents, and restricted cash at beginning of period
24,947

 
16,738

Cash, cash equivalents, and restricted cash at end of period
$
14,627

 
$
13,071

 
 
 
 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
 
 
 
Cash paid for interest, net of amounts capitalized
$
15,147

 
$
13,927

Cash paid for income taxes
19

 
142

Cash received from income tax refunds
190

 
1,873

(Decrease) increase in accrued property, plant and equipment
(28,443
)
 
1,317

Other non-cash additions to property, plant and equipment
493

 

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

5



CLEARWATER PAPER CORPORATION
Consolidated Statements of Stockholders’ Equity
Unaudited (In thousands)
 
 
 
Common Stock
 
Additional Paid-In Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Total
Stockholders'
Equity
 
 
Shares
 
Amount
 
Balance at December 31, 2017
 
16,448

 
$
2

 
$
1,161

 
$
618,254

 
$
(43,983
)
 
$
575,434

Net earnings
 

 

 

 
2,600

 

 
2,600

Performance share, restricted stock unit, and stock option awards
 
13

 

 
1,267

 

 

 
1,267

Reclassification of the income tax effects of the Tax Cuts and Jobs Act
 

 

 

 
12,852

 
(12,852
)
 

Pension and other postretirement employee benefit plans, net
  of tax of $507
 

 

 

 

 
1,419

 
1,419

Balance at March 31, 2018
 
16,461

 
$
2

 
$
2,428

 
$
633,706

 
$
(55,416
)
 
$
580,720

 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2018
 
16,482

 
$
2

 
$
6,403

 
$
487,339

 
$
(67,348
)
 
$
426,396

Net earnings
 

 

 

 
3,837

 

 
3,837

Performance share, restricted stock unit, and stock option awards
 
33

 

 
772

 

 

 
772

Pension and other postretirement employee benefit plans,
net of tax of $442
 

 

 

 

 
1,239

 
1,239

Balance at March 31, 2019
 
16,515

 
$
2

 
$
7,175

 
$
491,176

 
$
(66,109
)
 
$
432,244


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

6




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.
In the second half of 2017, we began a review of our selling, general and administrative cost structure as part of our effort to maintain our longer-term competitiveness. As a result of this review, in the fourth quarter of 2017 we began executing on a plan that reduced selling, general and administrative expenses beginning in 2018. For the three months ended March 31, 2018, we incurred $5.1 million of expenses associated with these efforts, which consisted primarily of severance and professional services expenses. We did not incur expenses associated with these efforts in the first quarter of 2019 as the plan implementation was substantially complete in 2018.
FINANCIAL STATEMENT PREPARATION AND PRESENTATION
The accompanying Consolidated Balance Sheets at March 31, 2019 and December 31, 2018, and the related Consolidated Statements of Operations, Comprehensive Income, Cash Flows and Stockholders' Equity for the three months ended March 31, 2019 and 2018, 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 presentation 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, 2018, as filed with the Securities and Exchange Commission, or SEC, on March 18, 2019.

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 income tax positions, assessment of impairment of long-lived assets and goodwill, assessment of environmental matters, equity-based compensation and pension and postretirement obligation assumptions. Actual results could differ from those estimates and assumptions.
CASH, CASH EQUIVALENTS, AND RESTRICTED CASH
We consider all highly liquid instruments with maturities of three months or less at date of purchase to be cash equivalents. Cash that is held by a third party and has restrictions on its availability to us is classified as restricted cash. The following table provides a reconciliation of cash, cash equivalents and restricted cash reported on the Consolidated Balance Sheets that sum to the total of those same amounts shown in our Consolidated Statements of Cash Flows.
(In thousands)
March 31, 2019
 
March 31, 2018
Cash and cash equivalents
$
12,160

 
$
12,064

Restricted cash
1,440

 

Restricted cash included in other assets, net
1,027

 
1,007

Total cash, cash equivalents, and restricted cash shown in the Consolidated Statements of Cash Flows
$
14,627

 
$
13,071


7



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 $1,715.2 million and $1,691.7 million at March 31, 2019 and December 31, 2018, respectively.
For the three months ended March 31, 2019, we capitalized $3.2 million of interest expense associated with the construction of a paper machine at our Shelby, North Carolina consumer products facility and $0.2 million of interest expense associated with the construction of a continuous pulp digester at our Lewiston, Idaho pulp and paperboard facility. For the three months ended March 31, 2018, we capitalized $1.0 million of interest expense associated with the Shelby paper machine and $0.3 million of interest expense associated with the continuous pulp digester project.
We review 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.
LEASES
All significant lease arrangements are generally recognized at lease commencement. Operating lease right-of-use, or ROU, assets and lease liabilities are recognized at commencement. An ROU asset and corresponding lease liability are not recorded for leases with an initial term of 12 months or less (short term leases) and we recognize lease expense for these leases as incurred over the lease term.
ROU assets represent our right to use an underlying asset during the reasonably certain lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. We primarily use our incremental borrowing rate, which is updated quarterly, based on the information available at commencement date, in determining the present value of lease payments. The operating lease ROU asset also includes any lease payments related to initial direct cost and prepayments and excludes lease incentives. Refer to Note 4, "Leases," for additional information.
REVENUE RECOGNITION
We enter into contracts that can include various combinations of tissue and paperboard products, which are generally distinct and accounted for as separate performance obligations.
Revenue is recognized at a point in time upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. Transfer of control typically occurs when the title and risk of loss passes to the customer. Shipping terms generally indicate when title and the risk of loss have passed. Revenue is recognized at shipment for sales when shipping terms are free on board, or FOB, shipping point. For sales where shipping terms are FOB destination, revenue is recognized when the goods are received by the customer. Revenue from both domestic and foreign sales of our products can involve shipping terms of either FOB shipping point or FOB destination or other shipping terms, depending upon the sales agreement with the customer. We have elected to treat shipping and handling costs for FOB shipping point contracts as a fulfillment cost, not as a separate performance obligation. No revenue is recognized over time. We typically expense incremental direct costs of obtaining a contract (sales commissions) when incurred because the amortization period is generally 12 months or less. We have also elected to use the practical expedient to not disclose unsatisfied or partially satisfied performance obligations as we have no unsatisfied contracts where the remaining portions are expected to be satisfied in a period greater than one year.
We provide for trade promotions, customer cash discounts, customer returns and other deductions as reductions to net sales, which are accounted for as variable consideration when estimating the amount of revenue to recognize. Returns and credits are estimated at contract inception and updated at the end of each reporting period as additional information becomes available. Revenue net of returns and credits is only recognized to the extent that it is probable that a significant reversal of any incremental revenue will not occur. Significant judgment is required to determine the most probable amount of variable consideration to apply as a reduction to net sales. Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities.
Payment terms and conditions vary by contract. Terms generally include a requirement of payment within 30 days, and do not include a significant financing component.
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 March 31, 2019 and December 31, 2018, we had allowances for doubtful accounts of $1.7 million and $1.5 million, respectively.

8



Refer to Note 14, "Segment Information," for further information, including the disaggregation of revenue by segment, primary geographical market, and major product type.
ACCOUNT PURCHASE AGREEMENT
In June 2018, we entered into an agreement (the “Account Purchase Agreement”) to offer to sell, on a revolving and discounted basis, certain trade accounts receivable balances to an unrelated third-party financial institution. If the financial institution purchases receivables thereunder, in its sole discretion, such transfers are accounted for as sales of receivables resulting in the receivables being de-recognized from our Consolidated Balance Sheet. The Account Purchase Agreement provides for the continuing sale of certain receivables on a revolving basis until June 2020 and automatically renews for successive one year terms, unless either party elects to terminate the Account Purchase Agreement in accordance with its terms. The maximum amount of receivables that may be sold at any time, prior to the settlement thereof, is $30.0 million.
For the three months ended March 31, 2019, $29.6 million of receivables were sold under the Account Purchase Agreement. As of March 31, 2019, $16.6 million of accounts receivable sold under the Asset Purchase Agreement were outstanding. The proceeds from these sales of receivables are included within the "Changes in working capital, net" line item in the operating activities section of the Consolidated Statements of Cash Flows. For the three months ended March 31, 2019, we recorded factoring expense on sales of receivables of less than $0.1 million, which is included in the "Selling, general and administrative expenses" line in the Consolidated Statement of Operations.
We have no retained interest in the receivables sold under the Account Purchase Agreement, however, we do have servicing responsibilities for the sold receivables. The fair value of the servicing arrangement was not material to the financial statements. As of March 31, 2019 and December 31, 2018, we had collected $12.7 million and $4.9 million of cash, respectively, from customers that had not yet been remitted to the third-party financial institution.
SUPPLY-CHAIN FINANCING
We have entered into supply-chain financing programs with financial intermediaries, which provide certain of our vendors the option to be paid by the financial intermediaries on our trade payables earlier than the due date on the applicable invoice. When a vendor receives an early payment on a trade payable it invoiced us for from a financial intermediary, we pay that financial intermediary the face amount of the invoice on the regularly scheduled due date. If we reimburse these vendors for certain fees they may incur in connection with receiving an early payment on an invoice, the amount of such invoice that would have otherwise been included in our trade payables is included in our short term debt. As of March 31, 2019 and December 31, 2018, $10.2 million and $20.8 million, respectively, was included in “Short-term debt” on our Consolidated Balance Sheets related to invoices for which we had reimbursed our vendors’ fees.
DERIVATIVES
We had no activity during the three months ended March 31, 2019 and 2018 that required hedge or derivative accounting treatment. 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 March 31, 2019, these contracts covered approximately 25% of our expected average monthly natural gas requirements for the remainder of 2019. Historically, these contracts have qualified for treatment as “normal purchases or normal sales” under authoritative guidance and thus required no mark-to-market adjustment.


9



NOTE 2 Recently Adopted and New Accounting Standards
Recently Adopted
On January 1, 2019, we adopted ASU 2016-02, Leases (Topic 842), and subsequent ASUs related to Topic 842. The new guidance increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The adoption of Topic 842 had a material impact on our Consolidated Balance Sheet due to the recognition of right-of-use assets of $82.5 million and lease liabilities of $87.7 million, respectively, as of January 1, 2019. The difference between these lease assets and lease liabilities represents existing deferred rent balances that were reclassified on the balance sheet. The adoption of Topic 842 did not have a material impact on our Consolidated Statement of Operations or our Consolidated Statement of Cash Flows. We will continue to report periods prior to January 1, 2019 under prior guidance as outlined in Accounting Standards Codification Topic 840, "Leases." Refer to Note 4, "Leases," for further discussion.
New Accounting Standards
In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40). This ASU requires capitalization of certain implementation costs incurred in a cloud computing arrangement that is a service contract. Amendments in this ASU are effective for fiscal years beginning after December 15, 2019 and for interim periods therein, with early adoption permitted. We do not believe this ASU will have a material impact on our consolidated financial statements.
In August 2018, the FASB issued ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20), which modifies the disclosure requirements for defined benefit and other postretirement plans. This ASU eliminates certain disclosures associated with accumulated other comprehensive income, plan assets, related parties, and the effects of interest rate basis point changes on assumed health care costs, with other disclosures being added to address significant gains and losses related to changes in benefit obligations. This ASU also clarifies disclosure requirements for projected benefit and accumulated benefit obligations. The amendments in this ASU are effective for fiscal years ending after December 15, 2020, with early adoption permitted and adoption on a retrospective basis for all periods presented required. We are currently assessing the timing of our adoption of this ASU and do not believe it will have a material impact on our consolidated financial statements beyond updating footnote disclosures.
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)
March 31, 2019
 
December 31, 2018
Pulp, paperboard and tissue products
$
176,788

 
$
159,499

Materials and supplies
90,470

 
86,892

Logs, pulpwood, chips and sawdust
18,651

 
19,853

 
$
285,909

 
$
266,244

NOTE 4 Leases

Our adoption of ASU 2016-02, Leases (Topic 842), and subsequent ASUs related to Topic 842, requires us to recognize substantially all leases on the balance sheet as an ROU asset and a corresponding lease liability. The new guidance also requires additional disclosures as detailed below. We adopted this standard on the effective date of January 1, 2019 and used this effective date as the date of initial application. Under this application method, we were not required to restate prior period financial information or provide Topic 842 disclosures for prior periods. We elected the ‘package of practical expedients,’ which permitted us to not reassess our prior conclusions related to lease identification, lease classification, and initial direct costs, and we did not elect the use of hindsight.

We have operating leases for manufacturing, office, warehouse and distribution space, paperboard sheeting and chipping facilities, equipment, and vehicles. We also have finance leases related to our North Carolina converting and manufacturing facilities, as well as for certain office and other equipment. We determine if a contract is a lease at the inception of the arrangement. We review all options to extend, terminate, or purchase the ROU assets, and when reasonably certain to exercise, we include the option in the determination of the lease term and lease liability. Our leases have remaining lease terms from 1 year to 12 years, and some of our leases include one or more options to renew.

10




Lease ROU assets and liabilities are recognized at commencement date of the lease, based on the present value of lease payments over the lease term. The lease ROU asset also includes any lease payments made and excludes any lease incentives. When readily determinable, we use the implicit rate in determining the present value of lease payments. When leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the lease commencement date, including the lease term.

Short-term leases with an initial term of 12 months or less are not recorded on the Consolidated Balance Sheet. Lease expense for short-term leases is recognized on a straight-line basis over the lease term. As of March 31, 2019, we did not have any short-term leases. Certain of our leases contain lease and non-lease components that are treated as a single lease component. Our variable lease costs include these non-lease components, which primarily consist of expenses for common area maintenance, taxes, and insurance. For the three months ended March 31, 2019, sublease income was immaterial to the financial statements.

The tables below present financial information associated with our leases. This information is only presented as of, and for the three months ended, March 31, 2019. As noted above, we adopted Topic 842 using a transition method that does not require application to periods prior to adoption.

LEASE EXPENSE
 
Three Months Ended
(In thousands)
March 31, 2019
Operating lease costs
$
3,480

 
 
Finance lease costs:
 
Amortization of right-of-use assets
415

Interest on lease liabilities
472

Total finance lease costs
887

 
 
Variable lease costs
219

 
 
Total lease costs
$
4,586


SUPPLEMENTAL CASH FLOW INFORMATION
 
Three Months Ended
(In thousands)
March 31, 2019
Cash paid for amounts included in the measurement of lease liabilities:
 
Operating cash flows from operating leases
$
4,097

Operating cash flows from finance leases
472

Financing cash flows from finance leases
289

 
 
Right-of-use assets obtained in exchange for new lease liabilities:
 
Operating leases
$
75

Finance leases
493



11



SUPPLEMENTAL BALANCE SHEET INFORMATION
(In thousands)
Classification
March 31, 2019
Lease ROU Assets
 
 
Operating lease assets
Operating lease right-of-use assets
$
77,479

Finance lease assets
Property, plant and equipment, net
16,695

Total lease ROU assets
 
$
94,174

 
 
 
Lease Liabilities
 
 
Current operating lease liabilities
Accounts payable and accrued liabilities
$
12,097

Current finance lease liabilities
Accounts payable and accrued liabilities
1,365

Total current lease liabilities
 
13,462

 
 
 
Non-current operating lease liabilities
Operating lease liabilities
72,647

Non-current finance lease liabilities
Other long-term obligations
21,692

Total non-current lease liabilities
 
94,339

 
 
 
Total lease liabilities
 
$
107,801


LEASE TERM AND DISCOUNT RATE
 
March 31, 2019
Weighted average remaining lease term (years)
 
Operating leases
7.4

Finance leases
11.3

 
 
Weighted average discount rate
 
Operating leases
4.9
%
Finance leases
8.3
%




12



MATURITY OF LEASE LIABILITIES

As of March 31, 2019, our maturities of lease liabilities were as follows:
(In thousands)
Operating
 
Finance
2019 (excluding the three months ended March 31, 2019)
$
11,883

 
$
2,437

2020
15,929

 
3,175

2021
15,215

 
3,220

2022
14,348

 
3,128

2023
9,590

 
2,897

Thereafter
34,633

 
21,468

Total lease payments
101,598

 
$
36,325

Less interest portion
(16,854
)
 
(13,268
)
Total
84,744

 
$
23,057


As of December 31, 2018, as previously disclosed in our 2018 Annual Report on Form 10-K and under the previous lease accounting standard, we had future minimum lease payments as follows:
(In thousands)
Operating
 
Capital
2019
$
12,038

 
$
3,093

2020
11,421

 
3,062

2021
10,424

 
3,112

2022
9,489

 
3,019

2023
7,163

 
2,789

Thereafter
24,276

 
21,710

Total future minimum lease payments
$
74,811

 
$
36,785

Less interest portion
 
 
(13,887
)
Present value of future minimum lease payments
 
 
$
22,898


NOTE 5 Intangible Assets
Intangible assets at the balance sheet dates comprise the following:
 
March 31, 2019
(Dollars in thousands, lives in years)
Weighted Average Useful
Life
 
Historical
Cost
 
Accumulated
Amortization
 
Net
Balance
Customer relationships
9.4
 
$
56,453

 
$
(36,978
)
 
$
19,475

Trade names and trademarks
7.4
 
6,786

 
(4,286
)
 
2,500

Other intangibles
6.0
 
572

 
(252
)
 
320

 
 
 
$
63,811

 
$
(41,516
)
 
$
22,295

 
 
 
 
 
 
 
 
  
December 31, 2018
(Dollars in thousands, lives in years)
Weighted Average Useful
Life
 
Historical
Cost
 
Accumulated
Amortization
 
Net
Balance
Customer relationships
9.4
 
$
56,453

 
$
(35,469
)
 
$
20,984

Trade names and trademarks
7.4
 
6,786

 
(4,029
)
 
2,757

Other intangibles
6.0
 
572

 
(233
)
 
339

 
 
 
$
63,811

 
$
(39,731
)
 
$
24,080


For the three months ended March 31, 2019 and 2018, intangible assets amortization expense was $1.8 million and $2.0 million, respectively.

13



NOTE 6 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 first quarter of 2019 is approximately 6%, compared with approximately 25% for the comparable interim period in 2018. The decrease in the rate is due to an increase in the benefit from tax credits in the current year.

NOTE 7 Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities at the balance sheet dates consist of:
(In thousands)
March 31, 2019
 
December 31, 2018
Trade accounts payable
$
198,289

 
$
228,059

Accrued wages, salaries and employee benefits
29,549

 
41,426

Lease liabilities
13,462

 

Accrued account purchase agreement liabilities
12,664

 
4,885

Accrued utilities
8,561

 
6,934

Accrued taxes other than income taxes payable
7,789

 
6,243

Accrued discounts and allowances
7,230

 
8,143

Accrued interest
7,175

 
14,672

Other
10,855

 
10,670

 
$
295,574

 
$
321,032

NOTE 8 Debt
REVOLVING CREDIT FACILITIES
As of March 31, 2019, there was an aggregate of $302.0 million in borrowings outstanding under the credit facilities and $7.5 million of the credit facilities was being used to support outstanding standby letters of credit. As of December 31, 2018, there was an aggregate of $200.0 million in borrowings outstanding under the credit facilities. Our borrowings outstanding under the revolving credit facilities as of March 31, 2019 consisted of $202.0 million of short-term base and LIBOR rate loans classified as current liabilities that are included in "Short-term debt" in our Consolidated Balance Sheet and $100.0 million of fixed rate, three-year borrowings classified as a non-current liability that are included in "Long-term debt" in our Consolidated Balance Sheet. As of March 31, 2019, we would have been permitted to draw an additional $90.5 million under the credit facilities.

NOTE 9 Other Long-Term Obligations
Other long-term obligations at the balance sheet dates consist of: 
(In thousands)
March 31, 2019
 
December 31, 2018
Finance lease obligations, net of current portion
$
21,692

 
$
21,589

Deferred proceeds
4,350

 
4,511

Deferred compensation
3,912

 
2,585

Other
3,905

 
10,292

 
$
33,859

 
$
38,977


14



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 other postretirement employee benefit, or OPEB, plans for the periods presented:
 
Three Months Ended March 31,
(In thousands)
2019
 
2018
 
2019
 
2018
 
Pension Benefit Plans
 
Other Postretirement
Employee  Benefit Plans
Service cost
$
550

 
$
434

 
$
25

 
$
48

Interest cost
3,121

 
3,000

 
647

 
607

Expected return on plan assets
(4,135
)
 
(4,254
)
 

 

Amortization of prior service cost (credit)

 

 

 
(419
)
Amortization of actuarial loss (gain)
1,909

 
2,570

 
(228
)
 
(225
)
Net periodic cost
$
1,445

 
$
1,750

 
$
444

 
$
11

 
 
 
 
 
 
 
 
During the three months ended March 31, 2019 and 2018, we made no contributions to our qualified pension plans. We do not expect, nor are we required, to make contributions in 2019.
During the three months ended March 31, 2019, we made contributions of $0.1 million to our company-sponsored non-qualified pension plan. We estimate contributions will total $0.4 million in 2019. We do not anticipate funding our OPEB plans in 2019 except to pay benefit costs as incurred during the year by plan participants.
During the three months ended March 31, 2019 and 2018, pension and OPEB changes in accumulated other comprehensive loss, net of tax, in our Consolidated Balance Sheets totaled $1.2 million and $1.4 million, respectively. Refer to the Consolidated Statements of Stockholders' Equity for additional information.
NOTE 11 Earnings per 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 March 31,
 
2019
 
2018
Basic weighted-average common shares outstanding1
16,516,335

 
16,476,011

Incremental shares due to:
 
 
 
Restricted stock units
33,651

 
27,261

Performance shares
13,300

 
65,469

Stock options

 
8,670

Diluted weighted-average common shares outstanding
16,563,286

 
16,577,411

 
 
 
 
Basic net earnings per common share
$
0.23

 
$
0.16

Diluted net earnings per common share
0.23

 
0.16

 
 
 
 
Anti-dilutive shares excluded from calculation
882,475

 
558,319

1 
Basic average common shares outstanding include restricted stock awards that are fully vested, but are deferred for future issuance.

15



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 March 31,
(In thousands)
2019
 
2018
Restricted stock units
$
502

 
$
422

Performance shares
334

 
533

Stock options
342

 
535

Total employee equity-based compensation expense
$
1,178

 
$
1,490

As provided in the Clearwater Paper Corporation 2017 Stock Incentive Plan, the performance measure used to determine the number of performance shares ultimately issuable for performance shares granted in 2019 is a free cash flow performance measure for 70% of the performance share awards. For the remaining 30% of the grants, a return on invested capital measure is used. The combined performance of these measures is then subject to an adjustment (increase or decrease) of up to 25% based on our total shareholder return, or TSR, compared to the TSR performance of a selected index.
The number of performance shares actually issued, as a percentage of the amount subject to the performance share award, could range from 0%-200%.
During the first three months of 2019, 47,264 RSUs were settled and distributed. After adjusting for minimum tax withholdings, a net 32,811 shares were issued. In connection with the issued RSUs, the minimum tax withholding payments made during the three months ended March 31, 2019 totaled $0.4 million.
During the three months ended March 31, 2019, we had 18,180 stock option awards expire with a weighted-average exercise price of $53.71. At March 31, 2019, we had 572,481 stock option awards that were exercisable with a weighted-average exercise price of $51.17.
The following table summarizes the number of share-based awards granted under the Clearwater Paper Corporation 2017 Stock Incentive Plan during the three months ended March 31, 2019 and the grant-date fair value of the awards: 
 
Three Months Ended
 
March 31, 2019
 
Number of
Shares Subject to Award
 
Average Fair
Value of Award Per Share
Restricted stock units
127,135

 
$
27.13

Performance shares
140,536

 
27.11

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 benefit of $0.4 million and $0.7 million for the three months ended March 31, 2019 and 2018, respectively.
As of March 31, 2019, the liability amounts associated with director equity-based compensation included in "Other long-term obligations" on the accompanying Consolidated Balance Sheet were $1.8 million. At December 31, 2018, the liability amounts associated with director equity-based compensation included in "Other long-term obligations" and "Accounts payable and accrued liabilities" totaled $0.8 million and $1.3 million, respectively.

16



NOTE 13 Fair Value Measurements
The estimated fair values of our financial instruments at the dates presented below are as follows: 
 
March 31,
 
December 31,
 
2019
 
2018
 
Carrying
 
Fair
 
Carrying
 
Fair
(In thousands)
Amount
 
Value
 
Amount
 
Value
Cash, cash equivalents, and restricted cash (Level 1)
$
14,627

 
$
14,627

 
$
24,947

 
$
24,947

Borrowings under revolving credit facilities (Level 2)
202,000

 
201,943

 
100,000

 
99,909

Other short-term debt (Level 1)
10,216

 
10,216

 
20,833

 
20,833

Long-term debt (Level 2)
675,000

 
644,798

 
675,000

 
612,546

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 considering the assets' underlying maturities, 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.
Cash, cash equivalents, and restricted cash, borrowings under the revolving credit facilities, other short-term debt and long-term debt are the only items measured at fair value on a recurring basis.
We do not have any financial assets measured at fair value on a nonrecurring basis.
NOTE 14 Segment Information
Our reportable segments are described below.
Consumer Products
Our Consumer Products segment manufactures and sells a complete line of at-home tissue products, or retail products, and away-from-home tissue products, or non-retail products, and parent rolls. Retail products include bath, paper towels, facial and napkin product categories. Non-retail products include conventional one and two-ply bath tissue, two-ply paper towels, hard wound towels and dispenser napkins sold to customers with commercial and industrial tissue needs. Each category is further distinguished according to quality segments: ultra, premium, value and economy.
Pulp and Paperboard
Our Pulp and Paperboard segment manufactures and markets solid bleached sulfate paperboard for the high-end segment of the packaging industry as well as offers custom sheeting, slitting and cutting of paperboard. Our overall production consists primarily of folding carton, liquid packaging, cup and plate products and commercial printing grades. The majority of our Pulp and Paperboard customers are packaging converters, folding carton converters, merchants and commercial printers.

17




The table below presents information about our reportable segments: 
 
Three Months Ended March 31,
(In thousands)
2019
 
2018
Segment net sales:
 
 
 
Consumer Products
$
223,336

 
$
238,842

Pulp and Paperboard
205,443

 
198,110

Total segment net sales
$
428,779

 
$
436,952

 
 
 
 
Earnings (loss) before income taxes:
 
 
 
Consumer Products1
$
1,271

 
$
1,629

Pulp and Paperboard1
29,388

 
26,154

 
30,659

 
27,783

Corporate1
(16,297
)
 
(16,244
)
Income from operations
14,362

 
11,539

Interest expense, net
(8,486
)
 
(8,020
)
Non-operating pension and other postretirement benefit (costs) income
(1,314
)
 
(1,279
)
Earnings before income taxes
$
4,562

 
$
2,240

 
 
 
 
Depreciation and amortization:
 
 
 
Consumer Products
$
14,771

 
$
14,297

Pulp and Paperboard
9,485

 
9,429

Corporate
1,580

 
1,441

Total depreciation and amortization
$
25,836

 
$
25,167



1 
Income from operations for the Consumer Products, Pulp and Paperboard and Corporate segments for the three months ended March 31, 2018 include $1.4 million, $0.3 million and $3.4 million, respectively, of expenses associated with our selling, general and administrative cost control measures.     


For the three months ended March 31, 2019, no customer accounted for more than 10% of our total company net sales. For the three months ended March 31, 2018, one customer, the Kroger Company, accounted for approximately 16.3% of our total company net sales.

Net sales, classified by the major geographic areas in which our customers are located and by major products, were as follows:
 
Three Months Ended March 31,
(In thousands)
2019
 
2018
Primary geographical markets:
 
 
 
United States
$
414,769

 
$
420,820

Other countries
14,010

 
16,132

Total net sales
$
428,779

 
$
436,952

 
 
 
 
Major products:
 
 
 
Retail tissue
$
204,585

 
$
219,842

Paperboard
203,025

 
198,110

Non-retail tissue
18,469

 
16,959

Other
2,700

 
2,041

Total net sales
$
428,779

 
$
436,952



18



NOTE 15 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 March 31, 2019
 
 
 
 
 
 
 
 
 
 
 
Guarantor
 
 
 
 
(In thousands)
Issuer
 
Subsidiaries
 
Eliminations
 
Total
Net sales
$
412,395

 
$
67,540

 
$
(51,156
)
 
$
428,779

Costs and expenses:
 
 
 
 
 
 
 
Cost of sales
(367,800
)
 
(59,518
)
 
43,072

 
(384,246
)
Selling, general and administrative expenses
(26,245
)
 
(3,926
)
 

 
(30,171
)
Total operating costs and expenses
(394,045
)
 
(63,444
)
 
43,072

 
(414,417
)
Income from operations
18,350

 
4,096

 
(8,084
)
 
14,362

Interest expense, net
(8,385
)
 
(101
)
 

 
(8,486
)
Non-operating pension and other postretirement benefit costs
(1,314
)
 

 

 
(1,314
)
Earnings before income taxes
8,651

 
3,995

 
(8,084
)
 
4,562

Income tax provision
(1,806
)
 
(852
)
 
1,933

 
(725
)
Equity in income of subsidiary
3,143

 

 
(3,143
)
 

Net earnings
$
9,988

 
$
3,143

 
$
(9,294
)
 
$
3,837

Other comprehensive income, net of tax
1,239

 

 

 
1,239

Comprehensive income
$
11,227

 
$
3,143

 
$
(9,294
)
 
$
5,076


 
 
 
 
 
 
 
 

19



Clearwater Paper Corporation
Consolidating Statement of Operations and Comprehensive Income
Three Months Ended March 31, 2018
 
 
 
 
 
 
 
 
(In thousands)
Issuer
 
Guarantor
Subsidiaries
 
Eliminations
 
Total
Net sales
$
455,177

 
$
46,213

 
$
(64,438
)
 
$
436,952

Costs and expenses:
 
 
 
 
 
 
 
Cost of sales
(412,957
)
 
(40,360
)
 
60,884

 
(392,433
)
Selling, general and administrative expenses
(27,632
)
 
(5,348
)
 

 
(32,980
)
Total operating costs and expenses
(440,589
)
 
(45,708
)
 
60,884

 
(425,413
)
Income from operations
14,588

 
505

 
(3,554
)
 
11,539

Interest expense, net
(7,929
)
 
(91
)
 

 
(8,020
)
Non-operating pension and other postretirement benefit costs
(1,279
)
 

 

 
(1,279
)
Earnings before income taxes
5,380

 
414

 
(3,554
)
 
2,240

Income tax (provision) benefit
(382
)
 
(13
)
 
755

 
360

Equity in earnings of subsidiary
401

 

 
(401
)
 

Net earnings
$
5,399

 
$
401

 
$
(3,200
)
 
$
2,600

Other comprehensive income, net of tax
1,419

 

 

 
1,419

Comprehensive income
$
6,818

 
$
401

 
$
(3,200
)
 
$
4,019




 
 
 
 
 
 
 
 


20



Clearwater Paper Corporation
Consolidating Balance Sheet
At March 31, 2019
 
 
 
 
 
 
 
 
(In thousands)
Issuer
 
Guarantor
Subsidiaries
 
Eliminations
 
Total
ASSETS
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
Cash and cash equivalents
$
12,160

 
$

 
$

 
$
12,160

Restricted cash
1,440

 

 

 
1,440

Receivables, net
148,494

 
19,599

 

 
168,093

Taxes receivable
6,965

 
4

 
12

 
6,981

Inventories
241,746

 
47,136

 
(2,973
)
 
285,909

Other current assets
11,988

 
249

 

 
12,237

Total current assets
422,793

 
66,988

 
(2,961
)
 
486,820

Property, plant and equipment, net
1,217,402

 
74,600

 

 
1,292,002

Operating lease right-of-use assets
72,161

 
5,318

 

 
77,479

Goodwill
35,074

 

 

 
35,074

Intangible assets, net
784

 
21,511

 

 
22,295

Intercompany (payable) receivable
(56,409
)
 
53,436

 
2,973

 

Investment in subsidiary
178,444

 

 
(178,444
)
 

Other assets, net
13,473

 
3,793

 
(2,658
)
 
14,608

TOTAL ASSETS
$
1,883,722

 
$
225,646

 
$
(181,090
)
 
$
1,928,278

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
Short-term debt
$
212,216

 
$

 
$

 
$
212,216

Accounts payable and accrued liabilities
271,005

 
24,557

 
12

 
295,574

Current liability for pensions and
  other postretirement employee benefits
7,430

 

 

 
7,430

Total current liabilities
490,651

 
24,557

 
12

 
515,220

Long-term debt
671,484

 

 

 
671,484

Operating lease liabilities
68,742

 
3,905

 

 
72,647

Liability for pensions and
  other postretirement employee benefits
76,507

 

 

 
76,507

Other long-term obligations
33,859

 

 

 
33,859

Accrued taxes
2,238

 
873

 

 
3,111

Deferred tax liabilities
107,997

 
17,867

 
(2,658
)
 
123,206

TOTAL LIABILITIES
1,451,478

 
47,202

 
(2,646
)
 
1,496,034

Stockholders’ equity excluding
accumulated other comprehensive loss
498,353

 
178,444

 
(178,444
)
 
498,353

Accumulated other comprehensive loss, net of tax
(66,109
)
 

 

 
(66,109
)
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
1,883,722

 
$
225,646

 
$
(181,090
)
 
$
1,928,278



21



Clearwater Paper Corporation
Consolidating Balance Sheet
At December 31, 2018
 
 
 
 
 
 
 
 
(In thousands)
Issuer
 
Guarantor
Subsidiaries
 
Eliminations
 
Total
ASSETS
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
Cash and cash equivalents
$
22,484

 
$

 
$

 
$
22,484

Receivables, net
127,952

 
17,567

 

 
145,519

Taxes receivable
16,634

 
41

 
(10,374
)
 
6,301

Inventories
222,960

 
48,361

 
(5,077
)
 
266,244

Other current assets
3,346

 
53

 

 
3,399

Total current assets
393,376

 
66,022

 
(15,451
)
 
443,947

Property, plant and equipment, net
1,192,716

 
76,555

 

 
1,269,271

Goodwill
35,074

 

 

 
35,074

Intangible assets, net
1,045

 
23,035

 

 
24,080

Intercompany (payable) receivable
(62,846
)
 
57,769

 
5,077

 

Investment in subsidiary
175,301

 

 
(175,301
)
 

Other assets, net
14,839

 
2,618

 
(1,711
)
 
15,746

TOTAL ASSETS
$
1,749,505

 
$
225,999

 
$
(187,386
)
 
$
1,788,118

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
Short-term debt
$
120,833

 
$

 
$

 
$
120,833

Accounts payable and accrued liabilities
299,715

 
31,691

 
(10,374
)
 
321,032

Current liability for pensions and
  other postretirement employee benefits
7,430

 

 

 
7,430

Total current liabilities
427,978

 
31,691

 
(10,374
)
 
449,295

Long-term debt
671,292

 

 

 
671,292

Liability for pensions and
  other postretirement employee benefits
78,191

 

 

 
78,191

Other long-term obligations
38,977

 

 

 
38,977

Accrued taxes
1,918

 
867

 

 
2,785

Deferred tax liabilities
104,753

 
18,140

 
(1,711
)
 
121,182

TOTAL LIABILITIES
1,323,109

 
50,698

 
(12,085
)
 
1,361,722

Stockholders’ equity excluding
accumulated other comprehensive loss
493,744

 
175,301

 
(175,301
)
 
493,744

Accumulated other comprehensive loss, net of tax
(67,348
)
 

 

 
(67,348
)
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
1,749,505

 
$
225,999

 
$
(187,386
)
 
$
1,788,118



22



Clearwater Paper Corporation
Consolidating Statement of Cash Flows
Three Months Ended March 31, 2019
 
 
 
 
 
 
 
 
(In thousands)
Issuer
 
Guarantor
Subsidiaries
 
Eliminations
 
Total
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
 
 
 
 
Net earnings
$
9,988

 
$
3,143

 
$
(9,294
)
 
$
3,837

Adjustments to reconcile net earnings to net
  cash flows from operating activities:
 
 
 
 
 
 
 
Depreciation and amortization
22,763

 
3,073

 

 
25,836

Equity-based compensation expense
828

 

 

 
828

Deferred taxes
2,251

 
(1,337
)
 

 
914

Other non-cash activity, net
(569
)
 
5

 


 
(564
)
Changes in working capital, net
(73,447
)
 
930

 
10,386

 
(62,131
)
Changes in taxes receivable, net
9,669

 
37

 
(10,386
)
 
(680
)
Other, net
2,666

 
(105
)
 

 
2,561

Net cash flows from operating activities
(25,851
)
 
5,746

 
(9,294
)
 
(29,399
)
CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
 
 
 
 
Additions to property, plant and equipment
(71,309
)
 
(279
)
 

 
(71,588
)
Net cash flows from investing activities
(71,309
)
 
(279
)
 

 
(71,588
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
 
 
 
 
Borrowings on short-term debt
290,362

 

 

 
290,362

Repayments of borrowings on short-term debt
(198,979
)
 

 

 
(198,979
)
Investment (to) from parent
(3,827
)
 
(5,467
)
 
9,294

 

Other, net
(716
)
 

 

 
(716
)
Net cash flows from financing activities
86,840

 
(5,467
)
 
9,294

 
90,667

Decrease in cash, cash equivalents, and restricted cash
(10,320
)
 

 

 
(10,320
)
Cash, cash equivalents, and restricted cash at beginning of period
24,947

 

 

 
24,947

Cash, cash equivalents, and restricted cash at end of period
$
14,627

 
$

 
$

 
$
14,627


23



Clearwater Paper Corporation
Consolidating Statement of Cash Flows
Three Months Ended March 31, 2018
 
 
 
 
 
 
 
 
(In thousands)
Issuer
 
Guarantor Subsidiaries
 
Eliminations
 
Total
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
 
 
 
 
Net earnings
$
5,399

 
$
401

 
$
(3,200
)
 
$
2,600

Adjustments to reconcile net earnings to net
  cash flows from operating activities:
 
 
 
 
 
 
 
Depreciation and amortization
19,958

 
5,209

 

 
25,167

Equity-based compensation expense
781

 

 

 
781

Deferred taxes
(119
)
 
(121
)
 

 
(240
)
Other non-cash activity, net
655

 
(7
)
 

 
648

Changes in working capital, net
4,661

 
(3,109
)
 
(308
)
 
1,244

Changes in taxes receivable, net
1,462

 
1

 

 
1,463

Other, net
(902
)
 
99

 

 
(803
)
Net cash flows from operating activities
31,895

 
2,473

 
(3,508
)
 
30,860

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
 
 
 
 
Additions to property, plant and equipment
(47,670
)
 
(760
)
 

 
(48,430
)
Other, net
761

 
7

 


 
768

Net cash flows from investing activities
(46,909
)
 
(753
)
 

 
(47,662
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
 
 
 
 
Borrowings on short-term debt
87,325

 

 

 
87,325

Repayments of borrowings on short-term debt
(73,825
)
 

 

 
(73,825
)
Investment from (to) parent
(1,788
)
 
(1,720
)
 
3,508

 

Other, net
(365
)
 

 

 
(365
)
Net cash flows from financing activities
11,347

 
(1,720
)
 
3,508

 
13,135

Decrease in cash, cash equivalents, and restricted cash
(3,667
)
 

 

 
(3,667
)
Cash, cash equivalents, and restricted cash
 at beginning of period
16,738

 

 

 
16,738

Cash, cash equivalents, and restricted cash at end of period
$
13,071

 
$

 
$

 
$
13,071



24



ITEM 2.
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
FORWARD-LOOKING STATEMENTS
Our disclosure, discussion and analysis in this report contains, in addition to historical information, certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding production quality and quantity, costs and timing associated with the expansion of our Shelby, North Carolina facility; our strengths and related benefits; our strategy; pulp production and the continuous digester at our Idaho facility; competitive market conditions, raw materials and input usage and costs, including energy costs and usage; selling, general and administrative cost reduction benefits; strategic projects and related costs and benefits; energy conservation; cash flows; capital expenditures; return on investment from capital projects; tax rates; potential impact following the establishment of applicable accounting standards; operating costs; selling, general and administrative expenses; timing of and costs related to major maintenance and repairs; liquidity; benefit plan funding levels; capitalized interest; and interest expenses. Words such as anticipate, expect, intend, plan, target, project, believe, schedule, estimate, may, and similar expressions are intended to identify such forward-looking statements. These forward-looking statements are based on management’s current expectations, estimates, assumptions and projections that are subject to change. Our actual results of operations may differ materially from those expressed or implied by the forward-looking statements contained in this report. Important factors that could cause or contribute to such differences include those risks discussed in the section entitled “Risk Factors” in our 2018 Form 10-K, as well as the following:
competitive pricing pressures for our products, including as a result of increased capacity as additional manufacturing facilities are operated by our competitors;
the loss of, changes in prices in regard to, or reduction in, orders from a significant customer;
changes in customer product preferences and competitors' product offerings;
our ability to complete construction of our new tissue manufacturing operations in Shelby, North Carolina on time and within current cost expectations;
customer acceptance and timing and quantity of purchases of our tissue products, including the existence of sufficient demand for and the quality of tissue produced by our expanded Shelby, North Carolina operations when they are completed;
consolidation and vertical integration of converting operations in the paperboard industry;
our ability to successfully implement our operational efficiencies and cost savings strategies, along with related capital projects, and achieve the expected operational or financial results of those projects, including from the continuous digester at our Lewiston, Idaho facility;
changes in the cost and availability of wood fiber and wood pulp;
changes in transportation costs and disruptions in transportation services;
labor disruptions;
changes in the U.S. and international economies and in general economic conditions in the regions and industries in which we operate;
manufacturing or operating disruptions, including IT system and IT system implementation failures, equipment malfunctions and damage to our manufacturing facilities;
changes in costs for and availability of packaging supplies, chemicals, energy and maintenance and repairs;
larger competitors having operational and other advantages;
cyclical industry conditions;
changes in expenses, required contributions and potential withdrawal costs associated with our pension plans;
environmental liabilities or expenditures;
cyber-security risks;