CLW-2014.9.30-10Q


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 September 30, 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 October 22, 2014 was 19,532,427.




CLEARWATER PAPER CORPORATION
Index to Form 10-Q
 
 
 
 
 
 
Page Number
 
 
 
PART I.
 
 
 
 
ITEM 1.
 
 
 
 
 
 
 
 
 
 
 
6 - 21
 
 
 
ITEM 2.
22 - 35
 
 
 
ITEM 3.
 
 
 
ITEM 4.
 
 
 
PART II.
 
 
 
 
ITEM 1.
 
 
 
ITEM 1A.
 
 
 
ITEM 2.
 
 
 
ITEM 6.
 
 
 
 




Part I
ITEM 1.
 
Consolidated Financial Statements
Clearwater Paper Corporation
Consolidated Statements of Operations
Unaudited (Dollars in thousands - except per-share amounts)
 
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2014
 
2013
 
2014
 
2013
Net sales
$
511,142

 
$
487,845

 
$
1,494,821

 
$
1,419,671

Costs and expenses:
 
 
 
 
 
 
 
Cost of sales
(434,457
)
 
(441,237
)
 
(1,295,197
)
 
(1,269,967
)
Selling, general and administrative expenses
(31,817
)
 
(27,766
)
 
(96,896
)
 
(88,665
)
Impairment of assets
(890
)
 

 
(5,149
)
 

Total operating costs and expenses
(467,164
)
 
(469,003
)
 
(1,397,242
)
 
(1,358,632
)
Income from operations
43,978

 
18,842

 
97,579

 
61,039

Interest expense, net
(9,570
)
 
(10,708
)
 
(30,992
)
 
(32,784
)
Debt retirement costs
(24,420
)
 

 
(24,420
)
 
(17,058
)
Earnings before income taxes
9,988

 
8,134

 
42,167

 
11,197

Income tax (provision) benefit
(3,735
)
 
5,183

 
(17,235
)
 
12,896

Net earnings
$
6,253

 
$
13,317

 
$
24,932

 
$
24,093

Net earnings per common share:
 
 
 
 
 
 
 
Basic
$
0.32

 
$
0.60

 
$
1.23

 
$
1.08

Diluted
0.31

 
0.60

 
1.21

 
1.07

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

2




Clearwater Paper Corporation
Consolidated Statements of Comprehensive Income
Unaudited (Dollars in thousands)
 
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2014
 
2013
 
2014
 
2013
Net earnings
$
6,253

 
$
13,317

 
$
24,932

 
$
24,093

Other comprehensive income:
 
 
 
 
 
 
 
Defined benefit pension and other postretirement employee benefits:
 
 
 
 
 
 
 
Amortization of actuarial loss included in net periodic
  cost, net of tax of $948, $1,462, $2,847, and $4,385
1,504

 
2,249

 
4,512

 
6,745

Amortization of prior service credit included in net periodic
  cost, net of tax of $(191), $(17), $(573), and $(49)
(303
)
 
(25
)
 
(907
)
 
(75
)
Curtailments, net of tax of $ -, $ -, $ - and $303

 

 

 
466

Amortization of deferred taxes related to actuarial
  gain on other postretirement employee benefit
  obligations

 
53

 

 
53

Other comprehensive income, net of tax
1,201

 
2,277

 
3,605

 
7,189

Comprehensive income
$
7,454

 
$
15,594

 
$
28,537

 
$
31,282

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


3




Clearwater Paper Corporation
Consolidated Balance Sheets
Unaudited (Dollars in thousands – except per-share amounts)
 
 
September 30,
2014
 
December 31,
2013
ASSETS
 
 
 
Current assets:
 
 
 
Cash
$
13,578

 
$
23,675

Restricted cash

 
1,500

Short-term investments

 
70,000

Receivables, net
178,175

 
158,874

Taxes receivable
2,609

 
10,503

Inventories
282,457

 
267,788

Deferred tax assets
24,864

 
37,538

Prepaid expenses
6,461

 
5,523

Total current assets
508,144

 
575,401

Property, plant and equipment, net
878,423

 
884,698

Goodwill
229,533

 
229,533

Intangible assets, net
34,589

 
40,778

Pension assets
18,656

 
4,488

Other assets, net
9,224

 
9,927

TOTAL ASSETS
$
1,678,569

 
$
1,744,825

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
Current liabilities:
 
 
 
Accounts payable and accrued liabilities
$
223,236

 
$
190,648

Short-term borrowings
47,047

 

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

 
8,778

Total current liabilities
279,061

 
199,426

Long-term debt
575,000

 
650,000

Liability for pensions and other postretirement employee benefits
103,909

 
109,807

Other long-term obligations
49,443

 
52,942

Accrued taxes
2,807

 
2,658

Deferred tax liabilities
127,393

 
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
333,871

 
326,546

Retained earnings
491,571

 
466,639

Treasury stock, at cost, common shares-4,498,388 and 2,923,640 shares repurchased
(230,000
)
 
(130,000
)
Accumulated other comprehensive loss, net of tax
(54,488
)
 
(58,093
)
Total stockholders’ equity
540,956

 
605,094

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
1,678,569

 
$
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)
 
 
Nine Months Ended
 
September 30,
 
2014
 
2013
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net earnings
$
24,932

 
$
24,093

Adjustments to reconcile net earnings to net cash flows from operating activities:
 
 
 
Depreciation and amortization
66,539

 
67,584

Equity-based compensation expense
9,201

 
7,758

Impairment of assets
5,149

 

Deferred tax provision (benefit)
12,895

 
(9,678
)
Employee benefit plans
1,603

 
7,801

Deferred issuance costs and discounts on long-term debt
5,864

 
4,490

Disposal of plant and equipment, net
747

 
35

Changes in working capital, net
(13,190
)
 
47

Changes in taxes receivable, net
7,894

 
12,448

Excess tax benefits from equity-based payment arrangements
(1,508
)
 

Changes in non-current accrued taxes, net
149

 
(10,535
)
Funding of qualified pension plans
(15,957
)
 
(12,611
)
Other, net
(2,387
)
 
108

Net cash flows from operating activities
101,931

 
91,540

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
Changes in short-term investments, net
70,000

 
(69,000
)
Additions to plant and equipment
(54,029
)
 
(54,400
)
Proceeds from sale of assets
733

 

Net cash flows from investing activities
16,704

 
(123,400
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
Proceeds from long-term debt
300,000

 
275,000

Repayment of long-term debt
(375,000
)
 
(150,000
)
Purchase of treasury stock
(100,000
)
 
(75,783
)
Changes in short-term borrowings, net
47,047

 

Payments for long-term debt issuance costs
(2,995
)
 
(4,834
)
Payment of tax withholdings on equity-based payment arrangements
(792
)
 
(4,173
)
Excess tax benefits from equity-based payment arrangements
1,508

 

Other, net
1,500

 

Net cash flows from financing activities
(128,732
)
 
40,210

(Decrease) increase in cash
(10,097
)
 
8,350

Cash at beginning of period
23,675

 
12,579

Cash at end of period
$
13,578

 
$
20,929

 
 
 
 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
 
 
 
Cash paid for interest
$
34,418

 
$
22,788

Cash paid for income taxes
6,196

 
2,400

Cash received from income tax refunds
10,496

 
820

SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING ACTIVITIES
 
 
 
Changes in accrued plant and equipment
$
3,831

 
$
8,239

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 September 30, 2014, we have incurred $15.0 million of costs associated with the closure, of which $4.7 million was incurred during the third quarter of 2014.
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 September 30, 2014, we have incurred $7.1 million of costs associated with the closure, of which less than $0.1 million was incurred during the third quarter of 2014.
FINANCIAL STATEMENT PREPARATION AND PRESENTATION
The accompanying Consolidated Balance Sheets at September 30, 2014 and December 31, 2013, the related Consolidated Statements of Operations and Comprehensive Income for the three months and nine months ended September 30, 2014 and 2013, and the Consolidated Statements of Cash Flows for the nine months ended September 30, 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 September 30, 2014, all restricted cash balances were de minimis and classified as non-current and included in "Other assets, net" on our Consolidated Balance Sheet. As of December 31, 2013, substantially all restricted cash balances were classified as current and included in "Restricted cash" on our Consolidated Balance Sheet.

6




TRADE ACCOUNTS RECEIVABLE
Trade accounts receivable are stated at the amount we expect to collect. Trade accounts receivable do not bear interest. The allowance for doubtful accounts is our best estimate of the losses we expect will result from the inability of our customers to make required payments. We generally determine the allowance based on a combination of actual historical write-off experience and an analysis of specific customer accounts. As of September 30, 2014 and December 31, 2013, we had allowances for doubtful accounts of $2.1 million and $1.9 million, respectively.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost, including any interest costs capitalized, less accumulated depreciation. Depreciation of buildings, equipment and other depreciable assets is determined using the straight-line method. Assets we acquire through business combinations have estimated lives that are typically shorter than the assets we construct or buy new. Accumulated depreciation totaled $1,465.3 million and $1,476.4 million at September 30, 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 have recorded $3.8 million of non-cash impairment charges to our accompanying Consolidated Statement of Operations in the nine months ended September 30, 2014, of which $0.9 million was recorded during the third quarter of 2014. 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 authorized 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 completed this program during the third quarter of 2014. In total, we repurchased 1,574,748 shares of our outstanding common stock at an average price of $63.50 per share, of which 382,488 shares were repurchased during the third quarter of 2014 at an average price of $67.13 per share.
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 nine months ended September 30, 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 September 30, 2014, these contracts covered approximately 69% of our expected average monthly natural gas requirements for the remainder of 2014, plus approximately 50% of our expected average monthly natural gas requirements for 2015. 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 May 2014, the Financial Accounting Standards Board, or FASB, issued Accounting Standard Update, or ASU, 2014-09, Revenue from Contracts with Customers. The core principle of the new standard is for companies to recognize revenue in a manner that depicts the transfer of goods or services to customers in amounts that reflect the consideration, or payment, to which the company expects to be entitled in exchange for those goods or services. The standard will also result in enhanced disclosures about revenue, provide guidance for transactions that were not previously addressed comprehensively, such as service revenue and contract modifications, and clarify guidance for multiple-element arrangements. This standard is effective for fiscal years and interim periods within those years beginning after December 15, 2016, with early adoption prohibited. The standard may be applied under

7




either a retrospective or cumulative effect adoption method. We are currently evaluating the impact this guidance will have on our consolidated financial statements.
In April 2014, the FASB issued ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, which amends and raises the threshold of a disposal transaction that qualifies as a discontinued operation, as well as requires additional disclosures about discontinued operations and disposals of individually significant components that do not qualify as discontinued operations. This standard is effective prospectively for all disposals of components that occur within annual periods beginning on or after December 15, 2014, and interim periods within those years, with early adoption permitted. This guidance has had no impact our consolidated financial statements.
In July 2013, the FASB issued 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 did not impact 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.
NOTE 3 Inventories
Inventories at the balance sheet dates consist of:

(In thousands)
September 30, 2014
 
December 31, 2013
Pulp, paperboard and tissue products
$
184,903

 
$
182,715

Materials and supplies
78,783

 
69,836

Logs, pulpwood, chips and sawdust
18,771

 
15,237

 
$
282,457

 
$
267,788

NOTE 4 Intangible Assets
Intangible assets at the balance sheet dates are comprised of the following:

 
September 30, 2014
(Dollars in thousands, lives in years)
Useful
Life
 
Historical
Cost
 
Accumulated
Amortization
 
Net
Balance
Customer relationships
9.0
 
$
53,957

 
$
(21,729
)
 
$
32,228

Trade names and trademarks
10.0
 
3,393

 
(1,272
)
 
2,121

Non-compete agreements
2.5 - 5.0
 
1,189

 
(949
)
 
240

 
 
 
$
58,539

 
$
(23,950
)
 
$
34,589

 
 
 
 
 
 
 
 
  
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, in the first quarter of 2014 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 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 and nine months ended September 30, 2014 and 2013, the effective tax rates attributable to continuing operations were as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2014
 
2013
 
2014
 
2013
Statutory federal income tax rate
35.0
 %
 
35.0
 %
 
35.0
 %
 
35.0
 %
State taxes, net of credits
(0.3
)
 
1.5

 
(0.3
)
 
1.5

Change in valuation allowances
2.6

 
3.5

 
2.6

 
3.5

Federal manufacturing deduction
(1.4
)
 

 
(1.4
)
 

Settlement of uncertain tax positions
(0.8
)
 
(57.3
)
 
(0.2
)
 
(41.6
)
Increase in uncertain tax positions
1.9

 

 
0.5

 

Interest accrued on uncertain tax positions
0.2

 
8.4

 
0.1

 
13.9

Cellulosic Biofuel Producer Credit conversion

 
0.2

 

 
(36.8
)
Additional Cellulosic Biofuel Producer Credits

 
(43.0
)
 

 
(81.5
)
Federal credits and audit adjustments
0.5

 

 
(0.8
)
 

State rate adjustments
(0.5
)
 
(10.5
)
 
2.3

 
(8.1
)
Return to provision adjustments
(0.1
)
 
(0.5
)
 
3.2

 
(3.9
)
Other
0.3

 
(1.0
)
 
(0.1
)
 
2.8

Effective tax rate
37.4
 %
 
(63.7
)%
 
40.9
 %
 
(115.2
)%
Our estimated annual effective tax rate for 2014 is approximately 35%, compared with approximately 39% for 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.
We have tax benefits relating to excess equity-based compensation that are being utilized to reduce our U.S. taxable income. Our Consolidated Balance Sheets reflect deferred tax assets comprised of net operating losses and tax credit carryforwards excluding amounts impacted by excess equity-based compensation. We have historically elected to follow the “with-and-without” or “incremental” method for ordering tax benefits derived from employee equity-based compensation awards. As a result of this method, net operating loss and tax credit carryforwards not generated from equity-based compensation are utilized before the current period’s equity-based tax deduction (excess tax benefits from equity-based compensation awards are recognized last). Excess tax benefits from equity-based compensation awards that are determined to reduce U.S. taxable income following this method are recognized when realized as increases to additional paid-in capital as a component of stockholders’ equity. During the nine months ended September 30, 2014, we did not generate additional excess tax benefits relating to the release of vested performance share and restricted stock unit awards to employees. For the nine months ended September 30, 2014, $1.5 million of excess tax benefits have been allocated to additional paid-in capital and reduced income taxes payable based on the incremental method. As of September 30, 2014, we had a total amount of excess tax benefits that are not recognized on our Consolidated Balance Sheet of $0.8 million.
During the nine month period ended September 30, 2014, we recorded discrete expense for a reduction in our blended state tax rate as well as adjustments to New York state specific deferred items. These changes were due to amendments we made to our New York state return filings as a result of changes in New York state tax laws. In reviewing the changes in the tax laws, we identified that, in prior years, we had not applied the proper apportionment factor when certain New York state net operating loss carryforwards were generated, which resulted in a $2.9 million overstatement. We corrected this in the second quarter of 2014 by including the overstatement as a discrete item within state rate adjustments due to immateriality.
During the fourth quarter of 2012, the Internal Revenue Service, or IRS, commenced an audit of our tax returns for the tax years ending December 31, 2008 through December 31, 2012. The audit was finalized during the third quarter of 2014. As a result, we recognized an additional deferred tax asset of $1.5 million for the nine months ended September 30, 2014. The impact of these de minimis federal audit changes are included in the nine months ended September 30, 2014.

9




During the second quarter of 2013, the IRS commenced an audit of our wholly-owned subsidiary, Cellu Tissue Holdings, Inc., or Cellu Tissue, and its subsidiaries for the year ended December 27, 2010, the period immediately before our acquisition of Cellu Tissue. During the first quarter of 2014, we successfully closed the audit of Cellu Tissue. The impact of these de minimis federal audit changes are included in the nine months ended September 30, 2014.
NOTE 6 Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities at the balance sheet dates consist of:
(In thousands)
September 30, 2014
 
December 31, 2013
Trade accounts payable
$
135,326

 
$
108,192

Accrued wages, salaries and employee benefits
43,527

 
38,563

Accrued discounts and allowances
9,340

 
6,410

Accrued taxes other than income taxes payable
8,693

 
6,322

Accrued utilities
7,515

 
8,309

Accrued interest
5,017

 
9,691

Other
13,818

 
13,161

 
$
223,236

 
$
190,648

NOTE 7 Debt
ISSUANCE OF $300 MILLION SENIOR NOTES DUE 2025 AND REDEMPTION OF $375 MILLION SENIOR NOTES DUE 2018
On July 29, 2014 we issued $300 million aggregate principal amount of senior notes, which we refer to as the 2014 Notes. The 2014 Notes mature on February 1, 2025, have an interest rate of 5.375% and were issued at their face value. The issuance of these notes generated net proceeds of approximately $298 million after deducting offering expenses. We redeemed all of our $375 million aggregate principal amount of senior notes issued on October 22, 2010, which we refer to as the 2010 Notes, using the net proceeds from the 2014 Notes along with company funds and $37 million drawn from our senior secured revolving credit facility during the third quarter of 2014.
The 2010 Notes had a maturity date of November 1, 2018, and an interest rate of 7.125%. On August 28, 2014, we redeemed all of the 2010 Notes at a redemption price equal to 100% of the principal amount of $375 million and a “make whole” premium of $17.6 million plus accrued and unpaid interest of $8.7 million, for an aggregate amount of $401.3 million. The make whole premium and a portion of the unpaid interest, as well as a $4.6 million non-cash charge relating to the unamortized deferred issuance costs associated with the 2010 Notes, were recorded as components of debt retirement costs and included in the Consolidated Statement of Operations in the third quarter of 2014.
The 2014 Notes are guaranteed by all of our direct and indirect domestic subsidiaries. The 2014 Notes will also be guaranteed by each of our future direct and indirect domestic subsidiaries that do not constitute an immaterial subsidiary under the indenture governing the 2014 Notes. The 2014 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. The 2014 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 2014 Notes limit our ability and the ability of any restricted subsidiaries to incur certain liens, engage in sale and leaseback transactions and consolidate, merge with, or convey, transfer or lease substantially all of our or their assets to another person.
We may, on any one or more occasions, redeem all or a part of the 2014 Notes, upon not less than 30 days nor more than 60 days notice, at a redemption price equal to 100% of the principal amount of the 2014 Notes redeemed, plus the applicable premium as of, and accrued and unpaid interest, if any, to the date of redemption. Unless we default in the payment of the redemption price, interest will cease to accrue on the 2014 Notes or portions thereof called for redemption on the applicable redemption date. In addition, we may be required to make an offer to purchase the 2014 Notes upon the sale of certain assets and upon a change of control.

10




$275 MILLION SENIOR NOTES DUE 2023
On January 23, 2013, we issued $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 issued at their face value.
The 2013 Notes are 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 indenture governing these notes. The 2013 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, they 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 or their assets.
SENIOR SECURED 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 September 30, 2014, we had $47.0 million of borrowings outstanding under the credit facility, and $7.9 million of the credit facility was also 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 September 30, 2014, we would have been permitted to draw an additional $70.1 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 September 30, 2014, the fixed charge coverage ratio for the most recent four quarters was 1.5-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)
September 30, 2014
 
December 31, 2013
Long-term lease obligations, net of current portion
$
24,549

 
$
24,815

Deferred compensation
12,764

 
14,149

Deferred proceeds
9,721

 
11,205

Other
2,409

 
2,773

 
$
49,443

 
$
52,942


11




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

 
3,605

 
3,605

Balance at September 30, 2014
$
(874
)
 
$
(53,614
)
 
$
(54,488
)
 
 
 
 
 
 
(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

 
7,189

 
7,189

Balance at September 30, 2013
$
(874
)
 
$
(107,630
)
 
$
(108,504
)
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 nine months ended September 30, 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 $7.4 million and $11.1 million, respectively, of actuarial loss amortization, $1.5 million and $0.1 million, respectively, of prior service credit amortization, and none and $0.8 million, respectively, of curtailments, all net of tax totaling $2.3 million and $4.6 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 September 30,
(In thousands)
2014
 
2013
 
2014
 
2013
 
Pension Benefit Plans
 
Other Postretirement
Employee  Benefit Plans
Service cost
$
347

 
$
435

 
$
114

 
$
138

Interest cost
3,707

 
3,343

 
1,142

 
1,182

Expected return on plan assets
(5,049
)
 
(4,588
)
 

 

Amortization of prior service cost (credit)
51

 
83

 
(545
)
 
(125
)
Amortization of actuarial loss (gain)
2,524

 
3,711

 
(72
)
 

Net periodic cost
$
1,580

 
$
2,984

 
$
639

 
$
1,195

 
Nine Months Ended September 30,
(In thousands)
2014
 
2013
 
2014
 
2013
 
Pension Benefit Plans
 
Other Postretirement
Employee  Benefit Plans
Service cost
$
1,042

 
$
1,304

 
$
340

 
$
414

Interest cost
11,119

 
10,031

 
3,424

 
3,547

Expected return on plan assets
(15,147
)
 
(13,764
)
 

 

Amortization of prior service cost (credit)
154

 
252

 
(1,634
)
 
(376
)
Amortization of actuarial loss (gain)
7,573

 
11,130

 
(214
)
 

Curtailments

 
769

 

 

Net periodic cost
$
4,741

 
$
9,722

 
$
1,916

 
$
3,585

We are required to make contributions to our qualified pension plans. During the nine months ended September 30, 2014, we contributed $16.0 million to these pension plans. In October 2014, we contributed an additional $1.0 million, and we do not expect to make any additional contributions in the remainder of 2014.

12




During the nine months ended September 30, 2014, we made contributions of $0.4 million to our company-sponsored non-qualified pension plan, and we estimate contributions will total $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 and nine months ended September 30, 2014, $1.6 million and $4.9 million, respectively, of net periodic pension and OPEB costs were charged to cost of sales, and $0.6 million and $1.7 million, respectively, were charged to selling, general and administrative expenses in the accompanying Consolidated Statements of Operations. During the three and nine months ended September 30, 2013, $3.4 million and $10.9 million, respectively, of net periodic pension and OPEB costs were charged to cost of sales, and $0.8 million and $2.4 million, respectively, were charged to selling, general and administrative expenses in the accompanying Consolidated Statements of Operations.
NOTE 11 Earnings per Common Share
Basic earnings per share are based on the weighted average number of shares of common stock outstanding. Diluted earnings per share are based upon the weighted average number of shares of common stock outstanding plus all potentially dilutive securities that were assumed to be converted into common shares at the beginning of the period under the treasury stock method.
The following table reconciles the number of common shares used in calculating the basic and diluted net earnings per share:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2014
 
2013
 
2014
 
2013
Basic average common shares outstanding1
19,755,095

 
22,026,879

 
20,321,808

 
22,388,930

Incremental shares due to:
 
 
 
 
 
 
 
Restricted stock units
88,262

 
69,902

 
81,304

 
61,956

Performance shares
256,303

 
131,092

 
255,509

 
114,369

Diluted average common shares outstanding
20,099,660

 
22,227,873

 
20,658,621

 
22,565,255

 
 
 
 
 
 
 
 
Basic net earnings per common share
$
0.32

 
$
0.60

 
$
1.23

 
$
1.08

Diluted net earnings per common share
0.31

 
0.60

 
1.21

 
1.07

 
 
 
 
 
 
 
 
Anti-dilutive shares excluded from calculation
181,851

 
1,434

 
231,469

 
106,265

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 September 30,
 
Nine Months Ended September 30,
(In thousands)
2014
 
2013
 
2014
 
2013
Restricted stock units
$
593

 
$
462

 
$
1,625

 
$
1,326

Performance shares
1,473

 
1,354

 
4,028

 
3,741

Stock options
410

 

 
953

 

Total employee equity-based compensation
$
2,476

 
$
1,816

 
$
6,606

 
$
5,067

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.

13




In addition to RSUs and performance shares, in 2014 stock options were granted to certain employees. As of September 30, 2014, total stock options of 163,137 shares were granted with a weighted-average exercise price of $66.86 and a fair value, estimated under the Black-Scholes valuation model, of $22.99 per share underlying the option.
The following table summarizes the number of share-based awards granted under the Clearwater Paper Corporation 2008 Stock Incentive Plan during the nine months ended September 30, 2014 and the grant-date fair value of the awards:
 
 
Nine Months Ended
 
September 30, 2014
 
Number of
Shares Subject to Award
 
Average Fair Value of
Award Per Share
Restricted stock units
31,567

 
$
66.33

Performance shares
54,379

 
105.08

Stock options
163,137

 
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 a benefit from director equity-based compensation of $0.2 million and compensation expense of $0.4 million for the three months ended September 30, 2014 and 2013, respectively. For the nine months ended September 30, 2014 and 2013, we recorded director equity-based compensation expense of $2.6 million and $2.7 million, respectively.
As of September 30, 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 $11.7 million and $1.2 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:
 
 
September 30,
 
December 31,
 
2014
 
2013
 
Carrying
 
Fair
 
Carrying
 
Fair
(In thousands)
Amount
 
Value
 
Amount
 
Value
Cash, restricted cash and short-term investments (Level 1)
$
13,609

 
$
13,609

 
$
95,206

 
$
95,206

Short-term borrowings (Level 1)
47,047

 
47,047

 

 

Long-term debt (Level 1)
575,000

 
555,125

 
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.

14




NOTE 14 Segment Information
The table below presents information about our reportable segments:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(In thousands)
2014
 
2013
 
2014
 
2013
Segment net sales1:
 
 
 
 
 
 
 
Consumer Products
$
306,104

 
$
292,935

 
$
891,742

 
$
867,545

Pulp and Paperboard
205,038

 
194,910

 
603,079

 
552,126

Total segment net sales
$
511,142

 
$
487,845

 
$
1,494,821

 
$
1,419,671

 
 
 
 
 
 
 
 
Operating income (loss):
 
 
 
 
 
 
 
Consumer Products
$
12,535

 
$
13,445

 
$
24,717

 
$
38,384

Pulp and Paperboard
45,602

 
16,289

 
116,013

 
58,614

 
58,137

 
29,734

 
140,730

 
96,998

Corporate
(14,159
)
 
(10,892
)
 
(43,151
)
 
(35,959
)
Income from operations
$
43,978

 
$
18,842

 
$
97,579

 
$
61,039

 
 
 
 
 
 
 
 
Depreciation and amortization:
 
 
 
 
 
 
 
Consumer Products
$
15,484

 
$
16,002

 
$
46,045

 
$
49,124

Pulp and Paperboard
5,939

 
5,758

 
18,228

 
17,195

Corporate
870

 
420

 
2,266

 
1,265

Total depreciation and amortization
$
22,293

 
$
22,180

 
$
66,539

 
$
67,584

1 
In 2013, pulp not utilized internally was sold by the Pulp and Paperboard segment to external customers resulting in net sales of $0.4 million and $2.5 million, respectively, during the three and nine months ended September 30, 2013. Commencing in 2014, the majority of excess pulp is sold by the Consumer Products segment and totaled $1.6 million, of which $0.9 million was sold during the third quarter.


15




NOTE 15 Supplemental Guarantor Financial Information
All of our directly and indirectly owned, domestic subsidiaries guarantee the 2014 Notes and the 2013 Notes on a joint and several basis. As of September 30, 2014, the 2014 Notes and 2013 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 2014 Notes and 2013 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 (Loss)
Three Months Ended September 30, 2014
 
 
 
Guarantor
 
Non-Guarantor
 
 
 
 
(In thousands)
Issuer
 
Subsidiaries
 
Subsidiary
 
Eliminations
 
Total
Net sales
$
415,175

 
$
132,797

 
$
14,429

 
$
(51,259
)
 
$
511,142

Cost and expenses:
 
 
 
 
 
 
 
 
 
Cost of sales
(345,825
)
 
(126,547
)
 
(13,344
)
 
51,259

 
(434,457
)
Selling, general and administrative expenses
(26,136
)
 
(5,343
)
 
(338
)
 

 
(31,817
)
Impairment of assets

 
(890
)
 

 

 
(890
)
Total operating costs and expenses
(371,961
)
 
(132,780
)
 
(13,682
)
 
51,259

 
(467,164
)
Income from operations
43,214

 
17

 
747

 

 
43,978

Interest expense, net
(9,565
)
 
(5
)
 

 

 
(9,570
)
Debt retirement costs
(24,420
)
 

 

 

 
(24,420
)
Earnings before income taxes
9,229

 
12

 
747

 

 
9,988

Income tax (provision) benefit
(5,489
)
 
90

 
(189
)
 
1,853

 
(3,735
)
Equity in income of subsidiary
660

 
558

 

 
(1,218
)
 

Net earnings
$
4,400

 
$
660

 
$
558

 
$
635

 
$
6,253

Other comprehensive income, net of tax
1,201

 

 

 

 
1,201

Comprehensive income
$
5,601

 
$
660

 
$
558

 
$
635

 
$
7,454

Clearwater Paper Corporation
Consolidating Statement of Operations and Comprehensive Income (Loss)
Nine Months Ended September 30, 2014
 
 
 
Guarantor
 
Non-Guarantor
 
 
 
 
(In thousands)
Issuer
 
Subsidiaries
 
Subsidiaries
 
Eliminations
 
Total
Net sales
$
1,201,662

 
$
405,442

 
$
41,493

 
$
(153,776
)
 
$
1,494,821

Cost and expenses:
 
 
 
 
 
 
 
 
 
Cost of sales
(1,006,119
)
 
(403,750
)
 
(39,104
)
 
153,776

 
(1,295,197
)
Selling, general and administrative expenses
(79,702
)
 
(16,180
)
 
(1,014
)
 

 
(96,896
)
Impairment of assets

 
(5,149
)
 

 

 
(5,149
)
Total operating costs and expenses
(1,085,821
)
 
(425,079
)
 
(40,118
)
 
153,776

 
(1,397,242
)
Income (loss) from operations
115,841

 
(19,637
)
 
1,375

 

 
97,579

Interest expense, net
(30,969
)
 
(23
)
 

 

 
(30,992
)
Debt retirement costs
(24,420
)
 

 

 

 
(24,420
)
Earnings (loss) before income taxes
60,452

 
(19,660
)
 
1,375

 

 
42,167

Income tax (provision) benefit
(26,238
)
 
3,787

 
(373
)
 
5,589

 
(17,235
)
Equity in (loss) income of subsidiary
(14,871
)
 
1,002

 

 
13,869

 

Net earnings (loss)
$
19,343

 
$
(14,871
)
 
$
1,002

 
$
19,458

 
$
24,932

Other comprehensive income, net of tax
3,605

 

 

 

 
3,605

Comprehensive income (loss)
$
22,948

 
$
(14,871
)
 
$
1,002

 
$
19,458

 
$
28,537


16




Clearwater Paper Corporation
Consolidating Statement of Operations and Comprehensive Income (Loss)
Three Months Ended September 30, 2013
 
 
 
Guarantor
 
Non-Guarantor
 
 
 
 
(In thousands)
Issuer
 
Subsidiaries
 
Subsidiary
 
Eliminations
 
Total
Net sales
$
363,735

 
$
139,988

 
$
16,417

 
$
(32,295
)
 
$
487,845

Cost and expenses:
 
 
 
 
 
 
 
 
 
Cost of sales
(321,695
)
 
(135,291
)
 
(16,546
)
 
32,295

 
(441,237
)
Selling, general and administrative expenses
(24,983
)
 
(2,468
)
 
(315
)
 

 
(27,766
)
Total operating costs and expenses
(346,678
)
 
(137,759
)
 
(16,861
)
 
32,295

 
(469,003
)
Income (loss) from operations
17,057

 
2,229

 
(444
)
 

 
18,842

Interest expense, net
(10,708
)
 

 

 

 
(10,708
)
Earnings (loss) before income taxes
6,349

 
2,229

 
(444
)
 

 
8,134

Income tax benefit (provision)
5,233

 
(2,513
)
 
109

 
2,354

 
5,183

Equity in loss of subsidiary
(619
)
 
(335
)
 

 
954

 

Net earnings (loss)
$
10,963

 
$
(619
)
 
$
(335
)
 
$
3,308

 
$
13,317

Other comprehensive income, net of tax
2,277

 

 

 

 
2,277

Comprehensive income (loss)
$
13,240

 
$
(619
)
 
$
(335
)
 
$
3,308

 
$
15,594

Clearwater Paper Corporation
Consolidating Statement of Operations and Comprehensive Income (Loss)
Nine Months Ended September 30, 2013  
 
 
 
Guarantor
 
Non-Guarantor
 
 
 
 
(In thousands)
Issuer
 
Subsidiaries
 
Subsidiaries
 
Eliminations
 
Total
Net sales
$
1,070,426

 
$
399,086

 
$
47,040

 
$
(96,881
)
 
$
1,419,671

Cost and expenses:
 
 
 
 
 
 
 
 
 
Cost of sales
(934,003
)
 
(387,112
)
 
(45,733
)
 
96,881

 
(1,269,967
)
Selling, general and administrative expenses
(70,102
)
 
(17,092
)
 
(1,471
)
 

 
(88,665
)
Total operating costs and expenses
(1,004,105
)
 
(404,204
)
 
(47,204
)
 
96,881

 
(1,358,632
)
Income (loss) from operations
66,321

 
(5,118
)
 
(164
)
 

 
61,039

Interest expense, net
(32,784
)
 

 

 

 
(32,784
)
Debt retirement costs
(17,058
)
 

 

 

 
(17,058
)
Earnings (loss) before income taxes
16,479

 
(5,118
)
 
(164
)
 

 
11,197

Income tax benefit (provision)
10,388

 
(3,821
)
 
75

 
6,254

 
12,896

Equity in loss of subsidiary
(9,028
)
 
(89
)
 

 
9,117

 

Net earnings (loss)
$
17,839

 
$
(9,028
)
 
$
(89
)
 
$
15,371

 
$
24,093

Other comprehensive income, net of tax
7,189

 

 

 

 
7,189

Comprehensive income (loss)
$
25,028

 
$
(9,028
)
 
$
(89
)
 
$
15,371

 
$
31,282


17




Clearwater Paper Corporation
Consolidating Balance Sheet
At September 30, 2014
 
(In thousands)
Issuer
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiary
 
Eliminations
 
Total
ASSETS
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash
$
11,229

 
$

 
$
2,349

 
$

 
$
13,578

Receivables, net
133,536

 
39,933

 
5,879

 
(1,173
)
 
178,175

Taxes receivable
1,216

 
(3,152
)
 
225

 
4,320

 
2,609

Inventories
222,155

 
53,623

 
6,679

 

 
282,457

Deferred tax assets
17,382

 
6,214

 
(2
)
 
1,270

 
24,864

Prepaid expenses
5,703

 
703

 
55

 

 
6,461

Total current assets
391,221

 
97,321

 
15,185

 
4,417

 
508,144

Property, plant and equipment, net
640,139

 
222,283

 
16,001

 

 
878,423

Goodwill
229,533

 

 

 

 
229,533

Intangible assets, net
5,485

 
28,105

 
999

 

 
34,589

Intercompany receivable (payable)
91,695

 
(72,483
)
 
(13,622
)
 
(5,590
)
 

Investment in subsidiary
182,894

 
6,577

 

 
(189,471
)
 

Pension assets
18,656

 

 

 

 
18,656

Other assets, net
7,846

 
1,378

 

 

 
9,224

TOTAL ASSETS
$
1,567,469

 
$
283,181

 
$
18,563

 
$
(190,644
)
 
$
1,678,569

LIABILITIES AND STOCKHOLDERS’
  EQUITY
 
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable and accrued
  liabilities
$
173,395

 
$
41,838

 
$
9,176

 
$
(1,173
)
 
$
223,236

Short-term borrowings
47,047

 

 

 

 
47,047

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

 

 

 

 
8,778

Total current liabilities
229,220

 
41,838

 
9,176

 
(1,173
)
 
279,061

Long-term debt
575,000

 

 

 

 
575,000

Liability for pensions and other
  postretirement employee benefits
103,909

 

 

 

 
103,909

Other long-term obligations
48,466

 
977

 

 

 
49,443

Accrued taxes
1,650

 
851

 
306

 

 
2,807

Deferred tax liabilities
68,268

 
56,621

 
2,504

 

 
127,393

Accumulated other comprehensive loss,
  net of tax
(54,488
)
 

 

 

 
(54,488
)
Stockholders’ equity excluding
  accumulated other comprehensive loss
595,444

 
182,894

 
6,577

 
(189,471
)
 
595,444

TOTAL LIABILITIES AND
  STOCKHOLDERS’ EQUITY
$
1,567,469

 
$
283,181

 
$
18,563

 
$
(190,644
)
 
$
1,678,569



18




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