CLW-2014.3.31-10Q


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, 2014
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, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting 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
 
¨
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 April 23, 2014 was 20,421,204.




CLEARWATER PAPER CORPORATION
Index to Form 10-Q
 
 
 
 
 
 
Page Number
 
 
 
PART I.
 
 
 
 
ITEM 1.
 
 
 
 
 
 
 
 
 
 
 
6 - 19
 
 
 
ITEM 2.
20 - 28
 
 
 
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
 
March 31,
 
2014
 
2013
Net sales
$
484,920

 
$
460,824

Costs and expenses:
 
 
 
Cost of sales
(426,629
)
 
(414,209
)
Selling, general and administrative expenses
(33,514
)
 
(34,132
)
Impairment of assets
(4,259
)
 

Total operating costs and expenses
(464,402
)
 
(448,341
)
Income from operations
20,518

 
12,483

Interest expense, net
(10,734
)
 
(10,982
)
Debt retirement costs

 
(17,058
)
Earnings (loss) before income taxes
9,784

 
(15,557
)
Income tax (provision) benefit
(3,558
)
 
14,675

Net earnings (loss)
$
6,226

 
$
(882
)
Net earnings (loss) per common share:
 
 
 
Basic
$
0.30

 
$
(0.04
)
Diluted
0.29

 
(0.04
)
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,
 
2014
 
2013
Net earnings (loss)
$
6,226

 
$
(882
)
Other comprehensive income:
 
 
 
Defined benefit pension and other postretirement employee benefits:
 
 
 
Amortization of actuarial loss included in net periodic
  cost, net of tax of $965 and $1,706
1,529

 
2,624

Amortization of prior service credit included in net periodic
  cost, net of tax of $(29) and $(107)
(45
)
 
(163
)
Other comprehensive income, net of tax
1,484

 
2,461

Comprehensive income
$
7,710

 
$
1,579

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,
2014
 
December 31,
2013
ASSETS
 
 
 
Current assets:
 
 
 
Cash
$
24,042

 
$
23,675

Restricted cash
1,500

 
1,500

Short-term investments
59,000

 
70,000

Receivables, net
169,052

 
158,874

Taxes receivable
4,980

 
10,503

Inventories
269,249

 
267,788

Deferred tax assets
37,257

 
37,538

Prepaid expenses
10,501

 
5,523

Total current assets
575,581

 
575,401

Property, plant and equipment, net
875,955

 
884,698

Goodwill
229,533

 
229,533

Intangible assets, net
37,803

 
40,778

Pension assets
7,732

 
4,488

Other assets, net
9,585

 
9,927

TOTAL ASSETS
$
1,736,189

 
$
1,744,825

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable and accrued liabilities
$
205,438

 
$
190,648

Current liability for pensions and other postretirement employee benefits
8,778

 
8,778

Total current liabilities
214,216

 
199,426

Long-term debt
650,000

 
650,000

Liability for pensions and other postretirement employee benefits
107,402

 
109,807

Other long-term obligations
50,825

 
52,942

Accrued taxes
2,677

 
2,658

Deferred tax liabilities
126,726

 
124,898

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-24,030,815 and 24,007,581 shares issued
2

 
2

Additional paid-in capital
327,417

 
326,546

Retained earnings
472,865

 
466,639

Treasury stock, at cost, common shares-3,382,224 and 2,923,640 shares repurchased
(159,332
)
 
(130,000
)
Accumulated other comprehensive loss, net of tax
(56,609
)
 
(58,093
)
Total stockholders’ equity
584,343

 
605,094

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
1,736,189

 
$
1,744,825

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,
 
2014
 
2013
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net earnings (loss)
$
6,226

 
$
(882
)
Adjustments to reconcile net earnings (loss) to net cash flows from operating activities:
 
 
 
Depreciation and amortization
22,231

 
22,151

Equity-based compensation expense
4,479

 
4,785

Impairment of assets
4,259

 

Deferred tax provision (benefit)
1,173

 
(12,614
)
Employee benefit plans
888

 
2,693

Deferred issuance costs and discounts on long-term debt
475

 
3,544

Disposal of plant and equipment, net
429

 

Changes in working capital, net
(5,656
)
 
(9,868
)
Changes in taxes receivable, net
5,523

 
9,547

Changes in non-current accrued taxes, net
19

 
(3,177
)
Funding of qualified pension plans
(4,314
)
 
(3,026
)
Other, net
(462
)
 
361

Net cash flows from operating activities
35,270

 
13,514

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Changes in short-term investments, net
11,000

 
(65,000
)
Additions to plant and equipment
(16,239
)
 
(19,471
)
Proceeds from sale of assets
460

 

Net cash flows from investing activities
(4,779
)
 
(84,471
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Proceeds from long-term debt

 
275,000

Repayment of long-term debt

 
(150,000
)
Purchase of treasury stock
(29,332
)
 
(50,166
)
Payments for long-term debt issuance costs

 
(4,723
)
Payment of tax withholdings on equity-based payment arrangements
(792
)
 
(2,195
)
Net cash flows from financing activities
(30,124
)
 
67,916

Increase (decrease) in cash
367

 
(3,041
)
Cash at beginning of period
23,675

 
12,579

Cash at end of period
$
24,042

 
$
9,538

 
 
 
 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
 
 
 
Cash paid for interest
$
6,188

 
$
2,966

Cash paid for income taxes
1,009

 
967

Cash received from income tax refunds
4,133

 
631

SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING ACTIVITIES
 
 
 
Changes in accrued plant and equipment
$
(1,489
)
 
$
2,213

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 Corporation is a leading North American producer of private label tissue and paperboard products. We manufacture quality consumer tissue, away-from-home tissue, parent rolls (non-converted tissue product), machine-glazed tissue, bleached paperboard and pulp at 13 manufacturing locations in the U.S. and Canada. Our private label consumer tissue products - facial and bath tissue, paper towels and napkins - are used primarily at-home and are principally sold to major retailers and wholesale distributors, which include grocery, drug, mass-merchant and discount stores. Our paperboard is sold primarily in the high-end segment of the packaging industry, which demands high-quality construction and print surfaces for graphics.
On February 17, 2014, we announced the permanent and immediate closure of our Long Island, New York, tissue converting and distribution facility. As of March 31, 2014, we have incurred $8.4 million of costs associated with the closure.
On March 6, 2013, we announced the planned permanent closure of our Thomaston, Georgia converting and distribution facility. The shutdown occurred gradually as converting lines were relocated and installed at our other facilities, with all operations at Thomaston ceasing at the end of 2013. As of March 31, 2014, we have incurred $6.7 million of costs associated with the closure, of which $0.8 million was incurred during the first quarter of 2014.
FINANCIAL STATEMENT PREPARATION AND PRESENTATION
The accompanying Consolidated Balance Sheets at March 31, 2014 and December 31, 2013, the related Consolidated Statements of Operations and Comprehensive Income for the three months ended March 31, 2014 and 2013, and the Consolidated Statements of Cash Flows for the three months ended March 31, 2014 and 2013, 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, 2013, as filed with the Securities and Exchange Commission, or SEC, on February 20, 2014.
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 requiring 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.
SHORT-TERM INVESTMENTS AND RESTRICTED CASH
Our short-term investments are invested primarily in demand deposits, which have very short maturity periods, and therefore earn an interest rate commensurate with low-risk instruments. We do not attempt to hedge our exposure to interest rate risk for our short-term investments. Our restricted cash in which the underlying instrument has a term of greater than twelve months from the balance sheet date is classified as non-current and is included in “Other assets, net” on our Consolidated Balance Sheet. As of March 31, 2014 and December 31, 2013, substantially all restricted cash balances were classified as current and included in "Restricted cash" on our Consolidated Balance Sheet.
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 March 31, 2014 and December 31, 2013, we had allowances for doubtful accounts of $2.0 million and $1.9 million, respectively.

6




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 $1,492.3 million and $1,476.4 million at March 31, 2014 and December 31, 2013, respectively.
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. During the first quarter of 2014, we permanently closed our Long Island converting and distribution facility. As a result of this closure, we considered an outside third party's appraisal in assessing the recoverability of the facility's long-lived plant and equipment based on available market data for comparable assets sold through private party transactions. Based on this assessment, we determined the carrying amounts of certain long-lived plant and equipment related to the Long Island facility exceeded their fair value. As a result, we recorded a $3.0 million non-cash impairment charge to our accompanying Consolidated Statement of Operations. There were no other such events or changes in circumstances that impacted our remaining long-lived assets.
STOCKHOLDERS’ EQUITY
On February 5, 2014, we announced that our Board of Directors had approved a new stock repurchase program authorizing the repurchase of up to $100.0 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. During the first quarter of 2014, we repurchased 458,584 shares of our outstanding common stock at an average price of $63.96 per share. As of March 31, 2014, we had up to $70.7 million of authorization remaining pursuant to our stock repurchase program.
On January 17, 2013, we announced that our Board of Directors had approved a stock repurchase program authorizing the repurchase of up to $100.0 million of our common stock, which was completed in 2013. On March 1, 2013, we entered into an accelerated stock buyback, or ASB, agreement with a major financial institution to repurchase an aggregate of $50.0 million of our outstanding common stock. In total, 1,039,513 shares of our outstanding common stock were delivered under the ASB agreement at an average repurchase price of $48.10 per share. In addition to the ASB agreement, we also made repurchases of 1,030,657 shares of our outstanding common stock on the open market at a total cost of $50.0 million, representing an an average price of $48.51 per share.
DERIVATIVES
We had no activity during the three months ended March 31, 2014 and 2013 that required hedge or derivative accounting treatment. To help mitigate our exposure to market risk for changes in utility commodity pricing, from time to time we have used firm price contracts to supply a portion of the natural gas requirements for our manufacturing facilities. As of March 31, 2014, these contracts covered approximately 10% of our expected average monthly natural gas requirements for the remainder of 2014. Historically, these contracts have qualified for treatment as “normal purchases or normal sales” under authoritative guidance and thus required no mark-to-market adjustment.
NOTE 2 Recently Adopted and New Accounting Standards
In July 2013, the Financial Accounting Standards Board issued Accounting Standard Update, or ASU, 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists, which provides guidance on financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. This ASU only changes existing presentation requirements but does not require new recurring disclosures and is prospective for annual and interim reporting periods beginning after December 15, 2013. This guidance has not impacted our consolidated financial statements.
We reviewed all other new accounting pronouncements issued in the period and concluded that they are not applicable to our business.

7




NOTE 3 Inventories
Inventories at the balance sheet dates consist of:
 
(In thousands)
March 31,
2014
 
December 31,
2013
Pulp, paperboard and tissue products
$
184,330

 
$
182,715

Materials and supplies
72,481

 
69,836

Logs, pulpwood, chips and sawdust
12,438

 
15,237

 
$
269,249

 
$
267,788

NOTE 4 Intangible Assets
Intangible assets at the balance sheet dates are comprised of the following:
 
 
March 31, 2014
(Dollars in thousands, lives in years)
Useful
Life
 
Historical
Cost
 
Accumulated
Amortization
 
Net
Balance
Customer relationships
9.0
 
$
53,957

 
$
(18,731
)
 
$
35,226

Trade names and trademarks
10.0
 
3,393

 
(1,103
)
 
2,290

Non-compete agreements
2.5 - 5.0
 
1,189

 
(902
)
 
287

 
 
 
$
58,539

 
$
(20,736
)
 
$
37,803

 
 
 
 
 
 
 
 
  
December 31, 2013
(Dollars in thousands, lives in years)
Useful
Life
 
Historical
Cost
 
Accumulated
Amortization
 
Net
Balance
Customer relationships
9.0
 
$
53,957

 
$
(17,234
)
 
$
36,723

Trade names and trademarks
10.0
 
5,300

 
(1,590
)
 
3,710

Non-compete agreements
2.5 - 5.0
 
1,674

 
(1,329
)
 
345

 
 
 
$
60,931

 
$
(20,153
)
 
$
40,778

As a result of the closure of our Long Island converting and distribution facility, we performed an assessment of the recoverability of our intangible assets by utilizing the income approach, which discounts projected future cash flows based on management’s expectations of the current and future operating environment. It was determined that the carrying amounts of certain trade names and trademarks related to the Long Island facility were exceeding their fair value. As a result, we recorded a $1.3 million non-cash impairment charge in our accompanying Consolidated Statement of Operations. In addition, fully amortized non-compete agreements related to the Long Island facility were also disposed. There were no other such events or changes in circumstances that impacted our remaining definite-lived intangible assets.

8




NOTE 5 Income Taxes
Consistent with authoritative guidance, our estimated annual effective tax rate is used to allocate our expected annual income tax provision to interim periods. The rate is the ratio of our estimated annual income tax provision to our 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 provision 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.
For the three months ended March 31, 2014 and 2013, the effective tax rates attributable to continuing operations were as follows:
 
Three Months Ended March 31,
 
2014
 
2013
Statutory federal income tax rate
35.0
 %
 
35.0
 %
State taxes, net of credits
2.0

 
0.5

Change in valuation allowances
4.2

 
3.0

Federal manufacturing deduction
(2.0
)
 
(1.1
)
Increase in uncertain tax positions

 
(3.1
)
Interest accrued on uncertain tax positions
0.2

 
(3.0
)
Cellulosic Biofuel Producer Credit conversion

 
62.9

Federal credits
(4.4
)
 
(1.5
)
State rate adjustment
(0.2
)
 
0.8

Return to provision adjustments
0.9

 
0.2

Other
0.7

 
0.6

Effective tax rate
36.4
 %
 
94.3
 %
Our estimated annual effective tax rate for the first quarter of 2014 is approximately 36%, compared with approximately 37% for the comparable interim period in 2013. The decline in the effective tax rate is due to an increase in the benefit from the federal manufacturing deduction and an increase in the benefit from state income tax rates.
During the fourth quarter of 2012, the IRS commenced an audit of our tax returns for the tax years ending December 31, 2008 through December 31, 2012. This audit has moved into final review stages with the Joint Committee on Taxation. We expect to receive final approval with no additional changes from the Committee in 2014. As a result, we have recognized an additional deferred tax asset of $0.4 million and a tax benefit of the same amount.
During the second quarter of 2013, the IRS commenced an audit of our wholly-owned subsidiary, Cellu Tissue Holdings, Inc., and its subsidiaries for the year ended December 27, 2010, the period immediately before our acquisition of Cellu Tissue Holdings, Inc. During the first quarter of 2014, we successfully closed the audit of Cellu Tissue Holdings, Inc.
NOTE 6 Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities at the balance sheet dates consist of:
(In thousands)
March 31, 2014
 
December 31, 2013
Trade accounts payable
$
114,965

 
$
108,192

Accrued wages, salaries and employee benefits
43,294

 
38,563

Accrued interest
13,252

 
9,691

Accrued taxes other than income taxes payable
8,387

 
6,322

Accrued utilities
7,938

 
8,309

Accrued discounts and allowances
5,427

 
6,410

Other
12,175

 
13,161

 
$
205,438

 
$
190,648


9




NOTE 7 Debt
SENIOR NOTES
On October 22, 2010, we sold $375 million aggregate principal amount of senior notes, which we refer to as the 2010 Notes. The 2010 Notes mature on November 1, 2018, have an interest rate of 7.125% and were issued at their face value. On January 23, 2013, we sold $275 million aggregate principal amount of senior notes, which we refer to as the 2013 Notes. The 2013 Notes mature on February 1, 2023, have an interest rate of 4.5% and were also issued at their face value.
The 2010 Notes and 2013 Notes are both guaranteed by all of our direct and indirect domestic subsidiaries, and will also be guaranteed by each of our future direct and indirect domestic subsidiaries that we do not designate as an unrestricted subsidiary under the indentures governing these notes. These notes are equal in right of payment with all other existing and future unsecured senior indebtedness and are senior in right of payment to any future subordinated indebtedness. In addition, both notes are effectively subordinated to all of our existing and future secured indebtedness, including borrowings under our secured revolving credit facility, which is secured by certain of our accounts receivable, inventory and cash. The terms of the notes limit our ability and the ability of any restricted subsidiaries to borrow money; pay dividends; redeem or repurchase capital stock; make investments; sell assets; create restrictions on the payment of dividends or other amounts to us from any restricted subsidiaries; enter into transactions with affiliates; enter into sale and lease back transactions; create liens; and consolidate, merge or sell all or substantially all of our assets.
REVOLVING CREDIT FACILITY
On November 26, 2008, we entered into a $125 million senior secured revolving credit facility with certain financial institutions. The amount available to us under the revolving credit facility is based on the lesser of 85% of our eligible accounts receivable plus approximately 65% of our eligible inventory, or $125 million. The revolving credit facility has been subsequently amended and expires on September 30, 2016.
As of March 31, 2014, there were no borrowings outstanding under the credit facility, but approximately $6.9 million of the credit facility was being used to support outstanding standby letters of credit. Loans under the credit facility bear interest (i) for LIBOR loans, LIBOR plus between 1.75% and 2.25% and (ii) for base rate loans, a per annum rate equal to the greater of (a) the prime rate for such day; (b) the federal funds effective rate for such day, plus 0.50%; or (c) LIBOR for a 30-day interest period as determined on such day, plus between 1.25% and 1.75%. The percentage margin on all loans is based on our fixed charge coverage ratio for the most recent four quarters. As of March 31, 2014, we would have been permitted to draw approximately $118.1 million under the credit facility at LIBOR plus 1.75%, or base rate plus 1.25%.
A minimum fixed charge coverage ratio is the only financial covenant requirement under our credit facility and is triggered when there are any commitments or obligations outstanding and availability falls below 12.5% or an event of default exists, at which time the minimum fixed charge coverage ratio must be at least 1.0-to-1.0. As of March 31, 2014, the fixed charge coverage ratio for the most recent four quarters was 3.3-to-1.0.
Our obligations under the revolving credit facility are secured by certain of our accounts receivable, inventory and cash. The terms of the credit facility contain various provisions that limit our discretion in the operations of our business by restricting our ability to, among other things, pay dividends; redeem or repurchase capital stock; create, incur or guarantee certain debt; incur liens on certain properties; make capital expenditures; enter into certain affiliate transactions; enter into certain hedging arrangements; and consolidate with or merge with another entity. The revolving credit facility contains usual and customary affirmative and negative covenants and usual and customary events of default.
NOTE 8 Other Long-Term Obligations
Other long-term obligations at the balance sheet dates consist of:
 
(In thousands)
March 31, 2014
 
December 31, 2013
Long-term lease obligations, net of current portion
$
24,734

 
$
24,815

Deferred compensation
12,889

 
14,149

Deferred proceeds
10,681

 
11,205

Other
2,521

 
2,773

 
$
50,825

 
$
52,942


10




NOTE 9 Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss, net of tax, is comprised of the following:
(In thousands)
Foreign Currency Translation Adjustments1
 
Pension and Other Post Retirement Employee Benefit Plans Adjustments
 
Total
Balance at December 31, 2013
$
(874
)
 
$
(57,219
)
 
$
(58,093
)
Other comprehensive income, net of tax2

 
1,484

 
1,484

Balance at March 31, 2014
$
(874
)
 
$
(55,735
)
 
$
(56,609
)
 
 
 
 
 
 
(In thousands)
Foreign Currency Translation Adjustments1
 
Pension and Other Post Retirement Employee Benefit Plans Adjustments
 
Total
Balance at December 31, 2012
$
(874
)
 
$
(114,819
)
 
$
(115,693
)
Other comprehensive income, net of tax2

 
2,461

 
2,461

Balance at March 31, 2013
$
(874
)
 
$
(112,358
)
 
$
(113,232
)
1 
This balance consists of unrealized foreign currency translation adjustments related to the operations of our Canadian subsidiary before its functional currency was changed from Canadian dollars to U.S. dollars in 2012.
2 
For the three months ended March 31, 2014 and 2013, net periodic costs associated with our pension and other postretirement employee benefit, or OPEB, plans included in other comprehensive income and reclassified from accumulated other comprehensive loss includes $2.5 million and $4.3 million, respectively, of actuarial loss amortization and $0.1 million and $0.3 million, respectively, related to prior service credit, net of tax of $0.9 million and $1.6 million, respectively. 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.”
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 March 31,
(In thousands)
2014
 
2013
 
2014
 
2013
 
Pension Benefit Plans
 
Other Postretirement
Employee  Benefit Plans
Service cost
$
355

 
$
485

 
$
117

 
$
206

Interest cost
3,688

 
3,359

 
1,302

 
1,318

Expected return on plan assets
(5,015
)
 
(4,568
)
 

 

Amortization of prior service cost (credit)
52

 
111

 
(126
)
 
(381
)
Amortization of actuarial loss
2,494

 
3,874

 

 
456

Net periodic cost
$
1,574

 
$
3,261

 
$
1,293

 
$
1,599

 
 
 
 
 
 
 
 
We are required to make contributions to our qualified pension plans. During the three months ended March 31, 2014, we contributed $4.3 million to these pension plans. In April 2014, we contributed an additional $4.6 million, and we expect to make additional contributions totaling approximately $10 million in the remainder of 2014.
During the three months ended March 31, 2014, we made contributions of approximately $0.2 million to our company-sponsored non-qualified pension plan, and we estimate contributions will total approximately $0.5 million in 2014. We do not anticipate funding our OPEB plans in 2014 except to pay benefit costs as incurred during the year by plan participants.
During the three months ended March 31, 2014, $2.3 million of net periodic pension and OPEB costs were charged to cost of sales, and $0.6 million was charged to selling, general and administrative expenses in the accompanying Consolidated Statements of Operations, as compared to $4.1 million and $0.8 million, respectively, for the period ended March 31, 2013.

11




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. This method requires that the effect of potentially dilutive common stock equivalents be excluded from the calculation of diluted earnings per share for the periods in which net losses are reported because the effect is anti-dilutive. For the three months ended March 31, 2013, 514,318 of our incremental shares related to restricted stock units and performance shares were excluded from our earnings per share calculation due to their anti-dilutive effect as a result of our net loss from operations during the first quarter of 2013. We also evaluated the derivative contracts associated with the ASB agreement discussed in Note 1, "Nature of Operations and Basis of Presentation," which could have resulted in the issuance of shares to the engaged financial institution at the settlement date, and determined there was no impact on earnings per share or anti-dilutive shares for the period ended March 31, 2013.
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,
 
2014
 
2013
Basic average common shares outstanding1
20,984,217

 
22,884,065

Incremental shares due to:
 
 
 
Restricted stock units
67,358

 

Performance shares
167,329

 

Stock options

 

Diluted average common shares outstanding
21,218,904

 
22,884,065

 
 
 
 
Basic net earnings (loss) per common share
$
0.30

 
$
(0.04
)
Diluted net earnings (loss) per common share
0.29

 
(0.04
)
 
 
 
 
Anti-dilutive shares excluded from calculation
242,244

 
514,318

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, 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)
2014
 
2013
Restricted stock units
$
445

 
$
375

Performance shares
1,081

 
938

Stock options
136

 

Total employee equity-based compensation
$
1,662

 
$
1,313

During the first quarter of 2014, 38,319 previously deferred RSU shares were distributed. All of these shares were settled in prior years but distribution had been deferred to preserve tax deductibility for the company in the respective years because distribution of these shares would have resulted in certain executive compensation being above the Internal Revenue Code section 162(m) threshold for those years. After adjusting for minimum tax withholdings of the deferred shares, a net 23,234 shares were issued during the first quarter of 2014. The minimum tax withholdings payment made in 2014 in connection with the issued shares was $0.8 million.
In addition to RSUs and performance shares, in the first quarter of 2014 stock options were granted to certain employees. In total, stock options to purchase a total of 160,671 shares were granted with a weighted-average exercise price of $66.95 and a fair value, estimated under the Black-Scholes valuation model, of $22.99 per share underlying the option.

12




The following table summarizes the number of share-based awards granted under the Clearwater Paper Corporation 2008 Stock Incentive Plan during the three months ended March 31, 2014 and the grant-date fair value of the awards:
 
 
Three Months Ended
 
March 31, 2014
 
Number of
Shares Subject to Award
 
Average Fair Value of
Award Per Share
Restricted stock units
28,016

 
$
66.98

Performance shares
53,557

 
105.08

Stock options
160,671

 
22.99

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 approximately $2.8 million for the three months ended March 31, 2014, compared to equity-based compensation expense of approximately $3.5 million for the same period in 2013.
As of March 31, 2014, 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 Sheets were $11.9 million and $4.1 million, respectively. At December 31, 2013, all liability amounts associated with director equity-based compensation, totaling $13.2 million, were included in “Other long-term obligations.”
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,
 
2014
 
2013
 
Carrying
 
Fair
 
Carrying
 
Fair
(In thousands)
Amount
 
Value
 
Amount
 
Value
Cash, short-term investments and restricted cash (Level 1)
$
84,573

 
$
84,573

 
$
95,206

 
$
95,206

Long-term debt (Level 1)
650,000

 
661,563

 
650,000

 
651,313

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.

13




NOTE 14 Segment Information
The table below presents information about our reportable segments:
 
 
Three Months Ended March 31,
(In thousands)
2014
 
2013
Segment net sales1:
 
 
 
Consumer Products
$
286,508

 
$
284,902

Pulp and Paperboard
198,412

 
175,922

Total segment net sales
$
484,920

 
$
460,824

 
 
 
 
Operating (loss) income:
 
 
 
Consumer Products
$
(523
)
 
$
10,124

Pulp and Paperboard
36,776

 
17,553

 
36,253

 
27,677

Corporate
(15,735
)
 
(15,194
)
Income from operations
$
20,518

 
$
12,483

 
 
 
 
Depreciation and amortization:
 
 
 
Consumer Products
$
15,490

 
$
16,092

Pulp and Paperboard
6,270

 
5,659

Corporate
471

 
400

Total depreciation and amortization
$
22,231

 
$
22,151

1 
In 2013, pulp not utilized internally was sold by the Pulp and Paperboard segment to external customers resulting in $1.2 million in first quarter 2013 net sales. Commencing in 2014, all excess pulp is sold by the Consumer Products segment and totaled $0.4 million in the first quarter.


14




NOTE 15 Supplemental Guarantor Financial Information
All of our directly and indirectly owned, domestic subsidiaries guarantee the 2013 Notes and the 2010 Notes on a joint and several basis. As of March 31, 2014, the 2013 Notes and 2010 Notes were not guaranteed by Interlake Acquisition Corporation Limited, a foreign subsidiary. There are no significant restrictions on the ability of the guarantor subsidiaries to make distributions to Clearwater Paper, the issuer of the 2013 Notes and 2010 Notes. The following tables present the results of operations, financial position and cash flows of Clearwater Paper and its subsidiaries, the guarantor and non-guarantor entities, 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, 2014
 
 
 
Guarantor
 
Non-Guarantor
 
 
 
 
(In thousands)
Issuer
 
Subsidiaries
 
Subsidiary
 
Eliminations
 
Total
Net sales
$
368,331

 
$
117,377

 
$
6,513

 
$
(7,301
)
 
$
484,920

Cost and expenses:
 
 
 
 
 
 
 
 
 
Cost of sales
(302,102
)
 
(124,793
)
 
(7,035
)
 
7,301

 
(426,629
)
Selling, general and administrative expenses
(27,659
)
 
(5,517
)
 
(338
)
 

 
(33,514
)
Impairment of assets

 
(4,259
)
 

 

 
(4,259
)
Total operating costs and expenses
(329,761
)
 
(134,569
)
 
(7,373
)
 
7,301

 
(464,402
)
Income (loss) from operations
38,570

 
(17,192
)
 
(860
)
 

 
20,518

Interest expense, net
(10,723
)
 
(11
)
 

 

 
(10,734
)
Earnings (loss) before income taxes
27,847

 
(17,203
)
 
(860
)
 

 
9,784

Income tax (provision) benefit
(13,477
)
 
9,372

 
206

 
341

 
(3,558
)
Equity in loss of subsidiary
(8,485
)
 
(654
)
 

 
9,139

 

Net earnings (loss)
$
5,885

 
$
(8,485
)
 
$
(654
)
 
$
9,480

 
$
6,226

Other comprehensive income, net of tax
1,484

 

 

 

 
1,484

Comprehensive income (loss)
$
7,369

 
$
(8,485
)
 
$
(654
)
 
$
9,480

 
$
7,710

 
 
 
 
 
 
 
 
 
 
Clearwater Paper Corporation
Consolidating Statement of Operations and Comprehensive Income
Three Months Ended March 31, 2013
 
 
 
Guarantor
 
Non-Guarantor
 
 
 
 
(In thousands)
Issuer
 
Subsidiaries
 
Subsidiary
 
Eliminations
 
Total
Net sales
$
344,248

 
$
114,716

 
$
6,855

 
$
(4,995
)
 
$
460,824

Cost and expenses:
 
 
 
 
 
 
 
 
 
Cost of sales
(302,351
)
 
(110,657
)
 
(6,196
)
 
4,995

 
(414,209
)
Selling, general and administrative expenses
(27,908
)
 
(5,734
)
 
(490
)
 

 
(34,132
)
Total operating costs and expenses
(330,259
)
 
(116,391
)
 
(6,686
)
 
4,995

 
(448,341
)
Income (loss) from operations
13,989

 
(1,675
)
 
169

 

 
12,483

Interest expense, net
(10,982
)
 

 

 

 
(10,982
)
Debt retirement costs
(17,058
)
 

 

 

 
(17,058
)
(Loss) earnings before income taxes
(14,051
)
 
(1,675
)
 
169

 

 
(15,557
)
Income tax benefit (provision)
14,342

 
1,213

 
(35
)
 
(845
)
 
14,675

Equity in (loss) income of subsidiary
(328
)
 
134

 

 
194

 

Net (loss) earnings
$
(37
)
 
$
(328
)
 
$
134

 
$
(651
)
 
$
(882
)
Other comprehensive income, net of tax
2,461

 

 

 

 
2,461

Comprehensive income (loss)
$
2,424

 
$
(328
)
 
$
134

 
$
(651
)
 
$
1,579


 
 
 
 
 
 
 
 
 
 

15




Clearwater Paper Corporation
Consolidating Balance Sheet
At March 31, 2014
 
(In thousands)
Issuer
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiary
 
Eliminations
 
Total
ASSETS
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash
$
21,267

 
$

 
$
2,775

 
$

 
$
24,042

Restricted cash
1,500

 

 

 

 
1,500

Short-term investments
59,000

 

 

 

 
59,000

Receivables, net
125,334

 
41,009

 
3,106

 
(397
)
 
169,052

Taxes receivable
5,674

 
(1,253
)
 
403

 
156

 
4,980

Inventories
204,803

 
58,047

 
6,399

 

 
269,249

Deferred tax assets
28,623

 
8,441

 
7

 
186

 
37,257

Prepaid expenses
9,735

 
634

 
132

 

 
10,501

Total current assets
455,936

 
106,878

 
12,822

 
(55
)
 
575,581

Property, plant and equipment, net
633,696

 
225,796

 
16,463

 

 
875,955

Goodwill
229,533

 

 

 

 
229,533

Intangible assets, net
6,008

 
30,689

 
1,106

 

 
37,803

Intercompany receivable (payable)
102,891

 
(87,026
)
 
(15,523
)
 
(342
)
 

Investment in subsidiary
187,624

 
4,921

 

 
(192,545
)
 

Pension assets
7,732

 

 

 

 
7,732

Other assets, net
8,438

 
1,147

 

 

 
9,585

TOTAL ASSETS
$
1,631,858

 
$
282,405

 
$
14,868

 
$
(192,942
)
 
$
1,736,189

LIABILITIES AND STOCKHOLDERS’
  EQUITY
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable and accrued
  liabilities
$
159,880

 
$
38,893

 
$
7,062

 
$
(397
)
 
$
205,438

Current liability for pensions and
  other postretirement employee
  benefits
8,778

 

 

 

 
8,778

Total current liabilities
168,658

 
38,893

 
7,062

 
(397
)
 
214,216

Long-term debt
650,000

 

 

 

 
650,000

Liability for pensions and other
  postretirement employee benefits
107,402

 

 

 

 
107,402

Other long-term obligations
49,728

 
1,097

 

 

 
50,825

Accrued taxes
1,440

 
919

 
318

 

 
2,677

Deferred tax liabilities
70,287

 
53,872

 
2,567

 

 
126,726

Accumulated other comprehensive loss,
  net of tax
(56,609
)
 

 

 

 
(56,609
)
Stockholders’ equity excluding
  accumulated other comprehensive loss
640,952

 
187,624

 
4,921

 
(192,545
)
 
640,952

TOTAL LIABILITIES AND
  STOCKHOLDERS’ EQUITY
$
1,631,858

 
$
282,405

 
$
14,868

 
$
(192,942
)
 
$
1,736,189



16




Clearwater Paper Corporation
Consolidating Balance Sheet
At December 31, 2013
 
(In thousands)
Issuer
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiary
 
Eliminations
 
Total
ASSETS
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash
$
18,273

 
$

 
$
5,402

 
$

 
$
23,675

Restricted cash
1,500

 

 

 

 
1,500

Short-term investments
70,000

 

 

 

 
70,000

Receivables, net
119,278

 
38,063

 
2,700

 
(1,167
)
 
158,874

Taxes receivable
3,709

 
(15,882
)
 
324

 
22,352

 
10,503

Inventories
198,476

 
65,017

 
4,295

 

 
267,788

Deferred tax assets
42,289

 
6,094

 
5

 
(10,850
)
 
37,538

Prepaid expenses
4,704

 
695

 
124

 

 
5,523

Total current assets
458,229

 
93,987

 
12,850

 
10,335

 
575,401

Property, plant and equipment, net
636,662

 
231,225

 
16,811

 

 
884,698

Goodwill
229,533

 

 

 

 
229,533

Intangible assets, net

 
39,619

 
1,159

 

 
40,778

Intercompany receivable (payable)
91,865

 
(63,932
)
 
(16,431
)
 
(11,502
)
 

Investment in subsidiary
196,763

 
5,575

 

 
(202,338
)
 

Pension assets
4,488

 

 

 

 
4,488

Other assets, net
8,772

 
1,155

 

 

 
9,927

TOTAL ASSETS
$
1,626,312

 
$
307,629

 
$
14,389

 
$
(203,505
)
 
$
1,744,825

LIABILITIES AND STOCKHOLDERS’
  EQUITY
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable and accrued
  liabilities
$
140,125

 
$
45,736

 
$
5,954

 
$
(1,167
)
 
$
190,648

Current liability for pensions and
  other postretirement employee
  benefits
8,778

 

 

 


 
8,778

Total current liabilities
148,903

 
45,736

 
5,954

 
(1,167
)
 
199,426

Long-term debt
650,000

 

 

 

 
650,000

Liability for pensions and other
  postretirement employee benefits
109,807

 

 

 

 
109,807

Other long-term obligations
51,740

 
1,202

 

 

 
52,942

Accrued taxes
1,430

 
911

 
317

 

 
2,658

Deferred tax liabilities
59,338

 
63,017

 
2,543

 

 
124,898

Accumulated other comprehensive loss,
  net of tax
(58,093
)
 

 

 

 
(58,093
)
Stockholders’ equity excluding
  accumulated other comprehensive loss
663,187

 
196,763

 
5,575

 
(202,338
)
 
663,187

TOTAL LIABILITIES AND
  STOCKHOLDERS’ EQUITY
$
1,626,312

 
$
307,629

 
$
14,389

 
$
(203,505
)
 
$
1,744,825



17




Clearwater Paper Corporation
Consolidating Statement of Cash Flows
Three Months Ended March 31, 2014
 
(In thousands)
Issuer
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiary
 
Eliminations
 
Total
CASH FLOWS FROM OPERATING
  ACTIVITIES
 
 
 
 
 
 
 
 
 
Net earnings (loss)
$
5,885

 
$
(8,485
)
 
$
(654
)
 
$
9,480

 
$
6,226

Adjustments to reconcile net earnings (loss) to
  net cash flows from operating activities:
 
 
 
 
 
 
 
 
 
Depreciation and amortization
14,121

 
7,529

 
581

 

 
22,231

Equity-based compensation expense
4,479

 

 

 

 
4,479

Impairment of assets

 
4,259

 

 

 
4,259

Deferred tax provision (benefit)
23,679

 
(11,492
)
 
22

 
(11,036
)
 
1,173

Employee benefit plans
888

 

 

 

 
888

Deferred issuance costs and discounts on
  long-term debt
475

 

 

 

 
475

Disposal of plant and equipment, net
139

 
290

 

 

 
429

Changes in working capital, net
(1,059
)
 
(3,062
)
 
(1,535
)
 

 
(5,656
)
Changes in taxes receivable, net
(1,965
)
 
(14,629
)
 
(79
)
 
22,196

 
5,523

Changes in non-current accrued taxes, net
10

 
8

 
1

 

 
19

Funding of qualified pension plans
(4,314
)
 

 

 

 
(4,314
)
Other, net
(361
)
 
(101
)
 

 

 
(462
)
Net cash flows from operating activities
41,977

 
(25,683
)
 
(1,664
)
 
20,640

 
35,270

CASH FLOWS FROM INVESTING
  ACTIVITIES
 
 
 
 
 
 
 
 
 
Changes in short-term investments, net
11,000

 

 

 

 
11,000

Additions to plant and equipment
(12,017
)
 
(4,168
)
 
(54
)
 

 
(16,239
)
Proceeds from the sale of assets
4

 
456

 

 

 
460

Net cash flows from investing activities
(1,013
)
 
(3,712
)
 
(54
)
 

 
(4,779
)
CASH FLOWS FROM FINANCING
  ACTIVITIES
 
 
 
 
 
 
 
 
 
Purchase of treasury stock
(29,332
)
 

 

 

 
(29,332
)
Investment (to) from parent
(7,846
)
 
29,395

 
(909
)
 
(20,640
)
 

Payment of tax withholdings on equity-
  based payment arrangements
(792
)
 

 

 

 
(792
)
Net cash flows from financing activities
(37,970
)
 
29,395

 
(909
)
 
(20,640
)
 
(30,124
)
Increase (decrease) in cash
2,994

 

 
(2,627
)
 

 
367

Cash at beginning of period
18,273

 

 
5,402

 

 
23,675

Cash at end of period
$
21,267

 
$

 
$
2,775

 
$

 
$
24,042


18




Clearwater Paper Corporation
Consolidating Statement of Cash Flows
Three Months Ended March 31, 2013
 
(In thousands)
Issuer
 
Guarantor Subsidiaries
 
Non-Guarantor
Subsidiary
 
Eliminations
 
Total
CASH FLOWS FROM OPERATING
  ACTIVITIES
 
 
 
 
 
 
 
 
 
Net (loss) earnings
$
(37
)
 
$
(328
)
 
$
134

 
$
(651
)
 
$
(882
)
Adjustments to reconcile net (loss) earnings to net
  cash flows from operating activities:
 
 
 
 
 
 
 
 
 
Depreciation and amortization
13,784

 
7,814

 
553

 

 
22,151

Equity-based compensation expense
4,785

 

 

 

 
4,785

Deferred tax benefit
(1,565
)
 
(11,700
)
 
(707
)
 
1,358

 
(12,614
)
Employee benefit plans
2,693

 

 

 

 
2,693

Deferred issuance costs and discounts on
  long-term debt
3,544

 

 

 

 
3,544

Changes in working capital, net
(6,301
)
 
(2,629
)
 
(938
)
 

 
(9,868
)
Changes in taxes receivable, net
7,181

 
2,291

 
(203
)
 
278

 
9,547

Changes in non-current accrued taxes, net
(3,183
)
 
5

 
1

 

 
(3,177
)
Funding of qualified pension plans
(3,026
)
 

 

 

 
(3,026
)
Other, net
420

 
(59
)
 

 

 
361

Net cash flows from operating activities
18,295

 
(4,606
)
 
(1,160
)
 
985

 
13,514

CASH FLOWS FROM INVESTING
  ACTIVITIES
 
 
 
 
 
 
 
 
 
Changes in short-term investments, net
(65,000
)
 

 

 

 
(65,000
)
Additions to plant and equipment
(16,575
)
 
(2,557
)
 
(339
)
 

 
(19,471
)
Net cash flows from investing activities
(81,575
)
 
(2,557
)
 
(339
)
 

 
(84,471
)
CASH FLOWS FROM FINANCING
  ACTIVITIES
 
 
 
 
 
 
 
 
 
Proceeds from long-term debt
275,000

 

 

 

 
275,000

Repayment of long-term debt
(150,000
)
 

 

 

 
(150,000
)
Purchase of treasury stock
(50,166
)
 

 

 

 
(50,166
)
Investment (to) from parent
(8,500
)
 
7,160

 
2,325

 
(985
)
 

Payments for long-term debt issuance costs
(4,723
)
 

 

 

 
(4,723
)
Payment of tax withholdings on equity-
  based payment arrangements
(2,195
)
 

 

 

 
(2,195
)
Net cash flows from financing activities
59,416

 
7,160

 
2,325

 
(985
)
 
67,916

(Decrease) increase in cash
(3,864
)
 
(3
)
 
826

 

 
(3,041
)
Cash at beginning of period
11,105

 
5

 
1,469

 

 
12,579

Cash at end of period
$
7,241

 
$
2

 
$
2,295

 
$

 
$
9,538




19




ITEM 2.
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
FORWARD-LOOKING STATEMENTS
Our disclosure 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 the costs and benefits associated with the closure of our Long Island, New York, and Thomaston, Georgia facilities, cash flows, capital expenditures, tax rates, operating costs, including energy costs, selling, general and administrative expenses, timing of major maintenance and repairs, liquidity, benefit plan funding, interest expenses, and the completion and results of ongoing tax audits. 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 2013 Form 10-K, as well as the following:
customer acceptance, timing and quantity of purchases of our new through-air-dried, or TAD, products;
competitive pricing pressures for our products, including as a result of increased capacity as additional manufacturing facilities are operated by our competitors;
difficulties with the optimization and realization of the benefits expected from our new TAD paper machine and converting lines in Shelby, North Carolina;
the loss of or changes in prices in regards to a significant customer;
manufacturing or operating disruptions, including equipment malfunction and damage to our manufacturing facilities caused by fire or weather-related events and IT system failures;
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 costs for and availability of packaging supplies, chemicals, energy and maintenance and repairs;
changes in customer product preferences and competitors' product offerings;
changes in expenses and required contributions associated with our pension plans;
environmental liabilities or expenditures;
changes in the U.S. and international economies and in general economic conditions in the regions and industries in which we operate;
increased supply and pricing pressures resulting from increasing Asian paper production capabilities;
cyclical industry conditions;
reliance on a limited number of third-party suppliers for raw materials;
inability to successfully implement our expansion strategies;
inability to fund our debt obligations;
restrictions on our business from debt covenants and terms;
changes in laws, regulations or industry standards affecting our business; and
our qualification to retain, or ability to utilize, tax credits associated with alternative fuels or cellulosic biofuels and the tax treatment associated with receipt of such credits.
Forward-looking statements contained in this report present management’s views only as of the date of this report. Except as required under applicable law, we do not intend to issue updates concerning any future revisions of management’s views to reflect events or circumstances occurring after the date of this report.

20




OVERVIEW
Background
Clearwater Paper Corporation is a leading North American producer of private label tissue and paperboard products. We manufacture quality consumer tissue, away-from-home tissue, parent rolls (non-converted tissue product), machine-glazed tissue, bleached paperboard and pulp at 13 manufacturing locations in the U.S. and Canada. Our private label consumer tissue products - facial and bath tissue, paper towels and napkins - are used primarily at-home and are principally sold to major retailers and wholesale distributors, which include grocery, drug, mass-merchant and discount stores